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Rand Report: Private Health Plans During 2020 Paid Hospitals 224 Percent of What Medicare Would Pay

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Prices paid to hospitals during 2020 by employers and private insurers for both inpatient and outpatient services averaged 224 percent of what Medicare would have paid, with wide variation in prices among states, according to a new RAND Corporation report.

Some states (Hawaii, Arkansas, and Washington) had relative prices under 175 percent of Medicare, while other states (Florida, West Virginia, and South Carolina) had relative prices that were at or above 310 percent of Medicare.

The study found that prices for COVID-19 hospitalization were similar to prices for overall inpatient admissions and averaged 241 percent of what was paid for Medicare patients.

The study, based on information from more than 4,000 hospitals in 49 states and Washington D.C. from 2018 to 2020, expands and refines earlier research by RAND on the topic.

Spending on hospital services accounts for 37 percent of total personal health care spending in 2019, and hospital price increases are key drivers of growth in per capita spending among the privately insured.

While recent price transparency initiatives have increased information about procedure-level prices available to patients, employers (who provide most private insurance) typically do not have usable information about the prices negotiated with hospitals on their behalf.

The RAND study includes associated spending from 4,000 hospitals in 49 states from 2018 to 2020—about 25 percent more hospitals than in the previous version of the analysis. (Maryland was excluded because it long has had a system in place where the privately insured and Medicare recipients pay the same price.)

The analysis includes facility and professional claims for inpatient and outpatient services provided by both Medicare-certified short-stay hospitals and other facility types. For the first time, the analysis also includes more than 4,000 ambulatory surgical centers, which are free-standing facilities that perform outpatient surgical services.

Data sources include $78.8 billion in spending on hospital-based care and $2.0 billion in spending on care in ambulatory surgery centers.

Researchers analyzed health care claims obtained from self-insured employers, 11 state all-payer claims databases, and records from health insurance plans that chose to participate. For each private claim, researchers repriced the service using Medicare’s grouping and pricing formulas. Each claim was benchmarked to what would be paid by Medicare—the federal insurance plan for Americans aged 65 and older—as a way to assess variation in health care costs nationally.

Unlike many other studies that have examined health care price variation, this study reports prices and identifies hospitals and groups of hospitals under joint ownership (hospital systems) by name.

The study found that the percentages remained relatively stable over the study period. Private insurers paid 222 percent of Medicare prices in 2018 and 235 percent in 2019. In 2020, relative prices for hospital facility–only services averaged 224 percent, while associated professional services such as physician fees averaged 163 percent of what Medicare would have paid for the same services.

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