Better Solutions for Healthcare

Modern Healthcare: Gap between what private insurers and Medicare pay hospitals is growing

By Tara Bannow

September 18, 2020

new study suggests that hospitals’ market power may have a bigger influence on prices than oft-touted factors like compensating for Medicare and Medicaid losses and providing high-quality care.

It’s the third and largest iteration of not-for-profit think tank RAND Corp.’s deep dive into how much private insurers pay for inpatient and outpatient hospital services. It found private insurers paid hospitals on average 247% what Medicare would have for the same services in 2018, a gap that’s creeped up in recent years and varies widely across states.

The data calls into question the extent to which hospitals’ higher commercial rates are set to offset losses on their government reimbursement, finding no correlation between the amount of publicly insured patients hospitals saw and their commercial prices.

“Cost shifting is, I think, a useful rhetorical device that health systems use,” said Katherine Hempstead, senior policy adviser with the Robert Wood Johnson Foundation, which sponsored the research. “But the truth is that in any negotiation, health systems are looking for the best price they can command, which often has more to do with their market power than what they need and the deficits they get from public payers.”

RAND’s researchers drew upon $33.8 billion in spending from 3,112 hospitals nationally, including about 750,000 inpatient claims and 40.2 million outpatient claims between 2016 and 2018. The data, which researchers acknowledge covers only a sample of care provided in that time, come from self-insured employers, six state all-payer claims databases and claims submitted voluntarily by health insurers. The prices paid include patients’ out-of-pocket costs, including deductibles and copayments.

The finding that private plans paid 247% of what Medicare would have in 2018 is up from 230% in 2017 and 224% in 2016. If the private health plans included in the study had paid hospitals at Medicare rates, they would have paid $19.7 billion less between 2016 to 2018, a potential savings of 58%, the study said.