Since Jan. 1, 2021, hospitals operating in the United States have been required by federal law to provide clear, accessible pricing information online about the items and services they provide. This data was used to compare prices at the three major Texas Medical Center (TMC) hospitals in 2022. As of July 1, 2022, health insurers have also been required to post pricing information — allowing customers to compare the prices they can expect to pay at different hospitals, depending on their insurance plan.
This issue brief examines negotiated prices released by Blue Cross Blue Shield Texas (BCBSTX) and Aetna to compare the price of inpatient and outpatient services at Houston area hospitals. In addition, we compare these prices to hospital quality metrics reported in other government sources.
Methods
Mathematica’s Payer Price Transparency team downloaded data files containing negotiated prices from the BCBSTX and Aetna websites in May 2023. Because they are meant to contain prices of all services for each contract that the insurer has negotiated with each hospital, these files are large and cumbersome. Before analysis could begin, massive files had to be downloaded — 0.5 terabytes for BCBSTX and 19 TB for Aetna — then samples were limited to particular hospitals of interest. To facilitate comparison across hospitals, we limited the analysis to negotiated preferred provider organization (PPO) prices reported by both insurers.
We further obtained PPO prices reported by both payers. Forty-nine percent of insured workers have PPO coverage, making it the most common plan type in 2022. Due to the size of the Aetna data files, we restricted our sample to PPO prices reported for major employers in Texas. We then selected rates associated with all hospitals located in Harris County, where Houston is located. Prices for inpatient care (requiring an overnight hospital stay) are reported by diagnosis, as categorized by Medicare severity diagnosis related group (MS-DRG) — e.g., MS-DRG 291 is heart failure and shock with major complications. Prices for outpatient care are reported based on current procedure terminology (CPT) — e.g., CPT 45380 is a flexible colonoscopy with a single or multiple biopsy. We searched for prices for the 110 most common MS-DRGs and CPTs in U.S. hospitals — determined based on Mathematica’s analysis of Medicare fee-for-service claims.
A Note About Medicare Rates
In this brief, we report negotiated prices in dollars for each hospital and insurer. We also note the negotiated price relative to the price Medicare sets for each diagnosis/procedure and hospital. Medicare sets standard rates for each treatment that vary across hospitals only according to factors such as the local cost of labor and teaching status. Therefore, the ratio of negotiated rates to Medicare rates reflects each hospital’s relative strength in negotiating higher prices with insurers while adjusting for geographic factors that contribute to price differences.
Price and Care Comparisons
Prices were compared alongside three measures of hospital quality of care:
- The Medicare hospital star rating — this reflects each hospital’s performance on a series of measures including mortality, safety of care, readmission rates, patient experience, and provision of timely and effective care.
- The Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) patient star rating, a composite score from numerous questions on patient experience — this rating reflects hospital’s ratings on the Consumer Assessment of Healthcare Providers and Systems (CHAHPS) patient experience survey, including measures such as nurse communication, doctor communication, and care transition.
- The HCAHPS patient recommendation rating, a composite score from questions on hospital recommendation.
All three measures are rated from one to five, with five representing the highest possible quality. We compared prices and quality only for those hospitals in Harris County for which we could find both data series.
Harris County is home to four major health care systems:
- HCA Houston Healthcare.
- Houston Methodist.
- Memorial Hermann.
- St. Luke’s Health.
There are also several other hospitals that are independent or belong to smaller health care systems. In addition to reporting negotiated PPO prices for each hospital, we conducted additional comparisons of price and quality across the four largest systems. Several hospitals that did not belong to one of these four health care systems did not have quality measures available, and therefore were excluded from the comparisons of price and quality.
Results
Although the transparency in coverage (TiC) regulations require health plans to list the prices of all covered services, there are substantial gaps in price reporting.
Although the TiC regulations require health plans to list the prices of all covered services, there are substantial gaps in price reporting, which inhibited our ability to readily compare the price of health care across hospitals and between two major insurers. From the BCBSTX files, we were able to identify 25 diagnoses (Figure 1) with a reported price for a stay in hospital for 29 hospitals in Harris County.
In contrast, we were only able to find prices for six diagnoses for a stay in hospital among 15 Harris County hospitals in the Aetna files. More prices were available for hospital outpatient procedures for both insurers. We found 32 procedures with reported prices for 27 hospitals in Harris County in the BCBSTX files, and 18 procedures with reported prices for 21 hospitals in the Aetna files.
