High and varying prices for privately insured patients underscore hospital market power

Across 13 selected U.S. metropolitan areas, hospital prices for privately insured patients are much higher than Medicare payment rates and vary widely across and within markets, according to a study by the Center for Studying Health System Change (HSC) based on claims data for about 590,000 active and retired nonelderly autoworkers and their dependents. Across the 13 communities, aver­age hospital prices for privately insured patients are about one-and-a-half times Medicare rates for inpatient care and two times what Medicare pays for outpa­tient care. Within individual communities, prices vary widely, with the highest-priced hospital typically paid 60 percent more for inpatient services than the lowest-priced hospital. The price gap within markets is even greater for hospital outpatient care, with the highest-priced hospital typically paid nearly double the lowest-priced hospital. In contrast to the wide variation in hospital prices for pri­vately insured patients across and within markets, prices for primary care physi­cian services generally are close to Medicare rates and vary little within markets. Prices for specialist physician services, however, are higher relative to Medicare and vary more across and within markets. Of the 13 markets, five are in Michigan, which has an unusually concentrated private insurance market, with one insurer commanding a 70-percent market share. Despite the presence of a dominant insurer, almost all Michigan hospi­tals command prices that are higher than Medicare, and some hospitals com­mand prices that are twice what Medicare pays. In the eight markets outside of Michigan, private insurers generally pay even higher hospital prices, with even wider gaps between high- and low-priced hospitals. The variation in hospital and specialist physician prices within communities underscores that some hospitals and physicians have significant market power to command high prices, even in markets with a dominant insurer.