2026 MARKET TRENDS

Provider Contracting/ Specialty

Key Takeaways

Hospital and facility costs for commercial customers remain significantly higher than Medicare, with wide variation and limited visibility into treatment quality and health outcomes
Specialty drug and infusion spend remains highly concentrated, site-of-care sensitive and a significant cost driver for employers
Provider consolidation continues to increase negotiating leverage, accelerating the need for outcome-based and episode-focused contracting
Pharmacy contracting models continue to shift toward acquisition cost–based pricing in response to regulatory and market pressure

As costs rise, employers increasingly seek visibility into quality, patient journeys and outcomes, yet most carriers continue to offer pricing data without comprehensive episode-level insight.

Overview

Rising provider costs, concentrated specialty spend and continued consolidation are reshaping employer/provider contracting strategies. Hospital and facility costs remain well above Medicare levels, while employers face ongoing challenges accessing meaningful data on quality, outcomes and total cost of care. At the same time, specialty drugs and infusions represent a disproportionate share of healthcare spend, with significant cost variation by site-of-care.

These pressures are prompting employers to move beyond traditional contracting approaches that rely solely on discounts or unit price reductions. As consolidation reduces leverage and regulatory changes alter pharmacy pricing models, employers are increasingly focusing on value, outcomes and total episode cost across both medical and pharmacy benefits.

Hospital Pricing Pressure and Limited Outcome Visibility

Commercial health plans (e.g., employer-sponsored plans) continue to pay hospitals two to three times Medicare rates on average, with variation by market. In 2026, this dynamic is expected to intensify as Medicare and Medicaid payment reductions place additional pressure on hospital finances. As costs rise, employers increasingly seek visibility into quality, patient journeys and outcomes, yet most carriers continue to offer pricing data without comprehensive episode-level insight.

Limited access to journey-level outcomes data forces employers to rely on unit price as the primary metric for comparing providers. This reliance makes it difficult to distinguish high-priced providers that deliver strong outcomes from those that do not. As a result, price variation remains the most actionable indicator for identifying savings opportunities in many markets.

Most employers lack standardized journey analytics, making unit price the primary tool for identifying variation and potential savings.

Employers can request episode-level reporting from carriers, including complications, readmissions, total episode cost and guideline adherence. When journey-level data remains unavailable, employers can use unit price benchmarks, such as percent of Medicare, to guide care steering decisions.

Specialty Drugs, Infusions and Site-of-Care Sensitivity

Specialty drugs account for roughly half of total drug spend while representing only four to five percent of prescriptions. Many high-cost specialty therapies, particularly in oncology and autoimmune conditions, are billed under both medical and pharmacy benefits. Prices for the same drug often vary significantly by site-of-care, including hospital outpatient departments, physician offices and home or ambulatory infusion settings.

A small number of drugs, categories and providers drive a disproportionate share of employer spend. In many cases, the site where a drug is administered can double or triple the cost without improving outcomes. This reality makes specialty contracting inseparable from site-of-care and infusion strategy.

Specialty spend concentrates among a small number of drugs and providers, with site-of-care decisions often driving larger cost differences than drug selection alone.

Employers can request a specialty ‘top 20’ analysis that includes drugs, sites-of-care and providers across both medical and pharmacy benefits. Contracts can also include site-of-care redirection protocols that default to lower-cost settings when clinically appropriate.

Provider Consolidation and the Shift Toward Outcome-Based Contracting

Physician employment continues to rise, with approximately three-quarters of physicians now employed and more than half of practices owned by hospitals or corporate entities, according to the National Institutes of Health (NIH). Consolidation increases provider pricing power without consistently improving outcomes or reducing complications. As negotiating leverage shifts, traditional discount-based contracting becomes less effective.

Employers increasingly respond by steering care to centers of excellence for specific conditions and procedures. This shift reflects growing recognition that contracts based solely on volume or unit price fail to align cost with quality in highly consolidated markets.

Provider consolidation reduces employer leverage and increases the need for contracts tied to outcomes and total episode cost rather than discounts off charges.

Employers can require carriers to report episode-level performance metrics such as complications, readmissions and total episode spend. Value-based or episode-based contracts can target high-cost specialties including orthopedics, oncology, cardiology and musculoskeletal care. When full journey metrics remain unavailable, employers can rely on cost-per-episode proxies, clinical pathway adherence and percent of Medicare to tier provider systems.

PBM Regulation and the Evolution of Pharmacy Contracting

State legislative activity in Arkansas, Alabama, California, Indiana and other states continues to target PBMs. Common themes include anti-steerage rules, elimination of spread pricing, mandatory rebate pass-through and movement toward acquisition cost pricing. These efforts often reflect retail pharmacy and wholesaler interests and may not align with employer priorities.

Some regulations may increase costs, disrupt care and reduce employer control, particularly where state action attempts to preempt ERISA. At the same time, PBMs are responding with new pricing models, including offerings that reduce or eliminate rebates. While these models address certain transparency concerns, they do not resolve all challenges related to cost, access and care coordination.

Regulatory pressure continues to reshape PBM pricing models, creating both risks and opportunities depending on contract structure and strategy.

Employers can explore acquisition cost–based pricing models aimed at achieving the lowest net cost. Understanding the pharmacy supply chain and vendor incentives remains critical. Pricing alone does not define value, and employers should evaluate site-of-care, clinical outcomes, access and member experience, alongside financial terms.

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