Figure 1 — Average Prices for a Hospital Stay for 25 Common Diagnoses Negotiated by BCBSTX With Hospitals in Harris County
For customers with BCBSTX coverage, the average price of a hospital stay for 25 common diagnoses varies by more than two-fold across Houston hospitals.
For customers with BCBSTX coverage, the average price of a hospital stay for 25 common diagnoses varies by more than two-fold across Houston hospitals ( Figure 1), from $6,968 (at Surgery Specialty Hospitals of America Southeast Houston) to $20,071 (at Houston Methodist Hospital). Other findings for BCBSTX include:
- Among the four major hospital systems, the average price varies by 22%, from a low of $15,858 for HCA hospitals to a high of $19,354 for Memorial Hermann; although, we only found prices for Memorial Hermann Southeast Hospital.
- The four hospitals comprising the Houston Methodist system have higher average prices ($18,858) than the three hospitals in the CHI St. Luke’s system ($16,390).
- Within the TMC — which contains the flagship hospital for each of the four major health care systems — Houston Methodist Hospital has the highest reported average price in the entire sample ($20,071), compared to CHI St. Luke’s ($18,103) and HCA Houston Healthcare ($15,455).
- There was insufficient data to calculate average negotiated prices for Memorial Hermann’s TMC hospital.
Figure 2 — BCBSTX Negotiated Relative Price and Quality Measures for a Hospital Stay for 25 Common Diagnoses at Hospitals in Harris County
Note: hosp_star = Medicare hospital star rating; medicare_rel_rate = price relative to Medicare.
Figure 2 indicates that all five Houston Methodist hospitals in our sample achieved five-star hospital ratings, whereas CHI St. Luke’s hospitals received three or four stars. Patient star ratings ranged between three or four for both these health care systems.
Further examination of Figure 2 reveals that although HCA Houston Healthcare Medical Center also achieved 5 out of 5 stars for its hospital star rating, it negotiated substantially lower average prices with BCBSTX (1.63 times Medicare) than either the Methodist (2.01 times Medicare) or CHI St Luke’s (1.85 times Medicare) TMC hospitals.
Texas Orthopedic Hospital and The Women’s Hospital of Texas also had ratings as high or higher than these other TMC hospitals and even lower prices relative to Medicare. However, these latter two hospitals specialize in orthopedic and women’s health, and are unlikely to have treated many patients in the broad range of diagnoses for which we were able to locate prices (e.g. pneumonia, heart attack, hip replacement, etc.)
Figure 3 — Average Prices for 32 Outpatient Services Negotiated by BCBSTX with Hospitals in Harris County
Figure 3 displays a different ordering of hospital systems and hospitals by price: It shows the 32 outpatient services for which we found prices in the BCBSTX files. Two independent hospitals have the highest average prices, just over $3,000. Hospitals in the CHI St. Luke’s system have the second highest prices, averaging $2,548, followed by the Houston Methodist system ($2,370), with HCA hospitals priced much lower ($2,024). We found prices for only one Memorial Hermann (Southeast) hospital of $2,001.
Although we only found Aetna-negotiated prices for six diagnoses, average prices vary widely across Houston hospitals.
Figure 4 — Average Prices for a Hospital Stay for 25 Common Diagnoses Negotiated by Aetna With Hospitals in Harris County
For customers with Aetna coverage, we found considerably fewer cases of overlap in prices for specific inpatient diagnoses or services provided in the outpatient care setting. For the six diagnoses where we found prices for a hospital stay in most Houston hospitals, Memorial Hermann had the highest average price ($19,261), followed by $10,847 at CHI St Luke’s, then $10,719 at HCA Houston for their flagship hospitals located in the TMC (Figure 4).
When we computed average prices including all Houston area hospitals from each system, the Memorial Hermann system remained the highest ($14,643), followed by HCA hospitals ($10,718), then CHI St. Luke’s ($10,696).
Figure 5 — Aetna Negotiated Relative Price and Quality Measures for a Hospital Stay for Six Common Diagnoses at Hospitals in Harris County
Note: hosp_star = Medicare hospital star rating; medicare_rel_rate = price relative to Medicare.
