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Rand Research on Variations of Hospital Prices Paid by Employers, Private Insurers in U.S.

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A recent RAND publication looked at the levels and variations of hospital prices paid by employers and private insurers across the United States from 2018 to 2020. The study used 2018 to 2020 medical claims data from a large population of privately insured individuals in all U.S., including hospitals and other facilities from across the United States, to document variation in negotiated prices for the commercially insured population. The study found wide variation in hospital prices across states. Case mix–adjusted hospital prices were below 175 percent of Medicare in Arkansas, Hawaii, and Washington, and were above 310 percent of Medicare in Florida, West Virginia, and South Carolina.

Key findings from the study include:

  • Some states (Hawaii, Arkansas, and Washington) had relative prices below 175 percent of Medicare prices, while other states (Florida, West Virginia, and South Carolina) had relative prices that were at or above 310 percent of Medicare prices.
  • In 2020, across all hospital inpatient and outpatient services (including both facility and related professional charges), employers and private insurers paid 224 percent of what Medicare would have paid for the same services at the same facilities.
  • The 224 percent total for 2020 is a reduction from the 247 percent figure reported for 2018 in the previous study owing to an increase in the volume of claims from states with prices below the previous mean price.
  • Among the common data contributors in this round and the previous round, 2020 prices averaged 252 percent of Medicare, which is similar to the 247 percent relative price reported in the previous round for 2018.
  • Prices for common outpatient services performed in ambulatory surgery centers (ASCs) averaged 162 percent of Medicare payments, but if paid using Medicare, payment rates for hospital outpatient departments (HOPDs) would have averaged 117 percent of Medicare.
  • Although relative prices are lower for ASC claims priced according to HOPD rules, HOPD prices are higher than ASC prices.
  • Very little variation in prices is explained by each hospital’s share of patients covered by Medicare or Medicaid; a larger portion of price variation is explained by hospital market power.
  • Prices for COVID-19 hospitalization were similar to prices for overall inpatient admissions and averaged 241 percent of Medicare.

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