Hospitals across the country are charging private insurance companies 2.5 times what they get from Medicare for the same care, according to a new RAND Corporation study of hospital prices released on Friday.
In a half-dozen of 49 states in the survey, including West Virginia and Florida, private insurers paid three or more times what Medicare did for overnight inpatient stays and outpatient care.
“The prices are so high, the prices are so unaffordable — it’s just a runaway train,” said Gloria Sachdev, the chief executive of the Employers’ Forum of Indiana, a coalition that worked with RAND on the study. This year’s report expanded on the research the nonprofit organization conducted in 2019 on hospital prices in 25 states.
The study, which exposes the aggressive pricing by mega-hospital systems that have gained enormous market power through widespread consolidation, is sure to kick-start the debate over the U.S. health care system and the need to overhaul it.
While the pandemic caused losses for many hospitals, many of these big systems are sitting on large profit reserves, while also receiving some of the $175 billion in aid Congress allocated to make up for their costs and lost revenue.
Employers provide health insurance coverage for more than 153 million Americans. The companies and insurers in the study paid nearly $20 billion more than Medicare would have for the same care from 2016 through 2018, according to the RAND researchers.
The findings cast doubt on the ability of private employers and insurers to competitively purchase health care for workers and their families compared to the federal government, said Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation, which helped fund the study. “You have this widening gap,” she said.
Proponents of a so-called public option seize on such price-gouging news to argue that creating a government health plan that could use its clout to demand lower prices would help bring down the cost of care.
“There’s a lot of energy behind the public option, and this is clearly one of the reasons,” said Dan Mendelson, the founder of Avalere Health, a Washington, D.C., consulting firm.
Employers say the proof of how much more they pay underscores the need for change. “The report lays out in stark terms what the employers have been dealing with for years,” said Elizabeth Mitchell, the chief executive of the Pacific Business Group on Health, a San Francisco group that represents employers and companies in the region. “If we want to keep a private market in U.S. health care, it has to function,” she said. “It’s really not functioning.”
A public option, distinct from the more controversial “Medicare for all” proposals that would do away with private insurance, has been embraced by Joseph R. Biden Jr., the Democratic presidential nominee. Democrats and even some Republicans seem open to the idea, according to a recent poll from the Kaiser Family Foundation.
Hospitals warn that they might not be able to function if they were paid Medicare rates. “There is certainly a cost shift, because the government knowingly underpays,” said Tom Nickels, an executive vice president for the American Hospital Association, a trade group. He warned that hospitals would lose billions of dollars in revenue. Some could be shuttered if forced to operate at lower Medicare payments.
“We cannot survive in that kind of the world,” he said, adding that many hospitals are struggling financially because of the pandemic. “To suggest cutting hospitals during a pandemic is outrageous.”
The report, which has data from the District of Columbia and every state but Maryland (because that state sets hospital rates), provides a sweeping view into the wide variation of prices paid by private insurers, which pay multiples of what Medicare does for a hospital stay or an M.R.I. “The magnitudes are quite eye-catching,” said Michael R. Richards, a health economist at Baylor University who reviewed the study.
The most costly hospital system in the nation from 2016 through 2018, according to the researchers, was John Muir Health in Walnut Creek, Calif., near San Francisco. Private insurers pay its hospitals four times what Medicare reimburses for care…