Hospitals aren’t the only ones with price variation. New research shows payers have large discrepancies, too

Negotiated prices don't seem to reflect demand for certain hospitals, said the study's lead author. (everydayplus/Getty Images)

The prices payers negotiate with hospitals can vary significantly between payers, between hospitals, among services, and among contract types, according to a new National Bureau of Economic Research (NBER) working paper.

While critics frequently point to poor price transparency and variation among providers, payers appear to be playing a significant role as well.

Using data from the Massachusetts All-Payer Claims Database, researchers from three universities examined negotiated payments for common services among six payers at 68 acute care hospitals. The insurers included the three biggest ones in Massachusetts (Blue Cross Blue Shield, Tufts Health Plan and Harvard Pilgrim) as well as three with a large national footprint but a small market share in Massachusetts (UnitedHealth, Aetna and Cigna).

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They found PPOs pay 3-5% higher prices than HMOs, and self-insured, administrative services only contracts pay 2-4% more than fully insured products.

Among the three Massachusetts insurers, BCBS negotiated the highest prices. The authors suggested this trend could be due to their large network or higher demand for their products as a recognized brand.  

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Prior research has found higher prices at hospitals that lack competition within a geographic region, noted Stuart Craig, a doctoral student at the University of Pennsylvania who served as lead author of this paper. This study builds upon those findings, having discovered similar variation in prices across insurers.

Even within the same hospital, the price of a service can vary by insurer.

“Economists like to think prices contain info about the way consumers value things,” Craig said. "It really doesn’t seem to be the case that the price variation that we see is driven by differences in consumer demand [for certain hospitals]."

However, it’s difficult for purchasers to observe these prices, pointed out Keith Ericson, Ph.D., another of the paper’s authors.

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This poses a problem: True competition can only occur when purchasers know what they’re buying. At the same time, if employers and consumers could respond to negotiated price levels, payers would have an incentive to lower prices.  

Much of the discussion around cost and value has focused on premium prices, but it’s just as critical to consider a plan’s actuarial value and provider network as well as how its prices are negotiated, he added.

While it’s “definitely a worry” that this trend could preclude new insurers from forming or keep small insurers from growing, “there is room in the market for some smaller players,” Craig said.

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