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Medical costs lower in areas with more competition among hospitals, Carnegie Mellon-linked study finds

Wes Venteicher
| Tuesday, Dec. 15, 2015, 11:23 p.m.

A national health spending report released Tuesday provides new evidence that more hospitals in a region mean lower costs for patients.

Although the prices of common procedures vary dramatically from hospital to hospital and from region to region, the number of hospitals in a region has a clear impact on price, according to the report, which analyzed data from 88 million patients with private insurance.

“If you are the only hospital around and you have no competitors, your prices are going to be a lot higher,” said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University who co-authored the report.

The findings come amid a national trend toward consolidation of health systems and insurance companies, which hospitals and insurers have said benefits consumers by creating economies of scale.

But in areas with just one hospital, prices are an average of 15.3 percent higher than in markets with four or more hospitals, according to the report. In markets with two hospitals, prices are 6.4 percent higher; and in areas with three hospitals, prices are 4.8 percent higher, according to the report.

“There's a tremendous amount of variation in spending for people with employer-sponsored health insurance,” Gaynor said. “Price has a lot to do with that, and a lot of that price variation has to do with the potential competition there is.”

The report analyzed the largest set of spending data from private insurers that has yet been given to researchers, Gaynor said. The report drew on new data that insurers Aetna, Humana and UnitedHealthcare provided to the Washington-based Health Care Cost Institute.

Much more research has been done on public Medicare spending, which has provided the basis of recent health policy analysis, he said.

In areas of the country with the highest Medicare spending, the biggest cost driver is the number of procedures, Gaynor said. In areas with the highest private insurance spending, on the other hand, high-priced procedures are to blame.

Procedure costs are the product of negotiations between insurers and hospital systems. For example, the cost of a leg MRI is 12 times higher in the most expensive area, around New York, than it is in the cheapest area, around Baltimore.

In a broad area surrounding Pittsburgh, the cost of a leg MRI ranged from about $500 to nearly $3,000, according to the report. The report designated a region surrounding Pittsburgh that includes parts of West Virginia and Ohio, Gaynor said.

Gaynor noted the data do not include information from two of the area's largest insurers, Highmark Inc. and UPMC Health Plan. He said an agreement between researchers and the insurers who provided the data prevents him from talking about specifics of Pittsburgh's hospitals and insurers.

Stephen Foreman, an associate professor of health care administration at Robert Morris University, cautioned that Highmark, the area's dominant health insurer, likely pays much lower prices in the Pittsburgh area than the insurers who provided the data in the report.

Foreman said he hopes the report encourages more insurers to provide data that could help shape health policy.

“The more data like this, the more we can learn about what is really driving costs,” he said.

Wes Venteicher is a staff writer for Trib Total Media. He can be reached at 412-380-5676 or wventeicher@tribweb.com.

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