By Kris Szumigalski and Shareef Ghanem.
Doctors and economists used to believe that healthcare exhibited high inelasticity — meaning that consumers were insensitive to prices. If you were sick, the thinking went, you went to the doctor, regardless of the price. In 1971, researchers embarked on a 15-year effort known as the RAND Health Insurance Experiment. This seminal research concluded that as patients’ out-of-pocket prices go up, their health care utilization goes down — for both “ineffective” as well as “effective” health care use. This study increased insurers’ concern about moral hazard, or the concept that once insured, consumers will put less effort into ensuring they will not need to utilize health services. …
By Kris Szumigalski
The US hospital market has long exhibited high concentration. In 1987, the average market’s HHI (a common measure of market concentration) stood at 2,340. For context, the US Department of Justice considers markets with HHIs of 1500–2500 as “moderately concentrated” and markets with HHIs of >2500 as “highly concentrated.”
This concentration has only increased over time. By 2006, the average HHI had jumped to 3,161 — a 35% increase, placing hospital markets well past the “highly concentrated” mark.
To get a sense of what this concentration means, if we divide the country into 306 markets (by HRR), the largest hospital in each market would account for an average of 42% of all hospital inpatient days. …
By Shareef Ghanem
Over the last few months we’ve written about the persistent increases in total healthcare costs. We’ve pointed out a key, often overlooked, culprit — unit price increases in the cost of discreet healthcare services. In this post, we’ll unpack this discussion further to understand the reasons for these increases in cost, and what we can do about them.
First, we need to separate reality from rhetoric.
Here is the reality — prices for routine healthcare services vary dramatically within a given region, and patients are unaware and ill-equipped to navigate this price conundrum. For example, patients and insurers stand to save $1,000s of dollars on every MRI or CT scan by being more judicious about where to receive that care. To take this one step further, there is a clear price distinction in the market — large, vertically integrated hospital systems represent the most expensive locations in the market for these routine services. The rhetoric is that hospital systems are embarking on a shift from fee-for-service to fee-for-value, and using vertical integration to improve care coordination. While there are many progressive systems who are truly embarking on this shift, I hope to dispel some of this rhetoric. …