Variation in Commercial Health Plan Provider Payments

An analysis based on data in the Health Care Cost Institute and published in Health Affairs reveals wide variation in payments by commercial health plans to providers for the same services.   (HA Article)   Note that this topic is different from the issue of geographic variation in overall health spending for a person; this relates to variation in pricing.  Spending variation can be due to a number of factors, including price variation, but price variation is almost certainly due to the relative bargaining power of the provider and plan and the structure of the provider and plan markets.  The analysis covered 242 common medical services in 41 states and DC.  For 162 services found in all these areas, the average state price ratio to the average national price varied from a low of .79 in Florida to a high of 2.64 in Alaska.  Some other high price states include North Dakota, Minnesota, Wisconsin and New Hampshire.  Other low price states are Arizona, Maryland, Tennessee and Nevada.

Here are some examples showing the spread.  Knee replacement has relatively low price variation, a ratio of 1.32 between the 75th percentile average state price and the 25th percentile average state price.  Cataract removal has a ratio of 1.47 and a pregnancy ultrasound has one of 1.54.  In absolute dollars, however, the variation in knee replacement, a relatively expensive service has much more impact on payers and consumers than does the variation in relatively inexpensive pregnancy ultrasounds.  Within states with multiple metropolitan areas, there can also be substantial price variation.  A knee replacement in Sacramento costs almost twice what one in Riverside does. California had the largest within state variation and Virginia the lowest.  While this article doesn’t examine the question, it is hard not to suspect that there are higher prices in states or markets with more provider concentration, as other research has indicated.