RAND Report Assesses Hospital Prices Paid by Employers, Private Insurers

The report details totals paid to hospitals by private insurers and providers and compares the sums with a Medicare benchmark.

A new report from the RAND Corporation shows combined prices paid to hospitals by employers and private insurers in 2020—for both inpatient and outpatients services—averaged 224% of what Medicare would have paid, with wide price variations seen among states.

This total marks a reduction from a previously reported figure of 247% in a similar 2018 study, mainly due to an increase in the volume of claims from states with prices below the previous mean price, the researchers explained. However, in the current study, median state prices did not change much compared with those seen in 2018 (248% in 2020 vs 254% in 2018).

Currently, around 160 million Americans receive health coverage from an employer or union, the authors wrote, while “self-funded employers typically rely on insurance carriers and third-party administrators to negotiate prices and manage benefits but often have little insight into the prices negotiated on their behalf.”

Furthermore, research revealed spending on hospital services made up nearly 40% of total personal health spending for privately insured individuals in 2019, and this rate was fueled by hospital price increases.

To address the lack of price transparency that permits employers and health care purchasers to easily compare prices between hospitals and other providers, the researchers assessed medical claims data from 2018 through 2020.

Data from all states that cover hospital and other provider spending were included in the current analysis so researchers could examine variation in negotiated prices for this population. Only community hospitals were included in the analysis.

In total, information from over 4000 hospitals was collected and used to determine standardized prices, defined as “the average allowed amount per standardized unit of service, where services are standardized using Medicare’s relative weights,” and relative prices, or “the ratio of the actual private insurer–allowed amount divided by the Medicare-allowed amount for the same services provided by the same hospital.”

Medicare prices served as a common benchmark to compare commercial prices, the authors said, stressing the analysis does not “propose a percentage of Medicare price that employers should be paying hospitals and other health care providers but instead focuses on disclosing variations in private prices.”

A total of $78.8 billion in spending on hospital-based care and $2 billion in spending in ambulatory surgery centers (ASCs) was evaluated.

Over the study period, the percentage paid by employers and private insurers remained relatively stable compared with what Medicare would have paid, measured at 222% in 2018 and 235% in 2019.

Additional findings included:

  • Hawaii, Arkansas, and Washington had relative prices below 175% of Medicare prices
  • Florida, West Virginia, and South Carolina had relative prices that were at or above 310% of Medicare prices
  • Prices for common outpatient services performed in ASCs averaged 162% of Medicare payments, but if paid using Medicare, payment rates for hospital outpatient departments (HOPDs) would have averaged 117% of Medicare
  • Although relative prices are lower for ASC claims priced according to HOPD rules, HOPD prices are higher than ASC prices; among a set of 5 procedures commonly performed in both ASCs and HOPDs, the average HOPD price was $6169 and the average ASC price was $2404
  • Very little variation in prices is explained by each hospital’s share of patients covered by Medicare or Medicaid, although a larger portion of price variation is explained by hospital market power
  • Prices for COVID-19 hospitalization were similar to prices for overall inpatient admissions and averaged 241% of Medicare

“Reducing the use of higher-priced hospitals and moving patient volume outside of hospitals to lower-priced sites of care is a potential way for employers to reduce health care spending,” the researchers wrote. “Likewise, employers taking a more active role in bargaining for prices and monitoring the prices negotiated on their behalf can also lead to health care spending reductions for employers and their employees.”

Because the data included in the study represent a portion of the entire population of privately insured patients, estimates may not be representative of prices paid by the broader privately insured population, marking a limitation to this analysis.

Specifically, only data from individuals enrolled in self-insurance plans sponsored by employers that opted into the study, residents in states that contributed all-payer claims database medical claims, and those in private insurance plans that submitted data were included, the authors noted.

“Employers can use this report to become better-informed purchasers of health benefits,” said lead author Christopher Whaley, a policy researcher at RAND, in a statement. “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 health care spending.”

Reference

Whaley CM, Briscombe B, Kerber R, O’Neill B, Kofner A. Prices paid to hospitals by private health plans: findings from round 4 of an employer-led transparency initiative. RAND Corporation. May 17, 2022. Accessed May 17, 2022. https://www.rand.org/pubs/research_reports/RRA1144-1.html