Market Competition, All-Payer Claims Databases Found to Have Limited Impact on Hospital Costs

States need to have a multifaceted approach to containing hospital costs, rather than solely depending on the rollout of price transparency or market competition, according to a new study published in BMC Health Services Research.

Despite having highly advanced medical technology and practice, the United States has the highest health care expenditure per capita in the world. In 2019, US health care spending reached $3.8 trillion, or 17.7% of the gross domestic product.

The health care system has also not been able to improve individual care outcomes, population health, or costs to individuals and employers. Researchers have noted that a potential remedy for these problems may be reducing health care costs, because access and quality are impeded by high, opaque costs.

Public reporting and price transparency has been considered an effective tool to reduce health care costs. According to investigators, it is effective as it mitigates information asymmetry in the market as payers have incorporated publicly available information mandates into pay-for-performance programs and value-based purchasing. Because of this, hospitals have faced growing pressure to provide price transparency.

However, despite the growth of price transparency, the effectiveness of public reporting has not been well understood. To investigate this issue further, researchers analyzed the impact of transparency policy and competition on hospital costs by taking the state operations of all-payer claims databases (APCDs) as a case of interest.

The team utilized a fixed-effects regression, which allowed for the generation of hospital-specific effects. The study samples included nonprofit and for-profit general acute care hospitals in the United States between 2011 and 2017, and the finalized data set ranges from 3547 observations in 2011 to 3405 observations in 2015 after removing missing values.

According to the study, hospitals in states with APCDs tend to have higher average operating expenses than those without APCDs, which may suggest that states maintaining higher health care expenditures are more attentive to price transparency initiatives and tend to adopt APCDs, according to the study. Regarding competition, the results found that weak market competition is significantly associated with higher operating costs, supporting the traditional competition theory.

However, the combined impacts of APCDs and competition did not suggest a significant association with operating expenses. Further analysis showed a continued tendency for a weak intensity of competition to be associated with lower hospital operating costs in states without APCDs.

For hospitals located in states without APCDs, market consolidation helped coordinate care more effectively, economize operating costs, and enjoy economies of scale due to their large size. Similar trends only appeared in APCD-adopted states in 2015.

Based on these findings, the authors concluded that there was limited evidence of the impact of APCDs and market competition. Therefore, they said states need to make multifaceted efforts to contain hospital costs, rather than solely relying on price transparency and market competition.

Market concentration may lead to coordinated care or cost economization in some cases, but the existing literature also demonstrate some potentially harmful impacts of increased concentration in the health care market, such as inefficient use of resources, unilateral market power, and deterrence of innovation. Introducing a price transparency tool may require additional policy actions that consider market competition, according to the study.

REFERENCE

Han A, Lee KH, Park J. The impact of price transparency and competition on hospital costs: a research on all-payer claims databases. BMC Health Services Research 22, 1321 (2022). https://doi.org/10.1186/s12913-022-08711-x