Nav: Home

Private health plans pay hospitals 2.4 times what Medicare would pay

May 09, 2019

An examination of U.S. hospital prices covering 25 states shows that in 2017, the prices paid to hospitals for privately insured patients averaged 241% of what Medicare would have paid, with wide variation in prices among states, according to a new RAND Corporation study.

Some states (Kentucky, Michigan, New York and Pennsylvania) had average relative prices that were 150% to 200% of what Medicare paid, while other states (Colorado, Indiana, Maine, Montana, Wisconsin and Wyoming) had average relative prices that were 250% to 300% of what Medicare would have paid.

The analysis of 1,598 hospitals is a broad-based study of prices paid by private health plans to hospitals and is unique in presenting price information about a larger number of hospitals across many states.

Researchers analyzed health care claims for more than 4 million people, with information coming from self-insured employers, two state all payer claims databases and records from health insurance plans that chose to participate. For each private claim, researchers re-priced the service using Medicare's grouping and pricing formulas.

The analysis was done in collaboration between RAND and the Employers' Forum of Indiana, an employer-led health care coalition. The Forum participated in study design and recruitment, while the analysis was done by RAND researchers.

"The widely varying prices among hospitals suggests that employers have opportunities to redesign their health plans to better align hospital prices with the value of care provided," said Chapin White, the study's lead author and an adjunct senior policy researcher at RAND, a nonprofit research organization. "Employers can exert pressure on their health plans and hospitals to shift from current pricing system to one that is based on a multiple of Medicare or another similar benchmark."

If employers and health plans participating in the study had paid hospitals using Medicare's payment formulas, total payments over the 2015-2017 period would have been reduced by $7 billion -- a decline of more than 50%.

"The purpose of this hospital price transparency study is to enable employers to be better shoppers of health care on behalf of their employees," said Gloria Sachdev, president and CEO of the Employers' Forum of Indiana. "We all want to know which hospitals provide the best value (best quality at best cost). Numerous studies have found that rising health care costs are due to high prices, not because we are using more health care services. Hospital quality transparency has been available thanks to the Centers for Medicare & Medicaid Services and others. This study allows us for the first time to compare hospital prices within a state and across states. With quality and price transparency now available, our aspiration of having improved, affordable health care seems within reach."

The RAND study found that hospital prices relative to Medicare increased rapidly from 2015 to 2017 in Colorado and Indiana, while they fell in Michigan over the same period. Prices also vary widely among hospital systems, ranging from 150% of Medicare prices at the low end to 400% of Medicare prices at the high end.

A large portion of private health insurance contracting for hospitals is done on a discounted-charge basis where the insurer agrees to pay a percentage of billed charges. By contrast, Medicare issues a fee schedule that determines the price it will pay for each service, with adjustments for inflation, hospital location, the severity of a patient's illness and other factors.

RAND researchers recommend that private insurers move away from discounted-charge contracting for hospital services and shift to contracting based on a percent of Medicare or another similar fixed-price arrangement.

"Employers can also encourage expanded price transparency by participating in existing state-based all payer claims databases and promoting development of such tools," White said. "Transparency by itself is likely to be insufficient to control costs so employers may need state or federal policy changes to rebalance negotiating leverage between hospitals and their health plans."

Such legislative interventions might include placing limits on payments for out-of-network hospital care or allowing employers to buy into Medicare or another public option that pays providers based on a multiple of Medicare rates.

Hospitals included in the analysis are from Colorado, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Maine, Michigan, Missouri, Montana, North Carolina, New Hampshire, New Mexico, New York, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Washington, Wisconsin and Wyoming.
-end-
Support for the study was provided by the Robert Wood Johnson Foundation, the National Institute for Health Care Reform, the Health Foundation of Greater Indianapolis and participating employers.

The report, "Prices Paid to Hospitals by Private Health Plans are High Relative to Medicare and Vary Widely: Findings from an Employer-Led Transparency Initiative," is available at http://www.rand.org.

