Why Are Hospital Prices Different? An Examination of New York Hospital Reimbursement
- By: Gorman Actuarial
- Date: December 2016
- Priority Area: Empowering Health Care Consumers
- Type: Resources
- Category: Report
- Document: Download
This report, funded in part by NYSHealth, examines the factors behind New York State hospitals’ wide price variation, with some hospitals up to 2.7 times more expensive than the lowest-priced ones in the same region.
Drawing from exclusive, nonpublic data from health insurers and negotiated contracts with New York State hospitals, the study finds that 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, which in turn can compromise a patient’s ability to seek out more affordable or better care options. It analyzed data from more than 100 hospitals and 9 insurers over 3 study regions of New York: Downstate, Buffalo, and Albany.
Key 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. 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 with higher prices do not necessarily have higher quality. Likewise, hospitals with lower prices do not necessarily have lower quality.
- 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.
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.
Read the full report. Read the executive summary on key findings in the report.