More on Reimbursement

Private health plans pay providers at 241 percent of what Medicare would pay

Study recommends employers pressure health plans and hospitals to shift to contracts based on a multiple of Medicare or other prospective case rates.

Susan Morse, Managing Editor

Private health plans paid providers at 241 percent of what Medicare would have in 2017, according to a RAND study.

This is an increase from 236 percent in 2015.

There is more of a discrepancy in what is paid for hospital services than outpatient, the report said. Relative prices for hospital outpatient services were 293 percent of Medicare rates on average, which was higher than the average relative price for inpatient care, at 204 percent of Medicare rates.


Hospital executives already know that the swelling ranks of Medicare beneficiaries, driven by retiring baby boomers, will continue to affect their operating margins until at least 2030.

More than a third of baby boomers will choose a Medicare Advantage plan, which the report does not address.

The report was aimed at employers, and not hospitals. But it does give specific numbers in an Excel spreadsheet of prices paid by private health plans to hospitals and health systems, which are identified by name.

The authors said their goal was to help employers become better-informed purchasers and stronger advocates on behalf of their employees.

They recommend that employers exert pressure on their health plans and hospitals to shift from discounted charge contracts to contracts based on a multiple of Medicare or some other prospective case rates.

Employers can use networks and benefit designs to move patient volume away from high-priced, low-value hospitals and hospital systems, the authors said.

The authors said the report was also aimed at illustrating, for policymakers and employers, that it is feasible and worthwhile to use claims data from private health plans to measure and compare hospital prices.

This gets to the pricing transparency being promoted by the Trump Administration, including this week's rule for pharmaceutical companies to post the list prices of their drugs in television ads, and to policy discussions over Medicare for All, or a combination private and public plan, in the 2020 presidential election.

The authors recommend that employers encourage expanded price transparency by participating in existing state-based all-payer claims databases and promoting the development of new ones.


"Transparency by itself is likely insufficient to reduce hospital prices, and employers may need state or federal policy interventions to rebalance negotiating leverage between hospitals and employer health plans," the report said. "Such interventions could include placing limits on payments for out-of-network hospital care or applying insurance benefit design innovations to target high prices paid to providers and allowing employers to buy into Medicare or another public option that pays providers prices based on Medicare rates."


Eight states -- Michigan, New York, Tennessee, Massachusetts, Louisiana, New Hampshire, Montana and Maine -- had relative prices that were roughly equal for inpatient and outpatient services.

Among hospital systems, prices varied nearly threefold, ranging from 150 percent of Medicare rates at the low end, to 350 to 400-plus percent at the high end.

Relative prices also varied among the 25 states in the study. Michigan, Pennsylvania, New York and Kentucky had relative prices in the range of 150 to 200 percent of Medicare rates. Colorado, Montana, Wisconsin, Maine, Wyoming and Indiana had relative prices in the range of 250 to 300-plus percent of Medicare rates.

Relative prices increased rapidly from 2015 to 2017 in Colorado and Indiana, but they fell over the same period in Michigan.


This is the first broad-based study that reports prices paid by private health plans to hospitals identified by name and to health systems identified by name, the report said.

RAND Corporation researchers used 2015–2017 data covering $13 billion in hospital spending from three sources -- self-insured employers, state-based all payer claims databases, and health plans.

The research was funded by the Robert Wood Johnson Foundation, the National Institute for Health Care Reform, the Health Foundation of Greater Indianapolis and participating self-insured employers. It was carried out within the Payment, Cost, and Coverage Program in RAND Health Care in collaboration with the Employers' Forum of Indiana.

Twitter: @SusanJMorse
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