PhotoMajor discrepancies are present between the prices paid to hospitals for privately insured patients and what the federal Medicare program pays, according to a RAND analysis of hospital prices in 25 states.

Overall, hospitals treating patients with private health insurance were paid 2.4 times the Medicare rates in 2017. RAND researchers found that the difference was most significant for outpatient care. In those cases, private prices were nearly triple what Medicare would have paid.

"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 lead author Chapin White in a statement. "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."

Suggested interventions

The researchers say changes are needed to drive down hospital prices in the private sector, whether they be in the form of federal intervention or a shift in industry behavior.

The study authors recommend that private insurers switch from discounted charge contracts for hospital services and to contracts “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 the 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."

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 Medicare rates.

Hospitals raise concerns

After the study was published, the American Hospital Association said it had a “number of concerns” about the results of the analysis.

In addition to pointing out the limitations of the small sample size, the group argued that paying hospitals at Medicare rates would have a huge impact on the industry and could cause many hospitals to close.

“Medicare payment rates, which reimburse below the cost of care, should not be held as a standard benchmark for hospital prices,” the AHA said in a statement. “In 2017, hospitals received payment of only 87 cents for every dollar spent caring for Medicare patients.”  

“Simply shifting to prices based on artificially low Medicare payment rates would strip vital resources from already strapped communities, seriously impeding access to care. Hospitals would not have the resources needed to keep our doors open, innovate to adapt to a rapidly changing field and maintain the services communities need and expect,” the AHA said.

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