Reimbursement News

Inpatient Hospital Prices Rose 19%, Outpacing Physician Prices

Privately insured individuals could save $250 billion from 2020 to 2029 if the industry moderates hospital prices by two percentage points a year, UnitedHealth Group reports.

Hospital prices and healthcare spending

Source: Getty Images

By Jacqueline LaPointe

- A new analysis of hospital inpatient claims for individuals with employer coverage revealed that consumers and employers are paying significantly more for hospital-based inpatient services largely because of hospital prices.

UnitedHealth Group found that hospital prices for inpatient services increased by 19 percent from 2013 to 2017, while physician prices for the same category of services increased by just 10 percent during the period.

“Slowing the growth of hospital inpatient costs – by reducing hospital price increases to the level of physician price increases – would make health care more affordable for consumers and employers,” the brief concluded, showing a $250 billion savings opportunity for privately insured individuals if the industry moderated hospital prices by two percentage points from 2020 to 2029.

UnitedHealth Group’s brief is yet another analysis showing that hospital prices are behind the increasing healthcare spending growth rate, which CMS actuaries project to increase by 5.5 percent annually until 2027. By that time, the US is slated to spend almost $6 trillion on healthcare, with expenditures accounting for over 19 percent of gross domestic product (GDP), the actuaries reported earlier this year.

Hospital prices are the largest driver of healthcare spending in the US, recent research confirms.

Similar to the UnitedHealth Group analysis, a study published in Health Affairs in early 2019 found that hospital prices for inpatient care rose significantly faster than physician prices for the same services. In that study, hospital prices for individuals with employer-sponsored insurance from Aetna, Humana, and UnitedHealth Group grew 42 percent from 2007 to 2014. Physician prices for inpatient care rose 18 percent.

“Our work suggests that efforts to reduce healthcare spending should be primarily focused on addressing growth in hospital rather than physician prices,” said the study’s lead author Zack Cooper, an associate professor of public health and of economics at Yale University. “Policymakers should consider a range of options to address hospital price growth, including antitrust enforcement, administered pricing, the use of reference pricing, and incentivizing referring physicians to make more cost-efficient referrals.”

Policymakers have started to focus their efforts to reduce healthcare spending on hospital care. For example, CMS Administrator Seema Verma recently touted her agency’s use of site-neutral payments in Medicare, which reduce the rates for hospital-based care closer to those paid to physician practices for the same services. CMS recently extended its use of site-neutral payments to hospital clinic visits.

But controlling hospital prices in the private sector is more of a challenge. In light of recent consolidation, private payers are finding it more difficult to negotiate lower reimbursement rates with hospitals and health systems.

Healthcare merger and acquisition activity increased by 14.4 percent in 2018, following a record-setting year for hospital merger and acquisition transaction in 2017, according to consulting firm Kaufman Hall.

Merger and acquisition deals are creating larger and larger health systems, giving providers greater market power when it comes to negotiating rates with private payers. That in turn has led to higher hospital prices, America’s Health Insurance Plans (AHIP) says.

“In spite of the promises that accompanied many of these transactions, the result over time was inevitable: Higher prices and lower incentives to compete in other areas such as quality,” the organization stated during a testimony in June to the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights.

To reduce healthcare spending, AHIP leaders argued for greater anticompetitive scrutiny of hospital mergers and acquisitions.

UnitedHealth Group found that the healthcare system could significantly save by targeting the hospital prices of specific inpatient services. For example, the organization identified inpatient hypertension treatment as a savings opportunity. Between 2013 and 2017, the average annual increase for inpatient hypertension treatment was 6.5 percent for hospital prices versus one percent for physician prices.

The organization identified two more saving opportunities based on average 2013 to 2017 annual increases: coronary bypass surgery (six percent for hospital prices versus 1.5 percent for physician prices) and appendectomy (7.5 percent for hospital prices versus no increase for physician prices).

UnitedHealth Group also contends that the healthcare system could save by targeting avoidable hospital emergency department (ED) visits and high-value physicians in Medicare.

In a brief release in June, the organization found that individuals, employers, and the system as a whole could save more than $1,800 per avoidable hospital ED visit if privately insured individuals went to a physician’s office or urgent care center instead.

UnitedHealth Group plans to release data on savings opportunities of high-value physicians in Medicare later this year.