By Adriel Bettelheim and Caitlin Owens

May 17th, 2022

Employers and private insurance plans in 2020 paid hospitals 224% of what Medicare paid for the same services, with rates for inpatient and outpatient care varying widely from site to site, a new report from RAND finds.

The intrigue: The report found that hospital prices had no significant correlation with hospitals’ share of Medicare and Medicaid patients, which hospitals say factor into private rates. Price did positively correlate with hospital market share.

Why it matters: Hospitals account for about 37% of health spending for the privately insured — and even people who don’t use hospital services foot some of the bill through their premiums.

The big picture: Annual per-person spending growth for workplace health coverage has exceeded spending growth for government programs in nine of the past 13 years, largely because enrollment and demand for services among the commercially insured has barely changed.

  • The divergence in pricing has been linked to mergers and acquisitions, affiliation agreements and other consolidation that increases hospitals’ leverage.
  • In 2021, the average premium cost of an employer-sponsored family plan was more than $22,000, an increase of 47% from 2011, according to the Kaiser Family Foundation.

What they found: The report draws on medical claims data from employers and state databases from 2018 to 2020 covering 4,102 hospitals and 4,091 ambulatory surgical centers that account for $78.8 billion of spending.

  • States like Hawaii, Arkansas and Washington had relative prices below 175% of Medicare prices, while others including Florida, West Virginia and South Carolina had prices at or above 310% of Medicare levels.
  • In 2020, COVID-19 inpatient hospitalizations averaged 241% of Medicare, which is similar to the relative price for all inpatient procedures.
  • Prices for common outpatient services performed in ambulatory surgical centers such as imaging and colonoscopies averaged 162% of Medicare payments. However, Medicare pays the centers less than it pays hospital outpatient departments for the same services, the study notes, and the ratio would be lower if centers were paid the same way.
  • Medicare per-procedure payments to hospital outpatient departments were 2.1 times higher than payments to ambulatory surgical centers and commercial payments were 2.6 times larger, the study found.
  • If the same providers were paid Medicare rates for the same services, employers and private plans would have saved $49.9 billion, researchers said.

The other side: Hospitals say Medicare reimbursement rates are too low, so they have to charge privately insured patients more to make ends meet. The pandemic has also disrupted many hospital business models — for example, by forcing the cancellation of elective procedures.

The bottom line: Health costs are likely to keep rising for those with private insurance as employers use higher deductibles, copays and coinsurance to offset some of the rising costs.

  • While employers back reforming how workplace health care is paid for, they don’t agree on many of the details or how significant changes would be.
  • The more information about pricing disparities that becomes public, the more likely it is that pressure on hospitals to justify their prices will build.