Market power of physicians, hospitals seen in high insurance costs: CBO

The prices commercial insurers pay to providers continues to grow higher than the price set by Medicare's fee for service program, according to a report from the Congressional Budget Office. 

The report sought to explain why private insurers are seeing increased variance between their prices from providers and those established by the Medicare FFS program. 

Five takeaways from the report:

1. Providers are gaining market power, resulting in greater variance between commercial and Medicare FFS prices. The view that providers are becoming more essential to payer networks is leading to increased variance both within an area and among several areas. 

2. The differing price of inputs needed for certain services may result in price variations. 

3. The report claims some of the price variations are associated with higher quality services from providers, but was unable to determine exactly what the relation was between quality and price. 

4. The report also reviewed providers' spending on billing- and insurance-related activities — which represent between a third and half of a provider's administrative spending. While providers may pass these costs on to payers, the report did not conclude if there was a relationship between high billing- and insurance-related spending and increased costs for payers. 

5. The rippling effects of growing variance would likely result in widespread premium increases, felt both by privately insured individuals and employers alike.

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