TY - JOUR AU - Cooper, Zack AU - Craig, Stuart V AU - Gaynor, Martin AU - Van Reenen, John TI - The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured JF - National Bureau of Economic Research Working Paper Series VL - No. 21815 PY - 2015 Y2 - December 2015 DO - 10.3386/w21815 UR - http://www.nber.org/papers/w21815 L1 - http://www.nber.org/papers/w21815.pdf N1 - Author contact info: Zack Cooper Yale Institution for Social and Policy Studies 77 Prospect Street New Haven, CT 06511 E-Mail: zack.cooper@yale.edu Stuart V. Craig The Wharton School The University of Pennsylvania 3641 Locust Walk Philadelphia, PA 19104 Tel: 6366753542 E-Mail: stuart.v.craig@gmail.com Martin Gaynor Heinz College Carnegie Mellon University 5000 Forbes Avenue Pittsburgh, PA 15213-3890 Tel: 412/268-7933 Fax: 412/268-5338 E-Mail: mgaynor@cmu.edu John Van Reenen Department of Economics London School of Economics Houghton Street London, WC2A 2AE United Kingdom E-Mail: j.vanreenen@lse.ac.uk M2 - featured in NBER digest on 2016-01-25 AB - We use insurance claims data covering 28 percent of individuals with employer-sponsored health insurance in the US to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a near homogenous service such as lower-limb MRIs, about a fifth of the total case-level price variation occurs within a hospital in the cross-section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g. they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs – hospitals have lower prices and bear more financial risk. Examining the 366 merger and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6 percent when the merging hospitals were geographically close (e.g. 5 miles or less apart), but not when the hospitals were geographically distant (e.g. over 25 miles apart). ER -