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VOLUME 50 | NUMBER 3 | JUNE 2015

The Relationship between Commercial Health Care Prices and Medicare Spending and Utilization

Keywords: Geographic variation; health care spending; spillovers in health care; provider competition and health care prices; supplied-inducer demand

Objective: To explore the relationship between commercial health care prices and Medicare spending/utilization across U.S. regions.

Data Sources: Claims from large employers and Medicare Parts A/B/D over 2007–2009.

Study Design: We compared prices paid by commercial health plans to Medicare spending and utilization, adjusted for beneficiary health and the cost of care, across 301 hospital referral regions.

Principal Findings: A 10 percent lower commercial price (around the average level) is associated with 3.0 percent higher Medicare spending per member per year, and 4.3 percent more specialist visits (p < .01).

Conclusions: Commercial health care prices are negatively associated with Medicare spending across regions. Providers may respond to low commercial prices by shifting service volume into Medicare. Further investigation is needed to establish causality.

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