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Hospitals negotiate higher-than-competitive-rates with insurers

Hospitals are using market clout to negotiate higher-than-competitive prices with insurers, which causes price variation that is inconsistent with what is found in other industries within competitive markets, Becker’s Hospital Review reports.

New research by the Center for Studying Health System Change found the rates that hospitals charge private insurers varied widely, both between different cities and also often within the same market. The study attributed high prices largely to hospital market concentration, though it noted that some hospitals win generous rates largely because prestige makes them "must-have" providers, according to the Wall Street Journal.

The study analyzed data on private insurer payment rates to hospitals and physician practices, focusing on variation across and within markets. Four major insurers--Aetna, Anthem Blue Cross Blue Shield, Cigna and UnitedHealth Group--provided blinded hospital and physician payment rate data in eight markets, reporting their contracted payment rates for commercial insurance as percentages of Medicare payment rates.

The results support the argument that some high-priced hospitals are getting the upper hand with insurers. San Francisco's average inpatient payment rate was 210 percent what Medicare pays, while Miami/South Florida was the least expensive, with rates of 147 percent of Medicare, NPR reports.

Hospitals have significant market power to negotiate higher-than-competitive prices. "The study confirms that many hospitals use their market power to get exorbitantly high private payment rates," Suzanne Delbanco, executive director of Catalyst for Payment Reform, told Business Insurance.

The study had two major recommendations--redesign benefits so patients have an incentive to choose lower-cost providers and cap provider charges--neither of which would be politically popular and would require "hard choices and trade-offs," notes Business Insurance.

The American Hospital Association condemned the study, calling it "faulty conclusions based on unverified data from a handful of powerful insurance companies." The group also complained the report doesn't provide evidence that hospital market power is responsible for higher prices, according to NPR.

To learn more:
- read the NPR story
- see the Wall Street Journal article
- read the Business Insurance story
- view the Becker’s Hospital Review article

Related Articles:
California hospitals overbilled insurers to make up for lost profits, analysis concludes
More hospitals seek contract parity among insurers
Hospital profits cut in half despite lower costs, rate increases
Expect hospital supply cost pressures to continue

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