In a study published by the National Bureau of Economic Research, researchers analyzed health spending across multiple U.S. markets and compared the numbers for Medicare with claims data for 88 million patients with employer-sponsored health insurance.
Private insurance prices were 15% higher when hospitals had no competition compared with markets with at least four hospitals. That amounts to a difference of about $2,000 per admission, said Martin Gaynor, one of the researchers and former director of the Federal Trade Commission's Bureau of Economics.
“Prices have a lot to do with spending, and a lot of what's driving price is the difference in the competitive market,” Gaynor said.
The findings are significant as hospitals across the country continue a deal binge that has consolidated markets and created new regional giants.
Leaders of the merging hospitals and systems routinely say the strategy is necessary to meet changes in federal policy that create a financial incentive for hospitals to control more of the market. State and federal antitrust enforcers have argued otherwise. The FTC has challenged two hospital deals in the last two months.
But the “horse may be out of the barn” in markets that are already concentrated, said Thomas Greaney, a law professor at St. Louis University. “Antitrust law has no remedy for high prices” after deals transpire.
Prices were also higher even with some competition among providers. Markets with two hospitals had prices roughly 6% higher than those with four or more hospitals. Three-hospital towns had prices about 5% higher than those with at least four hospitals vying for business.
The study also found that spending for private patients often diverged from Medicare spending.
Hospitals cannot negotiate with Medicare to raise prices, and researchers found that how much care patients get—or don't get—determines how spending varies across markets. That result is not news. Medicare spending has been closely studied for years for clues to the nation's abnormally high medical costs when compared with other nations.
A problem driven by price
“If you look at why healthcare spending is such a problem in America, it is primarily driven by price," said Dr. Ashish Jha, a professor at the Harvard T.H. Chan School of Public Health.
For employers and households, higher prices in less competitive markets amount to higher premiums or bigger bills under high-deductible health plans. “That's a substantial amount of money,” Gaynor said. “Depending on where you live, that's a couple of mortgage payments. For many people, that amount of money would wipe out their savings in one fell swoop.”
Cities with higher premiums on the Affordable Care Act's insurance exchanges appear to be cities with high price hospitals, said Cynthia Cox, associate director of health reform and private insurance at the Kaiser Family Foundation.
For policymakers, that suggests more effort is needed at the state and federal level to promote more competitors in each market and more tools for consumers to choose among competitors, Gaynor said.
Melanie Evans writes about healthcare finance, hospital management and governance issues. She has been part of the Modern Healthcare staff since 2004. Earlier in her career she covered healthcare and not-for-profits as a reporter at the Duluth (Minn.) News Tribune. She received a bachelor's degree in international relations from Boston University and a bachelor's in journalism from the University of Minnesota.Follow on Twitter