Skip to main content
Sister Publication Links
  • ESG: THE NEW IMPERATIVE
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Transformation
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Digital Health
  • Insights
    • ACA 10 Years After
    • Best Practices
    • Special Reports
    • Innovations
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Supply Chain
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • MORE +
    • Contact Us
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Providers
May 11, 2019 01:00 AM

Hospitals: RAND price study doesn’t add up

Shelby Livingston
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Man in hospital bed

    A study published last week shedding light on the wide variation in prices paid by employer-sponsored health plans to U.S. hospitals sparked debate over the reasonableness of commercial payments and why they diverge so significantly from Medicare rates.

    RAND Health researchers found that private health plans across 25 states paid hospitals 2.4 times what Medicare would have paid, on average. Some hospitals’ prices were more than 400% of Medicare. And prices paid by employer health plans in some states, such as Indiana, were much higher relative to Medicare rates than in other states with lower prices, like Michigan. 

    “If you ask hospitals, they will pretty commonly say, ‘Our prices are high because we lose money on Medicaid patients and barely break even on Medicare.’ But if you kind of look at the data, that story doesn’t hold up that well empirically,” said Christopher Whaley, an associate policy researcher at RAND and one of the study’s authors. “Sometimes hospitals that can charge higher prices because of market clout, reputation or must-have status do so.”

    If employers and health plans participating in the RAND study reimbursed hospitals at Medicare rates, they would have paid $7 billion, or about 50%, less between 2015 and 2017.

    “We feel strongly that the RAND report inaccurately represents payments received by our hospitals,” said a spokeswoman for Brentwood, Tenn.-based Quorum Health Corp., which RAND listed as having the highest prices among 70 health systems studied. She said the study reflected seven of 26 Quorum hospitals and that the health system’s data shows its payments are between 30% and 50% lower than some of the relative prices in the report.

    Community Health Systems, based in Franklin, Tenn., raised similar concerns and said it works with patients to help them understand the cost of their care and has implemented strategies that promote lower-cost settings, such as walk-in clinics. CHS was listed in the study as one of the 10 hospital systems with the highest inpatient and outpatient prices relative to Medicare rates.

    Hospital trade groups made the case that Medicare is not an adequate benchmark to compare hospital prices because it does not fully cover the average cost of caring for a Medicare patient.

    “It is wrong to assume that Medicare, which pays hospitals 11% below cost, sets a standard that ensures all patients access to the hospital care they deserve and expect,” said Chip Kahn, CEO of the Federation of American Hospitals.

    But other experts say Medicare rates are an appropriate benchmark because they are not affected by market forces and were calculated to cover the cost of providing a certain service to a Medicare patient, although there is disagreement over whether that formula is correct. 

    However that doesn’t mean commercial plans paying three times more than what Medicare would are paying three times too much, said Erin Trish, an associate director of health policy at the University of Southern California’s Schaeffer Center for Health Policy & Economics. 

    “There’s a distinction between what is the cost of providing a service and is Medicare reimbursement adequate to cover that service, and the question of how much money in today’s world do hospitals and physicians need to make from treating commercial patients to balance their books overall, because a lot of the patients (they see) are paying less than Medicare,” she said.

    Gail Wilensky, an economist and senior fellow at Project HOPE, said hospitals’ claim that Medicare underpays is probably true given their current cost structure, but “that doesn’t mean that hospitals couldn’t deliver the services at Medicare costs” and some already do. 

    The aggregate Medicare margin for U.S. hospitals stood at negative 9.9% in 2017, according to the Medicare Payment Advisory Commission. The Medicare margin for “relatively efficient providers” was negative 2%. 

    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. The claims represented about $13 billion in claims from 4 million people.

    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. 

    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%.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    rural-health1.png
    Transgender patients in rural states struggle to find doctors
    The Check Up: John Nickens, LCMC Health
    The Check Up: John Nickens, LCMC Health
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Modern Healthcare A.M. Newsletter: Sign up to receive a comprehensive weekday morning newsletter designed for busy healthcare executives who need the latest and most important healthcare news and analysis.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Digital Health
    • Insights
      • ACA 10 Years After
      • Best Practices
      • Special Reports
      • Innovations
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Supply Chain
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • MORE +
      • Contact Us
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing