Report: Employers, insurers pay hospitals drastically more than Medicare does

Employers and insurers are paying far more in hospital costs than they would if they paid at rates comparable to Medicare, a new RAND report found.

In its new hospital pricing report, RAND examined hospital prices from 2018 through 2020, so it includes the arrival of the COVID-19 pandemic. Overall, employers and private insurers paid 224% of what Medicare would have paid in 2020. Prices were fairly stable over the three-year span, researchers found.

The RAND researchers found that prices for COVID-19 hospitalization mirrored prices for inpatient admissions overall. COVID-19 hospitalization prices averaged 241% of Medicare.

The authors said the report can be valuable for employers and private insurers to look at ways to reduce healthcare costs or negotiate better prices. They also wrote that it could spur important discussions among policymakers to find ways to cut costs for consumers.

The American Hospital Association said the report paints an inaccurate picture. Rick Pollack, president of the AHA, said the study “overreaches and jumps to unfounded conclusions based on incomplete data.”

Pollack fautled the researchers for basing its conclusions on 2.2% of overall spending, which “represents a small share of what actually happens in hospitals and health systems in the real world.”

The report ignores that there is a wide variation in the cost of hospital services, ranging from urban academic medical centers to small rural hospitals, he said.

Pollack also argues that Medicare doesn’t fully cover the cost of providing healthcare to Medicare beneficiaries. He noted that the Medicare Payment Advisory Commission has acknowledged that fact.

“Pinning commercial prices to inadequate Medicare rates would cause even more financial strain to hospitals already facing tremendous challenges as a result of the ongoing COVID-19 pandemic and rising inflation,” Pollack said. “The result could be reduced patient access to care.”

RAND researchers wrote in the report that variances in prices have less to do with geography than the power of health systems in their markets.

The authors also noted that they hope the report sheds light on hospital pricing. Federal regulations that took effect in 2021 require systems to post prices of many services, but “many hospitals have not complied with the policy,” the report stated.

“Our intent is to add transparency to a sector that accounts for nearly 20 percent of the U.S. economy,” the authors wrote.

“Because employer payments to hospitals are a key driver of employers’ health care spending, making these prices accessible and transparent can help employers and policymakers design appropriate policies to address rising health care costs,” the RAND researchers wrote.

Some of the key findings of the RAND report include:

• While hospital prices for employers and insurers were 224% of Medicare prices in 2020, that represents a drop from the previous report in 2018. At that time, hospital prices for employers and insurers were 247% of what Medicare would’ve paid. The authors cited a higher volume of claims from states below the mean prices.
• Some states were well below others in pricing. Hawaii, Arkansas, and Washington had relative prices below 175% of Medicare prices.
• Other states, such as Florida, West Virginia, and South Carolina, had prices that were at or above 310% of Medicare prices.
• In ambulatory surgical centers, prices for common outpatient services averaged 162% of Medicare payments. If paid using Medicare, payment rates for hospital outpatient departments would have averaged 117% of Medicare.
• Some common outpatient procedures were more costly in hospital outpatient departments than ambulatory surgical centers. Among five procedures performed in both settings, the average hospital outpatient price was $6,169, while the average price in ambulatory surgical centers was $2,404.

Many hospitals are still struggling financially during the COVID-19 pandemic. So far in 2022, many health systems are dealing with negative operating margins, fueled by record COVID-19 cases and hospitalizations at the beginning of the year. Hospitals are also dealing with higher prices for labor and supplies.

Some hospitals, particularly rural hospitals, continue to face serious financial difficulties, according to a recent federal report assessing the pandemic’s impact on health systems.