The June 2026 issue of CAP TODAY features an article on pathology business economics by Dr Thomas Mezzetti. He cites a 2025 AMA study on health insurance consolidation, and 2024 white paper from CAP adverse impacts of private payors. Chat gpT offered to read both and bring out similarities and insights.
Available as PDF white paper.
|
CAP’s 2024 payors white paper and AMA’s 2025 health insurance competition report describe two levels of the same problem. CAP shows how insurer interference reaches into pathology: narrow networks, steering, prior authorization, coding edits, take-it-or-leave-it contracts, and disruption of locally integrated diagnostic care. AMA supplies the market-structure explanation: most commercial and Medicare Advantage markets are highly concentrated, giving insurers monopsony power over physicians and hospitals. Together, the papers show that payer power is
not merely a reimbursement issue but a governance issue. Insurers
increasingly control the “rules layer” of health care: networks,
documentation, medical necessity, claims edits, appeals, and payment timing.
Physicians are weakened by fragmentation; pathologists are especially exposed
because their work is essential but often invisible and easily
mischaracterized as commodity testing. This white paper then builds beyond summary to offer an original industry-strategy argument. Payer “friction” is often taken for granted as the familiar background noise of health care administration — denials, prior authorization, coding edits, appeals, and related burdens. Viewed through the Nobel Prize-winning work of Ronald Coase and Oliver Williamson, however, this friction can be understood as a manifestation of transaction costs that, under asymmetric market power, may become instruments of control. |
###
CAP, AMA, and the Payer Power Problem:
When the Intermediary Starts Governing the System
The CAP 2024 white paper, “Examining the State of Health Care’s Private Payers and the Adverse Impact of Insurance Interference,” and the AMA 2025 white paper, “Competition in Health Insurance: A Comprehensive Study of U.S. Markets,” are best read together. CAP provides the specialty-level view from pathology: how insurer behavior disrupts diagnostic care, laboratory relationships, and hospital-based physician practice. AMA provides the market-structure view: how concentrated health insurance markets create the economic conditions that allow those behaviors to persist.
Together, they describe something larger than bad payer behavior. They describe a strategic migration of power in American health care: away from physicians, hospitals, and local clinical systems, and toward insurers and insurer-adjacent platforms that increasingly control the rules of access, payment, networks, coding, documentation, and referral pathways.
CAP 2024: the pathologist’s view from inside the clinical machinery
CAP’s 2024 white paper is not simply a complaint that insurers pay too little. It is an argument that insurers increasingly interfere with the organization of care itself. CAP describes a world in which insurers influence where diagnostic services occur, which physicians are in network, which codes are recognized, which laboratories are preferred, and how much administrative burden must be overcome before care is paid for. CAP calls this insurance interference, and the phrase is well chosen.
The paper’s strongest move is to frame pathology as clinical infrastructure. Patients may rarely meet the pathologist, but pathology affects nearly every major care pathway: cancer diagnosis, chronic disease management, laboratory quality, test selection, and clinical decision-making. CAP emphasizes that the patient and treating physician should be able to rely on the “home team” pathologist and integrated diagnostic services, rather than having those relationships reshaped by payer contracting strategies.
CAP identifies a familiar but powerful set of payer tactics: narrow networks, steering, tiering, take-it-or-leave-it contracts, non-standard coding rules, prior authorization, and other utilization management tools. Its recommendations are practical: require adequate networks that include hospital-based physicians such as pathologists, restrict steering and tiering based only on cost, preserve physician-led team-based care, create monitoring and enforcement mechanisms, and increase antitrust scrutiny.
What makes pathology especially vulnerable is its position in the value chain. Pathologists are essential to diagnosis, but they often do not own the patient relationship. They are embedded in hospital and physician workflows, but their value is often invisible to the patient and easily recoded by payers as a substitutable service. A payer does not need to deny that pathology matters. It only needs to treat pathology as a contractable, steerable, repricable input.
That is the strategic danger CAP is describing. The payer can convert a locally integrated diagnostic function into a network-management problem. The surgeon, oncologist, hospital laboratory, and pathologist may see themselves as a coordinated clinical unit. The payer may see separate economic pieces that can be steered, tiered, outsourced, narrowed, or repriced.
