How Market Dynamics Impact Hospital Pricing

Lower Hospital Prices Linked to Higher Private Healthcare Spending

Study Demonstrates How Market Dynamics Impact Hospital Pricing

In March 2020, The Economic Alliance for Michigan (EAM), a nonprofit group comprised of Michigan’s largest employers and unions, released a study outlining how various market dynamics impact hospital pricing.

The study adds price-influencing factors such as the presence of CON programs, Medicaid population and expansion, and private healthcare spending averages, and then uses data from a hospital price transparency study released by the RAND Corporation in May 2019 to determine why states may have higher or lower hospital average relative price.

In 2000, healthcare accounted for 13.4 percent ($10,252.3 billion) of the United States’ Gross Domestic Product (GDP) and has rapidly grown to 17.9 percent ($19,485.4 billion) share of the GDP in 2017. Of those healthcare dollars, hospital costs are the leading contributor.

“With over half of the country’s population covered by employer-sponsor healthcare plans, it is vital to reduce the costs of healthcare so employers can continue to grow, provide jobs and increase wages,” said Bret Jackson, President of EAM. “This study brings to light the need for employers, hospital administrators and lawmakers to come together and work on solutions for reducing costs.”

Key findings from the study:

  • States with CON programs have a hospital average relative price below the national average.
  • States with lower hospital prices tend to have higher overall healthcare spending.
  • States that encourage Medicaid enrollment lean toward a lower hospital average relative price.
  • Increased hospital market share leads to higher prices, but higher insurance company market share does not have a relationship to average relative price.

CLICK HERE to view the study.

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