Understanding high prices

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 - Evan headshot 2013
Evan Godt, Editorial Director

Two explanations are usually offered to explain variation in hospital prices within local markets. High prices are often associated with specialized, tertiary care hospitals with a unique mission, or the high-price hospital is exerting its market power in negotiation of prices with private payers.

A study published this week in Health Affairs offers support for both explanations, according to authors Chapin White, PhD, MPP, senior policy researcher at RAND in Arlington, Va., and colleagues.

The researchers’ analysis included 110 hospitals and price calculations based on more than 24,000 inpatient stays. High-price hospitals averaged 474 beds—more than double the average of low-price hospitals—and had market shares three times the size of their low-price counterparts. The high-price hospitals also were more likely to offer specialized facilities and nearly half were major teaching hospitals, compared with only 17 percent of low-price hospitals.

This forms an awkward situation for health plans, which would like to steer patients toward low-price providers. Using “active purchasing” strategies that exclude high-price providers and increase patient cost-sharing for using nonpreferred providers could result in a backlash.

“Excluding hospitals with the best reputations is likely to provoke objections from enrollees and physicians, regardless of the latest quality metrics scores from CMS,” wrote White and colleagues.

They added that radical approaches such as state-based rate setting or restriction on contracted arrangements between hospitals and payers may become more prevalent. The authors cited a 2010 Massachusetts law that barred hospitals from insisting they be classified in a preferred tier as a condition of participating in a network.

The shifting payment landscape demands careful attention and preparedness on the part of physicians. It was a major focus of the latest issue of Health Imaging magazine. To read more about how radiology fits in amid all the disruption in healthcare, read a pair of features in our Jan/Feb issue titled “ Navigating New Payment Models: A Survival Guide” and “ Transparency in Healthcare: When Patients Act More Like Shoppers Than Sheep.”

-Evan Godt
Editor – Health Imaging