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Variation in Hospital Inpatient Prices Across Small Geographic Areas
Jared Lane K. Maeda, PhD, MPH; Rachel Mosher Henke, PhD; William D. Marder, PhD; Zeynal Karaca, PhD; Bernard S. Friedman, PhD; and Herbert S. Wong, PhD
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Variation in Hospital Inpatient Prices Across Small Geographic Areas

Jared Lane K. Maeda, PhD, MPH; Rachel Mosher Henke, PhD; William D. Marder, PhD; Zeynal Karaca, PhD; Bernard S. Friedman, PhD; and Herbert S. Wong, PhD
Greater geographic variation was found among private than public payers in the inpatient price per discharge for most hospital services.
A potential confounding issue is the impact that Accountable Care Organizations (ACOs) may have on hospital prices. ACOs encourage greater integration between physicians and hospitals; this may lead to the unintended consequence of increased provider leverage and market concentration that further drives higher prices paid by private payers.1,9,25 Hospitals may also increase specialization along certain service lines and begin to compete more intensely for lucrative privately insured cases. Finally, as suggested by MedPAC, higher prices from private payers may reduce the pressure on hospitals in concentrated markets to constrain their costs that lead to higher spending. This may result in an ever-escalating cycle of higher payments, which lead to higher costs.7 Therefore, policies aimed at increasing market forces or that consider payment reforms, such as price regulation or bundled payments, may help to moderate hospital price variation and price increases.

Our study has several limitations. First, the PCR assumes that all payers within a payer category are discount- ed at an equivalent amount and it does not distinguish between different discounting methods within a payer group, such as negotiated rates from charges, per diem rates, or DRG-based payments.17 To the extent that prices for managed care plans are set differently from fee-for-service or other payers’ plans within the same payer group, the resulting PCR may be distorted for any particular discharge.17 We also only examined the variation in hospital prices for all discharges combined and 2 specific conditions; these do not reflect the full range of hospital services. The conditions examined, however, represent common types of discharges that are treated at acute care hospitals.

Another limitation is that net revenue was only available from the inpatient setting. Capturing prices in the outpatient setting may yield additional insights. We were also not able to observe hospital margins or the difference between net revenue and total expenses. Lastly, data were available from only 6 states and 1 data year. Data from 2006 may not reflect current inpatient prices. However, the states we examined are geographically dispersed. Despite some limitations, our price estimates are able to capture adjustments made to the claim after it was paid, contain payment from managed care, and include public and private payers. We were also able to control for a number of patient comorbidities and disease severity.

CONCLUSIONS

We find greater price variation among private than public payers for different hospital services. Hospital market competition may be partly responsible for driving price variations. Because payment policies from Medicare ultimately affect private payers, public policy efforts that take into consideration market-based approaches or payment reform may help reduce price variations.


Acknowledgments

We gratefully acknowledge Minya Sheng for her excellent statistical programming and Linda Lee, PhD, for editorial review. We also acknowledge the following HCUP partners: California Office of Statewide Health Planning and Development, Florida Agency for Health Care Administration, Massachusetts Division of Health Care Finance and Policy, New Jersey Department of Health and Senior Services, and Wisconsin Department of Health Services.

Author Affiliations: Truven Health Analytics, Analytic Consulting & Research Services, Cambridge, MA (RMH, WDM); Agency for Healthcare Research and Quality, Center for Delivery, Organization, and Markets, Rockville, MD (BSF, HSW, ZK); and formerly of Mid-Atlantic Permanente Research Institute, Kaiser Permanente, Rockville, MD (JLKM).

Source of Funding: This study was sponsored by the Agency for Healthcare Research and Quality (AHRQ) under contract number HHSA-290-2006-00009-C with Truven Health Analytics. The views expressed herein are those of the authors. No official endorsement by any agency of the federal government or of a state government is intended or should be inferred.

Author Disclosures: Authors (JLKM, RMH, WDM, ZK, HSW, BSF) report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (JLKM, RMH, WDM, ZK, HSW); acquisition of data (RMH, ZK, HSW); analysis and interpretation of data (JLKM, RMH, WDM, ZK, HSW, BSF); drafting of the manuscript (JLKM, RMH, ZK, HSW); critical revision of the manuscript for important intellectual content (JLKM, RMH, ZK, HSW, BSF); statistical analysis (JLKM, RMH, WDM, ZK, HSW); provision of study materials or patients (HSW); obtaining funding (RMH, ZK, HSW); administrative, technical, or logistic support (JLKM, RMH, ZK, HSW, BSF); and supervision (JLKM, RMH, ZK, HSW, BSF).

Address correspondence to: Jared Lane K. Maeda, PhD, MPH, Mid-Atlantic Permanente Research Institute, Kaiser Permanente, 2101 E Jefferson St, 3-West, Rockville, MD 20852. E-mail: jared.maeda@gmail.com.


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