Prices for Medical Services Vary Within Hospitals, but Vary More Across Them

Using commercial claims for 2012-2013 from the Colorado All Payer Claims Database, we examine how medical service prices vary for five hospital-based procedures and the complexity-adjusted inpatient price. We find that prices vary substantially in multiple dimensions. Our analysis indicates that there is significant price variation across payers for the same service in the same hospital. If prices converged to the lowest rate each hospital receives, commercial expenditures would fall by 10% to 20%. Differences across hospitals account for an even more substantial amount of the overall variation. For five out of six prices, we find that differences associated just with hospitals' metropolitan areas account for over 35% of the total variation. We observe substantial residual variation (18%-32%) after accounting for factors specific to a given payer or provider.