Health Care Cost Institute Report on Health Care Prices

By October 31, 2018Commentary

It has been widely documented that there is a wide variation between and within geographic regions for health care prices charged by providers and the actual amounts paid to them.  As readers know, I am a big believer that our health spending and spending growth problem is largely one of price, so understanding this variation in prices and payments is important, particularly if there isn’t really a good basis for such a large range.  And it is hard to believe there is one, since underlying costs of providing a service shouldn’t vary that much.  The Health Care Cost Institute uses its database of 1.8 billion paid commercial insurer claims from 2012 to 2016 to demonstrate some of this variation in a recent report.  (HCCI Report)  The report covered 112 urban areas.  Highest priced areas won’t shock you–the Bay Area and Alaska, at more than 50% above the national average.  The lowest priced ones are Little Rock and Maryland with its all-payer price regulation, both at 40% or more below the national average.  The Bay Area really is way over average and so most areas are actually below average.  Most areas had relative price level consistency across three major service categories–inpatient, outpatient hospital, and physician services, but some were high on one or low on one.  More interestingly, price level and price growth were not strongly correlated.  A few pitiable souls live in areas with both high prices and rapid spending growth, while a few lucky ones are in metroplexes with both low prices and low growth.  The most common situation was below average prices (but see comment above about the average) and above average price growth.  If you took out the outliers, most areas would have both relatively high prices and rapid price increases.  The report allows you to look at and compare areas in an interactive manner.  My area of the Twin Cities, for example, has overall prices about 4% above average, but our physician prices are quite high.  Our price growth is right about at the average.

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