Catalyst for Payment Reform

Health Care Cost Drivers: Prices

Health Care Cost Drivers: Prices

For any of us who work in health care – even as benefit managers – one of the questions we dread the most at a neighborhood BBQ or cocktail party is “Why is health care so expensive?”  I find most people who ask want me to point the finger at the drug companies or insurance companies, or they want a blameless argument like “Americans are getting older and the technological demands on the health care system are heating up.”  What they don’t expect in reply is that the prices we agree to pay are one of the major factors driving health care spending.

The incredible thing about the fact that prices are high and rising is that prices are the result of negotiation.  A recent article reminded me of this situation – which is entirely mutable. Clearly if we are often paying higher than competitive prices, something is wrong, either with the degree of competition or whoever is negotiating on behalf of those of us who use and pay for health care services.

But wait – isn’t it possible that people are just using more health care services and that’s why spending is going up?  Truthfully, very little of the growth in health care spending is due to utilization.  Amazingly, overall spending for inpatient care and prescriptions would have fallen, as utilization has been decreasing. But the prices for these aspects of health care have simultaneously gone up.  And worse, higher medical prices are projected to contribute to an increasing portion of health care spending growth over the next ten years.

What is causing this problem?  CPR has done work in the past to understand the impact of market dynamics and competition.  In many cities and towns across the country, providers have the upper hand in negotiations today.  This can be attributed to mergers between hospitals and health systems combined with the fact that 50% of U.S. physicians are now employed by those hospitals and health systems.  Most of the variation in prices – and they do vary in ways that seem hard to explain – has to do with how much competition health care providers face.   The less competition, the higher the price. In the end, we are the ones paying the price.

What can employers and other health care purchasers do to address this situation?  Join us for our Virtual Summit on Provider Consolidation Trends and Implications, What Employers Need to Know, where the experts will talk about the trends and impact as well as highlight tactics that other stakeholders have used to address rising health care prices due to consolidation.

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