Higher prices from providers drive health care cost increases

U.S. study finds higher costs come less from ‘the quantity or intensity of services’

jneff@newsobserver.com May 26, 2012 

Higher prices from hospitals, doctors and other providers are the biggest driver of rising health costs, according to a recent study analyzing billions of private insurance claims.

The report from the Health Care Cost Institute is the biggest study to date of privately insured patients. The study examined 3 billion health care claims from 33 million people insured by Aetna, Humana and UnitedHealthcare during 2009 and 2010.

The study found higher prices in all four major categories of medical spending: inpatient, outpatient, doctor fees, and prescription drugs, with the highest increase in outpatient services.

“Unlike other recent reports on health care spending, we find that the increase is mostly due to unit price increases rather than the changes in the quantity or intensity of services,” the report found.

Insurance premiums are rising because health care spending is rising, according to Northwestern University professor David Dranove, a specialist in health care management, who worked on the report.

The study showed Americans paying more but using slightly less health care in 2010 than 2009, Dranove said. Outpatient visits and inpatient admissions declined in this period. The study found that part of the price rise was due to sicker patients requiring more complex treatment. Still, the biggest factor was the increase in prices.

One prominent explanation for the rising prices: the growing power of big hospital systems.

“Providers around the country have consolidated and achieved a great deal of market power that enables them to demand higher prices from insurers,” Dranove said.

That was one of the findings of a recent series in The News & Observer and The Charlotte Observer. “Prognosis: Profits” found that North Carolina’s big urban hospitals raised prices, posted strong profits and built up big reserves during the recession. Top executives enjoyed million-dollar compensation packages as they expanded, bought expensive technology and built lavish facilities. Hospitals also enjoy a perk worth millions each year: They pay no income, property or sales taxes.

The series found that hospitals raise their charges each year: Duke Hospital by 6 percent each year, UNC Hospitals by 5 percent. The hospitals are seldom paid the full charges because insurance companies negotiate discounts.

The study of claims released this week used the actual prices paid to health care providers by the insurance companies and patients.

Adam Searing, director of the N.C. Health Access Coalition in Raleigh, said the study undercuts a common argument he hears from hospital, insurance and pharmaceutical executives: that health care spending rises because people are less healthy and seek more treatment.

“It is interesting that it’s not fraud or utilization,” he said. “People are simply making more money off health care.”

The N.C. Hospital Association did not respond to requests for comment.

The report, “Health Care Cost and Utilization Report 2010,” examined what insurance companies and patients actually paid for health after allowances and rebates:

• Emergency room visits rose 11 percent.

• Outpatient surgery rose 8.9 percent.

• Inpatient surgery rose 6.4 percent.

• Brand-name drugs rose 13 percent, while generic drugs fell 6.3 percent.

• Out-of-pocket expenses rose as patients paid 10.7 percent more for inpatient and outpatient procedures.

Martin Gaynor, a Carnegie-Mellon University professor who directed the study, said health care spending is still rising but not as fast as in previous years. Health care spending rose at twice the rate of inflation.

“Spending has been increasing not because they are using more but because prices are up,” Gaynor said. “Patients are paying more for the same care.”

The Health Care Cost Institute is a recently formed nonprofit directed by academics, with one board member each from a hospital, insurance company and the Society of Actuaries. The insurance companies donated the data and some startup money, but have no access to the data and no input into the analysis or reports. Gaynor said the organization will rely on large foundations to keep the project going.

Gaynor said the most surprising finding was that per-capita spending grew the most for patients younger than 18. He speculated that one reason may be the growth of obesity, diabetes and other health problems among the young.

“If this is indicative of what the future holds, aging may not be our biggest problem, but in higher spending among the young,” he said.

Neff: 919-829-4516

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