Potential Factors Associated With Commercial-to-Medicare Relative Prices at the Substate Level.

IMPORTANCE

There is a growing consensus that commercial prices vary in ways that do not reflect quality of care and are a key factor in high health care spending in the US.

OBJECTIVE

To assess the geographic variation in commercial prices relative to Medicare rates for both hospital and professional services at the state and substate levels, estimate the change in these prices and determine which characteristics are associated with higher hospital prices.

DESIGN, SETTING, AND PARTICIPANTS: This cross-sectional study analyzed deidentified aggregated health care claims data for 2 time frames of service, from January 1, 2020, through December 31, 2020, and from June 1, 2022, through May 31, 2023, to construct commercial-to-Medicare price ratios for hospital and professional services at the state and geozip levels (491 geozips correspond to combinations of zip codes in 50 states and the District of Columbia). Multivariable regression models were estimated to assess the association between commercial-to-Medicare relative hospital prices and various market characteristics at the geozip level. Data analysis was conducted from July through November 2024.

EXPOSURES

Exposures defined at the geozip level included hospital and insurer market concentrations, the share of hospitals beds associated with nonprofit hospitals, the share of beds associated with health systems, the presence of a major teaching hospital, mean household income, the share of the population who had public health insurance, and the share who were uninsured.

MAIN OUTCOMES AND MEASURES

Commercial prices relative to Medicare rates for inpatient, outpatient, combined hospital, and professional services.

RESULTS

This cross-sectional study of 1.2 billion claim lines in 2020 and 1.5 billion claim lines from June 2022 through May 2023 found that private insurers' in-network allowed amounts were 246% (ratio [SD], 2.46 [0.6]) of the Medicare rates for hospital services and 124% (ratio [SD], 1.24 [0.3]) of the Medicare rates for professional services. The mean commercial-to-Medicare price ratio for professional services slightly declined from 2020 to 2022-2023, while the mean (SD) price ratio for hospital services increased by 5.5%, from 2.34 (0.5) in 2020 to 2.46 (0.6) in 2022-2023. There was substantial variation in the commercial-to-Medicare price ratios across states and geozips. Geozips with very high hospital market concentration levels (Herfindahl-Hirschman Index [HHI]>3500) were associated with a commercial-to-Medicare price ratio higher by 0.21 (95% CI, 0.02-0.39; P = .03) relative to geozips with HHI levels lower than 1500, which represents an 8.4% increase above the 2022-2023 mean. High insurer concentration was negatively associated with the commercial-to-Medicare hospital price ratios (-0.13; 95% CI, -0.26 to 0.01; P = .04), whereas having a major teaching hospital in the geozip (0.20; 95% CI, 0.06-0.34; P = .01), being in the highest household income quartile (0.35; 95% CI, 0.13-0.57; P = .002), and the share of the population who were uninsured (0.03; 95% CI, 0.01-0.05; P < .001) were positively associated with price ratios.

CONCLUSIONS AND RELEVANCE

Examination of a major claims database revealed substantial geographic variation in commercial-to-Medicare price ratios and increases in the price ratio for hospital services over time. Substate market and hospital characteristics were also associated with higher commercial-to-Medicare relative prices. These factors, including high hospital market concentration, could be used to identify and target specific areas more amenable to policies aimed at curbing hospital price growth.