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Service Price Variation in Minnesota

By January 10, 2018Commentary

The state of Minnesota has an all-payer database which is created by collecting over a billion claims on health care for 4.3 million residents, covered by all kinds of payers and programs, including Medicare and Medicaid.  It is pretty comprehensive.  Researchers are using that data to create a series of reports on variation in prices paid for common services.  The first report focuses on inpatient services for orthopedics and ob/gyn.  The results are truly eye-opening.  (Mn. Report)   This data is prices actually paid, so it is real variation.  Okay, so total knee replacement, total average hospital price statewide was $23,997, with the lowest average price from a hospital being $15,214 and the highest being $35,171.  The lowest individual price paid was $6,186 to $46,974.  That hospital with the highest average price had a range of $24,681 (Medicaid?) to $46,732.  The hospital with the lowest average price had a range of $6,186 (again, Medicaid?) to $30,306.  The range on individual prices was well over 700%, but even the ranges within hospitals is substantial.  And assuming Medicaid is the lowest payer, how does Medicaid have such a huge range in what it pays hospitals?  This is simply absurd.

Same thing with hip replacements, where there is over a 600% range in prices, lowest to highest.  A normal birth delivery, seems simple, but the variation is 400%and for Cesarean section deliveries, it is 500%.  What the heck is going on in my state!  The answer likely is simply, Minnesota, like most states, has evolved to geographic regions which are largely non-competitive in regard to hospital services, so many of these hospital systems can charge pretty much whatever they want and may even be able to pressure Medicaid into paying more if patients want access.  What is frustrating is that the report is anonymized.  It shouldn’t be.  Names should be named, consumers and payers should know who the high chargers are and who the lower cost facilities are.  And the market appears to be so non-competitive that we may need some regulation that limits this variation in what is paid.

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