High-Priced Providers Get 80 Cents of Every Healthcare Dollar, Study Finds

Twenty five percent of hospitals and physicians groups are considered high priced and consume 80 percent of total healthcare expenditures in Massachusetts, a new study has found.

Massachusetts healthcare costs, like those across the nation, are growing faster than the national gross domestic product. To combat and control these costs, the state enacted healthcare reform legislation, which served as one of the models for the national Patient Protection and Affordable Care Act. As Massachusetts goes, so, too, will the rest of the United States.

Despite healthcare reform, however, the cost of healthcare continues to outstrip the economy. A report by the Commonwealth’s Center for Health Information and Analysis  (CHIA) suggests the blame falls on those aforementioned high-priced hospitals physicians groups, and that reining in those high-priced providers is the answer to reducing healthcare costs.

“That means that in order to save a lot of money, you really have to go after those high priced hospitals,” Aron Boros, director of CHIA tells NPR affiliate WBUR .

Who, then, is going to bell the cat? Not government, according to Boros. Instead it is up to the consumer, employers, and health insurers to put the squeeze on high-priced healthcare providers, he says.

To generate its report, CHIA examined pricing and payment data of Massachusetts healthcare providers from four of the state’s insurers. Among the specific findings:

High-priced providers get most of the business

Higher-priced hospitals took in around 80 cents of every healthcare dollar paid by insurers; higher-priced physicians groups took in 83 cents. CHIA found:

• For acute hospital inpatient services, 86 percent of total inpatient payments and 74 percent of total inpatient discharges from commercial payers were concentrated in hospitals with inpatient relative prices above the network median.
• For acute hospitals, 80 percent of total payments from commercial payers were made to hospitals with blended relative prices above the network median.
• For physician groups, 83 percent of total payments from commercial payers were made to physician groups with relative prices above the network median.

High-priced providers are consistently higher priced

• Of the 65 acute care hospitals, 14 (22 percent) had consistently higher relative prices, and 17 (26 percent) had consistently lower relative prices.
• Physician groups were even more dispersed. Of the 41 physician groups identified, 13 (32 percent) had consistently higher relative prices, and 17 (41 percent) had consistently lower relative prices.
• Even if a provider had a higher relative price value in one payer’s network compared to another payer’s network, this does not imply whether the absolute dollar amount in the former network is higher or lower than in the latter network.

Bigger is More Consistent

Larger providers had more consistent pricing with less variation between high and low. Prices paid by large insurers were similarly consistent. Smaller providers had wider variation in pricing and smaller insurers paid a wider variation of prices.

Why High Prices?

The report did not ascertain why certain providers had higher prices and others had lower prices, but identified some correlations. “Hospitals with higher relative prices tended to be academic medical centers, teaching hospitals, specialty hospitals, and geographically isolated hospitals,” the report found. “A majority of the hospitals that had lower relative prices were disproportionate share hospitals (DSH).6 After controlling for certain hospital characteristics, teaching hospital status was associated with higher relative prices, and DSH status was associated with lower relative prices.”

Download the full report (PDF) here.