The extent of price variation across a local market has important implications for value-based purchasing. Using a new data set containing health care prices for nearly every insurer-provider-service triad across a large local market, we comprehensively examined variation in fee-for-service paid commercial prices in Massachusetts for 291 predominantly outpatient medical services. Prices varied considerably across hospital service areas. Prices for medical services at acute hospitals were, on average, 76 percent higher than at all other providers. The service categories with the widest price variation were ambulance/transportation services, physical/occupational therapy, and laboratory/pathology testing. In this market, simulations suggested that steering patients toward lower-price providers or setting price ceilings could generate potential savings of 9.0-12.8 percent. Marketwide price information at the insurer-provider-service level could help target policy interventions to reduce health care spending.
