On average, private payers paid hospitals 224 percent of what Medicare would have paid for the same inpatient and outpatient services, according to a report from the RAND Corporation.
Researchers used hospital claims data from enrollees with employer-sponsored health plans in 49 states and Washington DC from 2018 to 2020. The research builds upon previous RAND reports that analyzed prices paid to hospitals by Medicare and private payers.
The final data includes $2 billion in spending on ambulatory surgical center (ASC) procedures and $78.8 billion on hospital-based claims, including $7.6 billion in professional spending, $36.5 billion on inpatient facilities, and $34.7 billion on outpatient spending.
The simulated Medicare payments for the same services equaled $1.1 billion for ASC procedures and almost $28.9 billion for hospital services—$15.2 billion for inpatient stays and $13.8 billion for outpatient services.
Private payers paid hospitals 224 percent more than Medicare would have paid for the same services in 2020, the report found. This figure is up from the 222 percent difference in 2018 but down from the 247 percent price difference in 2019.
Hospital prices paid by private health plans varied significantly among different states. For example, some states, including Hawaii, Arkansas, and Washington, had relative prices under 175 percent of Medicare. Other states like Florida, West Virginia, and South Carolina had relative prices at or above 310 percent of Medicare.
Relative prices for inpatient hospital services were lower than relative prices for outpatient services, the report noted. Private payers paid hospitals 217 percent of what Medicare would have paid for inpatient services and 231 percent for outpatient procedures.
Additionally, prices for COVID-19 hospitalization were 241 percent of what Medicare paid for patients.
“Employers can use this report to become better-informed purchasers of health benefits,” Christopher Whaley, the study’s lead author and a policy researcher at RAND, said in a press release. “This work also highlights the levels and variation in hospital prices paid by employers and private insurers, and thus may help policymakers who may be looking for strategies to curb healthcare spending.”
The report also found that there was not necessarily a clear link between higher hospital prices and care quality. Hospitals with prices less than 150 percent of Medicare had lower star ratings than higher-priced hospitals, but medium-priced hospitals had the highest share of hospitals with five-star ratings.
Researchers partly attributed rising hospital costs to hospital mergers and market consolidation. The report showed a positive correlation between hospital market share and prices, with a 10 percent increase in hospital market share associated with a 0.5 percent increase in hospital prices relative to Medicare. Seven percent of the price variations could be attributed to differences in market share.
Among ASCs, prices for outpatient services averaged 162 percent of Medicare payments. Notably, Medicare reimburses ASCs at a lower rate than hospital outpatient departments (HOPDs). If the prices had been paid using Medicare payment rates for HOPDs, they would have averaged 117 percent of Medicare payments.
“Spending on hospital services accounts for 37 percent of total personal healthcare spending in 2019, and hospital price increases are key drivers of growth in per capita spending among the privately insured,” the press release stated.
The hospital price transparency rule informs patients about costs before receiving care. But employers who provide private insurance typically do not have access to information about their negotiated prices with hospitals.
The American Hospital Association (AHA) has spoken out against the RAND report, saying it “overreaches and jumps to unfounded conclusions based on incomplete data.”
“The report looks at claims for just 2.2 percent of overall hospital spending, which, no matter how you slice it, represents a small share of what actually happens in hospitals and health systems in the real world,” Rick Pollack, president and chief executive officer of AHA, said in a statement.
“Further, the results highlight what even the Medicare Payment Advisory Commission (MedPAC) acknowledges: Medicare does not fully cover the cost of providing care to Medicare beneficiaries. Pinning commercial prices to inadequate Medicare rates would cause even more financial strain to hospitals already facing tremendous challenges as a result of the ongoing COVID-19 pandemic and rising inflation.”
Source: Revcycle Intelligence
