Wide Price Variation for Privately Insured Underscores Hospital Market Power

Prices for Privately Insured Patients Vary Widely from Hospital to Hospital and Market to Market

News Release
Sept. 5, 2013

Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON , DC—Across 13 selected U.S. metropolitan areas, hospital prices for privately insured patients—especially for outpatient care—are much higher than Medicare and vary widely within and across communities, according to a new study by the Center for Studying Health System Change (HSC) for the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).

Based on claims data for 590,225 active and retired nonelderly autoworkers and their dependents, the study found that average hospital prices for privately insured patients in the 13 communities with large concentrations of autoworkers are about one-and-a-half times Medicare rates for inpatient care and two times what Medicare pays for outpatient services.

Within individual communities, prices vary widely, even after accounting for differences in the complexity of services provided. The highest-priced hospital typically is paid 60 percent more for the same inpatient services than the lowest-priced hospital. The price gap within markets is even greater for hospital outpatient services, with the highest-priced hospital typically paid nearly double the lowest-priced hospital, according to the study.

“The dramatic variation in prices from one hospital to another points to the significant market power of certain hospitals to command high prices, even in markets with a dominant insurer,” said Chapin White, Ph.D., an HSC senior researcher and coauthor of the study with Amelia M. Bond. M.H.S., a former HSC research analyst; and HSC Senior Fellow James D. Reschovsky, Ph.D.

In contrast to hospital prices, prices for primary care physician services generally are close to Medicare rates and vary little within markets, the study found. Prices for specialist physician services, however, are higher relative to Medicare and vary more within and across markets.

The study’s findings are detailed in a new HSC Research Brief—High and Varying Prices for Privately Insured Patients Underscore Hospital Market Poweravailable here. The study is the first to examine variation of individual hospital’s prices at the market level.

The study included the following metropolitan areas: Ann Arbor, Mich.; Buffalo, N.Y.; Cleveland; Detroit; Flint, Mich.; Indianapolis; Kansas City; Kokomo, Ind.; Lansing, Mich.; St. Louis; Toledo, Ohio; Warren, Mich.; and Youngstown, Ohio.

To compare prices paid by the autoworker plan with Medicare prices, five categories of services were examined: hospital inpatient care, hospital outpatient services, primary care physician services, medical specialty physician services and surgical specialty physician services.

“While the findings suggest some opportunities for savings, even capping hospital and physician prices at the median within each market would only reduce spending by 5.5 percent. Achieving significant savings requires not only bringing high-priced providers closer to the average, but also bringing down the average, which would likely require fundamental changes to providers’ cost structures,” the study concludes.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation's changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.