RAND Health Care promotes healthier societies by improving health care systems in the United States and other countries.

RAND Corporation

Related Health Care Articles:

Mental health outcomes among health care workers during COVID-19 pandemic in Italy
Symptoms of posttraumatic stress disorder, depression, anxiety and insomnia among health care workers in Italy during the COVID-19 pandemic are reported in this observational study.
Spending on primary care vs. other US health care expenditures
National health care survey data were used to assess the amount of money spent on primary care relative to other areas of health care spending in the US from 2002 to 2016.
MU Health Care neurologist publishes guidance related to COVID-19 and stroke care
A University of Missouri Health Care neurologist has published more than 40 new recommendations for evaluating and treating stroke patients based on international research examining the link between stroke and novel coronavirus (COVID-19).
Mental health of health care workers in china in hospitals with patients with COVID-19
This survey study of almost 1,300 health care workers in China at 34 hospitals equipped with fever clinics or wards for patients with COVID-19 reports on their mental health outcomes, including symptoms of depression, anxiety, insomnia and distress.
Large federal program aimed at providing better health care underfunds primary care
Despite a mandate to help patients make better-informed health care decisions, a ten-year research program established under the Affordable Care Act has funded a relatively small number of studies that examine primary care, the setting where the majority of patients in the US receive treatment.
International medical graduates care for Medicare patients with greater health care needs
A study by a Massachusetts General Hospital research team indicates that internal medicine physicians who are graduates of medical schools outside the US care for Medicare patients with more complex medical needs than those cared for by graduates of American medical schools.
The Lancet Global Health: Improved access to care not sufficient to improve health, as epidemic of poor quality care revealed
Of the 8.6 million deaths from conditions treatable by health care, poor-quality care is responsible for an estimated 5 million deaths per year -- more than deaths due to insufficient access to care (3.6 million) .
Under Affordable Care Act, Americans have had more preventive care for heart health
By reducing out-of-pocket costs for preventive treatment, the Affordable Care Act appears to have encouraged more people to have health screenings related to their cardiovascular health.
High-deductible health care plans curb both cost and usage, including preventive care
A team of researchers based at IUPUI has conducted the first systematic review of studies examining the relationship between high-deductible health care plans and the use of health care services.
Medical expenditures rise in most categories except primary care physicians and home health care
This article was published in the July/August 2017 issue of Annals of Family Medicine research journal.
More Health Care News and Health Care Current Events

Trending Science News

Current Coronavirus (COVID-19) News

Top Science Podcasts

We have hand picked the top science podcasts of 2020.
Now Playing: TED Radio Hour

Processing The Pandemic
Between the pandemic and America's reckoning with racism and police brutality, many of us are anxious, angry, and depressed. This hour, TED Fellow and writer Laurel Braitman helps us process it all.
Now Playing: Science for the People

#568 Poker Face Psychology
Anyone who's seen pop culture depictions of poker might think statistics and math is the only way to get ahead. But no, there's psychology too. Author Maria Konnikova took her Ph.D. in psychology to the poker table, and turned out to be good. So good, she went pro in poker, and learned all about her own biases on the way. We're talking about her new book "The Biggest Bluff: How I Learned to Pay Attention, Master Myself, and Win".
Now Playing: Radiolab

Invisible Allies
As scientists have been scrambling to find new and better ways to treat covid-19, they've come across some unexpected allies. Invisible and primordial, these protectors have been with us all along. And they just might help us to better weather this viral storm. To kick things off, we travel through time from a homeless shelter to a military hospital, pondering the pandemic-fighting power of the sun. And then, we dive deep into the periodic table to look at how a simple element might actually be a microbe's biggest foe. This episode was reported by Simon Adler and Molly Webster, and produced by Annie McEwen and Pat Walters. Support Radiolab today at Radiolab.org/donate.