Rand releases bracing analysis of hospital prices; AHA repudiates approach, methodology

The Rand Corporation is reporting that, in 2022, employers and private insurers paid hospitals an average 254% more than what Medicare would have spent for the same services in the same facilities.

Rand says its latest research, released May 13, accounts for all services rendered by hospitals—inpatient, outpatient, professional and technical.

The nonprofit research institute’s new report has more data showing the historic chasm between private and public medical billing is still widening.

As in recent prior years, the American Hospital Association is having none of it.

“In benchmarking against woefully inadequate Medicare payments, Rand makes an apples-to-oranges comparison,” AHA vice president for public policy Molly Smith says in prepared remarks issued almost immediately upon the Rand report’s release.

The comparison, Smith suggests, continues Rand’s years-long pattern of distorting the facts on hospitals’ expenses-to-revenues ratios. She states Rand’s analysis represents less than 2% of overall hospital spending. And she notes the current healthcare economy is squeezing hospitals with “continued financial and other operational” difficulties.

“In addition to the ongoing flaw of relying on a self-selected sample of data,” Smith continues, “the analysis is suspiciously silent on the hidden influence of commercial insurers in driving up healthcare costs for patients.”

Key Rand findings not easily dismissed out of hand

However valid the AHA’s criticisms of Rand’s methodology and starting assumptions may be, the study presents some data deserving of at least cursory consideration.

To conduct the analysis, Rand researchers looked at 2020–22 medical claims data from more than 4,000 hospitals in 49 states and Washington D.C.

Among the data points offered in the report:

• Only Arkansas had an overall relative price below 170% of Medicare prices, while other states (California, Florida, Georgia, New York, South Carolina, West Virginia and Wisconsin) had relative prices that were above 300% of Medicare prices.
   
• State-level median prices have remained stable across the past three study rounds: 254% of Medicare prices in 2018 (Round 3), 246% in 2020 (Round 4), and 253% in 2022 (Round 5—the current study).
   
• Prices for common outpatient services performed in ambulatory surgery centers (ASCs) averaged 171% of Medicare prices but would have averaged approximately 107% of Medicare prices if paid using Medicare payment rates for hospital outpatient departments (HOPDs).
   
• Although relative prices are lower for ASC claims priced according to HOPD rules, HOPD prices are higher than ASC prices.
   
• Commercial insurance prices for administered drugs received in a hospital setting averaged 278% of average sales price (ASP) compared with 106% of ASP paid by Medicare for administered drugs.

The report’s authors comment that “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.”

Rand reminds its audience that employer-sponsored spending comes from employee wages and benefits. Therefore, the organization states:

‘Employers have a fiduciary responsibility to administer benefits in the interest of participants. The lack of transparency of prices in the healthcare market limits employers’ ability to knowledgeably develop or implement benefit design decisions.’

AHA policy VP Smith retorts:  

‘Disappointingly, and despite the many clear and compelling reasons to discount their results, Rand continues to promote their findings as a legitimate way for employers and policymakers to make decisions about provider pay—jeopardizing patient access to care.’

“Ultimately, the Rand study only underscores what we already know—that hospitals are chronically underpaid for Medicare services,” Smith concludes. “Anything beyond that should be taken with a healthy measure of skepticism.”

A Rand news release neatly summarizes the study, which is available in full for free (click PDF icon).