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More on Hospital Pricing

By December 30, 2010Commentary

What many knew from experience has increasingly been validated by research published over the last two years–hospital pricing increases are a primary driver of growing health spending.  America’s Health Insurance Plans is a trade association for health plans, so its analyses of provider pricing and other actions might naturally be suspect.  In a recent paper, however, AHIP uses state-reported data and fairly standard and acceptable analysis techniques to look at hospital price increases in California and Oregon.   (AHIP Paper) The data reported is actual amounts paid for the services.

The data from California shows that from the period between 2000 and 2009 the price paid by commercial health plans for a day in the hospital increased by 150% or 11 per cent per year.  For comparison, general inflation and GDP growth both ran in the low single digits annually over the same time period.  Different payers experienced very different rates of growth, for example, Medicaid only increased its payments a total of 18% over this time and Medicare only 76%.  It is easy to see that commercial health plans and in turn, employers and individuals, are picking up the great bulk of the total price increases collected by hospitals.

Oregon’s data, which is available by discharge or episode of care, shows a similar trend.  For common conditions or procedures, price increases ranged from 44-69% in the period from 2005 to 2009, or annual rates of increase of 8.4-14%.   As in California, one explanation for the increase may be the cost of uncompensated care, which the Oregon regulators estimate accounts for 6-9% of the cost of private health insurance, and low Medicaid reimbursements.  However you slice it, the data strongly support the thesis that hospital price increases are responsible for much of the overall national health spending growth and private health plans are picking up most of those increases.

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