Hospital price variation exacerbates health inequities

As hospitals leverage their market power to increase prices, they use their financial gains to attract more privately insured patients and divert Medicaid beneficiaries, exacerbating health inequities, according to new research.

Well-capitalized hospitals tend to invest in staff, facility upgrades and acquisitions that draw more lucrative privately insured patients and further augment their leverage. This cycle of price discrimination segregates local markets, often funneling Blacks and Hispanics—who are two-and-a-half times more likely to rely on Medicaid coverage than whites—to hospitals with lower quality scores, according to a new commentary published in the New England Journal of Medicine.

More than 80% of white Americans were covered by an employer or Medicare as of 2018, compared with only 62% of Black Americans and 52% of Hispanic Americans, researchers found.

Higher-quality hospitals tend to serve more commercially insured patients. In Los Angeles, for instance, hospitals with clinical quality above the national median allocate just 23% of inpatient days to individuals with Medicaid coverage, as compared with 54% of inpatient days for hospitals in the bottom two quality quartiles, according to the NEJM study.

“Narrowing the hospital price gap between private and public payers may help address racial health inequality, but inequality will remain or get worse if the racial insurance coverage gap keeps widening,” said Ge Bai, associate professor of accounting and health policy and management at Johns Hopkins University, who isn’t affiliated with the study. “Helping the minority population gain employment so that they can have access to private insurance has the potential to fundamentally improve racial health inequality.”

Co-authors Dr. Alan Kaplan, assistant professor of urology at the Washington D.C. Veterans Affairs Medical Center, and Daniel O’Neill, a former fellow of the National Academy of Medicine, proposed several solutions to lower prices on the privately insured market, borrowing some proposals from Matt Fiedler, a fellow at the USC-Brookings Schaeffer Initiative for Health Policy.

Regulations could limit out-of-network prices, although that strategy may be ineffective if a hospital refuses to treat patients with certain health plans, researchers cautioned. Policymakers could place a cap on all hospital prices, although hospitals could reclassify some services to evade the cap.

Regulators could also implement a baseline contract that specifies prices, patient access and service levels, which could allow private plans and hospitals to agree on premium prices for improved outcomes or patient satisfaction.

President-elect Joe Biden’s healthcare plan includes a public option that could lower hospital prices in private plans if the public option paid regulated rates, if providers were required to accept patients with the new public plan and if the public option is available to most patients who rely on their employer for coverage, researchers said.

The Biden administration may choose to boost the resources of antitrust regulators, taking into account Vice President-elect Kamala Harris’ and HHS Secretary-designee Xavier Becerra’s history of cracking down on hospital mergers during their respective stints as California’s attorney general.

Reigning in hospital prices will likely be a priority as many acute-care metro markets are already highly consolidated and as price inflation continues. Hospitals account for about a third of the U.S.’ annual $3.8 trillion healthcare bill.

Private insurers paid hospitals on average 247% what Medicare would have for the same services in 2018, a gap that’s creeped up in recent years and varies widely across states, according to a RAND Corp. analysis.



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