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December 21, 2021 11:01 AM

Commercial prices for common hospital procedures often exceed cash prices

Alex Kacik
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    The discounted cash prices hospitals set for common procedures are often lower than the rates they negotiate with insurers, new research shows.

    The proportion of hospitals that set their cash price below their median commercial negotiated price ranged from 38.4% for liver tests to 68.5% for C-section deliveries, according to an analysis of 922 hospitals' rates for what CMS calls "shoppable" services. Hospitals were less likely to disclose the prices of more expensive services, the study published in the Journal of the American Medical Association Network Open found.

    The findings surprised researches, who expected commercially negotiated rates to be lower because an individual has less bargaining power than insurers.

    "This tells us there is some inefficiency in the commercial insurance purchasing process," said Ge Bai, an accounting professor at Johns Hopkins University and co-author of the study, adding that administrative costs are baked into the negotiated price. "I'm always skeptical of arguments that insurers' interest is aligned with patients and payers—they have no fiduciary responsibility to best serve patients."

    The approximately 26 million Americans without insurance typically pay a cash rate that hospitals unilaterally set. Hospitals would often set those prices based on their chargemaster, which list highly inflated "gross charges" for procedures. Those documents remained hidden from the public until the price transparency mandate went into effect Jan. 1.

    In addition to publishing their chargemaster, hospitals were required to post machine-readable files of the rates for 300 "shoppable services" they negotiate with payers and discounted cash prices, which the Centers for Medicare and Medicaid Services hopes will curb higher-than-average prices.

    But compliance has been spotty—only 922 of the 5,359 hospitals reviewed by Turquoise Health had posted their cash price and negotiated commercial price for 70 basic services, according to the study. Some hospitals will opt to pay the fine, which can be as high as $2 million per year, rather than disclose their pricing data.

    "The more expensive the hospital service, the more they didn't want to publicize the prices," said John (Xuefeng) Jiang, an accounting professor at Michigan State University and lead author of the study.

    More Americans are circumventing their insurance at the pharmacy counter, although the practice is seemingly less common at hospitals. Nearly half of the workforce was enrolled in a high-deductible health plan in 2020, according to Kaiser Family Foundation data, which means they would pay out of pocket for prescriptions or procedures until they reached their deductible.

    If more patients take the discounted cash price, that could incentivize insurers to negotiate better deals with providers, Bai said. Policymakers can encourage patients to pay directly for routine services and subsidize health savings accounts for the economically disadvantaged, she said.

    "These services have huge variations in price—that tells us competition is limited," Bai said.

    Commercial prices for procedures vary wildly between hospitals, or even between payer types at the same hospital. C-section prices across one large California health system's hospital network ranged from $7,634 to $70,553, data from the Health Care Cost Institute shows.

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