Insurers’ Payments To Hospitals Vary Significantly By Region

Adding another piece to the argument that some hospitals are making huge profits from insurers, a new study finds great differences in hospital rates, with San Francisco the most expensive of eight areas that were examined.

The study from the Center for Studying Health System Change used actual insurance payments from four big insurers and benchmarked them against Medicare payments to take into account differences in cost of living and wages. San Francisco’s average inpatient payment rate was 210 percent of what Medicare pays, while Miami/South Florida was the least expensive, with rates of 147 percent of Medicare. In between were: Milwaukee (205 percent), Indianapolis (198%), Richmond, Va. (192 percent); rural Wisconsin (169 percent), Cleveland (151 percent), and Los Angeles (149 percent).

The study found great variation within cities as well. In Los Angeles, the highest inpatient payment rate to an individual hospital was 418% of Medicare-2.8 times the average. San Francisco’s most expensive hospital’s payment rate was 484% of what Medicare pays.

The study builds on previous work of the author, Paul Ginsburg, making the case that regions with a few powerful hospital systems are able to negotiate much higher rates than places with a lot of competition. His new study doesn’t call out hospitals by name and price, but several journalistic reports have singled out providers such as Sutter Health and Stanford University in driving up premium prices in Northern California. (See here and here.)

The American Hospital Association is growing tired of Ginsburg’s broadsides and issued a statement condemning “faulty conclusions based on unverified data from a handful of powerful insurance companies.” The hospital group also complained that the report doesn’t provide evidence that hospital market power is responsible for higher prices.

The issue of commercial price variation among hospitals – which to date has not been probed nearly as much as variation in Medicare spending has - is heating up in the battle between insurers and hospitals about who’s most to blame for the high price of medical coverage.