Hospital Prices Rising Much Faster Than Physician Fees

Marcia Frellick

February 07, 2019

Previous reports have pointed to physician prices as a key driver of healthcare costs among the privately insured, but a new analysis shows that hospital prices have risen much faster than physician prices.

Zack Cooper, PhD, an associate professor of health policy in the School of Public Health and of economics in the Department of Economics, both at Yale University, in New Haven, Connecticut, and colleagues analyzed claims data from the Health Care Cost Institute (HCCI) from 2007 to 2014 using prices actually paid — those that insurers negotiated with clinicians.

They found that for inpatient care, hospital prices grew 42% in that time while physician prices grew 18%. For hospital-based outpatient care, hospital prices grew 25% while physician prices grew 6%. All prices were adjusted for inflation to 2014 dollars.

Cooper and colleagues report their findings in an article published online February 4 in Health Affairs.

The researchers also compared hospital prices with physician prices for four common services: cesarean delivery, vaginal delivery, hospital-based outpatient colonoscopy, and knee replacements. They found that the facility component of the total increase in price for the procedures ranged from 76.9% of the total price increase for colonoscopies to 96.8% of the total price increase for knee replacements.

Total health spending in the privately insured market in the United States grew by nearly 20% from 2007 to 2014, according to the Henry J. Kaiser Family Foundation.

"Our work suggests that efforts to reduce health care spending should be primarily focused on addressing growth in hospital rather than physician prices," the authors write.

Addressing hospital price growth could include antitrust enforcement, use of reference pricing (financial incentives to encourage consumers to shop for healthcare), and incentives to encourage physicians to make more cost-effective referrals, the authors suggest.

They note that "vertically integrated physicians often refer their patients to more expensive locations."

The researchers acknowledge several limitations of the study. Among them are that the HCCI data they used for their study only covered about 28% of employer-sponsored people in the United States. Also, data for people insured by companies other than Aetna, Humana, and UnitedHealthcare were not included.

In addition, hospital price measures were used to calculate costs of implants and medical devices. Therefore, it is possible that the increase in knee replacement costs, for example, reflected the cost of knee implants themselves.

The authors write that they believe this is the first study to systematically compare hospital price and physician price growth rates over time.

The authors' conclusion is the same as that of another study of insurance claims data from the California Public Employees' Retirement System. That study, published in 2017, showed that between 2004 and 2011, the compound annualized growth rate for physician prices for infant deliveries was 6% a year, compared with 17% for hospital prices.

The project received support from the Commonwealth Fund and the National Institute for Health Care Management Foundation. A coauthor was previously affiliated with the HCCI. The other authors have disclosed no relevant financial relationships.

Health Aff. Published online February 4, 2019. Abstract

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