An unprecedented behind-the-scenes look at the prices that majorinsurers pay for medical services presents a serious challenge toprevailing beliefs about how to lower health care costs.

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For years, experts have argued that hospital mergers can play animportant role in driving down medical spending. Their evidence wasdata on Medicare spending around the country. President Obama evenhighlighted exceptionally low Medicare spending costs in GrandJunction, Colorado as an example of a health system that coulddeliver better prices to consumers.

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But new data shows that what consumers and insurers are spendingin the private market in a given area doesn’t necessarily alignwith Medicare spending. Grand Junction, for instance, hashigher-than-average private sector health costs. While the area’slarge hospitals may drive down Medicare spending by avoidingduplicative costs, according to the New York Times, they oftenforce insurers in the private market to pay more for proceduresbecause of the bargaining power they gain from their size and lackof competition.

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Martin Gaynor, the Carnegie Mellon economics professor whoauthored the groundbreaking study, used to subscribe to thebigger-is-better theory about hospitals. But since looking at theprices that Aetna, Humana and UnitedHealthcare pay hospitals forservices, he has radically changed his tone.

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“We have this large body of evidence covering many, many yearsthat consistently shows if you happen to live in an area with onlyone hospital you are going to pay a lotmore,” Gaynor told Marketplace. Based on the data, the New YorkTimes has created an online tool that allows people to compareprivate insurance spending in different markets across the country.The results are remarkable because there don’t appear to be anyclear geographic trends. While big cities tend to have highercosts, that’s certainly not always the case. For instance, whileLos Angeles has the third highest Medicare spending, it hasbelow-average private insurance spending.

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