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The price ain’t right? hospital prices and healthspending on the privately insured

Cooper, Zack, Craig, Stuart, Gaynor, Martin and Van Reenen, John (2015) The price ain’t right? hospital prices and healthspending on the privately insured. CEP Discussion Paper (1395). London School of Economics and Political Science, CEP, London, UK.

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Abstract

We use insurance claims data for 27.6 percent of individuals with private employer-sponsored insurance in the US between 2007 and 2011 to examine the variation in health spending and in hospitals’ transaction prices. We document the variation in hospital prices within and across geographic areas, examine how hospital prices influence the variation in health spending on the privately insured, and analyze the factors associated with hospital price variation. Four key findings emerge. First, health care spending per privately insured beneficiary varies by a factor of three across the 306 Hospital Referral Regions (HRRs) in the US. Moreover, the correlation between total spending per privately insured beneficiary and total spending per Medicare beneficiary across HRRs is only 0.14. Second, variation in providers’ transaction prices across HRRs is the primary driver of spending variation for the privately insured, whereas variation in the quantity of care provided across HRRs is the primary driver of Medicare spending variation. Consequently, extrapolating lessons on health spending from Medicare to the privately insured must be done with caution. Third, we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures. For example, hospital prices for lower-limb MRIs vary by a factor of twelve across the nation and, on average, two-fold within HRRs. Finally, hospital prices are positively associated with indicators of hospital market power. Even after conditioning on many demand and cost factors, hospital prices in monopoly markets are 15.3 percent higher than those in markets with four or more hospitals.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2015 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
L Education > L Education (General)
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 13 Apr 2016 08:37
Last Modified: 30 Jan 2019 12:26
Funders: Commonwealth Fund, National Institute for Health Care Management, Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/66059

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