Minnesota Report Uncovers Substantial Variation in Hospital Prices

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September 2018 -- The Minnesota Department of Health (MDH) has released its second report in a series of studies on price variation in the state. The publication, which focuses on different aspects of hospital price variation in Minnesota, finds that disparity in prices within individual hospitals for a single procedure is significant – sometimes nearly as high as the variation identified across different hospitals.

Leveraging data from its statewide all-payer claims database, the MN APCD, a resource developed and operated by Onpoint since 2009, the MDH’s latest report analyzes prices paid from July 2014 to June 2015 for a set of four common procedures at Minnesota hospitals: (1) spinal fusion surgery, (2) major bowel surgery, (3) appendectomy, and (4) removal of uterine fibroids. The study examines hospitals’ commercial case price, which includes the amount paid for facility costs (i.e., hospital fees) and for physician services (i.e., professional fees), limiting the review to commercially insured patients with cases of minor and/or moderate severity.

Findings from the research identified that a patient undergoing the most expensive procedures (i.e., spinal fusion surgery and major bowel surgery) may pay two times to five times as much as another patient receiving the same services at the same hospital. For example, prices for spinal fusion (see Figure 1 below) ranged from nearly $27,600 to nearly $80,800 (a 2.9-fold difference) and prices for an appendectomy ranged from nearly $6,700 to nearly $35,500 (a 5.3-fold difference).

Preliminary results from the MDH study suggest that a substantial portion (approximately 36%) of the variation in hospital prices for the four examined procedures is driven by differences between hospitals and by the characteristics of individual hospitalizations – factors not explained by more-typical determinants such as severity of illness, length of stay, the patient’s age, and certain health benefit characteristics.

While the MDH’s report was not designed to provide greater insight into the causes of hospital price variation, national researchers have suggested in prior studies that such unexplained variation is likely driven by how much market or pricing power is held by health insurers and hospitals.

“By bringing new evidence to the fore, the data and the analysis help shape our understanding of the health care market in a really critical area,” says Stefan Gildemeister, State Health Economist and a co-principal investigator of the study. “MN APCD is such an important tool because it fills knowledge gaps critical for policy-making. To date, data analyses have delivered critical insights in chronic disease prevalence and spending, pharmaceutical trends, health system efficiency, opioid prescribing patterns and more.”

Figure 1. Examining variation in commercial case prices for four common, clinically uncomplicated inpatient surgeries