Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely: Findings from an Employer-Led Transparency Initiative

Abstract

Large price discrepancies exist between what private health plans pay for hospital services and what Medicare pays. RAND Corporation researchers used data from three sources-self-insured employers, state-based all-payer claims databases, and health plans-to assess $13 billion in hospital spending in terms of hospital price levels, variation, and trends from 2015 through 2017 in 25 states. In this study, prices reflect the negotiated allowed amount paid per service, including amounts from both the health plan and the patient, with adjustments for the intensity of services provided. These negotiated prices are then compared with Medicare reimbursement rates for the same procedures and facilities to determine relative prices. Key audiences for this study are (1) self-insured employers that have participated in the study and that are assessing the reasonableness of the prices they are paying for hospital care, (2) other employers that are struggling with high and rising health care costs and that want to better understand patterns and trends in hospital prices, and (3) policymakers and researchers who are concerned with hospital pricing and price transparency. Employers can use this study to become better-informed purchasers, and this report illustrates for policymakers that it is feasible and worthwhile to use claims data from private health plans to measure and compare hospital prices at a high level of detail. This is the first broad-based study that reports prices paid by private health plans to hospitals identified by name and to groups of hospitals under joint ownership (hospital systems) identified by name.

Keywords: Employer Sponsored Health Insurance; Health Care Cost Inflation; Hospitals; Measuring Health Care Costs; Medicare.