A National Bureau of Economic Research report out this week finds it's not just providers whose prices vary wildly. "Between-payer price variation is similar in magnitude to between-hospital price variation," the report finds.
The researchers used data from the Massachusetts all-payer claims database to analyze prices paid to providers for the same services. NBER looked at negotiated payments for five services (knee and hip replacements, vaginal and cesarean deliveries and MRIs) and overall price levels for all inpatient care.
The most expensive major payer was about 13% more costly on average than the cheapest major payer. That's compared to the highest-priced hospital system, which is 27% more expensive than the average of other hospitals.
Healthcare prices vary widely depending on the geographic market and even among providers in the same area. NBER found negotiated prices may differ across payers too. Those variations lead to more out-of-pocket spending, especially with more high-deductible health plans, and higher employer costs.
Healthcare consumer efforts have focused on hospitals and physicians providing price information. However, the researchers said having that data from payers would help prospective members choose plans based on those factors, too.
"While price transparency efforts have focused on helping consumers compare prices between providers before obtaining care, the earlier choice of which insurer to buy from will also have important effects on the healthcare prices consumers face," they wrote.
A low-price payer compared to a high-price payer can save about 15% in negotiated prices, an average savings of $182 out-of-pocket.
But what drives payer prices? It's not always solely about market share. A payer's size influences, but doesn't predict, lower prices. Instead, the ability to "steer" consumer demand, such as through HMO contracts, is a tool to keep down prices. The report found that, in addition to payers with larger market shares having lower prices, payers' ability to negotiate prices is also key to price levels.
The researchers additionally found that the trend of administrative services only (ASO) contracts may inflate prices. Payers like Aetna have reported more employers, including small businesses, have moved from insured plans to ASO offerings. The report found ASO contracts can have higher negotiated prices of 2% to 4%. One potential reason is that payers have less of a financial stake in ASO contracts. The researchers suggested the insurers might not be as aggressive in negotiating a price for those plans.
A recent Altarum Center for Value in Health Care health sector trend report discovered that private payer spending is growing faster than that of public payers. Private spending per enrollee increased by more than 50% since 2009 compared to about 15% for public payers. A driving force behind that increase is spending on healthcare services, which accounts for nearly 70% of all healthcare spending. Payers can better contain costs when they're able to focus on limiting hospital prices, but that's easier said than done.