Guy Boulton

Milwaukee Journal Sentinel

Different studies over the years have shown that health care prices in the Milwaukee area are higher than those in other markets. The Health Care Cost Institute now has an estimate on just how much higher.

Its estimate: Milwaukee's prices are 17 percent above the national average.

Health care prices in the Green Bay area are only slightly better. Prices in that market overall are 14 percent above the national average.

By comparison, prices overall are 13 percent below the national average in the Des Moines, Iowa, and Kansas City, Missouri, metro areas. They are 10 percent lower in Cincinnati. In St. Louis, they are 22 percent below the national average.

Even prices in the Chicago metro area overall are slightly below the national average. And in the Appleton area, they are 3 percent below the average.

The estimates are from the Healthy Marketplace Index compiled by the Health Care Cost Institute. The index — consisting of interactive maps — compares the average prices paid for the same set of health care services in 112 metro areas across the country.

It is based on 1.8 billion medical claims for commercial health plans — those offered by employers or bought by individuals and families — from UnitedHealthcare, Humana, Aetna and Kaiser Permanente from 2012 through 2016.

The estimates pull together earlier reports on health care spending and prices from the Health Care Cost Institute.

The estimates are another example of how health care prices vary throughout the country — and how costs in the Milwaukee area are higher than in other metro areas.

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The report on which the interactive maps are based did not set out to look at the reasons for the variation in prices.

“It really varies from place to place,” said Bill Johnson, a senior researcher at the Health Care Cost Institute. “What this report is designed to do is try to help people get a better picture of their local area.”

But most economists and policy analysts attribute the difference in prices to the leverage that health systems have when negotiating prices with health insurers.

“It doesn’t matter what you do — they are going to raise their prices to get their money,” said Glenn Melnick, a health economist and professor at the University of Southern California.

Prices typically are higher in markets that are dominated by one or two health systems or in markets where certain health systems must be included in networks for health plans to appeal to employers.

And economists increasingly contend that the problem has intensified in recent years amid the wave of consolidation among health systems.

A 2015 study by the National Academy of Social Insurance found that market power — the ability to raise and keep prices higher than they would be in a competitive market — was a serious problem in health care markets across the country.

“Many health systems are getting very rich,” said Robert Berenson, a physician and fellow at the Urban Institute, who co-chaired the panel that did the study.

He also attributes the variation in prices to the ability of health systems, particularly those with so-called must-have hospitals, to negotiate higher prices with health insurers.

The variation in prices also has drawn attention to “all-or-nothing” clauses that require health plans to include all of a health system’s hospitals in a network and that bar health plans from placing the hospitals in a tier that requires higher cost-sharing.

Aurora Health Care, now part of Advocate Aurora Health, has long had those clauses in its contracts.

The clauses have been outlawed in Massachusetts and are being challenged in court in California.

Culture and practice patterns

Prices also can vary because of culture and practice patterns, Melnick said.

Physicians and hospitals in some parts of the country raise prices more slowly and make better use of health care dollars.

For example, Intermountain Health Care, one of the country’s most respected health systems, dominates the Salt Lake City metro area. Yet prices in that market overall were 12 percent below the national average.

Culture and practice patterns also could account for why overall health care prices in the Appleton area are below the national average — and well below the prices in the Milwaukee and Green Bay areas.

But no one can say for sure, and, if nothing else, the Health Care Cost Institute’s reports in recent years have shown how little is known about health care prices.

That’s because prices negotiated by health systems and health insurers typically are confidential.

The Health Care Cost Institute’s data has limitations. Anthem, for example, has not shared its medical claims. And its reports have been challenged by the Wisconsin Hospital Association and conflicted with other studies on health care costs in southeastern Wisconsin.

But a 2015 report from the federal General Accountability Office also found that Milwaukee and Madison had higher prices. That study, which looked at 78 metro areas, was based on medical claims for commercial insurers from 2009 and 2010.

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Johnson, the senior researcher, said the Health Care Cost Institute is confident that it has the data to make accurate statements on overall average prices in the 112 markets included in the Healthy Marketplace Index.

The estimates are valid only for eastern Wisconsin, where UnitedHealthcare and, to a lesser extent, Humana have enough people in their commercial health plans to provide a good gauge on prices.

The Health Care Cost Institute doesn’t disclose prices for specific hospitals and health insurers, but it does provide information on prices for specific episodes of care within a metro area and across the country on its guroo.com website.

It is working on a study on prices for specific services, Johnson said.

“Some of the variation we seeing is just truly astonishing, both within markets and across markets,” he said.

Other information on prices also has become available in recent years, and some states, such as Massachusetts, New Hampshire and Colorado, are making claims data public.

That, too, has drawn attention to how prices vary and how they have increased.

The variation and increases have raised the question in policy circles whether health care prices need to be regulated similar to the way utility prices are regulated, with states setting an upper limit on what hospitals, physicians and other health care providers can charge.

“At some point, we will get very serious about rate setting,” Berenson said. “I don’t see any alternative.”

For example, prices could be limited to double what Medicare pays for the same medical services. The limits initially could allow for generous reimbursement and then be lowered over time.

“The prices need to be restrained,” Berenson said. “But there is no political will to do anything about it at this point.”

That, though, could change over time.

Berenson can see some states, such as California, Massachusetts and New York, taking the lead.

Melnick, who said he is not a fan of a government-administered system, also sees this happening.

“Unfortunately, I think that’s where we are headed,” he said. “The market is just not working.”

If health plans provided by employers forced people to pay the additional costs at hospitals with higher prices, prices would be lower, Melnick said. But most employers don’t want the hassle of moving to health plans that make use of what is known as tiered networks and reference pricing.

“They don’t want to do anything disruptive,” he said.

With tiered networks, people have lower out-of-pocket costs when they get care at hospitals considered to provide quality care at a lower cost. With reference pricing, people pay the additional cost when they get care for medical services from a hospital or clinic with prices above a set amount.

Health systems’ contracts, however, bar tiered networks and reference pricing in some markets.

Melnick is working on a study on the price increases for vaginal deliveries and newborn care. He found that prices increased 170 percent in the past 10 years.

The study is on hospitals in California, but he expects that the same pattern would be found throughout the country.

“It’s a perfect case study of why the market isn’t working,” Melnick said.

Similar information on the price increase isn’t available for the Milwaukee area.

But guroo.com, drawing on medical claims paid between July 1, 2014, and June 30, 2016, shows that the average cost of a vaginal delivery and newborn care in the Milwaukee area is $17,026, with prices ranging from $14,605 to $19,346.

The national average: $12,772.