Hospital Care Prices Rose Faster Than the Cost of Physician Services

The Issue

Are hospitals or physicians more responsible for driving up the price of hospital-based care? Tracking provider spending growth — and identifying the underlying forces at play — is an important issue for policymakers. Using data on actual prices paid by health insurers, Commonwealth Fund–supported researchers analyzed hospital and physician prices for inpatient and hospital-based outpatient services as well as for four high-volume services: cesarean section, vaginal delivery, hospital-based outpatient colonoscopy, and knee replacement. The study, published in Health Affairs, offers an analysis of price trends that can guide future cost-containment efforts.

What the Study Found

• From 2007 to 2014, prices for hospital inpatient care grew 42 percent, compared to 18 percent for physician prices for inpatient hospital-based care.
• For hospital-based outpatient care, hospital prices rose 25 percent, compared to 6 percent for physician prices.
• There were no differences in results between hospitals that directly employed physicians and those that had outside physicians work in their facilities.
• Hospital prices typically accounted for over 60 percent of the total price of hospital-based care.
• Hospital prices accounted for most of the cost of the four high-volume services included in the study. When the costs of physician and hospital care were combined, the hospital component ranged from 61 percent for vaginal deliveries to 84 percent for knee replacements.

The Big Picture

Growth in hospital prices, not physician payments, is largely responsible for rising costs for inpatient and hospital-based outpatient care. During the study period, hospital prices grew more than twice as much as physician prices for inpatient care, and four times as much for hospital-based outpatient care. Efforts to control health spending therefore will likely need to address hospital costs rather than physician prices, which have roughly kept pace with inflation.

Policymakers could consider a range of strategies that address hospital price growth: reviewing proposed mergers for the potential impact on hospital costs; regulating hospital payment; and reference pricing (where patient cost-sharing payments depend not only on the price of a drug but on the price of alternatives therapies, like generic versions). For their part, payers could provide physicians with data on cost-efficient hospitals and offer incentives to refer patients to these facilities.

The Bottom Line

From 2007 to 2014, hospital prices grew faster than physician costs, and drove most of the growth in payments for inpatient and hospital-based outpatient care.