A report released by the Massachusetts Health Policy Commission (HPC) last week has once again brought the complex issue of price variation to the forefront of health policy conversations. While the HPC and others are quick to highlight providers that charge higher prices than their competitors, their conclusions leave out a number of key facts.
Here are three points that need to be considered when talking about price variation.
1. Price variation is not unique to Massachusetts.
Price variation is widespread in health care markets across the country. In New England, studies have found wide variation in Rhode Island and New Hampshire. The HPC’s report acknowledges this, noting:
The presence of price variation in multiple markets across the country suggests that the market dynamics that drive extensive variation in provider prices for the same sets of services are not unique to Massachusetts.
By comparing prices across cities and states on the website Guroo.com, anyone can see this trend in action around the U.S.
2. Hospital prices reflect the breadth and quality of health care services.
The prices of health care services reflect the quality and scope of service provided. The HPC’s most recent report argues that there is no correlation between price and quality when looking at the higher prices charged by Partners HealthCare’s hospitals – but this directly contradicts a different report the Commission released in 2014. In that report, the HPC concluded that Partners providers offer a better standard of care:
After examining over 100 nationally recognized measures across these dimensions, we found Partners, South Shore Hospital, and South Shore Physician Hospital Organization have high quality performance compared with Massachusetts and national averages.
The report continues:
Even compared to other Massachusetts providers, Partners, South Shore Hospital, and South Shore Physician Hospital Organization are high quality, with performance year-over-year that routinely exceeds state and national averages for both inpatient and outpatient care.
Similarly, Partners hospitals are routinely ranked among the best in both the country and the region by U.S. News & World Report. In their 2015 rankings, the publication named Massachusetts General Hospital first in the nation and Brigham and Women’s, sixth, based on criteria that include quality of care.
In addition to providing health care among the best in the nation, Partners hospitals also offer services that others don’t, including nationally-ranked behavioral health and rehabilitation services. As other providers cut back on these services for financial reasons, Partners subsidizes approximately $50 million a year in operating losses so that we can continue to provide much-needed care in these areas. In many cases, our prices reflect the losses we incur in psychiatry and rehabilitation. But we believe most people value the ability to turn to McLean Hospital or Spaulding Rehabilitation Hospital when they or a loved one needs this type of care.
Neither the recent HPC report nor another released by the Massachusetts Attorney General’s Office considers the correlation between hospitals' prices and the quality and breadth of care they deliver – but these issues are necessarily intertwined.
3. In Maryland, extra government funding may impact price variation.
The HPC report cites Maryland as a model for combating price variation, and there may be valuable lessons to be learned from that state’s experience. But the market there is unique. The federal government granted Maryland a waiver to allow for higher levels of Medicare and Medicaid reimbursement. Under this model, the state appears to have lower levels of price variation. It remains to be seen whether other states would see a similar decrease in price variation in those circumstances, or whether other factors are at play. (Maryland, for example, has fewer hospitals than Massachusetts.) Would Massachusetts lawmakers and regulators also be willing to significantly improve Medicaid rates, if doing so reduces variation?
Although price variation has been the subject of many studies, each one employs a different methodology, so it’s hard to compare data across the findings. And it’s not easy to pin down an underlying cause of price variation, either. It doesn’t appear to be tied to high costs – price variation exists in both high- and low-priced markets. It’s not kept in check by insurers; even markets with highly dominant insurers can show wide variation in prices.
Ultimately, there are no easy answers to the questions surrounding price variation. But before anyone makes recommendations to curtail this trend, it’s crucial to consider how the quality and availability of care and other local factors affect a given market.
As an industry, we need to make sense of the complex issues around health care spending and pricing. As a provider, we at Partners are committed to lowering costs and making quality care more accessible and affordable for the communities we serve.