Consolidation among hospitals across the nation has helped boost their ability to negotiate higher prices from health plans, studies have shown. If employers and health plans participating in the study paid hospitals Medicare rates, they would have paid $7 billion, or about 50%, less over the study period, researchers concluded.
In a lengthy statement, the American Hospital Association said the study represents a small slice of the 181 million Americans with employer-sponsored insurance. Rand’s data reflects about 4 million people’s claims and a third of U.S. hospitals. The AHA also responded that Medicare rates should not be held as a standard benchmark for hospital prices because Medicare reimburses below the cost of care. It further said that while it’s important patients know their out-of-pocket costs, hospitals don’t always know that information—insurers do.
But the prices detailed in the Rand study reflect not out-of-pocket costs but the negotiated allowed amounts between hospitals and health plans. Employers lack information about negotiated prices, the researchers wrote, because many contracts between hospitals and insurers prohibit sharing detailed pricing information with employers and patients.
While the Medicare Payment Advisory Commission indeed says hospitals’ aggregate Medicare margin in 2017 was negative 9.9%, economists and other researchers have argued that the cost of care is not set in stone. An April JAMA study by Stanford University researchers noted that the high cost of caring for Medicare enrollees relative to reimbursement rates is a direct result of hospitals investing in property, facilities, equipment and services.
RAND's report builds on a wealth of research showing that commercial prices for healthcare services generally exceed what Medicare pays. It is one of the few reports that shows relative prices at both the individual hospital level and the system level.
Using claims data from self-insured employers, all-payer claims databases and health plans that chose to participate, researchers analyzed prices from 1,598 hospitals in 25 states. Prices, which were defined as the negotiated allowed amount paid per service, included amounts from the health plan and the patient and were limited to facility claims for inpatient and outpatient services at Medicare-certified short-stay hospitals. The data reflected about $13 billion in allowed amounts.
The study showed wide variation across healthcare services, individual hospitals and states. On average, relative prices in 2017 for outpatient care were 293% of what Medicare would have paid for the same services, while prices for inpatient care were 204% on average.
"Most employers in our study are paying more for hospital outpatient services than they are for inpatient services, and the degree of price variation is pretty extreme for hospital outpatient services," said co-author Chapin White, an adjunct senior policy researcher at RAND.
Outpatient prices were higher for emergency department services and imaging, while inpatient prices were higher for orthopedics and circulatory conditions, and lower for childbirth, substance abuse and mental health conditions.
Prices varied widely among the 70 hospital systems studied. At the high end, Brentwood, Tenn.-based Quorum Health's relative price for inpatient and outpatient services combined was 438% of the Medicare rate between 2015 and 2017. That includes outpatient prices of 590% of Medicare and inpatient prices of 249% of Medicare.
Fort Wayne, Ind.-based Parkview Health, Brentwood, Tenn.-based LifePoint Health and Indianapolis-based Community Health Network also topped the list of highest prices paid by private plans.
Beaumont Health System in Southeast Michigan, Mercy and Trinity Health were among the hospital systems with the lowest relative prices compared with Medicare rates. Their combined inpatient and outpatient relative prices were in the 150% range of Medicare.
Among the 25 states analyzed, prices paid by private plans in Indiana were the highest at 311% of Medicare, while prices paid in Michigan were the lowest on average at 156% of Medicare prices.
"We were stunned. We're Indiana. We should be middle-to-low," said Gloria Sachdev, president and CEO of the Employers' Forum of Indiana, which helped design the study and recruit employers to participate. "Not in my wildest dreams did I think we would be No. 1."
Sachdev said she showed the results of the study to a handful of Indiana health system executives and even they were shocked to see how high their prices were relative to their competitors. Negotiated prices are something health systems and insurers keep close to vest. Hospitals, she said, could use the data in the study to bring some competition to high-priced areas in the state.
Meanwhile, employers could use the newfound price transparency to hold their health plans and third-party administrators accountable for the rates they negotiated with hospitals, Sachdev said. She also hopes the data will help spur employers to create new value-based payment models and benefit designs to help lower costs. Employer plans in Indiana now have wide-open networks and are using few of the aggressive cost containment strategies found in other states, such as direct contracting, she said.
Interestingly, RAND researchers also found some association between price and quality, a finding that seems to fly in the face of other studies showing little correlation between the two. Among high-priced hospitals, 21% received five stars from CMS' Hospital Compare and just 1% received one star. Among low-priced hospitals, 9% received five stars while 11% received one star, according to the study.
"It doesn't seem to be the case that there's no relationship at all between prices and quality," White said, but he cautioned that other factors, such as geography, may be at play driving those outcomes. "It may not at all be the case that paying hospitals more actually gets you higher quality, but it may also be the case that if hospitals are bringing in really healthy revenues from the commercial sector, then they enable them able to do things that bump up their Hospital Compare quality metrics."