Commercial insurers paid hospitals 224% more than what Medicare did, study finds

Commercial insurers paid hospitals an average of 224 percent more compared to Medicare rates for inpatient and outpatient services in 2020, according to a new study from RAND Corp. 

The study, published May 17, analyzed spending data from 4,000 hospitals in all states from 2018 to 2020. 

Eight key takeaways:

1. Hawaii, Arkansas and Washington had relative prices below 175 percent of Medicare prices. Meanwhile, Florida, West Virginia and South Carolina had relative prices at or above 310 percent of Medicare.

2. When looking at inpatient and outpatient services, employers and private insurers paid 224 percent of what Medicare would have paid for the same services at the same facilities in 2020.

3. This is a decrease from 247 percent in 2018, when the previous study was done. This is due to an increase in the volume of claims from states that have prices below the average.

4. Outpatient service prices in ambulatory surgery centers were 162 percent higher on average compared to Medicare rates. If insurers paid using Medicare, rates for hospital outpatient departments would have been 117 percent higher than Medicare on average.

5. HOPD prices were higher than ASC prices even though relative prices for ASC claims are lower per HOPD rules.

6. Very little of the variation in prices was caused by a hospital's share of Medicare and Medicaid patients. Instead, the majority of price variation is because of hospital market power.

7. Overall inpatient admission prices were close to the prices for COVID-19 hospitalizations, which were 241 percent higher than Medicare rates on average.

8. The American Hospital Association slammed the RAND report in a May 17 news release, stating that it "overreaches and jumps to unfounded conclusions based on incomplete data." It looks at 2.2 percent of overall hospital spending, representing only a small portion of hospitals, AHA President and CEO Rick Pollack said.

"Rand also continues to ignore that hospitals are not all the same," Mr. Pollack said. "Researchers should expect variation in the cost of delivering services across the wide range of U.S. hospitals — from rural critical access hospitals to large academic medical centers. Tellingly, when RAND added more claims as compared to previous versions of this report, the average price for hospital services declined. This suggests what we have long suspected: you simply cannot draw credible conclusions from such a limited and biased set of claims."

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