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The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured

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  • Zack Cooper
  • Stuart Craig
  • Martin Gaynor
  • John Van Reenen

Abstract

We use insurance claims data covering 28 percent of individuals with employer-sponsored health insurance in the US to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a near homogenous service such as lower-limb MRIs, about a fifth of the total case-level price variation occurs within a hospital in the cross-section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g. they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs - hospitals have lower prices and bear more financial risk. Examining the 366 merger and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6 percent when the merging hospitals were geographically close (e.g. 5 miles or less apart), but not when the hospitals were geographically distant (e.g. over 25 miles apart).

Suggested Citation

  • Zack Cooper & Stuart Craig & Martin Gaynor & John Van Reenen, 2015. "The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured," CEP Discussion Papers dp1395, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1395
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    References listed on IDEAS

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    Cited by:

    1. repec:aea:jecper:v:31:y:2017:i:4:p:51-72 is not listed on IDEAS
    2. Laurence Baker & M. Kate Bundorf & Aileen Devlin & Daniel P. Kessler, 2016. "Why Don’t Commercial Health Plans Use Prospective Payment?," NBER Working Papers 22709, National Bureau of Economic Research, Inc.
    3. Laurence C. Baker & M. Kate Bundorf & Daniel P. Kessler, 2017. "Does Multispecialty Practice Enhance Physician Market Power?," NBER Working Papers 23871, National Bureau of Economic Research, Inc.
    4. repec:eee:jhecon:v:57:y:2018:i:c:p:131-146 is not listed on IDEAS
    5. Kate Ho & Robin S. Lee, 2017. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," NBER Working Papers 23742, National Bureau of Economic Research, Inc.
    6. Zack Cooper & Fiona Scott Morton & Nathan Shekita, 2017. "Surprise! Out-of-Network Billing for Emergency Care in the United States," NBER Working Papers 23623, National Bureau of Economic Research, Inc.
    7. Zack Cooper & Fiona Scott Morton & Nathan Shekita, 2017. "Surprise! Out-of-Network Billing for Emergency Care in the United States," CEP Discussion Papers dp1524, Centre for Economic Performance, LSE.
    8. Mark Shepard, 2016. "Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 22600, National Bureau of Economic Research, Inc.
    9. Cooper, Zack & Scott Morton, Fiona & Shekita, Nathan, 2017. "Surprise! Out-of-network billing for emergency care in the United States," LSE Research Online Documents on Economics 86621, London School of Economics and Political Science, LSE Library.
    10. repec:eee:hepoli:v:122:y:2018:i:2:p:94-101 is not listed on IDEAS
    11. Caitlin Carroll & Michael Chernew & A. Mark Fendrick & Joe Thompson & Sherri Rose, 2017. "Effects of Episode-Based Payment on Health Care Spending and Utilization: Evidence from Perinatal Care in Arkansas," NBER Working Papers 23926, National Bureau of Economic Research, Inc.
    12. Mohajan, Haradhan, 2016. "An Analysis of Knowledge Management for the Development of Global Health," MPRA Paper 82959, University Library of Munich, Germany, revised 16 Aug 2016.

    More about this item

    Keywords

    health care; health spending; hospitals; prices; price dispersion; competition; market structure; mergers;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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