AMA 2025: the economic map of insurer market power
The AMA 2025 white paper supplies the broader economic architecture behind CAP’s specialty-specific concerns. If CAP shows what payer interference looks like inside pathology, AMA explains why insurers have the market power to impose it.
The AMA report finds that 97% of commercial markets and 97% of Medicare Advantage markets were highly concentrated under DOJ/FTC merger-guideline thresholds. In 91% of commercial metropolitan markets, at least one insurer had a market share of 30% or greater. In 47%, a single insurer controlled at least half the market.
AMA’s most important conceptual contribution is its discussion of insurers as intermediaries. Insurers sell coverage to consumers, employers, and Medicare beneficiaries, but they also buy physician and hospital services. Market power can therefore operate in both directions. In the output market, concentrated insurers may charge higher premiums or offer less meaningful coverage. In the input market, they may exercise monopsony power: using buyer leverage to push payments below competitive levels, impose unfavorable terms, and reduce physician bargaining power.
This is the bridge to CAP. CAP describes the clinical and operational effects of payer control. AMA shows the market conditions that allow payer control to become durable. If one or two insurers dominate a local market, a physician group, pathology practice, or hospital-based specialty has limited ability to walk away. The AMA also notes that many physicians remain in small practices; 47% of patient-care physicians are in practices with 10 or fewer physicians, creating a major bargaining asymmetry with large insurers.
AMA also points toward the next stage of payer power: horizontal, vertical, and cross-market expansion. Insurers are not merely insurers anymore. They may be tied to PBMs, care-delivery entities, pharmacy networks, analytics platforms, claims-editing systems, and provider assets. The modern payer becomes less like a passive financier of care and more like a platform company controlling multiple layers of the health care operating system.
CAP describes the weather; AMA describes the climate system
Taken together, CAP and AMA are not merely saying, “Payers are too powerful.” They are describing how power moves through the health care system.
CAP’s paper is concrete, clinical, and local. It shows how insurer conduct affects pathology, hospital-based physicians, laboratory networks, and diagnostic relationships. AMA’s paper is quantitative, economic, and national. It shows that payer market concentration is not an occasional local aberration but a structural feature of American health care.
The synthesis is that payer interference is not a random collection of bad behaviors. It is the predictable conduct of dominant intermediaries operating in concentrated markets, using administrative and contractual tools to shape clinical delivery.
From a business-school strategy perspective, physicians and pathologists sit in a difficult position. They create enormous clinical value but often lack control over the customer relationship, the contracting channel, the payment rules, the data infrastructure, and the public narrative. Insurers increasingly control the gateway. They decide which networks matter, which claims are clean, which documentation is adequate, which codes are payable, which services need authorization, and which providers can be treated as preferred.
This creates a process of strategic commoditization. Once a service is framed as interchangeable, the buyer can shift the conversation from quality to price, from clinical integration to network status, from professional judgment to utilization rule, from local team-based care to payer-directed routing. CAP is fighting that process in pathology. AMA is showing that the payer-side market structure gives insurers the leverage to do it broadly.
Friction as the operating infrastructure of payer power
CAP and AMA are fully aware that denials, appeals, prior authorization, coding edits, documentation burdens, network uncertainty, and delayed payment are not merely bureaucratic annoyances. These issues are now the lingua franca of physician advocacy. Professional societies discuss them constantly because physicians experience them daily as central mechanisms of payer control.
The additional business-strategy point is that friction should be understood not only as a set of payer tactics, but as part of the operating infrastructure of payer power.
Administrative friction can perform several business functions at once. It can delay payment, deter claims, exhaust appeals, shift labor costs onto physician practices, pressure smaller providers to accept unfavorable contracts, and normalize the idea that clinical care must pass through payer-designed checkpoints. The payer does not always need to say “no.” It can require another form, another portal submission, another documentation element, another peer-to-peer call, another appeal, another code, another network rule.
That makes friction a governance system. It determines who must ask permission, who bears the cost of delay, who has the staff to fight, and who eventually gives up. Large hospitals may create departments to manage the friction. Small physician groups may be worn down by it. Pathology groups, especially those dependent on hospital relationships and payer network status, may find that the administrative burden is not just costly but strategically weakening.
This is why payer friction is hard to challenge. Each individual requirement can be defended as utilization management, fraud prevention, benefit design, or documentation discipline. But in aggregate, the system can transfer economic value and decision-making authority away from physicians and toward payers. CAP sees this vividly in pathology. AMA sees it across the physician enterprise. The strategic issue is that friction has become one of the principal ways market power is operationalized.