Higher inpatient prices were not strongly correlated with better quality in the Aetna plan data (Figure 5). Both the Memorial Hermann and CHI St. Luke’s hospitals in the TMC received hospital and patient star ratings of 3 out of 5, yet Memorial Hermann TMC’s negotiated prices with Aetna were 2.19 times its Medicare rates, while CHI St. Luke’s in the TMC prices were only 1.20 times its Medicare rates. Though HCA Houston in the TMC earned a higher 5 out of 5 hospital star rating, its prices were only 1.56 times its Medicare reimbursement rates. Unfortunately, the Aetna files did not contain prices for Houston Methodist system hospitals.
We were able to obtain average prices negotiated by Aetna for 18 outpatient services. Prices for Houston Methodist were available in these data files, and this hospital had the highest average prices in the area: $6,335 (Figure 6). Next most expensive were the Memorial Hermann hospitals; their TMC hospital had average prices of $4,385. The HCA hospitals all had average negotiated rates of $3,076 with Aetna. CHI St. Luke’s in the TMC had lower average prices of $2,148, and its satellite hospitals were priced even lower ($1,935).
Figure 6 — Average for 19 Outpatient Services Negotiated by Aetna With Hospitals in Harris County
Discussion
Wide Price Variation Across Hospitals
Initial price files released by BCBSTX and Aetna reveal wide variation in prices across hospitals in Harris County. There are notable differences across the four major health care systems in the Houston area. For example, the average BCBSTX negotiated prices for a hospital stay by system range from a low of $15,858 (HCA) to $19,354 (Memorial Hermann). Prices for independent hospitals that are not affiliated with any of the major health care systems tended to be lower, because smaller organizations lack the market power to negotiate higher prices with insurers.
Price Variation Within Hospital Systems
Noticeable price differences also exist across hospitals within each system. Houston Methodist in the TMC has average negotiated prices for a hospital stay of $20,071, but Houston Methodist could only negotiate an average price of $18,131 with BCBSTX for these same diagnoses when treated at its Clear Lake facility.
Hospital and system ordering of negotiated prices also varied for hospital stays versus outpatient care. While the CHI St. Luke’s system had inpatient care prices that were 13% lower than Houston Methodist, CHI St. Luke’s system negotiated BCBSTX prices for outpatient care that were 8% higher ($2,548) than those for Houston Methodist ($2,370).
It May Pay to Shop Around
Because BCBSTX and Aetna reported negotiated rates for different sets of hospital diagnoses and outpatient procedures, we cannot make conclusions on which insurer was able to negotiate lower rates on average with Harris County hospitals. Nevertheless, these results suggest that employers can achieve notable savings in health care spending if they can steer employees toward lower priced providers, without sacrificing quality. Multiple hospitals differ in their negotiated prices for inpatient and outpatient services within a narrow band of high quality. The four major health systems each had at least one hospital that scored at least 4 out of 5 in its hospital star rating, and there were Houston Methodist, CHI St. Luke’s, and HCA hospitals that scored at least 3 out of 5 on patient recommendation ratings.
We do not recommend that employers take action to alter their health insurance benefit structure based on these data yet, because this initial round of insurer data is still relatively incomplete. However, Mathematica is regularly processing new files as they are released, and each round is likely to contain prices for more providers, diagnoses, and treatments.
Recommendations
The House recently passed the Lower Costs, More Transparency Act: It reiterates the TiC regulations that became effective in 2022 regarding price transparency. Consequently, health care providers and insurers are feeling stronger pressure to comply with the rules — calls for better pricing information are receiving broad bipartisan support.
By combining available data with quality measures from other sources, employers can take two major steps.
- They can clearly compare prices across insurers, to determine which insurance company has been able to negotiate the lowest prices for the hospitals their workers are using.
- With the passage of House Bill 711 by the Texas legislature, employers can introduce tiered pricing into their benefits packages, offering lower copays to workers choosing to obtain hospital care at lower price, high quality facilities. Because 64% of Texas firms with 50+ employees self-insure, the savings achieved by lowering health care spending can be translated into lower health insurance premiums for workers in subsequent years.
Rising health care costs are the primary barrier to affordable health insurance for uninsured and underinsured Americans. The Baker Institute will continue to collaborate with Mathematica to share pricing data from Houston area hospitals. Closely tracking hospital pricing data will help us determine whether employers are doing their part to find high quality care for their workers at the lowest possible cost.
This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.
