Study: Private insurers pay 2 1/2 times what Medicare does for hospital services

Sept. 18 (UPI) -- Private insurers paid roughly 2.5 times what Medicare paid for hospital-based care in 2018, an analysis released Friday by the RAND Corp. found.

Hospitals charged private insurers, on average, rates that were 247% of those assessed Medicare beneficiaries, the data showed.

However, in several states -- Alaska, Florida, South Carolina, Tennessee and West Virginia -- the figure was as high as 325%.

Some states -- Arkansas, Michigan and Rhode Island -- had relative costs under 200% of those paid by Medicare, according to analysts.

"This analysis provides the most-detailed picture ever of what privately insured individuals pay for hospital-based care relative to what the government pays for people insured through Medicare," analysis co-author Christopher Whaley said in a statement.

"Employers can use the information in this report to ... make judgments about appropriate pricing," said Whaley, a RAND policy researcher.

A large portion of private health insurance contracting for hospitals is on a discounted-charge basis, in which the insurer agrees to pay a percentage of billed charges.

Medicare, however, issues a fee schedule that determines the amount it will pay for each service, with adjustments for inflation, hospital location, the severity of a patient's illness and other factors.

The RAND analysis, which includes information from more than half of the nation's community hospitals, is a broad-based study of amounts paid by private health plans to hospitals, using information from 49 states and Washington, D.C.

Maryland was excluded because it has a system in place where the privately insured and Medicare recipients pay the same, RAND said.

Researchers also found found "a steady increase" in hospital prices charged to private insurers, from 224% of Medicare rates in 2016 to 230% in 2017, RAND analysts said.

Overall, 3,112 hospitals nationwide billed private insurers $33.8 billion in 2018, including approximately 750,000 claims for inpatient stays and 40.2 million claims for outpatient services.

If employers and health plans participating in the study had paid hospitals using Medicare's payment formulas, they would have spent nearly $20 billion less, a potential savings of 58%, the researchers said.

Spending on hospital services accounts for approximately 44% of total personal healthcare spending for those with private insurance.

"The rising gap between public and private hospital prices is a cause for concern and raises questions about the efficiency of the employer market," Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation said in a statement. The foundation funded the analysis.

"The goal of this work is to arm employers with data so they can negotiate more effectively. Curbing excessive spending on employer health insurance is in the public interest," Hempstead said.

The RAND researchers analyzed healthcare claims obtained from self-insured employers, six state all-payer claims databases and records from health insurance plans that chose to participate.

For each private claim, researchers repriced the service using Medicare's grouping and pricing formulas, the researchers said.

A detailed list of both relative and standardized prices for each hospital, identified by name and Medicare provider number, is included in the report's supplemental material, which also contains Hospital Compare star ratings -- a ranking system maintained by the Centers for Medicare and Medicaid Services -- for those hospitals.

No relationship existed between prices and two widely recognized metrics of quality and patient safety, the data showed.

"In the case of specific high-priced hospitals, there may be justification for the unusually high prices, such as offering specialized services or a well-deserved reputation for higher-quality care," RAND analyst Whaley said.

"However, if two hospitals have similar quality, then any difference in prices may be harder to justify.