A knee replacement in one American city costs $18,000 at an ambulatory surgery center. The same procedure — same implant class, same anesthesia, comparable surgeon — costs $87,000 at a hospital twenty minutes away.
Nothing about the medicine explains the gap. The geography does. Where you have surgery in the United States matters more than what surgery you have, and the data proving it has gotten too large to ignore.
What RAND found: 250% of Medicare, and climbing
The most rigorous national measurement comes from RAND Corporation's Hospital Price Transparency studies. The fourth round, published in May 2024 and covering thousands of hospitals and millions of claims, found that commercial insurers and employers paid an average of 254% of what Medicare would have paid for the same services at the same facilities. For outpatient services — the category that includes most elective surgery — the figure was even higher.
Let that sink in. Medicare's rates are set by federal formula to cover efficient costs plus a margin. Commercial prices at two-and-a-half times Medicare are not cost-plus. They are market power, priced in.
The variation is not random noise around that average. RAND found enormous dispersion: some hospitals priced near Medicare rates while others charged 400–500% of Medicare for identical services. The single strongest predictor of a hospital's commercial prices was not quality scores, not teaching status, not patient outcomes. It was market concentration. Hospitals that dominate their local market charge more. This is the oldest finding in health economics, and every new dataset confirms it again.
The facility effect: hospital vs. ambulatory surgery center
The sharpest price cliff in American surgery is not between cities. It is between buildings. Ambulatory surgery centers — the freestanding outpatient facilities where a growing share of joint replacements, cataract surgeries, colonoscopies, and orthopedic procedures now happen — routinely charge 40–60% less than hospital outpatient departments for the same procedure.
The knee replacement example is real and representative: high-teens-of-thousands at an ASC versus $60,000–$90,000 at a hospital outpatient department. Cataract surgery shows the same pattern at smaller scale; colonoscopies too. The cost structure explains part of it — ASCs don't carry emergency departments, ICUs, or overnight beds — but the larger driver is that hospitals bill facility fees their outpatient departments can command by market power, and insurers have historically paid them.
This is why employers and benefits consultants have become the most aggressive users of price transparency data. A self-insured employer that steers 200 knee replacements a year from hospital outpatient departments to high-quality ASCs can save seven figures annually without changing the surgeon pool. Reference-based pricing — capping reimbursement at, say, 150% of Medicare — grew directly out of this math.
What actually drives the variation
Strip away the noise and five factors explain most of the geographic spread:
- Market concentration. Merged health systems with 60%+ local share extract the highest commercial rates. The FTC's hospital merger challenges are, at bottom, price-transparency enforcement by other means.
- Facility type. Hospital outpatient departments outprice ASCs and independent imaging centers for identical procedures, often by multiples.
- Payer mix and negotiating leverage. Large national insurers sometimes secure worse rates than regional plans at the same hospital — size does not always equal leverage when the hospital is the only game in town.
- Site-of-service billing games. The same physician performing the same procedure bills differently depending on the building's license. The procedure didn't change. The address did.
- The uninsured penalty. Patients without leverage — no insurer, no employer — are billed chargemaster rates, the fictional list prices, then offered "discounts" that still exceed negotiated rates.
None of these factors is the patient's fault. All of them are the patient's bill.
And the variation has a direction: it is widening, not narrowing. As health systems consolidate — the merger wave that ran through the late 2010s and early 2020s created regional giants with genuine pricing power — the gap between concentrated and competitive markets keeps growing. RAND's successive study rounds show commercial prices drifting further above Medicare over time, not converging toward it. Transparency was supposed to discipline prices through sunlight. So far, sunlight has mostly documented the problem in higher resolution.
There is a second-order effect worth naming: high prices in concentrated markets don't just cost employers and patients more — they distort where care happens. When a hospital outpatient department charges $4,000 for a colonoscopy an independent center does for $1,200, insurers respond with prior authorization, narrow networks, and site-of-service steerage. The patient experiences this as bureaucracy — denied claims, referral runarounds — but the bureaucracy is downstream of the pricing. Fix the price variation and much of the administrative friction becomes unnecessary.
The line worth underlining: in American healthcare, the price of surgery is set by the building, not the procedure — and the patient is the last to know.
SurgeryRates.com compares what the same surgery costs across facilities and markets — so the price you pay reflects the procedure, not the zip code.