Working Paper: NBER ID: w21815
Authors: Zack Cooper; Stuart V. Craig; Martin Gaynor; John Van Reenen
Abstract: We use insurance claims data covering 28 percent of individuals with employer-sponsored health insurance in the US to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a near homogenous service such as lower-limb MRIs, about a fifth of the total case-level price variation occurs within a hospital in the cross-section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g. they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs – hospitals have lower prices and bear more financial risk. Examining the 366 merger and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6 percent when the merging hospitals were geographically close (e.g. 5 miles or less apart), but not when the hospitals were geographically distant (e.g. over 25 miles apart).
Keywords: hospital prices; health spending; privately insured; insurer-hospital contracts; market structure
JEL Codes: I11; L10; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| insurer market power (G52) | hospital pricing (H51) |
| hospital mergers (G34) | hospital pricing (H51) |
| hospital market structure (L11) | hospital pricing (H51) |