The prices hospitals negotiate with health insurance companies vary enormously within and across geographic regions in the United States, according to a new study coauthored by Zack Cooper (Yale), Stuart Craig (University of Pennsylvania), Martin Gaynor (Carnegie Mellon), and John Van Reenen (London School of Economics).

In 2011, the study shows that hospital prices for lower-limb MRIs are 12 times higher in the most expensive region of the US (Bronx, New York) than in the cheapest region (Baltimore, Maryland) and can vary by up to a factor of 9 within the same city (i.e. Miami, Florida). The study also finds that the level of hospital prices within regions is the primary driver of variation in health care spending for the privately insured. Moreover, the research reveals that hospitals in monopoly markets have prices that are 15% higher than those in markets with four or more providers, even after controlling for differences in cost and clinical quality.

The study provides the most comprehensive and detailed analysis of private health care spending in the United States and examines the real prices hospitals negotiate with private insurers for medical services. It analyzes newly released data on spending and utilization for nearly 30% of all individuals in the country with employer-sponsored coverage, encompassing 92 billion health insurance claims from 88 million people covered by three of the nation’s largest insurance companies: Aetna, Humana, and UnitedHealth.

Total health care spending on the privately insured varies tremendously across the country. Total spending was three times greater in the most expensive health market than in the cheapest. Crucially, say the researchers, spending patterns for the privately insured do not look like those for Medicare:
There is an extremely low correlation (14%) between spending on Medicare beneficiaries and spending on the privately insured. For example, in 2011 Grand Junction, Colorado, had the third-lowest Medicare spending per beneficiary among the nation’s 306 hospital markets, but the ninth highest inpatient prices and the 43rd highest spending per privately insured beneficiary.

Health care is among the largest sectors of the U.S. economy and accounted for more than 17 percent of gross domestic product (GDP) in 2014. About 60 percent of the U.S. population has private health insurance, which pays for over a third of health care spending annually.

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