Private health plans paid hospitals 224% more than Medicare in 2020
Hospitals were paid up to 224% more from private health plans and employers than Medicare rates in 2020, according to a recent RAND Corporation study. [1]
The average was true for both inpatient and outpatient services, but prices varied widely by state. For example, some states such as Hawaii, Arkansas and Washington had relative prices under 175% of Medicare, while others such as Florida, West Virginia, and South Carolina had relative prices that exceeded 310% of Medicare. The study also found that COVID-19 hospitalization prices for inpatient admissions followed a similar trend, averaging 241% what Medicare paid for services.
RAND Corporation, an American nonprofit global policy think tank based in California, analyzed data from 4,000 hospitals in 49 states from 2018 to 2020 for its study. Maryland was excluded from the study as the state has a system where the privately insured and Medicare recipients pay the same price.
Hospital spending accounted for 37% of total healthcare costs in the U.S. in 2019, and hospital prices are key growth drivers of per capita spending among the privately insured, RAND noted.
“Employers can use this report to become better-informed purchasers of health benefits,” Christopher Whaley, the study's lead author and a policy researcher at RAND, said in a statement. “This work also highlights the levels and variation in hospital prices paid by employers and private insurers, and thus may help policymakers who may be looking for strategies to curb healthcare spending.”
While the price difference between Medicare and private health plans is large, the 224% average is actually a decline from a 247% average in 2018.
“This reduction is the result of a substantial increase in the volume of claims in the analysis from states with prices below the previous average price,” RAND noted in the study.
Prices for common outpatient services performed in ambulatory surgical centers were an average of 162% more than Medicare payments, or 117% if paid using Medicare payment rates for hospital outpatient departments. The average hospital outpatient department's price was $6,304 and the average ambulatory surgery center's price was $2,404 among a set of five commonly performed in both settings.
RAND Corp. analyzed healthcare claims obtained from self-insured employers, 11 state all-payer claims databases and records from health insurance plans for its study. Researchers repriced private health claim services using Medicare's grouping and pricing formulas that were benchmarked against Medicare prices.
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Reference:
Christopher M. Whaley, Brian Briscombe, Rose Kerber, Brenna O'Neill, Aaron Kofner. “Prices Paid to Hospitals by Private Health Plans.” RAND Corporation. DOI: https://www.rand.org/pubs/research_reports/RRA1144-1.html
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."