Explanations for variations in hospital expenditures among four large California counties

OBJECTIVE: To investigate competing explanations for why Medicare Fee for Service (FFS) and private sector payments lead to hospital cost variations in Californian counties. DATA SOURCES: Ratios of private to Medicare hospital costs were obtained from state-based all-payer claims databases. Demographics were estimated from the U.S. Census Bureau and the California Health Interview Survey. Medicaid and Medicare spending was obtained from Kaiser Family Foundation. Medicare Advantage enrollment was obtained from the California Department of Health Care Services and market consolidation was estimated using the Herfindahl–Hirschman Index (HHI). STUDY DESIGN: Per capita costs, demographics, Medicaid and Medicare spending, Medicare Advantage enrollment, and HHI scores were compared for San Francisco (SF), Sacramento, Los Angeles (LA), and San Diego (SD). PRINCIPAL FINDINGS: LA hospitals had the lowest per capita private insurer costs, but the highest Medicare FFS costs. The findings might be explained by a lower HHI for LA, indicating a more competitive market, than SD, SF, and Sacramento. CONCLUSIONS: Medicare FFS hospital costs do not provide an accurate representation of health care spending in Californian counties. In more competitive markets, private insurance companies can negotiate lower prices, while oversupply may allow facilities to increase volume in Medicare FFS.