February 22, 2018

Health Affairs Web First: For Medical Procedures, Costs Vary Greatly By Locale

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There are many reasons for geographic differences in health expenditures, including utilization, the cost of doing business, and providers’ and insurers’ ability to negotiate prices. A new study, released as a Web First by Health Affairs, examined the variations in the prices for 242 common medical services in 41 states and the District of Columbia, using a national multipayer commercial claims database for the years 2012 and 2013.

The authors, David Newman, Stephan T. Parente, Eric Barrette, and Kevin Kennedy, examined prices across states, compared overall price levels by state, and explored price variation within states. They sometimes found more than a threefold variation. Alaska had the highest average health care prices, followed by Wisconsin, North Dakota, New Hampshire, and Minnesota. Florida had the least expensive services.

To illustrate one of the 242 procedures—a pregnancy ultrasound—the authors found that in Ohio, the average price in Cleveland ($522) was almost three times that in Canton ($183), though the two cities are only 60 miles apart. Conversely, in Virginia, Virginia Beach ($275) and Richmond ($271), while 107 miles apart, had nearly identical prices (exhibit below).

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“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,” concluded the authors. “The questions that remain for researchers, policymakers, 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?”

Newman, Barrette, and Kennedy are affiliated with the Health Care Cost Institute in Washington, D.C.; Parente is with the University of Minnesota, in Minneapolis.

This study, part of Health Affairs’ DataWatch series, will also appear in its May issue.

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