The Price Ain't Right? Hospital Prices and Health Spending on the Privately Insured

Zack Cooper, Stuart Craig, Martin Gaynor and John van Reenen

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We use insurance claims data covering 28 percent of individuals with employer-sponsored health insurance in the US to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a near homogenous service such as lower-limb MRIs, about a fifth of the total case-level price variation occurs within a hospital in the cross-section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g. they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs - hospitals have lower prices and bear more financial risk. Examining the 366 merger and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6 percent when the merging hospitals were geographically close (e.g. 5 miles or less apart), but not when the hospitals were geographically distant (e.g. over 25 miles apart).

Keywords: health care; health spending; hospitals; prices; price dispersion; competition; market structure; mergers (search for similar items in EconPapers)
JEL-codes: I11 L10 L11 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured (2019)
Working Paper: The price ain’t right? Hospital prices and health spending on the privately insured (2019)
Working Paper: The price ain’t right? hospital prices and healthspending on the privately insured (2015)
Working Paper: The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1395

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