Study: Hospitals With Huge Market Power Command High Prices

The highest-priced hospitals within a market often have charges that are 60 percent higher than the lowest-priced market competitor, and the high-priced hospitals often wield an immense amount of influence in their areas, according to a study from the Center for Studying Health System Change.

HealthMoneyResearchers looked at hospital claims data for more than 590,000 active and retired, nonelderly autoworkers and their dependents in 13 U.S. metropolitan areas. The study, which the authors said is one of the first to look at individual hospital prices within markets, found that inpatient and outpatient charges varied widely within the same markets. The average gap between the highest- and lowest-priced hospitals in each of the 13 metro areas for inpatient care was 60 percent, and for outpatient care, the average gap ballooned to 100 percent.

In every market, hospitals commanded higher pay from commercial payers compared with Medicare, but some markets charged more than others. For example, inpatient hospital care in Youngstown, Ohio, cost about 25 percent more than standard Medicare rates, but in Kansas City, Mo., charges were more than double Medicare rates. Outpatient hospital care in Indianapolis and Kokomo, Ind., was more than three times higher than what Medicare pays, and eight of the 13 markets studied charged at least double Medicare's rates for outpatient care.

The study also looked at physician prices. Researchers found primary care prices were on par with Medicare's rates — and even below Medicare in some markets — because primary care physicians tend to practice in solo or small groups. However, specialty physician prices were higher than primary care prices; Some specialty physicians were reimbursed 50 percent more than others within the same market because their practices are larger and more concentrated.

The authors concluded that the high price variation among providers within the same market is due to negotiating leverage. Hospitals are often in the most advantageous position, especially "must-have" hospitals that have name recognition and good locations, because they provide large volumes of care. According to the study, private insurers know that if big systems, "must-have" hospitals and large specialty groups are not in their health plans, employers won't stick with them anymore.

"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, PhD, an HSC senior researcher and co-author of the study.

HSC's results build on a similar study it released in February 2012. In that report, researchers found differences in hospital prices play a large role in healthcare spending variation in different regions.

A May 2012 Health Affairs study, which also included HSC researchers, similarly said that the largest hospitals are using their negotiating clout to obtain high commercial reimbursements, and this trend will only continue as consolidation runs rampant throughout the healthcare industry.

More Articles on Hospitals and Prices:
North Carolina Hospitals Must Post Prices for 140 Procedures
Spectrum Health CFO Michael Freed: On a Journey to Price Transparency
CMS: Hospital Outpatient Charges Vary Just as Much as Inpatient

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