Study on hospital and physician prices misses the mark

The authors of this Health Affairs study on hospital and physician prices use limited data to draw broad conclusions. To begin with, their analysis uses data from the Health Care Cost Institute (HCCI) that includes only Americans under the age of 65 who are insured through employer-sponsored insurance (ESI). The HCCI data is comprised of claims for three large insurance companies, Aetna, Humana and United, which represent only 27.6% of individuals with ESI coverage. The Kaiser Family Foundation estimates that 49% of Americans have ESI, so the HCCI sample represents just 13.5% of Americans with any sort of health coverage, including Medicare and Medicaid. The HCCI data also does not include any data from Blue Cross Blue Shield (BCBS) plans, which is significant given that BCBS plans often have the largest share of local markets.

Overall, both hospital price and spending growth has slowed in recent years. According to the National Health Expenditure report released by the Centers for Medicare & Medicaid Services in December 2018, price growth for hospital care services was just 1.7% in 2017. And according to the Altarum Center for Value in Health Care, price growth for hospitals in 2018 was still 1.7%. They also found that hospital spending growth in 2018 was lower than all other categories of services, including physician and clinical services and prescription drugs.

It is important to note that hospitals and health systems must manage a number of significant costs that do not apply to the physicians included in the study. This includes the fact that hospitals face many challenges related to a high number of regulatory requirements, which increase administrative expenses and staffing needs for compliance. Nationally, it is estimated that hospitals, health systems, and post-acute care providers spend nearly $39 billion annually on the administrative aspects of regulatory compliance. And an average-sized community hospital spends $7.6 million per year, or $1,200 per admission, to support compliance with regulations from just four federal agencies.

Also included in the cost of hospital care is the purchase of drugs and medical devices used to treat patients, which again is not borne by physicians. Average total drug spending by hospitals per admission increased 18.5% between Fiscal Years 2015 and 2017, largely attributable to price increases from pharmaceutical companies. Similarly, life-saving items such as cardiac defibrillators typically cost more than $20,000, while higher complexity models can cost roughly $40,000. Common items like artificial knees and hips often cost in excess of $5,000. And during the period that the authors studied, 2007 – 2014, hospitals invested over $300 billion in health information technology operating and capital expenses.

We recommend in the future that such studies take into account all these factors. 

By Tom Nickels, Executive Vice President of the American Hospital Association