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Healthcare Cost Variation Differs Twofold between States

Knee replacement surgeries, cataract removal, and obstetric ultrasounds were some of the medical services that had significant healthcare cost variation.

By Vera Gruessner

Those who have spent time in a doctor’s office or emergency room may have seen that the prices of healthcare services tend to vary drastically among separate medical facilities. New findings from the Health Care Cost Institute (HCCI) shows that some states pay as much as double the price for medical care as other states, according to an HCCI news release. Healthcare cost variation can differ by as much as three times within individual states as well, the study discovered.

Healthcare Cost Transparency

The study was published in Health Affairs and reported that Alaska had the largest medical costs on average than any other state in the nation. North Dakota, New Hampshire, Wisconsin, and Minnesota also showed high prices for medical care. The study illuminates how drastic healthcare cost variation is among the states.

For instance, the states of New Hampshire and Wisconsin have more than 20 percent of their medical services cost twice the national average. However, Arizona, Florida, Maryland and Tennessee showed a healthcare cost variation lower than the national average among more than 90 percent of their medical services.

“These data enable policymakers, payers and consumers to see where prices for health care are highest compared to the national average and neighboring states, and begin to explore why these differences exist,” HCCI Executive Director David Newman stated in the news release. “We hope states use this information to design appropriate solutions to address potentially unnecessary price variation.”

The researchers looked at 242 healthcare services to determine price differences among the states. Knee replacement surgeries, cataract removal, and obstetric ultrasounds were some of the medical services that had significant healthcare cost variation.

The results also show that the costs of some healthcare services have more differentiation than others. For instance, acupuncture tends to be priced similarly while cataract removal prices change significantly among the states.

Radiology, laboratory tests, and imaging services tended to have the greatest healthcare cost variation between states. The study found that the price of knee replacement surgery in the state of California differed tremendously between cities. There was a  $27,243 average price difference between Sacramento and Riverside for knee replacement surgery.

“We don’t pay for health care, we pay for a physical or an ER visit,” Eric Barrette, co-author of the study and Director of Research at HCCI, said in a public statement. “By drilling down into the price of individual services, we can better see where prices are higher than average and begin to unpack what is driving those higher prices.”

It’s also important to mention that nine states were not analyzed for the study due to state regulations discouraging data sharing or the lack of valuable information. The states not part of the study include Alabama, Arkansas, Hawaii, Idaho, Michigan, Montana, South Dakota, Vermont and Wyoming.

“Some states’ data are locked up,” Newman mentioned. “This byzantine behavior stands in the way of efforts to pursue transparency and understand the root causes of rising healthcare spending.”

The significant healthcare cost variation found between states affects the bottom line of health insurance companies as well as the cost sharing and out-of-pocket payments consumers must manage. Economic differences related to wages and cost-of-living could be partially attributable to these variations, but the study authors claim the “lack of transparency, market power, or the availability of alternative treatments” may all play bigger roles.

“Although revealing the extent of price variation is an important first step, more systematic and consistent research is necessary to identify the forces that drive prices. From a policy perspective, the goals are minimal unjustified differences in prices and low average prices—especially for services such as pregnancy ultrasound, which should be similar in scope and quality across providers, care settings, and geographical areas,” the researchers concluded in the published study.

“The questions that remain for researchers, policy makers, and health care leaders are as follows: Why do prices for the same service differ markedly across distances of only a few miles, and what amount of that difference is justifiable?”

As the federal government and commercial payers continue to reform the healthcare industry and provider reimbursement, improving cost transparency and addressing price deviations will likely gain more ground in years to come.

Image Credits: Health Care Cost Institute

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