Over the years, the significant variation in prices at different health care providers for similar medical procedures — from hip replacements to MRIs — has been widely reported. But new research indicates that an under-the-radar variable is making a similar impact on health care prices: the rates that insurers negotiate with hospitals themselves for specific procedures.
According to a working paper for the National Bureau of Economic Research by Questrom’s Keith Ericson, along with Northwestern University’s Amanda Starc and the University of Pennsylvania’s Stuart V. Craig, insurer pricing negotiations for “allowed amounts” at individual hospitals can lead to variations of up to 13 percent across insurers for identical procedures at a single facility. “When one [hospital’s price] is more expensive than the other, it makes the news,” says Ericson. “But [until now] we didn’t know that there was a lot of variation between insurers’ [negotiated prices] at the same hospital.”
To study the issue, the trio looked at more than 74,000 claims for several common medical procedures, such as knee replacements and caesarean sections. They analyzed pricing data across six different regional and national insurers to make comparisons.
The trio found statistically significant variations in price for the procedures across insurers. In some cases, these insurer negotiated rates meant that price of identical procedures at the same hospital might vary by hundreds or even thousands of dollars.
Because individuals frequently pay out-of-pockets costs for a procedure, these variations — until now almost entirely hidden from consumers — can have a real impact on the value of any given health insurance plan. “Many are concerned about hospitals being high priced versus low priced,” says Ericson. “But people should also be concerned about insurers being high-priced versus low-priced,” he says.
For Ericson, the findings suggest that it may be time for additional disclosures to shed light on pricing. “You as an individual should consider them. Your employer should consider them when shopping for insurance,” he says. “We should think about price transparency options.”
Read the complete working paper “How Important is Price Variation Between Health Insurers?“