Hospital-negotiated prices rose from 2020 to 2022, especially among dominant facilities in their respective markets, a new report shows.
Commercial insurers' payments to hospitals amounted to, on average, 254% of Medicare rates in 2022, up from 243% in 2021 and 241% in 2020, according to data from Rand, a nonprofit research firm. Rand researchers used claims data from more than 4,000 hospitals in 49 states and Washington, D.C.
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Gloria Sachdev, president and CEO of the Employers' Forum of Indiana, said she hopes lawmakers and employers can use the data to make sound policy and purchasing decisions. The forum, which includes physicians, hospitals, insurance companies and other stakeholders, helped Rand design the study but did not contribute funding to it.
"Commercial prices are still extraordinarily high. If employers and employees were spending less money on healthcare premiums and out-of-pocket expenses, they would have more money in their pockets," Sachdev said.
The American Hospital Association disputed Rand's findings, saying they were skewed in part because they used as a benchmark Medicare payments, which the trade group has argued are insufficient. "Rand makes an apples-to-oranges comparison that presents an inflated impression of what hospitals are actually getting paid for delivering care while facing continued financial and other operational challenges," said Molly Smith, AHA's vice president for policy, in a statement.
Here are five takeaways from the report.
1. Private insurers' payments were tied to hospitals' market share
Hospitals with bigger market shares charged higher commercial prices, Rand researchers said. Roughly 18% of the variation in hospitals' negotiated prices was explained by facilities' market share, said Brian Briscombe, a Rand researcher and co-author of the report.
Researchers calculated market share by comparing each hospital’s number of beds to the total number of beds in a market. A 10 percentage point increase in hospital market share was associated with a 0.09 percentage point increase in what hospitals charged insurers, Rand found.
“A significant reason why one hospital costs more than another is higher market share and more pricing power, not necessarily because the hospital costs more to run or delivers higher quality services,” Briscombe said.
2. Patient mix wasn’t linked to pay
Some hospitals claim they need higher rates from commercial insurers if they treat a disproportionate share of Medicare and Medicaid patients.
But hospitals' negotiated prices stayed relatively constant, even among hospitals that treated relatively few Medicare and Medicaid patients versus facilities that treated significantly more of those patients, according to the report.
3. Hospital outpatient payments significantly outpaced ASC pay
Commercial insurers’ payments to ambulatory surgery centers remained stable from 2020 to 2022, at an average of 171% of Medicare rates. Commercial insurer payments to hospital outpatient facilities averaged 288% of Medicare during that time.
4. Hospitals in Florida and Georgia negotiated the highest prices
Commercial insurers’ payments to hospitals in Florida and Georgia in 2022 averaged 345% of Medicare rates.
In West Virginia, South Carolina, Wisconsin, California and New York, commercial insurers’ payments to hospitals were, on average, at least three times Medicare rates, Rand found.
“There are cases for states where legislation or regulation would probably be appropriate because there is so much market power that the healthcare market is not functioning,” Briscombe said. “Just like with any industry, you need to have competition to keep prices down.”
5. Hospitals in Arkansas and Iowa negotiated the lowest prices
Commercial insurers’ payments to hospitals in Arkansas and Iowa in 2022 averaged 164% and 185% of Medicare rates, respectively.
Commercial insurers’ payments to hospitals in Michigan, Mississippi, Massachusetts and Rhode Island were also at or below 200% of Medicare, according to the report.
