Massachusetts was early to the health care reform struggle and early to learn that reform did not equal lower spending. It has identified hospital costs as a particular issue and a recent report details trends in hospital pricing in the state. (Mass. Report) The Health Policy Commission was particularly concerned with what it viewed as significant variation in prices for the same services, with much of the volume in the state at higher-priced providers. The amount of variation can be as much as 2 to 3 times, and the variation in pricing drives variation in episode of care spending. The Commission found shockingly that reform did not change the amount of variation–it has remained basically the same for hospitals and has actually increased in prices for physician services.
Contrary to standard economics, volume is concentrated at high-priced hospitals, in fact those hospitals are getting greater market share. And of course, higher prices appear uncorrelated to better performance on quality measures or better outcomes for patients. Consistent with standard economics, less competition was associated with higher prices; contrary to them, larger hospitals have higher prices, so are showing no benefits of scale. It appears that size allows more spending on marketing, which builds brand, which is then exploited to demand higher prices from payers.
And of course, since legislative and regulatory intervention has worked so well to address the problem so far, the Commission suggests that price variation is unlikely to diminish without further intervention. The right time to intervene would have been when hospitals were consolidating and when they were buying physician practices and other care assets.