Hospital services

Employers pay 224% of Medicare prices for hospital services

The researchers describe the wide variation in prices paid for medical services as “a defining feature of the American healthcare system”.

According to a new study of RAND Corporation. The report covers billing for inpatient and outpatient services in 2020.

The study indicated that there were significant price differences between states or geographies and added that the cost difference appeared to be related to the hospitals’ market share rather than the hospitals’ share among the Medicare and Medicaid patients.

Researchers found that in Hawaii, Arkansas and Washington, relative prices were 175% lower than Medicare, while in other states, such as Florida, West Virginia and South Carolina, prices relative were equal to or greater than 310% of Medicare.

Related: CBO: Commercial Insurer Spending Grows Faster Than Medicare

Additionally, the study found that prices for COVID-19 hospitalizations were similar to prices for overall hospitalizations and averaged 241% of what was paid for Medicare patients.

“Employers can use this report to become more informed purchasers of health benefits,” said Christopher Whaley, the study’s lead author and a policy researcher at RAND, a nonprofit research organization. “This work also highlights the levels and variations in hospital prices paid by employers and private insurers, and therefore can help policy makers looking for strategies to reduce health expenditures.”

Variation in costs: a “defining characteristic” of health care in the United States

The researchers described the wide variation in prices paid for medical services as “a defining characteristic of the American healthcare system”.

In 2019, according to the study, spending on hospital services accounted for 37% of total healthcare spending for privately insured Americans and amounted to about $434 billion. “Hospital price increases are the main drivers of per capita spending growth among privately insured,” the study adds.

The RAND researchers found that the difference between employer prices and Medicare prices was actually quite a bit smaller since a previous study in 2018, when employers paid 247% of Medicare costs. The researchers said the change was due to an increase in claims among states that typically pay lower rates for hospital costs.

Pricing transparency has been a challenge for the healthcare industry. Despite efforts by both providers and government regulators to create more transparency, employers and consumers lack useful price information. And the public data that does exist has gaps, in part because many hospitals have yet to comply with recent regulatory requirements.

A case study in Indiana: Pressure from employers drove prices down

The study concludes by looking at efforts in some states to deal with relatively high hospital prices. In Indiana, Fort Wayne-area employers were able to drive price changes at the Parkview Health System in that community, which the RAND study had identified as having some of the highest prices in the nation.

“Equipped with negotiated price information, employers were able to lobby a large hospital system and TPAs ​​to obtain lower prices for their workforce,” the study said. “Additional pressure from employers and policy makers in Indiana led the Indiana University Health System to announce its intention to cut prices to the national average rate.”

Response from the hospital association: “Unfounded conclusions”

The American Hospital Association (AHA), however, quickly released a statement claiming that RAND’s findings were overstated and unsubstantiated.

“The report looks at claims for just 2.2% of overall hospital spending, which however you split it, is a small chunk of what’s really going on in hospitals and healthcare systems around the world. real world,” said AHA President and CEO Rick Pollack. . “Researchers should expect variation in the cost of providing services across the wide range of American hospitals – from rural critical access hospitals to large academic medical centers. Tellingly, when RAND added more claims compared to previous versions of this report, the average price of hospital services went down.

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