California Hospital Prices Vary Within State, Based in Part on Area Competition, Study Finds

The prices that California hospitals charge private payers for services vary widely, even when factors such as the uninsured and the severity of illnesses are considered, according to a study released Tuesday, the San Francisco Chronicle reports. The study was sponsored by the California Public Employees' Retirement System and the Pacific Business Group on Health, and conducted by Milliman (Colliver, San Francisco Chronicle, 1/16).

For the study, researchers analyzed 2005 cost data from the California Office of Statewide Health Planning and Development (Feder Ostrov, MediaNews/Contra Costa Times, 1/16). The study found that insurers and patients in 2005 paid $18 billion for services that cost hospitals $13 billion to provide. The study's sponsors said hospital consolidation and lack of competition in an area appear to be the major factors in determining how much a hospital charges for its services. They also say that the study shows that private payers are subsidizing hospitals for low reimbursements provided by government-sponsored health programs such as Medicaid.

The study found that hospitals in Northern California on average charged more than those in Southern California, where more competition exists (San Francisco Chronicle, 1/16). Fifteen of the state's 20 least-costly hospitals are in Southern California, according to the study. Hospital prices in the Sacramento area were 30% higher than the statewide average. Two of the state's most popular hospitals -- Cedars-Sinai Medical Center and Los Angeles County-USC Medical Center -- are charging five times as much as the least expensive hospitals in the state, according to the report. In addition, hospitals in large networks and more isolated areas of the state charged more. Kaiser Permanente hospitals were not included in the study because they use a prepaid system, according to the OSHPD (Girion, Los Angeles Times, 1/16).

Reaction
Peter Lee, CEO of the Pacific Business Group, said, "We see what appears to be hospitals charging whatever the market will bear." According to Lee, transparency can help prevent price inflation and improve the quality of care. He said, "In most markets, having the information about what things cost helps competition," adding, "In health care, having it be impossible to tell what something costs appears to help one side over the other."

Jan Emerson, spokesperson for the California Hospital Association, said, "We don't really understand it. The numbers don't make any sense to us." She added, "We all know we have a broken health care system. We all know government payers don't pay their share, so commercial purchasers have to make up for that."

Steven Rousso, principal with HFS Consultants, said it is not a secret that large networks have greater negotiating power than independent hospitals. He said, "The health care market is no (different) than any other marketplace" (San Francisco Chronicle, 1/16).

The study is available online (.pdf).