Hospital and Insurer Market Structures Affect Pricing Variation - New Research Insights

Per-enrollee spending varies dramatically across geographic markets for people with private health insurance coverage, and variation in prices accounts for about half of the observed spending variation. But what is driving this variation in private insurers’ prices? This Research Insights summarizes newly published findings from NIHCM grantee, Zack Cooper and colleagues, who took a comprehensive look at this question. Above all, their work points to the importance of provider market power and relative negotiating strength vis-à-vis insurers. Not only do market-dominating hospitals command much higher prices from private payers and obtain insurance contracts that expose them to less financial risk, when two hospitals in close proximity join forces through a merger their negotiated prices rise significantly.