Sept. 5—High-cost hospitals are driving higher prices, even in markets with a dominant insurer, a new study concluded.

The Center for Studying Health System Change (HSC) studied hospital prices for a group of 590,000 patients in 13 metropolitan areas and found prices for privately insured patients were much higher than Medicare and vary widely within and across communities. Price variations for outpatient services were even larger.

The study found that average hospital prices for privately insured patients it studied were about 150 percent higher than Medicare rates for inpatient care and 200 percent higher than what Medicare pays for outpatient services. Even after accounting for differences in the complexity of services provided, the study found the highest-priced hospital in each market typically was paid 60 percent more for the same inpatient services than the lowest-priced hospital. The difference between hospital payments in the same market was even higher—nearly double—for outpatient services, according to the study. 

The findings of “dramatic variation” in prices between hospitals indicated the “significant market power of certain hospitals to command high prices, even in markets with a dominant insurer,” Chapin White, Ph.D., an HSC senior researcher and coauthor of the study, said in a release.

The study findings, according to the authors, indicate that “negotiating leverage” is driving price variation among providers and private insurers instead of costs, as higher-priced hospitals are driven to treat the most complex patients and have higher costs because of their teaching programs and capital investments.

“At the top of the negotiating heap are the must-have hospitals that offer some unique combination of reputation, location, and services,” the authors wrote. “Private insurers understand that employers will not continue to offer their products if must-have hospitals are excluded from the provider network.”

The study found prices for primary care physician services generally were close to Medicare rates and varied little within markets. However, prices for specialist physician services were higher relative to Medicare and varied more within and across markets.

The researchers blamed the difference between physician and hospital prices on differences in their negotiating positions.

“Hospitals are in an even stronger negotiating position than specialist physicians,” they concluded. 

Publication Date: Thursday, September 05, 2013