NYSHealth's Report Finds Market Leverage Controls Hospital Pricing

Wide price variation in hospital prices for the care that they render—up to a 2.7-fold difference—is driven by the hospital’s market leverage, according to a new report by the New York State Health Foundation (NYSHealth).

The study was commissioned by NYSHealth in an attempt to understand the various factors that influence the rapidly rising healthcare costs in the state of New York, which in turn translate into rising health insurance premiums. The study team delved deep into understanding hospital contracting practices, reimbursement methods, and hospital prices in the state by using data provided by 9 private commercial insurers for 107 hospitals in 3 regions in New York: Downstate, Albany, and Buffalo. While the team analyzed private commercial prices only, the influence of revenue from a public payer on a hospital’s revenue was considered.

The following are key findings of the report:

• The complexity of hospital reimbursement prices requires considerable data, resources, and analyses, which can up the administrative costs and undermine efforts on transparency.
• There are significant differences in overall price levels among hospitals of similar size, services, and teaching designation, regardless of how sick the patient population is and the complexity of services provided. The most expensive hospitals are 1.5 to 2.7 times more expensive than lowest-priced hospitals in the same region. A hospital’s bargaining power when negotiating with insurers is key to the price they can command.
• One of the findings negates a widely held belief that hospitals negotiate higher prices from commercial insurers to balance the lower reimbursement it receives for its Medicare and Medicaid enrollees. Hospitals in the Downstate region that serve more Medicare and Medicaid patients garner lower prices in the private commercial market, while hospitals that serve fewer Medicare and Medicaid patients garner higher prices in the commercial market, according to the report.
• Contract provisions between hospitals and insurers can hinder competition, product innovation, transparency, and cost containment strategies.
• Hospitals with higher prices do not necessarily have higher quality, and vice versa.
• The price that a hospital commands is controlled by the contracting negotiations driven by the health system that the hospital is a part of.

After considering these findings, the authors of the report have made certain policy recommendations to help amend the observed discrepancy in hospital prices:

• Explore ways to simplify reimbursement methodologies. In an effort to increase the transparency of the reimbursement process, the report recommends the following: All insurers should use the same Diagnosis Related Group, commonly called DRG, for inpatient reimbursement All insurers should use the same outpatient hospital fee schedule
• Restrictions on certain contractual language. To protect consumer interests and boost transparency, confidentiality language, anti-steering language, and language that hinders the functioning of a tiered network should be prohibited.
• Persistent monitoring and reporting of provider price information. The report recommends an annual public reporting of provider price information to help the state monitor provider consolidation and other market changes that could greatly influence market dysfunction.
• Additional monitoring of hospitals that serve a larger proportion of Medicare and Medicaid patients.