The prices hospitals negotiate with health insurance companies vary enormously within and across geographic regions in the United States, according to a new study coauthored by a Yale economist.

For example, the study shows that in 2011 hospital prices for lower-limb MRIs were 12 times higher in the most expensive region of the United States (Bronx, New York) than in the cheapest region (Baltimore, Maryland) and could vary by up to a factor of 9 within the same city (e.g., Miami, Florida). The study also finds that the level of hospital prices within regions is the primary driver of variation in health care spending for the privately insured. Moreover, the research reveals that hospitals in monopoly markets have prices that are 15% higher than those in markets with four or more providers, even after controlling for differences in cost and clinical quality....

“These price differences between hospitals can be thousands of dollars,” says Martin Gaynor, the E.J. Barone Professor of Economics and Health Policy at Carnegie Mellon University, one of the study’s authors. “For example, the price of an average inpatient stay where there’s a monopoly hospital is almost $1,900 higher than where there are four or more competitors. We know that these higher prices end up getting translated into higher premiums that employers pass on to workers. There have been over 1,200 mergers in the hospital industry since 1994, and 457 since 2010. Our work shows that the consequences of this wave of mergers can be dire for consumers. There’s a real need for continued vigorous antitrust enforcement and other policy options to encourage competition and combat market power.”...

“The fact that prices are so high and can vary so much for hospital treatments of the same costs and quality is simply mind-boggling to foreign observers of the U.S. health care system,” says John Van Reenen, professor of economics and director of the Centre for Economic Performance at the London School of Economics, one of the study’s authors. “This is surely one of the reasons why U.S. health care absorbs a bigger share of GDP than in every other large advanced country.”