The Relationship between Commercial Health Care Prices and Medicare Spending and Utilization

Abstract

Objective: To explore the relationship between commercial health care prices and Medicare spending/utilization across U.S. regions.

Data sources: Claims from large employers and Medicare Parts A/B/D over 2007-2009.

Study design: We compared prices paid by commercial health plans to Medicare spending and utilization, adjusted for beneficiary health and the cost of care, across 301 hospital referral regions.

Principal findings: A 10 percent lower commercial price (around the average level) is associated with 3.0 percent higher Medicare spending per member per year, and 4.3 percent more specialist visits (p < .01).

Conclusions: Commercial health care prices are negatively associated with Medicare spending across regions. Providers may respond to low commercial prices by shifting service volume into Medicare. Further investigation is needed to establish causality.

Keywords: Geographic variation; health care spending; provider competition and health care prices; spillovers in health care; supplied-inducer demand.

Figure 1

Relationship between Commercial Price of Health Care and Adjusted Spending on Commercially Insured and Medicare Beneficiaries