The study's results suggest thathealth care spending could be reduced by policies aimed at steeringprivately insured patients to lower-priced providers. (Photo:Shutterstock)

The bargaining power between insurers and hospitalsvaries dramatically across markets, across hospitals within marketsand even within hospitals. Consequently, so does the price forspecific health care services, according to the study, “The Price Ain't Right? Hospital Prices and HealthSpending on the Privately Insured,” by Yale Universityassociate professor Zack Cooper and colleagues, published in theQuarterly Journal of Economics.

The study, funded by The National Institute for Health CareManagement (NIHCM) Foundation, used claims data from three largeprivate insurers to provide a national picture of private-sectorspending and pricing variation.

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The researchers found that overall prices are 12 percent higherfor monopoly hospitals than for hospitals with four or morecompetitors. Conversely, a ten-percentage-point increase in thecollective market share of the study insurers was associated with 7percent lower hospital prices in the market.

“Monopoly hospitals are more likely to obtain contracts thatexpose them to less financial risk or that reimburse at morelucrative rates,” according to NIHCM's summary of the findings. “Hospitals facinggreater insurer concentration are more likely to receiveprospective reimbursement tied to Medicare rates.”

Hospital prices increased after mergers, with the largestincreases seen for merging facilities in closer proximity,according to the study. Merging hospitals within five miles of oneanother experienced post-merger price increases of 6 percent; nosignificant price increases were observed for merging facilitieslocated more than 25 miles apart.

The study's results suggest that health care spending could bereduced by policies aimed at steering privately insured patients tolower-priced providers. Hospitals could also be pushed to bear morerisk for the costs of the care they provide to improve efficiencyof their health care delivery.

“Hospitals with greater market power relative to insurers wouldbe better able to resist these efforts,” according to the summary.“Policymakers need to continue to monitor hospital market power andseek to protect against hospital mergers that could harm consumerwelfare.”

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