Who's to blame for rising health care spending? (Hint: It's not just doctors.)

Hospital prices are a primary driver of U.S. health spending growth among privately insured U.S. residents, according to a study published this month in Health Affairs.

How to grow market share with price transparency

Study details

For the study, researchers examined growth in hospital and physician prices from 2007 to 2014 by reviewing claims data on the prices insurers have negotiated with hospitals and physicians for inpatient care, outpatient care, and four high-volume hospital-based services:

  • Cesarean sections;
  • Hospital-based outpatient colonoscopies;
  • Knee replacements; and
  • Vaginal delivery.

The researchers reviewed data from the American Hospital Association, HealthLeaders-InterStudy, and the Health Care Cost Institute, which included claims for U.S. residents enrolled in health plans offered by Aetna, Humana, and UnitedHealthcare.

The researchers said they believe their study is the first systematic comparison of hospital and physician price growth rates.

Findings

The researchers found that increases in hospital prices drove a majority of the growth in payments for inpatient and hospital-based outpatient services.

According to the researchers, hospital prices grew substantially faster than physician prices from 2007 to 2014. In particular, the researchers found hospital prices for inpatient care grew by 42% over that time, while physician prices for inpatient care grew by 18%. Similarly, the researchers found that hospital prices for hospital-based outpatient care grew by 25% from 2007 to 2014, while physician prices for hospital-based outpatient care grew by 6% over that time.

When researchers looked at the four high-volume hospital-based services they focused on for the study, they found that the hospital component of the combined cost of care—which includes both physician and hospital prices—ranged from 61% for vaginal deliveries in 2018 to 84% for knee replacement surgeries in 2018. Combined costs of care increased from 2007 to 2014, the researchers said, noting that the combined cost of vaginal deliveries increased by about 30% from 2007 to 2014.

The researchers said combined costs of care increased in large part due to rising facility fees. The researchers noted that the growth in facility fees accounted for 77% of the growth in the combined cost of care for colonoscopies and 97% of the growth for the combined knee replacement care costs. According to the researchers, increased facility fees accounted for nearly 90% of the increase in the combined cost of vaginal deliveries from 2007 to 2014.

The researchers found no systematic differences in prices between hospitals that employed physicians and those that did not employ physicians.

Discussion

The researchers wrote, "Our work suggests that efforts to reduce health care spending should be primarily focused on addressing growth in hospital rather than physician prices." They said there are a range of ways policymakers could address that growth, "including antitrust enforcement, administered pricing, the use of reference pricing, and incentivizing referring physicians to make more cost-efficient referrals."

Zack Cooper, a co-author of the study and an associate professor of health policy at Yale University, said, "We need to seriously think about regulating hospital prices," noting that hospital prices represent the single-largest component of health care costs in the United States.

Cooper also raised concerns about how consolidation among U.S. hospitals could affect prices. "What is most worrying to me is that there has been fairly profound consolidation among hospitals and when they gain market power they have the ability to raise prices," he said, adding, "They have the ability to gain more favorable contractual terms, which allows them to raise prices and resist the new, more sensible payment reforms" (Gooch, Becker's CFO Report, 2/6; Kacik, Modern Healthcare, 2/4; Baker, "Vitals," Axios, 2/5).

 Editor's note: The Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealthcare.

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