More Evidence of the Association Between Hospital Market Concentration and Higher Prices and Profits

A new policy brief by the National Institute of Health Care Management, More Evidence of the Association Between Hospital Market Concentration and Higher Prices and Profits, shows that “the prices hospitals charge to private insurers for 6 common procedures are 30 to 50 percent higher when the hospital is located in a market where it faces less competition from other hospitals.”

Here are a few highlights:

  • “…because the ACA coverage expansions will be financed in part by slowing the rate of increase in Medicare payment updates, there is concern that hospitals with as yet unexploited pricing leverage will attempt to recoup some of the lost Medicare revenue by raising prices to private insurers.
  • “…my own recent work has shown that the ability to shift costs to private insurers rather than cutting costs for all patients is stronger in markets where hospital concentration is higher.”
  • “…using individual level data from 61 hospitals for patients treated during 2008 for any of six high-cost inpatient cardiac or orthopedic procedures, I show that hospitals in concentrated markets charge significantly higher prices to private payers than do their peers in more competitive markets. Furthermore, these prices are significantly above their direct costs of providing care.”
  • “Results clearly showed that hospitals in concentrated markets, where there is less competition, are able to extract significantly higher payments from private insurers for each of the six procedures studied.”
  • “…the average hospital in concentrated markets received $32,411 for each commercially insured patient undergoing coronary angioplasty, or one and a half times the $21,626 received in competitive markets.”
  • “Traditionally, hospitals have sought to cover shortfalls from public payers by charging higher prices to private payers.”
  • “The work reported here confirms earlier studies showing that hospitals are able to extract higher private payments when they hold more market power.”
  • “Now provisions of the ACA are encouraging further consolidation of hospitals and physicians, and the final antitrust review regulations from the Department of Justice and the Federal Trade Commission have eliminated the proposed mandatory review of certain prospective ACOs.”
  • “It is clear…that the ongoing consolidation of local hospital markets is already frustrating the efforts of employers and private insurers to moderate the growth of health care costs.”
  • “…if ever-strengthening provider market power continues to push private premiums upward and erode private coverage, hospitals may find themselves in the ironic position of serving a larger share of patients covered by forms of public insurance that pay the lowest rates. They may also face demands in some states for government regulation of the prices they charge.”

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