RAND essentially dismissed the claim by providers that Medicare reimbursement rates are too low and must be offset by charging more to those with deeper pockets—i.e., employers. (Photo: Shutterstock)
Hospitals charge employers and private health insurers, on average, two-and-a-half times the Medicare/Medicaid reimbursement rate. And that multiplier has been increasing steadily since 2016.
Thus reports RAND in an exhaustive study based upon mountains of hospital payment data from 2018. Its goal for the research: to bring a greater measure of cost transparency to the discussion about whether or not employer plans (and their members) are being gouged by hospitals.
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RAND basically concluded they are. Employers should review the data, RAND recommended, and start talking tough with providers and insurers about where they will send their plan members and how much they will pay providers.
RAND analyzed 2016 to 2018 hospital billing data from all but one U.S. state in the United States. In what it claims is the most comprehensive data collection and evaluation study to date on employer plan payments. RAND reviewed $33.8 billion in hospital spending from three sources—self-insured employers, state-based all-payer claims databases, and health plans.
"In 2018, across all hospital inpatient and outpatient services, employers and private insurers included in this study paid 247% of what Medicare would have paid for the same services at the same facilities, including both professional and facility fees," RAND said.
That represented an increase from the 224% of Medicare in 2016 and 230% in 2017, RAND said, referring to two earlier studies it conducted. Outpatient services clocked in at 267% of the Medicare rate, while inpatient was 231% over Medicare.
RAND acknowledged a wide range of price variations by state. On the low end were and Arkansas, Michigan, and Rhode Island, all less that twice the Medicare rate. ) Florida, Tennessee, Alaska, West Virginia, and South Carolina all exceeded 325% of Medicare.
RAND did not point fingers at employers for paying the overage. "Many employers lack fundamental information about the health care prices that are negotiated on their behalf, which hamstrings their ability to be prudent purchasers of health care benefits," the report said.
The study broke new hospital pricing ground by releasing the names of provider healthcare systems, something most national studies have not been able to do, RAND said.
By doing so, RAND hopes to hand valuable information to employers.
"Although many hospitals do face increasing costs, such as growing employment and personnel costs, increased needs for investments in electronic health records, and other technologies, the results of this study show that some hospitals are still able to charge much lower prices than other hospitals. Moving patient volume to lower-priced hospitals that offer better value is an opportunity for employers, their employees, and society to reduce health care spending, and also helps the market to reward the most efficient hospitals."
RAND essentially dismissed the claim by providers that Medicare reimbursement rates are too low and must be offset by charging more to those with deeper pockets—i.e., employers.
"The empirical evidence supporting the cost-shift rationale is limited … In addition, in our analysis, we find a very weak relationship between hospital prices and the share of patients treated by that hospital who are covered by either Medicaid or Medicare.
"As purchasers of health care services, the more concrete question for employers is whether it is reasonable and necessary for employers to be paying prices that are nearly 2.5 times as much as Medicare rates, especially when there are hospitals with similar quality scores that have lower prices."
RAND said employers should consider a strategy of redesigning their plans along more progressive lines while getting tougher at the bargaining table with providers. Meantime, they should be pushing on the legislative and regulatory sides for ever greater transparency by those same providers. If enough large employers did so, the overall cost of U.S. healthcare could ultimately be reduced.
"Addressing prices paid by employer-sponsored and other private insurance plans represents a tangible way to reduce health care spending. Where quality and convenience are comparable, employers can use network and benefit design approaches to move patient volume away from higher-priced, lower-value hospitals and hospital systems and toward lower-priced, higher-value providers," the study said.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
