The gap between insurance plans and Medicare's payments to hospitals for inpatient and outpatient services widened over the course of just a couple of years, a new study from RAND Corporation finds.
In 2022, employers and private insurers paid hospitals on average 254% of what Medicare would have paid for the same care services, a jump from 224% in 2020. There was a 247% difference back in 2018.
The report found there is significant variation by state. Some states, like California, Florida, Georgia, New York, South Carolina, West Virginia and Wisconsin had prices that exceeded 300%, while states like Arkansas, Iowa, Massachusetts, Michigan and Mississippi had prices below 200% of Medicare.
“The utility of this work is that it gives employers important tools they can use to become better-informed purchasers of health care services,” said Peter S. Hussey, director of RAND Health Care, in a statement. “Hospitals account for the largest share of health care spending in the U.S. so this report also provides valuable information that may aid policymakers interested in curbing healthcare costs.”
Even though hospitals and insurers are required to post transparent pricing data, some hospitals still don’t comply with regulation and insurers have been known to post duplicative data.
“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 Brian Briscombe, who currently leads the RAND hospital price transparency project, in a statement. “However, price transparency alone will not lead to changes if employers do not or cannot act upon price information.”
Insurance prices for certain prescription drugs surpassed 278% of average sales price and 106% of average sales price paid by Medicare, according to the news release.
The American Hospital Association (AHA) disputed much of the report, saying it only looks at less than 2% of overall hospital spending and offers a "skewed and incomplete picture," said Molly Smith, group vice president for the AHA, in a statement.
"In benchmarking against woefully inadequate Medicare payments, RAND makes an apples-to-oranges comparison that presents an inflated impression of what hospitals are actually getting paid for delivering care while facing continued financial and other operational challenges," she said. "In addition to the ongoing flaw of relying on a self-selected sample of data, their analysis is suspiciously silent on the hidden influence of commercial insurers in driving up health care costs for patients, as evidenced by issues like the recent concerning allegations against MultiPlan."
Lawsuits in recent weeks from health systems have alleged Multiplan has anticompetitive business practices.
Researchers based their analysis on the healthcare claims from self-insured employers, 12 states' all-payer claims databases for insurers that chose to participate—though this accounts for just 6% of the country’s commercial insurance hospital spend. The data extended to more than 4,000 U.S. hospitals in every state but Maryland.
The researchers attributed variation in rates hospitals were able to demand to their market power, rather than their Medicare or Medicaid patient share.