The price variation hiding inside your health plan

A recent Wall Street Journal analysis showed that Americans pay roughly four times what they pay for patients in comparable countries routine medical procedures. This gap is real and well documented. But hospital price data made available under federal transparency mandates arguably points to something more: The variation in prices within a single American state is as great as the gap between the United States and the developed world.

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For more than five decades, researchers and policy makers have called for it transparency in hospital prices. The idea was simple: If patients, employers and insurers could see what hospitals were actually charging, the market could start to work. In 2021, the federal government finally mandated that every hospital publish its negotiated rates in machine-readable files. The data is now public. It is updated regularly. However, few in the world of employer benefits use it.

I’ve spent the last year going through these files for Georgia, including every hospital, every major commercial payer, procedure by procedure. What the data shows should change benefits how managers think about cost.

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Five times expanded for the same surgery

Take cesarean delivery, one of the most common inpatient procedures in the country. At 39 Georgia hospitals with comparable commercial rates, the all-facility rate ranges from less than $9,000 to nearly $44,000. Same procedure, same situation, same clinical intervention, but five times the difference.

Georgia’s median of about $15,000 is almost exactly above the national figure, and Georgia is a good mirror of the rest of the country. But the variation within the state is enormous. These are not different procedures or different levels of care. They are simply different prices. And some of those differences are within the same hospital system, where one campus can charge two or three times what another campus in the same system charges.

For a self-employed employer with 200 employees, three to five C-sections per year at the expensive end of the spectrum could cost $60,000 to $100,000 for a single procedure instead of the median.

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The model is maintained throughout the procedure

To test whether this was a rarity of a procedure, I performed the same analysis for colonoscopy with biopsy, one of the most common outpatient procedures. At 35 Georgia hospitals, the facility fee went from less than $900 to more than $5,700 — a more than six-fold spread.

Colonoscopy data also allows for quality assurance. CMS publishes a measure called OP-32: the rate of unplanned hospital visits in the seven days following a colonoscopy, including serious complications such as bleeding or perforation. In Georgia hospitals, this quality score is essentially flat. Higher-priced hospitals do not have significantly fewer complications. Price variation is not buying better care.

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What this means for employers

The federal transparency rule did not lower health care prices. But it made the distribution of prices visible for the first time. For the benefits manager of a self-employed employer, there are three implications.

First, the biggest savings opportunity isn’t negotiating lower rates. It identifies specific hospitals and procedures that your plan is paying at the top of the distribution and drive volume toward the middle or bottom.

Second, cost containment strategies that focus on monthly averages per employee fail. Most important is the variance—the spread between what your plan pays and what a comparable facility might pay for the same service.

Third, this data exists, is public, and is specific to your state and your payers. The five-decade wait for hospital price transparency is over. Now the question is whether employers will use it.