What Explains Hospital Price Increases?

Hospital price increases have been blamed for much of rise in health spending.  Somewhat dated research in the journal Health Management, Policy and Innovation examines hospital price increases from 2000 to 2007 in Texas to determine what appears to have caused those increases.   (HMPI Article)   Looking at 319 hospitals, over the study period payments for non-public program patients were well-above costs and prices grew 53% during this time compared to only a 38.4% growth in costs.  Public program costs, on the other hand, increased much faster than payments.  The authors constructed regression models to attempt to identify likely causes of the price increases for private patients.  The authors found little correlation between decreases in Medicare or Medicaid reimbursement were associated with private insurance payment growth.  Similarly no significant relationship was found between uninsured or self-pay patient payments and private health plan payments.  The strongest factor appeared to be increases in the cost of caring for private pay patients.    No strong association was found with hospital mergers or concentration or with HMO penetration, although the authors don’t appear to have a sophisticated understanding of various types of health plans.  The authors note an inconsistency with the notion that the costs of care is the primary driver of private payment growth and the increase in profitability of hospitals over the study period.  The reason is likely that the authors have the relationship backwards–as hospitals are able to demand higher reimbursement from private payers, they spend some of that increased revenue on care–more technology, fancier buildings, higher salaries for administrators, etc.