How Do Anticompetitive Contract Clauses Affect Health Care Costs?

Sinaiko (2026) examines how contracts between health insurers and health care providers affect competition in health care markets. She asks whether contract provisions help insurers lower prices and improve competition or allow dominant provider systems to preserve market power. Drawing on evidence from prior studies, antitrust cases, insurer-provider contracts, and health care market data, she finds that selective contracting, tiered networks, and reference-based pricing can reduce spending and steer patients to lower-cost providers. For example, tiered networks lowered medical spending by about 5%, while some reference-pricing programs reduced spending by up to 20%. In contrast, anticompetitive clauses increased prices, with some hospital systems charging roughly 30% more than competitors.

Why This Article Was Selected for The Policy Scientist

The relationship between competition and market power in health care remains one of the most important policy issues affecting costs, access, and the performance of health systems. As provider consolidation continues and health care spending consumes a growing share of economic output, understanding how contracts shape competition has become increasingly timely. Sinaiko (2026), who has contributed extensively to the literature on health care prices, provider networks, and insurance design, provides a valuable synthesis of this issue. The article builds on a large body of research examining provider market power while focusing attention on contractual mechanisms that receive less public attention. The evidence reviewed draws from high-quality administrative claims data, insurer contracts, and antitrust cases. Because the article is primarily a review and synthesis rather than an original causal study, its conclusions depend on the strength of the underlying research. Many of the cited studies employ credible quasi-experimental designs, although additional causal inference research would further strengthen understanding of these relationships. The findings are likely relevant to many health care markets characterized by concentrated providers and insurer-provider bargaining.

Full Citation and Link to Article

Sinaiko, A. D. (2026). Anticompetitive contracts between insurers and providers in health care. Journal of Economic Perspectives, 40(2), 69–92. https://doi.org/10.1257/jep.20251471

Central Research Question

This article examines how contracts between private health insurers and health care providers influence competition in health care markets. Anna Sinaiko asks whether insurer-provider contracting arrangements promote competition by lowering prices and steering patients toward efficient providers or whether certain contractual provisions enable dominant provider systems to preserve and extend market power. The article focuses particularly on four categories of potentially anticompetitive contract provisions: anti-tiering clauses, anti-steering clauses, all-or-nothing clauses, and most-favored-nation clauses. The central question is important because private insurance covers more than 200 million Americans, and the structure of insurer-provider contracts directly affects health care prices, insurance premiums, and consumer welfare.

The article also considers the policy implications of these contractual arrangements. Specifically, Sinaiko evaluates whether regulatory interventions can preserve the competitive benefits of insurer-provider bargaining while limiting the ability of dominant providers to use contracts to reduce competition.

Previous Literature

The article builds upon several decades of research examining health insurance markets, provider market power, and managed care. Earlier theoretical work by Arrow (1963) and Cutler and Zeckhauser (2000) established the role of insurance in protecting consumers against financial risk. Subsequent research expanded attention to the role insurers play in negotiating prices and organizing provider networks.

A major body of literature examined selective contracting and managed care during the 1980s and 1990s. Studies by Vistnes (2000), Dranove, Shanley, and White (1993), and others demonstrated how insurers could create competition among providers by threatening exclusion from provider networks. This literature suggested that managed care organizations could reduce prices by steering patients toward lower-cost providers.

The article also draws upon a substantial literature examining provider consolidation and market power. Research by Gaynor, Ho, and Town (2015), Dafny, Ho, and Lee (2019), and others documented that hospital mergers, physician consolidation, and vertical integration generally increase negotiated prices. These studies established that concentrated provider markets often weaken insurers’ bargaining power.

Sinaiko contributes to this literature by synthesizing evidence on contractual mechanisms that operate between insurers and providers. While prior studies often focused on market structure, mergers, or insurance design, this article emphasizes the specific contractual provisions through which market power may be exercised. The paper therefore connects several previously separate strands of literature involving managed care, provider consolidation, antitrust policy, and health insurance benefit design.

Data

The article is a synthesis and review rather than an original empirical study. Consequently, it draws upon a wide range of data sources used in prior research. These include commercial insurance claims databases, employer-sponsored insurance enrollment data, hospital pricing data, insurer-provider contracts disclosed through antitrust litigation, state and national health insurance surveys, and administrative records from public agencies.

Several of the studies reviewed rely on exceptionally rich administrative claims data. For example, analyses of managed care pricing used claims from large employers and statewide hospital databases. Other studies examined detailed transaction-level data on hospital procedures, imaging services, laboratory testing, and physician visits. The article also relies on evidence generated through antitrust investigations involving major provider systems such as Sutter Health and Atrium Health.

