Private insurers paid California hospitals more than two times as much as Medicare for similar services in 2015 and 2016, according to a study published Monday by West Health Policy Center.
The study found that private insurers paid hospitals an average 209% of Medicare, though there was wide variation across hospitals. Private insurers paid the costliest hospitals 364% of Medicare on average, while they paid the least expensive hospitals an average 89% of Medicare. The most expensive hospitals tended to be private not-for-profit hospitals, while the least costly were public hospitals.
The study comes on the heels of a report by RAND Corp. that found that private employer-sponsored health plans paid hospitals in 25 states 241% of Medicare prices on average in 2017. That study did not include California.
The West Health study also analyzed payments to hospitals in relation to their costs. It found that Medicare paid hospitals an average 79% of their costs, while private insurers paid an average 165% of costs.
The findings were based on data from general acute-care hospitals' annual financial disclosure reports filed with the California Office of Statewide Health Planning and Development. While the study was funded by West Health, which describes itself as a nonpartisan, not-for-profit research organization aimed at slowing costs and improving access for seniors, researchers included Richard Kronick, a professor at the University of California at San Diego, and Sarah Hoda Neyaz, a health economist.
They wrote that consolidation in the hospital industry, the position of "must-have" hospitals, and the pressure insurers face from employers to offer broad networks have allowed hospitals to nab high rates from private insurers. Those high payment rates allow hospitals to spend more money than they otherwise would have, which leads to higher costs and causes Medicare and Medicaid rates to fall below cost.
The researchers wrote that an alternative perspective is that higher private payments may be needed to offset payment shortfalls from Medicaid and Medicare.
Other studies, however, have shown there is little evidence for the occurrence of wide-scale "cost-shifting," which is when providers charge the privately insured more to make up for lower public payments and the uninsured.