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Hospital Prices Vary Widely, Associated with Market Power

Contact: Michele McEvoy, 212-292-7293, mcevoy@nyshealth.org

Insurer-Hospital Contracts Hinder Competition and Transparency, New Report Finds

December 19, 2016 (New York)—Some hospitals are 1.5 to 2.7 times more expensive than the lowest-priced hospitals within the same region of New York State, according to a new study drawing from exclusive, nonpublic data from health insurers and negotiated contracts with New York State hospitals. A hospital’s market leverage—its bargaining power when negotiating with insurers—is a key factor in the prices a hospital can command. Hospitals with high prices do not necessarily have higher quality scores and those with lower prices do not necessarily have lower quality scores. The study also found certain contract provisions that impede health care competition and transparency for consumers.

Gorman Actuarial prepared the report, “Why Are Hospital Prices Different? An Examination of New York Hospital Reimbursement,” which was funded in part by the New York State Health Foundation (NYSHealth). It analyzed data for 107 hospitals and 9 insurers over 3 study regions of New York: Downstate, Buffalo, and Albany.

As consumers take on ever-greater proportions of health care costs through high-deductible plans and insurance premiums, the report identifies the drivers of costs and practices that can hinder competition, product innovation, transparency, and cost containment strategies. For example, some contract provisions prohibit the inclusion of hospital prices in cost-estimator tools for consumers; anti-steering language can limit the information available about high-quality, lower-priced providers. These contract terms can reinforce a hospital’s market advantage and shield it from competition, but also compromise a patient’s ability to seek out more affordable or better care options.

“This landmark report helps explain what is happening at the negotiating table between hospitals and insurance plans, and how it results in such wide price variation,” said David Sandman, Ph.D., President and CEO of NYSHealth. “Transparency is the future. Policymakers and other stakeholders can use these findings to address market dysfunctions that may be compromising consumers’ health and wallets and help make health care more affordable for New Yorkers.”

With the growing push for greater health care price transparency, the report sheds light on how prices vary across hospitals, the effects of consolidation, and opportunities to address problems in the health care market. In addition to market leverage and quality, the study also looked at whether and how geographic location, teaching status, and other hospital attributes influence hospital prices.

Study findings include:

  • There are significant differences in overall price levels among hospitals of similar size, services, and teaching designation, regardless of how sick the patient population is and the complexity of services provided. Highest-priced hospitals are 1.5 to 2.7 times more expensive than lowest-priced hospitals in the same region. A hospital’s market leverage, or its bargaining power when negotiating with insurers, is a key factor in the prices a hospital can command.
  • Hospitals in the Downstate region that serve more Medicare and Medicaid patients garner lower prices in the private commercial market. Meanwhile, hospitals that serve fewer Medicare and Medicaid patients garner higher prices in the commercial market. (No correlation was found in the Albany and Buffalo regions.) These findings counter a widely held belief that a hospital negotiates for higher commercial prices to offset lower reimbursements received for its publicly insured patients.
  • Contract provisions between hospitals and insurers can hinder competition, product innovation, transparency, and cost containment strategies.
  • Hospitals that are part of a hospital system with a large market share are generally higher-priced as a result of the power of that hospital system in contract negotiations, regardless of the individual hospital’s size or market share.
  • Hospitals with higher prices do not necessarily have higher quality. Likewise, hospitals with lower prices do not necessarily have lower quality.
  • Some insurers do not have the internal capacity to compare the prices of one hospital to another within their network because of the variation in reimbursement methods by hospital.


“This report untangles some of the many factors driving variation in New York State, both within and between regions,” said Bela Gorman, lead consultant at Gorman Actuarial and the study’s project lead. “For example, while price variation exists within all three study regions, it is greater Downstate than in Buffalo and Albany. In Albany, rural hospitals—which have less competition—are generally higher-priced.”

The report includes actionable recommendations for how policymakers can apply and build on the findings to understand health care costs and slow their growth, including simplifying reimbursement methodologies; barring certain contractual language from hospital/insurer contracts; and monitoring and reporting provider price information to highlight potential market dysfunctions.

The full report is available here.

About the New York State Health Foundation
The New York State Health Foundation (NYSHealth) is a private, statewide foundation dedicated to improving the health of all New Yorkers, especially the most vulnerable. Today, NYSHealth concentrates its work in two strategic priority areas: building healthy communities and empowering health care consumers. The Foundation is committed to making grants, informing health policy and practice, spreading effective programs to improve the health care system and the health of New Yorkers, serving as a neutral convener of health leaders across the State, and providing technical assistance to its grantees and partners.