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Different Prices for Different Service Sites

By March 7, 2016Commentary

Health care product and service prices, not utilization, cause most of the growth in spending on health care in the United States and are the reason per capita health spending is higher in the US than in other developed countries.  While prices may be “high” across the board, they seem to be particularly high at certain sites of care, especially those associated with large health systems.  A study published in the American Journal of Managed Care captures some of these differences in price.  (AJMC Article)  The researchers used commercial health plan claims data from 2008 to 2013 and looked at seven common services:  a short office visit with an established patient; a long office visit with an established patient; chest X-ray; CT scan; MRI scan; upper GI endoscopy and colonoscopy.

Comparisons were examined for service prices when performed in a doctor’s office versus a hospital outpatient department setting or in two cases the comparison included hospital outpatient, doctor’s office and ambulatory surgery center.  In every case, hospital outpatient settings had higher prices; averaging 2 to 3 times as much and the ratios are generally growing over time.  The smallest ratio in 2013 was for short office visits, where it cost 1.2 times as much in a hospital setting.  The largest was for chest X-ray, which was 3.58 times more; which is completely incomprehensible and ludicrous.  Note that these are all commercial claims, and commercial health plans do not have Medicare’s power to just set prices to be paid providers; the commercial plans must negotiate and generally are dealing with health systems with substantial market power.  These differences flow down to consumers in their copayments and other out-of-pocket amounts; which are also much higher when the service is received at the hospital.

It is notable that not only are prices higher in hospital outpatient settings, but volume has shifted to those settings as large health systems continue to acquire physician practices and other provider types.  Just for this limited set of services, the price difference caused $2 billion in excess spending in 2013. This pernicious trend can and should be stopped immediately by both mandating that the same amounts are paid regardless of setting (Medicare is already heading down this bath) and by antitrust regulators engaging in a presumption that any acquisition by a health system is anticompetitive–not good for consumers.  There is too much concentration already; no more should be allowed and really many hospital and other mergers should be reversed.

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