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Hospital Prices are a Problem

By March 11, 2019Commentary

Feels like beating a dead horse to keep summarizing research on hospital pricing, but it is an important issue and if you are at all in the business of trying to manage health costs, hard to do that without addressing hospital costs.  A study in Health Affairs finds that hospital inpatient prices are growing faster than hospital-based physician services prices.   (HA Study)   The researchers looked at price growth for the period 2007 to 2014 from large private insurers in the categories of inpatient services, hospital-based outpatient care, and four procedures, C-section, vaginal delivery, outpatient colonoscopy, and knee replacement.  They performed some adjustments to ensure that case-mix was not unduly affecting results and controlled for inflation.  The actual paid amounts were used in determining prices, not what the hospital list price might be.  For the four specific procedures, hospital inpatient costs are the primary component of total expense, ranging from 61% for vaginal deliveries to 84% for knee replacements.  Over the study period, hospital inpatient prices rose 42% and outpatient prices rose 25%; while the corresponding physician prices for the services increased by only 18% for inpatient services and 6% for hospital-based outpatient care.  Hospital prices therefore played an outsized role in total growth in the price of a procedure, for example, growth in hospital prices accounted for 77% of the total cost growth for a colonoscopy and 97% of total price rise for knee replacement.  The authors also looked at whether relative bargaining power between hospitals and insurers, as measured by concentration levels, appeared to affect the results.  While hospital facility prices were the dominant cause of overall cost growth everywhere, they were an even greater factor where hospitals had more bargaining leverage than health plans.  Just one more piece of evidence that controlling health spending growth will mean doing something serious about hospital pricing, and frankly about hospital cost structures, including executive compensation and the practice of building Taj Mahal facilities.

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