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Hospital Prices Outgrew Physician Prices in 2007-2014

Price growth in hospital-based procedures has been primarily driven by the facility side rather than the physician side, according to a study in Health Affairs.

From 2007 to 2014, hospital prices for inpatient services grew by 42% while physician prices grew by 18%. Over the same period of time, hospital prices for outpatient services grew by 25% and physician prices grew by only 6%.

For four hospital-based procedures, ranging from cesarean section to knee replacement, the hospital component of the total price was between 64% and 84%, according to the study.

Researchers remain unsure about what is driving the split between hospital prices and physician prices, but Stuart Craig, one of the lead authors of the study, said that the study raises questions about prices being driven by a hospital’s market power or patient demand.

He added that the researchers recommend lawmakers to consider health policy legislation to effectively reduce hospital price growth, including enforcement of antitrust statutes regarding M&A activity, saying the biggest takeaway for CFOs would be understanding where the healthcare landscape is likely to shift if new policies are implemented.

Craig said over the seven years analyzed by researchers, the average facility fee was about $14,000 whereas the average physician fee was about $4,000, and that hospitals accounted for 70% of the price growth.

“There’s some work I’ve done with the coauthors of this study separately that shows consolidation is definitely a component of price growth on the facility side,” Craig said. “We looked at hospital mergers and found that prices increase after hospital mergers. What this paper really suggests is that you get a lot more out of targeting hospitals rather than physicians.”

Not all agreed with the study’s findings, however, as the American Hospital Association (AHA) issued a press release stating the Health Affairs report “misses the mark.”

“Overall, both hospital price and spending growth has slowed in recent years. According to the National Health Expenditure report released by the Centers for Medicare & Medicaid Services in December 2018, price growth for hospital care services was just 1.7% in 2017,” Tom Nickels, executive vice president of the AHA, said in a statement.

“And according to the Altarum Center for Value in Health Care, price growth for hospitals in 2018 was still 1.7%. They also found that hospital spending growth in 2018 was lower than all other categories of services, including physician and clinical services and prescription drugs.”

Craig said that in the past, broad policies intended to regulate price growth have not served as an effective approach to the issue. He said the study recommends additional antitrust enforcement and increased oversight on provider markets that are already consolidated, even raising the potential for measures to regulate prices in those areas.

Solutions could also include proactive policies to steer patients towards cheaper providers, including reference pricing that moves patients out of outpatient services in a hospital setting to ambulatory surgical centers, which serve as more cost-efficient points of care.

These recommendations do not, however, include the recent move by the Trump administration to require hospitals to provide their list prices to consumers. Craig said the policy is “fully insufficient” and “essentially meaningless” because there has been no correlation between displaying list prices and consumers ultimately paying for cheaper procedures.

This report is brought to you by HealthLeaders Media.