Insurers paid significantly more to some hospitals and less to others in eight U.S. markets, research released last week found. Economists point to the results as a possible sign that hospitals wield market clout to raise prices at a time when the sector is lobbying for more leeway under antitrust laws.
The study, by the nonpartisan policy research organization the Center for Studying Health System Change and financed by an employer group, found insurers paid widely different prices to hospitals within each market and from one market to another, even after efforts to adjust the data for differences in cost.
The results, wrote economist Paul Ginsburg, who conducted the study and is president of the center, suggest some hospitals have the market power to name higher prices. “Few would characterize the variation in hospital and physician payment rates found in this study to be consistent with a highly competitive market,” the study said.
Hospitals sharply denounced the study. The American Hospital Association CEO Richard Umbdenstock, in a written statement, dismissed the study as deeply flawed and said it had “no reliable evidence for these exaggerated claims,” referring to the study’s suggestion that price variation signals market clout.
Healthcare economists called the wide-ranging prices striking and said results suggest hospital leverage may be a factor. “It’s suggestive that there is market power going on,” said William Vogt, an associate professor of economics at the University of Georgia, who studies hospital consolidation and prices. He added that it cannot exclude the possibility that prices reflect significant differences in hospital quality or costs. “I’d say the evidence is suggestive, but not definitive,” he said.
Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University, agreed that the results suggest hospital clout “seems like a leading suspect” behind the variation and said research on private insurance rates was limited but needed.
Four insurers contributed data for the markets: Aetna, Anthem Blue Cross and Blue Shield, Cigna Corp. and UnitedHealth Group. Insurers submitted rate data in 2009 and were asked to supply the most-current rates.
By calculating the private insurance payment as a percentage of Medicare, the study sought to adjust for costs that may vary from one hospital or market to the next, Ginsburg said. Medicare adjusts its rates based on geographic differences in labor costs or for teaching or other additional expenses, he said.
Ginsburg sits on an advisory committee to the Catalyst for Payment Reform, the employers’ group that funded the study.
High rates of consolidation and strong brand reputation are factors that lend hospitals clout in price negotiations, economists say. The same is true for geographic isolation. Peter Hammer, a professor of health law at Wayne State University Law School, said he found the price differences for hospitals in the same market most striking and unlikely to be caused by huge differences in quality. “It’s the absence of effective competition,” Hammer said.
The highest-paid hospitals in each market saw inpatient rates double to quadruple what Medicare paid. One San Francisco hospital received 484% of Medicare rates, and in Los Angeles insurers paid a hospital 418% of Medicare’s payment. Hospitals with the lowest rates in both California markets—hospital prices that ranked in the bottom quarter—were paid 136% of Medicare in San Francisco and less than Medicare, 84%, in Los Angeles.
The study comes as the health reform law has prompted authorities to consider new exceptions to antitrust laws for hospitals and physicians. Insurers have urged regulators to consider the potential market power that networks may gain.
In a September letter to the CMS, insurer trade group America’s Health Insurance Plans said networks that improve patient care and reimbursement have “tremendous promise,” but continued: “Those that face backward, however, representing simply the desire to engage in joint negotiation or aggregate market power, will leave consumers with decreased access, lower quality and higher prices.”
Hospital trade groups rejected the results as useless. “Each insurer used its own methods to generate price comparisons, and no effort was made to verify, validate or correlate the information provided,” Umbdenstock said.
Chip Kahn, president and CEO of the Federation of American Hospitals, a trade group of investor-owned hospitals and health systems, said the study does not reveal whether insurers added supplemental payments, for training doctors or high numbers of uninsured, to Medicare rates in the study’s calculation. Without the information “I find it hard to come to a definitive conclusion,” he said.
But Robert Zirkelbach, an AHIP spokesman, said the findings were more evidence of hospital consolidation and growing provider clout to raise prices.
The percentage of U.S. community hospitals that operate within a health system has grown in recent years to 57.2% in 2008, the most recent figures available from the AHA, from roughly half (50.9%) in 1999.
Ginsburg defended the study methodology and said he did not believe the variation captured by the study was compromised by any potential difference in insurers’ formula for calculating rates as a percentage of Medicare. Ginsburg said the formula may vary from one insurer to the next, but each insurer consistently applied its own formula across each market.
