“Big Data” Uncovers Real Prices Hospitals Charge Insurers

A new study reveals that the prices hospitals negotiate with private health insurance companies vary considerably within and across geographic regions in the United States.

Researchers at Carnegie Mellon University (CMU; Pittsburgh, PA, USA), Yale University (New Haven, CT, USA), the University of Pennsylvania (Philadelphia, USA), and the London School of Economics (LSE; United Kingdom) analyzed 92 billion health insurance claims from 88 million people covered by three of the largest insurance companies in the United States—Aetna, Humana, and UnitedHealth (Minnetonka, MN, USA).

The data, which represents spending and utilization for 27.6% of all individuals with employer-sponsored coverage, shows that the disparity of hospital prices within regions is the primary driver of variation in health care spending for the privately insured. For example, hospital prices for lower-limb magnetic resonance imaging (MRI) are 12 times higher in the most expensive area (Bronx, NY) than in the cheapest area (Baltimore, MD), and can vary by up to a factor of nine within the same geographic area (Miami, FL). Overall, spending was three times greater in the most expensive health market than in the cheapest.

The researchers also found an extremely low correlation (just 14%) between spending on Medicare (Baltimore, MD, USA) beneficiaries and spending on the privately insured. For example, in 2011, Grand Junction (CO, USA), had the third-lowest Medicare spending per beneficiary among the 306 hospital-referral regions (HRRs) in the United States, but the 9th highest inpatient prices and the 43rd highest spending per privately insured beneficiary.

While there are many factors influencing hospital prices, the study shows that hospitals that face fewer competitors have substantially higher prices, beyond those that would be driven by cost or quality differences. Hospitals in monopoly markets have prices that are more than 15.3% higher than those in HHR areas with four or more competitors. Hospitals that face only one competitor have prices that are over 6% higher, and those that face two competitors have prices almost 5% higher.

“Virtually everything we know about health spending and most of the basis for federal health policy comes from the analysis of Medicare data,” said lead author Zack Cooper, PhD, an assistant professor of health policy and economics at Yale. “The rub is that Medicare only covers 16% of the population. The majority of individuals, 60% of the US population, receive health care coverage from private insurers.”

“The fact that prices are so high and can vary so much for hospital treatments of the same costs and quality is simply mind boggling to foreign observers of the US health care system,” added senior author professor John Van Reenen, PhD, director of the Center for Economic Performance at the London School of Economics. “This is surely one of the reasons why US health care absorbs a bigger share of the GDP than every other large advanced country.”

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Carnegie Mellon University
Yale University
University of Pennsylvania