The breadth of evidence strengthens the article because findings emerge from multiple data sources and institutional settings. Rather than relying on a single dataset, the paper synthesizes evidence from numerous studies conducted across different states, provider markets, and insurance arrangements. This diversity increases confidence that the patterns described are not unique to a particular geographic area or insurer.

Methods

Because this article is a Journal of Economic Perspectives review essay, its primary methodology is synthesis and evaluation of existing empirical research. Sinaiko does not estimate new statistical models. Instead, she summarizes findings from prior studies and evaluates their implications for competition policy.

The underlying studies employ a variety of research designs. Some use descriptive analyses of insurance markets and provider pricing. Others use quasi-experimental methods that exploit policy changes, differences in benefit design, or natural experiments. Examples include evaluations of tiered provider networks, reference pricing programs, and changes in managed care arrangements.

Several of the stronger studies reviewed approach causal inference by comparing outcomes before and after policy changes while using comparison groups that were not exposed to those interventions. These designs provide more credible evidence regarding the effects of selective contracting, reference pricing, and tiered networks. However, few studies rely on randomized controlled trials, which remain uncommon in health care market research because of practical and ethical constraints.

The article itself should therefore be viewed as a policy synthesis rather than a causal analysis. Its conclusions depend on the quality of the underlying studies. Overall, the evidence base includes a mixture of descriptive, quasi-experimental, and observational research. Future work could strengthen understanding of these issues through additional causal inference designs that isolate the effects of specific contractual provisions on prices, utilization, and market competition.

Findings/Size Effects

The article identifies substantial evidence that insurer-provider contracting can promote competition and reduce health care spending. Selective contracting allows insurers to reward providers with patient volume in exchange for lower prices. This mechanism creates incentives for providers to compete for inclusion in insurance networks.

One important finding comes from studies comparing health maintenance organizations (HMOs) with traditional indemnity insurance. Research reviewed in the article found that HMOs paid approximately 40 percent less for certain heart disease treatments than indemnity plans while achieving similar treatment rates and health outcomes. These results demonstrate the ability of managed care organizations to negotiate lower prices through network design.

The article also reviews evidence regarding tiered provider networks. In one study, physicians placed in the least preferred tier experienced an 11 percent decline in new patient market share. Other studies found that tiered network plans reduced total medical spending by approximately 5 percent relative to plans without provider tiers. These findings suggest that consumers respond to financial incentives embedded in insurance benefit design.

Reference-based pricing produced even larger effects in some settings. Programs targeting elective procedures such as joint replacement surgery shifted patients toward lower-cost hospitals and generated substantial spending reductions. Modeling exercises suggested that reference pricing could potentially reduce spending on applicable services by as much as 20 percent. Evidence also indicates that providers sometimes responded by lowering their own prices to remain competitive.

In contrast, the article finds that certain contractual provisions weaken competition and raise prices. All-or-nothing clauses prevent insurers from selectively contracting with only some facilities in a health system. Evidence from litigation involving Sutter Health suggested that hospitals protected by these clauses charged prices approximately 30 percent higher than comparable hospitals.

The article also identifies anti-tiering and anti-steering provisions as barriers to competition because they restrict insurers’ ability to direct patients toward lower-cost providers. Most-favored-nation clauses can further inhibit price competition by preventing competing insurers from negotiating lower prices.

Overall, the evidence indicates that contract design substantially influences health care market outcomes. Competitive contracting arrangements lower prices and spending, whereas anticompetitive provisions tend to preserve provider market power and maintain higher prices.

Conclusion

Sinaiko concludes that insurer-provider contracts represent an important but often overlooked mechanism through which competition is either promoted or restricted in health care markets. Insurers possess tools such as selective contracting, tiered networks, and reference pricing that can encourage providers to compete on price. However, dominant provider systems may use contractual provisions to neutralize these competitive pressures.

The article argues that policymakers should pay greater attention to the role of contract terms in shaping market outcomes. Existing evidence suggests that anticompetitive clauses can undermine the benefits of insurer competition and contribute to higher health care prices. At the same time, complementary policies such as transparency requirements and surprise billing protections may enhance the effectiveness of competitive contracting strategies.

The article’s primary contribution is its integration of evidence across multiple strands of research. By focusing on contracts rather than solely on market concentration, Sinaiko highlights a set of mechanisms that directly influence prices and competition. The findings are broadly applicable to health care systems characterized by insurer-provider bargaining and concentrated provider markets, making the article relevant to a wide range of policy contexts.