New Study Takes a Closer Look at Market Power, Hospital Prices
A study set to be published this month in the National Bureau of Economic Research challenges some "conventional wisdom" about health care, such as the idea that regions with lower Medicare spending also have lower overall health care spending, the New York Times' "The Upshot" reports.
According to "The Upshot," large, integrated hospital systems can experience lower Medicare spending by eliminating duplicative treatments (Quealy/Sanger-Katz, "The Upshot," New York Times, 12/15). At the same time, many economists believe that those large systems' market power drives prices up in the private market; however, until the NBER study, the evidence connecting those factors has been limited to specific regions. The NBER study involves data from around the U.S. and includes the actual prices insurers paid hospitals.
Martin Gaynor, a Carnegie Mellon economist involved with the study, said, "We have this large body of evidence covering many, many years that consistently shows if you happen to live in an area with only one hospital, you are going to pay a lot more" (Gorenstein, "Marketplace," APM, 12/15).
For the study, researchers examined Medicare and claims data from almost all employer health plans sold by Aetna, Humana and UnitedHealthcare for the country's 306 hospital referral regions ("The Upshot," New York Times, 12/15).
The insurer data represent claims from more than 88 million distinct members between 2007 and 2011. According to "Marketplace," the data are the most extensive that researchers have ever been able to access ("Marketplace," APM, 12/15).
The study found little evidence to show that a hospital referral region's Medicare spending per capita could predict a region's spending per capita on employer-sponsored plans. While areas that provided fewer treatments to Medicare patients also tended to provide fewer treatments to privately insured patients, that did not necessarily mean that low Medicare spending would equal low private health spending. For Medicare, spending differences by region are based on amount of services provided, not prices hospitals negotiate, as they do in the private market, according to "The Upshot."
NBER study lead author Zach Cooper said, "The reason why health insurance for the privately insured is expensive is because the prices from hospitals with a lot of market power are higher" ("The Upshot," New York Times, 12/15).
Compared with hospitals located in regions with at least four hospitals, the study found:
- Monopoly hospitals had 15.3% higher prices;
- Hospitals in duopoly markets had 6.4% higher prices; and
- Hospitals in triopoly markets had 4.8% higher prices.
The researchers wrote, "While we cannot make strong causal statements, these estimates do suggest that hospital market structure is strongly related to hospital prices" (Cooper et al., "The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured," National Bureau of Economic Research, December 2015).
The study also found large variation in the prices paid by employer-sponsored health plans both between and within health care markets. For instance, the most expensive price for the simplest type of knee replacement across the country was about $55,800, while the least expensive price was about $3,400. Between the 11 hospitals in the Washington, D.C., area, the price ranged from about $9,600 to about $29,500. The researchers found similar price variation for several other common procedures, including colonoscopies, childbirth and MRIs ("The Upshot," New York Times, 12/15).
The researchers wrote that the findings "sugges[t] that vigorous antitrust enforcement is important and that hospital prices could be made more transparent" ("The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured," National Bureau of Economic Research, December 2015).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.