Growing divide between public and private payers driving hospital prices
While commercial-to-Medicare price ratios have been relatively stable, the costs vary substantially across regions.
Hospital care accounts for about one-third of all health care expenditures in the United States, and prices can vary significantly between private and public coverage.
“Commercial health plans pay higher prices than public payers for hospital care, which accounts for more than 5% of U.S. gross domestic product,” according to a study reported in Health Affairs. “Crafting effective policy responses requires monitoring trends and identifying sources of variation.”
Related: CBO: Commercial insurer spending rising faster than Medicare
Researchers used data from the Healthcare Provider Cost Reporting Information System to determine how commercial hospital payment rates changed relative to Medicare rates from 2012 to 2019 and how trends differed by hospital referral region.
“We found that average commercial-to-Medicare price ratios were relatively stable, but trends varied substantially across regions,” the report said. “Among regions with high price ratios in 2012, ratios increased by 38 percentage points in regions in the top quartile of growth and decreased by 38 percentage points in regions in the bottom quartile. Our findings suggest that restraining the growth rate of regional commercial hospital price ratios to the national average during our sample period would have reduced aggregate spending by $39 billion in 2019.”
Among the other findings:
- Average commercial-to-Medicare price ratios were relatively stable during the study period. However, trends varied substantially by region, with large increases in some regions and reductions in others.
- Trends in price ratios were driven primarily by hospitals changing their commercial prices relative to Medicare rates rather than by patients switching to facilities with higher or lower price ratios.
- Of the 19 regions with large increases, 11 were in California, including eight in Northern California, and three were in Wisconsin. The nineteen regions with large decreases were more geographically diverse, although four were in Indiana.
- The variation in price ratio trends across regions suggests that there may be opportunities to constrain growth. Had the percentage-point increases in commercial-to-Medicare price ratios been capped at the increase observed at the national level, the average ratio would have been 164% in 2019, or 9% less than the observed level.
“Restraining the growth of commercial prices has the potential to achieve significant reductions in health care spending,” the report concluded.
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