Regional Price Level Estimates for Medical Services in the United States

This paper estimates regional price levels for medical services in the United States using two of the largest available sources of commercial health claims. I provide estimates for inpatient, outpatient, and professional services, as well as aggregate expenditure-weighted estimates. By using two independent data sources, this paper addresses representativeness concerns and sheds light on the interchangeability of two widely used commercial claims databases. I utilize the estimated price indices to examine the relationship between medical prices and total health care spending per beneficiary, and also provide a novel state-level comparison of medical and non-medical price levels. I find that, Alaska, Wisconsin, Wyoming, Oregon, and California tend to have the highest health care prices, while Alabama, Arkansas, Kentucky, Michigan, and Louisiana have the lowest, although there is considerable heterogeneity across service categories. Medical prices are significantly more disperse than non-medical prices, and the correlation between the two is weak across states. I find that variation in the medical price level explains about one-half of the variation in health care spending per person.