Does managed competition constrain hospitals’ contract prices? Evidence from the Netherlands

About 27% of the contract prices for a hospital product is 20% higher or lower than the average contract price in the market. For about half of the products the highest and lowest contract price across hospitals differ by a factor three or more. Moreover, hospital product prices do not follow a consistent ranking across hospitals, suggesting substantial cross subsidization between hospital products. Potential explanations for the large and seemingly random price variation are: (i) different cost pricing methods used by hospitals, (ii) uncertainty due to frequent changes in the hospital payment system; (iii) price adjustments related to negotiated lumpsum payments, and (iv) differences in hospital and insurer market power. Several policy options are discussed to reduce variation and increase transparency of hospital prices.