According to a study by the Center for Studying Health System Change (HSC) on 13 U.S. metropolitan areas (five in Michigan), hospital prices for privately insured patients are not only significantly higher than those with Medicare, but also differ greatly within those markets. The study, based on claims data from 590,000 active and retired autoworkers, including their dependents, found that on average, hospital prices for privately insured patients were one and a half times higher than those with Medicare and two times higher than that for outpatient care. Prices also vary within each area where the highest-priced hospitals are paid about 60 percent more for inpatient services than the lowest priced hospital. In regards to specialist physician services, prices for Medicare are actually higher.
Researchers have discovered that provider market power is the key driver in these price negotiations where better known health care professionals can charge higher prices. Another reason behind the price variation lies on the insurance companies’ side where dominant insurers are not nearly as vulnerable to price demands from must-have providers. Dominant providers, such as Blue Cross Blue Shield of Michigan, do not force lower prices; they just have to do better than their competitors.
There are ways of price variation which encourage savings, one of them being reference pricing, where the payer sets a maximum allowed amount for a specific procedure. Savings are increased more when prices are lower than what is considered normal.
In the end, specialty physicians and hospitals have an advantage because they are able to command much higher prices. Even in concentrated markets, a well-known hospital can negotiate higher prices because of their reputation, location, and services.
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