Getting the Picture: Visualizing Hospital Price Variation

How much do hospital prices vary? Is California more expensive than the rest of the country?

Freedman HealthCare (FHC) produced a set of swarm plots to display the variation in commercial hospital prices, meaning the expected payments that hospitals received for care paid for by commercial health plans. Each dot represents a hospital, with blue dots representing hospitals located in California and gray dots hospitals in other states. The y-axis shows the ratio of commercial payments to what Medicare would have paid for the same services. A value of 100% means that the commercial payment is the same as what Medicare would have paid. Hospitals with fewer than 30 outpatient services were omitted from the display to improve the reliability of the results.

Among hospitals in California, the median outpatient commercial payments were 344% of Medicare, meaning that commercial payments were approximately 3.5 times higher than what Medicare would have paid. Hospitals in other states were also paid more than Medicare, but not as much as in California: the national median was 246% of Medicare, 2.5 times Medicare payments.

The figure highlights the substantial variation in commercial payments made to hospitals in California, ranging from payments below what Medicare would have paid to more than 12 times higher than Medicare.

The data come from the fourth round of the RAND Corporation’s Hospital Price Transparency Study.  RAND is a nonpartisan, nonprofit research organization that provides information for various policy challenges.  The Robert Wood Johnson Foundation funded the most recent study that was released in 2022.  Analysts examined data from 11 state all-payer claims databases, several national health plans, and voluntary data contributed by self-funded employers, which combined included data for more than hospitals across the country.

FHC provided the visuals to assist California’s Office of Health Care Affordability (OHCA) in developing metrics for measuring hospital spending in the state.  As OHCA finalizes a statewide benchmark for the growth in Total Health Care Expenditures, the Office requested help in better understanding hospital-specific expenditures. In compiling available information from publicly available data sources, FHC discovered that California’s commercial payments for hospital outpatient services are substantially higher than those observed for non-California hospitals in the data set. Since the prices are based on Medicare reimbursements, it means that the data are adjusted for certain regional and economic factors accounted for in Medicare’s pricing algorithms (e.g., local wage index, severity).

FHC continues to support OHCA in determining effective methods for measuring hospital spending with available data and exploring California’s unique market. Of particular interest will be how to effectively capture value-based care and capitated payment arrangements reliably and accurately.

For questions or further information, please contact Senior Data Science Consultant Sarah Lindberg at [email protected].