The Mezzetti articles: moral narrative around the formal white papers
The two Mezzetti CAP TODAY articles add a narrative and moral dimension to the formal white papers.
The 2025 article on private equity describes the Prospect Medical Holdings story as a cautionary tale of financial engineering in health care: debt-funded dividends, sale-leasebacks, infrastructure neglect, cyber vulnerability, and eventual stress on hospitals and surrounding communities. It is not mainly a payer-consolidation article, but it describes a parallel phenomenon: clinical infrastructure can be weakened when financial actors extract value while leaving hospitals and patients to absorb operational fragility.
The 2026 Mezzetti article on insurer consolidation aligns more directly with CAP and AMA. It describes the “tail wagging the dog,” using Anthem’s out-of-network hospital reimbursement policy as an example of how insurers can pressure hospitals when out-of-network physicians are involved. The article specifically names pathology, radiology, anesthesia, and emergency medicine as necessary hospital-based services vulnerable to these tactics.
The Mezzetti articles supply what formal white papers often avoid: indignation. CAP and AMA write for regulators, legislators, and policy staff. Mezzetti writes as a physician watching health care’s moral center move from patient care to financial control.
What CAP and AMA emphasize less
CAP and AMA are strong on payer consolidation, administrative burden, network manipulation, and professional harm. But several broader strategic forces deserve additional emphasis.
First, the employer purchaser matters. In commercial insurance, employers are often the real economic customers. Insurers sell to employers, and employers usually want premium moderation, predictability, and administrative simplicity. They may not fully see the consequences of narrow networks, diagnostic disruption, or physician friction. This creates a triangular problem: the payer says it is responding to employer demand for cost control; the employer says it hired the payer to manage costs; the patient and physician experience the result as denial, delay, narrowing, or administrative drag.
Second, the platform problem is larger than insurance concentration alone. AMA discusses vertical integration and PBMs, and CAP discusses third-party entities and network manipulation. But the broader strategic issue is that payers are becoming platforms. A payer-linked enterprise may touch insurance, PBMs, pharmacy networks, claims editing, prior authorization, analytics, care management, owned provider groups, and data infrastructure. A platform does not merely negotiate price. It sets the rules by which other actors must operate.
Third, physician fragmentation is a structural weakness. Physicians are professionally unified in language but economically fragmented in reality. They differ by specialty, employment status, payer mix, hospital dependence, network leverage, and tolerance for out-of-network conflict. Most cannot bargain collectively. This fragmentation gives concentrated payers an enormous advantage.
Fourth, pathology’s invisibility is not merely a communications problem. CAP often emphasizes that patients rarely see pathologists but depend on them. That is true, but invisibility also has political economy consequences. Patients will fight for their oncologist, surgeon, drug, hospital, or imaging appointment. They rarely fight for the local pathologist’s network contract. That makes pathology a high-value but low-salience target.
Fifth, “cost control” is morally and analytically complicated. Some payer management is abusive. Some is clumsy. Some responds to real overuse, fraud, low-value care, or price variation. The strategic question is not whether costs should be controlled. They must be. The question is who controls them, using what evidence, with what accountability, and whether the system can distinguish cost discipline from value destruction.
Why physicians, and especially pathologists, are caught in the downdraft
Physicians are caught because the old professional compact has weakened. The older model assumed that physicians controlled clinical judgment, hospitals supplied infrastructure, and insurers financed care. That model has been replaced by a managed, contractual, data-driven, administratively dense marketplace in which the payer has become an active designer of care pathways.
Pathologists are caught even more severely. They are essential but indirect. Their work often determines the diagnosis, but the patient relationship is mediated through other physicians. They are embedded in hospitals, but not always economically protected by hospitals. Their services can be misrepresented as commodity testing, even when their actual value lies in interpretation, quality systems, local integration, tumor boards, reflex testing, laboratory stewardship, and diagnostic consultation.
In business-strategy terms, pathology faces an unfavorable industry structure. It has weak buyer power against dominant payers. It has limited consumer pull-through. It faces substitution pressure from national laboratories, payer-preferred networks, and digital models. It operates under coding and payment rules that are often controlled elsewhere. And it often creates value downstream that it cannot capture upstream.
