Medical Prices are all Over the Map

For people with private insurance, the same health services cost thousands of dollars more in different states across the nation, different cities within the same state, and even in different parts of a single city.

A knee replacement, including the doctor’s visit before and after surgery, the surgery itself, and physical therapy to recover from the surgery, costs $46,895 in South Carolina but only $24,121 in New Jersey. Similarly, cataract surgery costs $8,182 in Alaska but only $2,300 in Florida. These prices include the amount paid by patients and by their insurance companies.

While these differences seem shocking, we’ve heard the same story before from Atul Gawande and the Dartmouth Atlas, who revealed 7 years ago that Medicare costs more than twice as much in McAllen, TX than in Rochester, MN. The current study on costs for the privately insured tells us, depressingly, that very little has changed.

Each state regulates its own insurance market, which may be one reason for the differences. Policymakers should investigate whether lower-priced states have best practices that could be helpful for their states. For example, Maryland’s all-payer system has set prices for hospital services in the state since the 1970s, and Maryland is the third least-expensive state.

For the average patient, the physical distance between states such as Alaska and Florida, as well as insurance plans that limit in-network providers to the home state, may prevent patients from traveling out of state to save money. However, there are even differences within the same state. In California, a knee replacement costs $27,243 more in Sacramento than in Riverside; in Ohio, a pregnancy ultrasound costs 3 times more in one city than in a neighboring one 60 miles away. And in Philadelphia, you could pay $460 more for that same ultrasound just by choosing the wrong place in the city.

The most exciting thing about this research is that patients can see the data for themselves. The Health Care Cost Institute, a non-profit organization focused on increasing price transparency in healthcare, launched Guroo.com, where anyone can search the prices for healthcare services and compare them to national and state averages. As high-deductible plans increasingly divert healthcare costs to the patient (HDPs now make up 34% of the employer market and over half of ACA Marketplace plans), patients can use the information in Guroo.com to search for less-expensive areas and to determine whether their hospitals and physicians are charging a fair price.

The authors of the paper summed up the research well: “Why do prices for the same service differ markedly across distances of only a few miles?” Armed with the knowledge from Guroo.com or similar sites like Healthcare Bluebook patients and policymakers ought to be asking just that very question of healthcare providers and insurance companies.

commentary by  Laura Medford-Davis

Abstract

Using a national multipayer commercial claims database containing allowed amounts, we examined variations in the prices for 242 common medical services in forty-one states and the District of Columbia. Ratios of average state prices to national prices ranged from a low of 0.79 in Florida to a high of 2.64 in Alaska. Two- to threefold variations in prices were identified within some states and Metropolitan Statistical Areas. PMID: 27122475 

Newman, D, et al. Health Affairs. 2016; 35 (5): 923-7.