The bargaining power between insurers and hospitals varies dramatically across markets, across hospitals within markets and even within hospitals. Consequently, so does the price for specific health care services, according to the study, “The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured,” by Yale University associate professor Zack Cooper and colleagues, published in the Quarterly Journal of Economics.

The study, funded by The National Institute for Health Care Management (NIHCM) Foundation, used claims data from three large private insurers to provide a national picture of private-sector spending and pricing variation.

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

“Monopoly hospitals are more likely to obtain contracts that expose them to less financial risk or that reimburse at more lucrative rates,” according to NIHCM's summary of the findings. “Hospitals facing greater insurer concentration are more likely to receive prospective reimbursement tied to Medicare rates.”

Hospital prices increased after mergers, with the largest increases seen for merging facilities in closer proximity, according to the study. Merging hospitals within five miles of one another experienced post-merger price increases of 6 percent; no significant price increases were observed for merging facilities located more than 25 miles apart.

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

“Hospitals with greater market power relative to insurers would be better able to resist these efforts,” according to the summary. “Policymakers need to continue to monitor hospital market power and seek to protect against hospital mergers that could harm consumer welfare.”

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Health care market competition tied to lower costs

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