A national study of the prices paid by private insurers for hospital services has pointed out a potential danger for New Jersey — where hospitals have monopolies, healthcare costs are higher.
This is of particular import in this state, where hospital mergers are becoming more prevalent.
The Health Care Pricing Project found that prices are 15.3 percent higher across the country in places where there’s only one hospital system compared with places with four or more competing hospitals.
In addition, the study found that hospitals are paid wildly different amounts for the same procedures. One unidentified South Jersey hospital received roughly four times as much as another to perform colonoscopies.
And in another striking finding, the study indicated that the payments from private insurers for inpatient hospital stays in New Jersey were average compared with other states, especially when adjusted for resident’s income.
The state has long been recognized as having some of the highest Medicare hospital payments in the country.
Health researchers said the report shows the potential benefit of providing access to healthcare payment data that’s long been hidden from public view. But they also acknowledged that the study is incomplete. Two companies that insure patients in New Jersey — Aetna and UnitedHealthcare — participated in the study, while New Jersey’s largest insurer, Horizon Blue Cross Blue Shield of New Jersey, didn’t participate.
Study coauthor Martin Gaynor said the information about monopolies pointed out the need for regulators at both the state and federal levels to be on the watch for antitrust violations.
“We find these very, very wide differences in prices — some of those prices appear to be associated with how many competitors there are in a market,” Gaynor said.
Rutgers Center for State Health Policy Director Joel Cantor said that New Jersey is a “a little bit late to the game” of hospital consolidation that’s associated with higher prices elsewhere.
“There’s a very solid body of research showing that (in) more consolidated hospital markets, where there’s less competition, prices are higher,” Cantor said.
He added that with more mergers likely in the future, those active in New Jersey health policy should have their “collective antennae up” over the possibility of less competition driving up costs.
Wardell Sanders, president of the New Jersey Association of Health Plans, noted that the Federal Trade Commission has been scrutinizing proposed hospital mergers for this very reason.
More broadly, Gaynor said state governments could benefit from requiring payment information publicly available.
New Jersey legislators have proposed such a mechanism in the form of a “Health Care Price Index.” The bill would make the typical prices paid by private insurers for healthcare services publicly available. While the Assembly Financial Institutions and Insurance Committee released the bill, A-952, it hasn’t been scheduled for a vote in either legislative house this session.
Making this data available could put downward pressure on the reimbursement rates remitted to the highest-paid hospitals, said Gaynor, an economics and health policy professor for Carnegie Mellon University in Pittsburgh. For example, employers with access to the data could question why insurers include high-cost hospitals in their networks, if the differences in prices aren’t matched by similar differences in quality.
Gaynor imagined what an employer would tell an insurer.
“Why is that place in your network? It’s wasting money,” Gaynor said of hospitals that receive more for identical services. “Higher benefits costs for us come out of our employees’ hides,” since it reduces the amount available for worker pay.
And the growing trend of high-deductible plans — which require patients to pay more out of pocket — could increase pressure for more transparency.
While Gaynor said the data indicates that higher-quality hospitals are paid more, differences in quality don’t account for all of the price differences.
But Gaynor added that wasn’t the only possible outcome; low-priced hospitals could use the data to argue for higher pay.
Gaynor noted the differences in hospital colonoscopies in the Camden Hospital Referral Region — a sprawling area that includes nearly all of South Jersey. From 2008 to 2011, the average price ranged from roughly $750 at the lowest-priced hospital to roughly $3,000 at the high end. The hospital names were excluded from the data for both contractual and antitrust reasons.
“A colonoscopy is a colonoscopy is a colonoscopy,” Gaynor said. “How is it you can go to one place in the Camden region and it can cost four times as much as some other place? It’s hard to justify.”
Cantor described the price differences as “certainly a marker of failure in the economics of markets, when you see such huge variation for what is essentially the same product — with no good reason for that variation.”
Cantor added that the lack of price transparency compared with other consumer products adds to the price differences.
“There’s no competition for the individual consumers loyalties,” he said of the South Jersey colonoscopies. “There’s no legitimate reason for it. There is a reason for it. It’s because there’s no competition.”
But Cantor added that even with more transparency, employers might not push down prices. That’s because most small- to medium-sized business don’t have the large human-resources departments to do the research.
“It means the employer has to be not just in the business of producing their own good or service, but also in the healthcare business,” Cantor said.
The maps accompanying the report also tell a somewhat surprising story for New Jersey, which is established as a national leader in Medicare payments, as well as total healthcare spending in the final months of life. But while the maps show New Jersey in deep blue in Medicare prices – showing that it’s a national leader – it’s a much lighter shade for private-insurance prices, and below the national average in private prices adjusted for residents’ income.
Sean Hopkins, senior vice president of health economics for the New Jersey Hospital Association, noted that Medicare payments are based on the state’s labor costs.
“That said, even in New Jersey, Medicare is a less-than-cost payer,” Hopkins said in an emailed response to questions. “Medicare payments to New Jersey hospitals, on average, only cover about 96 percent of a hospital’s actual cost.”
Hopkins also suggested that the national data on hospital monopolies might not be as relevant to a high-density state like New Jersey. Rural areas have less competition and higher prices.
“Density of both population and hospitals can have an impact on price,” he said. “Consumers want and have choices for where they receive hospital care, so a natural byproduct of that competitive environment could a drive of price.”
Sanders said that the study’s conclusion that New Jersey hospital prices are average or lower than average is open to question, without all of the data available.
“My sense is that we have higher hospital costs,” Sanders said.
Gaynor acknowledged that there were limits to the data, which he said is all the more reason that Blue Cross Blue Shield organizations should add their data for future studies. However, Gaynor said that the researchers found similar price trends in areas with high numbers of Blue Cross members, as well as areas with fewer Blue Cross members.
Cantor added that while the absence of Horizon data means that the study results come with an “asterisk” for New Jersey, he didn’t expect that adding Horizon would change the results dramatically. That’s because, as the largest insurer in the state, Horizon generally doesn’t feel pressure to pay less than other health plans.
The study used information compiled by the Washington, D.C.,-based nonprofit Health Care Cost Institute. The data covers 5 percent of all health spending, and 1 percent of the gross domestic product.