Researchers use hospital prices to show need to 'combat market power'

Hospitals that face fewer competitors have considerably higher prices, according to a new study from researchers at Carnegie Mellon University, Yale University, University of Pennsylvania and the London School of Economics.

For the study, the researchers analyzed 92 billion health insurance claims from 88 million people covered by three of the nation's largest health insurance companies: Aetna, Humana and UnitedHealthcare. The data was provided by the Health Care Cost Institute and represents spending and utilization for about 30 percent of individuals in the U.S. with employer-sponsored health coverage.

The study shows that hospitals with fewer competitors have substantially higher prices, beyond those that would be driven by quality or cost differences. According to the study, hospitals in monopoly markets have prices that are more than 15 percent higher than those in areas with four or more competitors. For example, the price of an average inpatient stay at a monopoly hospital is nearly $1,900 higher than in markets where there are four or more competitors.

The Affordable Care Act has pioneered changes that focus on efficiently providing high-quality healthcare, and hospital mergers are a method used to achieve that goal. However, the study shows the government may need to take a closer look at some of the transactions in the industry.

"There have been over 1,200 mergers in the hospital industry since 1994, and 457 since 2010," said Martin Gaynor, the E.J. Barone Professor of Economics and Health Policy at CMU's H. John Heinz III College. "There's a real need for continued vigorous antitrust enforcement and other policy options to encourage competition and combat market power."

More articles on healthcare finance:

Georgia hospital to reopen after securing last-minute buyer
How Vanderbilt University Medical Center is using clinical evidence to drive down costs
Hospital CFOs' top concerns for 2016

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