According to a report published by RAND, private health insurance plans covering the majority of the population of America paid higher rates of insurance to hospitals compared to similar public plans like Medicaid and Medicare.

Going by facts, in 2017, mix-adjusted hospital rates were at 241 percent of Medicare prices, as per findings. The study also considered a negotiated amount of hospital prices relative to Medicare reimbursements for the procedures as well as facilities. People who were enrolled in private healthcare plans were employer-sponsored.

If hospital rates to Medicare costs were cut from 2015 to 2017, it would have easily saved $7.7 billion in overall healthcare expenditure for employers, reports RAND.

Key Considerations – RAND Report

As large discrepancies in price existed between private health plans paid for hospital services and public Medicare plans, RAND Corporation researchers decided to explore it further. Researchers used data from multiple sources – self-insured employers, health plans, and state-based all-payer claims databases. They were going to assess $13 billion in hospital expenditure in terms of the price of hospitals, variations, trends from 2015 to 2017, across 25 states.

In the report, prices show the negotiated allowed amount paid for services, which includes the amount from both health plan and patient, with adjustments for the intensity of the services provided. The negotiated prices were then compared with the Medicare reimbursement rate for the same procedures as well as facilities to determine the actual relative prices.

Key audiences for the report are:

1. Self-insured employers participating in the study and assessing the reasonableness of prices they pay for hospital care
2. Other employers struggling with rising and high health care expenditure and wanting to understand trends and patterns in the cost of hospitals
3. Researchers and policymakers concerned with hospital costs and transparency

With this report, employers can become better purchasers and stay informed. The report also illustrates how policymakers could find it worthwhile and feasible to use claim data from private health plans and measure and/or compare hospital expenses at a higher level of detail.

 

Key Findings 

The research found that relative prices, which include all states and hospitals in this analysis, increased from 236 percent of Medicare rates in 2015 to as high as 241 percent of Medicare rates in 2017.

However, there was a difference in relative prices among states. States of Michigan, New York, Pennsylvania, and Kentucky has relative prices within 150 to 200 percent of Medicare rates, whereas other states like Colorado, Wisconsin, Montana, Maine, Indiana, and Wyoming, had relative prices in the range of 250 to 300+ percent of the rate of Medicare.

There was a sharp rise in relative prices from 2015 to 2017 in Indiana and Colorado, whereas the same fell over in that period in Michigan.

Prices varied almost threefold in the hospital system, ranging from 150 percent at the lowest to 400-plus at the highest range of Medicare rates.

The relative price for outpatient services in hospitals was 293 percent of the rate of Medicare, which is much higher than the average relative prices for inpatient care (approximately 204 percent of the rate of Medicare).

However, a total of eight states – New York, Michigan, Massachusetts, Tennessee, Montana, New Hampshire, Maine, and Louisiana – are exceptions to this finding, having relative prices equal for both outpatients as well as inpatient services.

The wide variation of prices reflects a great opportunity for employers. The report reads employers can “redesign their health benefits to better align hospital prices with the value of care provided.”

While hospitals represent merely a part of the entire healthcare system, it is certainly important as well as an expensive one that needs improvement. In fact, healthcare plans sponsored by employers are now paying higher prices for the same services at the same facilities as Medicare plans, which make employers, as well as beneficiaries, pay higher costs.

If this area becomes more transparent, it could help employers potentially “use health plan network and benefit design to steer their enrollees away from providers with prices that are higher than competing providers.”

Suggestions

• Employers can request the hospitals and health plans to shift from a discounted charge contracts to a contract based on prospective case rates of Medicare.
• Employers, utilizing their network, can create designs to move the volume of patients away from high-priced hospitals to low-value hospitals.
• Employers must encourage price transparency by taking part in existing state-based all-payer claims databases to promote new developments.
• However, transparency is not enough to reduce hospital expenses. Employers may have to try for federal or state policy interventions and rebalance negotiations leveraging between employer health plans and hospitals. As such, it could induce limitations on payments for out-of-network hospital care and apply innovative insurance benefit design targeting high prices paid to service providers, thus allowing employers to purchase into Medicare or other public options, which pay providers prices as per Medicare rates.

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