A correct diagnosis may prevent waste, guide treatment, avoid harm, and improve outcomes. But the payment system may still treat the pathologist as a small line item in a much larger transaction.
The larger insight: medicine is losing control of the rules layer
The deepest connection between CAP 2024 and AMA 2025 is this: physicians are not merely losing payment. They are losing control of the rules layer of health care.
The rules layer includes network design, prior authorization, medical necessity definitions, claims algorithms, coding edits, documentation rules, laboratory benefit management, referral pathways, credentialing, appeal procedures, and contract templates. Whoever controls the rules layer controls the practical reality of medicine, even without owning the doctor or hospital.
CAP’s white paper shows how this rules layer reaches into pathology. AMA’s white paper shows why concentrated insurers have the market power to impose it. The Mezzetti articles show how this feels on the ground: clinical institutions that once seemed permanent become vulnerable to financial engineering, payer leverage, managerial distance, and administrative exhaustion.
This is not just a reimbursement dispute. It is a governance dispute. Who governs clinical value in American health care?
Physicians believe clinical value should be governed by professional expertise, evidence, and patient need. Insurers argue, implicitly or explicitly, that value must be governed by affordability, utilization controls, networks, contracted rates, and administrative rules. Employers want premiums controlled. Patients want access, but often discover the machinery only when it fails.
The CAP and AMA papers are therefore best understood as two chapters in a larger struggle over the operating system of health care. CAP defends the diagnostic core. AMA maps the payer concentration that threatens physician autonomy broadly. Together, they warn that when the intermediary becomes dominant, the system may still look like medicine at the bedside, but its strategic command center has moved elsewhere.
Sidebar:
Health Care Friction and Transaction Costs —
Coase, Williamson, and the Modern Payer System
Economists such as Ronald Coase and Oliver Williamson taught that firms and markets are not frictionless. Business entities transact with each other through contracts, prices, monitoring, bargaining, enforcement, and adaptation. These are transaction costs.
In a simple industrial example, one company may make aluminum cans and another may manufacture and bottle cola. The two firms are separate, but together they enable the final product: a fizzy drink in a can. Their relationship requires specifications, delivery terms, quality standards, prices, remedies for defects, and mechanisms for renegotiation when conditions change. If those transaction costs become too high, one company may vertically integrate, change suppliers, or rewrite the contract.
Health care has a similar structure, at least on paper. One company provides health insurance. Another runs a hospital. Another employs physicians. Another performs laboratory testing. Together, they allow health care to occur. The problem is that health care transaction costs are not merely neutral coordination costs. They can become instruments of power.
In Coasean terms, transaction costs explain why firms exist and why some activities are handled by contract while others are brought inside the firm. In Williamson’s language, the problem becomes more severe when there is asset specificity, uncertainty, bounded rationality, and opportunism. Health care has all four.
Pathology is highly asset-specific: local expertise, hospital integration, specimen workflows, tumor boards, test menus, quality systems, and clinical relationships cannot always be swapped out cleanly. Medical care is uncertain: patients are complex, diagnoses evolve, and clinical pathways are not perfectly predictable. Contracts are incomplete: no payer contract can anticipate every medical scenario. Opportunism is possible: a powerful payer can use ambiguity, delay, coding edits, prior authorization, or network rules to shift costs and risk to providers.
That is where health care “friction” differs from ordinary business transaction costs. In normal business theory, transaction costs are often treated as the cost of coordinating productive activity between independent entities. In health care, payer-provider friction can become a strategic instrument that determines whether care is authorized, whether claims are paid, whether physicians remain in network, and whether patients receive timely access.
The analogy is useful but imperfect. If the can supplier and cola bottler dispute a contract, the consequence may be higher costs, delayed shipments, or lower margins. If an insurer and a hospital dispute authorization, network status, or payment, the consequence may be delayed diagnosis, disrupted treatment, physician burnout, hospital financial stress, or patient harm.
Thus, prior authorization, denials, appeals, coding edits, and documentation burdens are not merely “administrative waste.” They are health care’s version of transaction costs under conditions of asymmetric market power. CAP and AMA understand this well. The additional strategic insight is that these transaction costs are not distributed evenly. The stronger party can design the transaction environment; the weaker party must live inside it.
# #
A March 2025 CAP Today Mezzetti article ("A Cautionary Tale").
