Hospital pricing for privately insured varies by market structure: 6 study findings

A newly revised study reveals insights into monopoly pricing, finding hospital market structure is strongly linked with pricing and insurer contract structure.

For the study, researchers primarily examined private insurance claims data from Aetna, Humana and UnitedHealth. The data, provided by the Health Care Cost Institute, covers healthcare received by 28 percent of Americans with employer-sponsored coverage between 2007 and 2011.

Here are six study findings.

1. Healthcare spending varied regionally. In examining more than 300 geographic regions, known as hospital referral regions, researchers found healthcare spending per privately insured individual age 18 to 64 varies by a factor of more than three across HRRs. For instance, Grand Junction, Colo., which is the geographic region in the 90th percentile of the spending distribution, spends nearly 50 percent more than Sarasota, Fla., which is the geographic region in the 10th percentile, according to the study.

2. The study also found only a small correlation (0.044) between spending per privately insured individual and spending per Medicare enrollee across geographic regions.

3. Approximately 50 percent of the spending variation per privately insured individual is driven by price variation across geographic regions and 50 percent is driven by quantity variation.

4. Researchers found significant variation in hospital prices nationwide as well as across hospitals in geographic regions. For example, risk-adjusted knee replacement prices are 2.3 times higher at hospitals in the 90th percentile of the U.S. distribution of hospitals compared with hospitals in the 10th percentile. Researchers said they also found variation for lower limb MRIs and other "plausibly undifferentiated services." This "suggests that the dispersion we observe is not simply a function of differences in hospital quality or patient severity across providers," they wrote.

5. Additionally, researchers noted they found hospital market structure is strongly linked with pricing and insurer contract structure. The study found hospitals in monopoly markets, compared to hospitals in markets with four or more competitors, have prices that are 12 percent higher, and have 10.5 percentage points more cases reimbursed as a share of their charges, meaning insurers take on more risk.

6. In markets with four or more competitors, hospitals have less expensive prices and take on more financial risk, researchers said. They analyzed approximately 370 merger and acquisitions that took place during the studied time period and found prices increased by more than 6 percent when the merging hospitals were no more than five miles away from each other, but not when the hospitals were more than 25 miles apart.

Read the full study here.


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