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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 for 27.6 percent of individuals with private employer-sponsored insurance in the US between 2007 and 2011 to examine the variation in health spending and in hospitals' transaction prices. We document the variation in hospital prices within and across geographic areas, examine how hospital prices influence the variation in health spending on the privately insured, and analyze the factors associated with hospital price variation. Four key findings emerge. First, health care spending per privately insured beneficiary varies by a factor of three across the 306 Hospital Referral Regions (HRRs) in the US. Moreover, the correlation between total spending per privately insured beneficiary and total spending per Medicare beneficiary across HRRs is only 0.14. Second, variation in providers' transaction prices across HRRs is the primary driver of spending variation for the privately insured, whereas variation in the quantity of care provided across HRRs is the primary driver of Medicare spending variation. Consequently, extrapolating lessons on health spending from Medicare to the privately insured must be done with caution. Third, we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures. For example, hospital prices for lower-limb MRIs vary by a factor of twelve across the nation and, on average, two-fold within HRRs. Finally, hospital prices are positively associated with indicators of hospital market power. Even after conditioning on many demand and cost factors, hospital prices in monopoly markets are 15.3 percent higher than those in markets with four or more hospitals.

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. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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

    healthcare; health spending; hospitals; prices; price dispersion; competition; market structure;

    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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