Hospital prices and market concentration cause health cost gaps across U.S. metro areas

Differences in healthcare spending across U.S. metro areas are mostly driven by hospital pricing and market concentration, not by how much care patients use, according to a new report from the Health Care Cost Institute.

The report is based on more than 1.3 billion medical claims from 2018 to 2022. It indicates that average per-person spending for those with employer-sponsored insurance reached $6,711 in 2022; however, the report reveals that spending varied by location. In some areas, such as Charleston, West Virginia, spending was about 70% higher than the national average. In other places, including Bakersfield, California, spending was more than 40% lower.

The findings come from HCCI’s Health Cost Landscape, which is an interactive tool that compares spending, prices and service use across 269 metro areas. The data shows that prices, not the amount of care, explain most of the differences in spending across these areas.

“In many communities, consumers aren’t using more care—they’re just paying far more for it,” Katie Martin, president and CEO of HCCI, said in a news release. “Our new Health Cost Landscape shows just how much local market structures, especially highly concentrated hospital systems, shape prices.”

Hospital outpatient care stands out as a key driver of higher costs. For example, among metro areas with above-average spending, most also had high outpatient hospital spending. Authors of the report noted that care given in hospital outpatient settings plays a big role in total costs. In comparison, inpatient care and professional services were less closely tied to overall spending levels.

The report also points to the role of hospital market concentration, or the way to measure how much competition exists in a market. Researchers found that 88% of metro hospital markets are highly or very highly concentrated. Only a small number of markets had lower levels of concentration, and these were mostly large cities.

When there is less competition, health systems usually have more power to set prices. Authors suggest that this can lead to higher costs for employers and patients, even if people are not using more care. The findings indicate that in many regions, health systems are a key driver of overall healthcare pricing

High levels of hospital market concentration are widespread across U.S. metro areas, limiting competition in many regions and shaping how prices are set.

“If employers and policymakers want to make care more affordable, they need solutions tailored to local price and market realities,” Martin said.

The report also shows that each market is different. Even within the same state, spending can vary a lot. For example, Springfield, Illinois, had spending levels well above the national average, while nearby Kankakee, Illinois, was close to the average. Differences in prices and service mix, not just use, helped explain this gap.

Across the country, about 40% of metro areas had spending above the national average, while 60% were below it. However, being below average doesn’t necessarily imply that care is affordable. HCCI’s Cost Burden Index shows that in more than half of metro areas, healthcare spending takes up more than 7% of personal income.

For payers and employers, the findings show the importance of considering local market conditions when managing healthcare costs. Authors note that cost drivers are not the same in all regions, which could affect how national strategies work in different areas.

The data also points to hospital pricing and market structure as factors being studied in relation to access and affordability. Policymakers are looking more closely at how local hospital markets are organized and how that relates to spending.

The most notable finding in this report is that differences in healthcare costs are linked to more than differences in how much care is used. The report highlights a difference in prices, market concentration and other local factors as key parts of spending differences across metro areas.