Average hospital outpatient department prices for common imaging, colonoscopy and laboratory services can be double the price or more for identical services provided in a physician’s office or other community-based setting, according to a study from the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).
The average hospital outpatient department price for a basic colonoscopy, for example, was $1,383 compared to $625 in community settings, according to the study. For a routine blood test—a comprehensive metabolic panel—the average price in hospital outpatient departments was triple the price—about $37 compared to $13 in community settings.
Conducted for NIHCR by researchers at the former Center for Studying Health System Change (HSC), the study used 2011 private insurance claims data for 590,000 active and retired nonelderly autoworkers and their dependents to examine hospital outpatient department prices in 18 U.S. metropolitan areas—Akron, Ohio; Buffalo, N.Y.; Cleveland; Detroit; Flint, Mich.; Grand Rapids, Mich.; Indianapolis; Kokomo, Ind.; Lansing, Mich.; Monroe, Mich.; Rockford, Ill., Saginaw, Mich.; St. Louis; Syracuse, N.Y.; Toledo, Ohio; Warren, Mich.; Wilmington, Del.; and Youngstown, Ohio.
Private insurers and Medicare generally pay more for services provided in hospital outpatient departments. Hospitals justify the higher payments by citing higher overhead costs related to stand-ready capacity for emergencies and additional regulatory requirements, such as the obligation to screen and stabilize all patients with a medical emergency regardless of their ability to pay.
“A key question is whether the higher cost for routine, nonemergency services in hospital outpatient departments is justified when the same services are widely available at much lower prices in community settings,” said James D. Reschovsky, Ph.D., a former HSC senior fellow now at Mathematica Policy Research; and coauthor of the study with Chapin White, Ph.D., a former HSC senior researcher now at RAND.
The study’s findings are detailed in a new NIHCR Research Brief—Location, Location, Location: Hospital Outpatient Prices Much Higher than Community Settings for Identical Services—available here.
Other key findings include:
- The average price for magnetic resonance imaging (MRI) of a knee was about $900 in hospital outpatient departments (HOPDs) compared to about $600 in physician offices or freestanding imaging centers. Likewise, HOPD average prices for physical therapy were much higher than community settings. For example, a 15-minute unit of manual therapy was $58 on average in HOPDs compared to $35 in community settings.
- In general, communities—for example, Indianapolis, Cleveland and Toledo, Ohio—with high HOPD prices relative to community-based prices for one service also had relatively high HOPD prices for other services. For instance, in Indianapolis, the average HOPD price for knee MRIs was $1,540—more than 2.7 times the $563 average price in community settings. Likewise, colonoscopies in Indianapolis averaged $2,573 in HOPDs and $449 in community settings, a nearly six-fold difference.
- Price variation across markets was greatest for laboratory tests. Depending on the specific test and market, average HOPD prices ranged from almost being on par with average community prices—for example, CBC tests averaged $10.21 in Detroit HOPDs compared to $9.14 in community settings—to being nearly 14 times higher—$76.38 vs. $5.61 for combined metabolic panels in the Youngstown metropolitan area.
- Hospitals often contend they must charge higher prices to private insurers because they treat sicker patients. When examining the health status of patients using services in the two settings, no differences were found for knee MRIs and colonoscopies. However, patients receiving lab tests and physical therapy services in HOPDs were sicker than those receiving these services in community settings. Since the analysis examined common and standardized clinical laboratory services, this should not be a factor in explaining clinical laboratory price differences. For physical therapy services, the health status difference might be explained because patients with hospital inpatient stays—say for a knee replacement—are more likely to be referred to physical therapy in HOPDs than in community settings.
The large variation in the relative prices of HOPD and community-based services across markets suggests that apart from explanations for higher HOPD services because of greater overhead costs and sicker patients, there are likely large differences in the bargaining clout of hospitals relative to health plans that allow some hospitals to negotiate much higher prices than others, as other research has shown, according to the study.
Purchasers can structure health benefits in several ways to encourage patients to use lower-price providers, including narrow networks that exclude higher-price providers; tiered networks that require higher patient cost sharing to use higher-price providers; and reference pricing that caps allowed payment amounts for certain services for in-network providers, requiring patients who opt to use a network provider with higher prices than the reference price to pay the difference out of pocket .