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Employer health plans paid hospitals 254% of what Medicare paid in 2022, report finds

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Employers and private healthcare insurers paid, on average, 254% of what Medicare would have paid for both inpatient and outpatient hospital services in 2022, according to a report published Monday by the nonprofit Rand Corp.

The report found “wide variation” in care prices across different states. For example, states such as Arkansas, Iowa, Massachusetts and Michigan reported average prices below 200% of what Medicare paid, whereas states such as California, Florida, Georgia and New York had average prices that exceeded 300% of what Medicare paid.

In a summary of its findings, Rand said that state-level median prices were stable across several rounds of study dating back to 2018.

The think tank cited several factors driving the pricing gap, which range from provider consolidation that may increase hospitals’ price negotiation leverage, to whether procedures are performed in hospital or nonhospital facilities where possible.

For example, prices for outpatient surgeries in ambulatory surgery centers — a common example of nonhospital facilities — measured “well below” those charged for outpatient procedures performed in hospitals between 2020 and 2022, Rand said.

Researchers also tested the hypothesis that hospitals charge private payers higher prices in order to offset underpayments by public payers. Rand found that “there is not a strong […] relationship” between prices and the share of patients with nonprivate coverage. It concluded that the correlation between the number of nonprivate-coverage patients discharged by hospitals and the prices charged to commercial payers “is not statistically significant.”

Rand said that the report’s findings could be used by employers to steer patients toward lower-priced care providers or offer tiered or narrow network plans in order to reduce spending. The findings also could be used when negotiating with third-party administrators in order to hold those entities accountable for prices negotiated on the employer’s behalf.

“The widely varying prices among hospitals suggests that employers have opportunities to redesign their health plans to better align hospital prices with the value of care provided,” Brian Briscombe, leader of Rand’s hospital price transparency project, said in a May 13 press release. “However, price transparency alone will not lead to changes if employers do not or cannot act upon price information.”

Rand’s findings follow similar analysis from other parties. In 2020, a Kaiser Family Foundation literature review of 19 separate studies on healthcare pricing found that private insurers paid 199% of Medicare rates on average for all hospital services, with the difference being greater for outpatient services than inpatient services.

Additionally, a 2022 Congressional Budget Office report found that per-person spending on inpatient and outpatient hospital care and physicians’ services grew at a faster rate for commercial insurers between 2013 and 2018 than for Medicare.

Cost continues to be a primary concern for employers in the healthcare space. Last year, Mercer projected that health benefit costs would increase by 5.4% year over year in 2024. Patients have felt cost pressures, too; a March survey of U.S. workers by Paytient found that 40% of respondents postponed healthcare needs because of cost concerns despite having insurance.

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