RAND 'Prices Paid to Hospitals by Private Health Plans' Study, Round 5

The fifth RAND (R&D) study of 2020 – 2022 hospital payment data of privately insured individuals' claims across the United States just dropped.  Michigan is among the states with the least expensive claims, probably due to the intense competition among hospitals in the 2020 - 2022 period.  That will change as our hospitals consolidate.  RAND finds Indiana's hospital charges to be 50% higher than Michigan's, due to very limited competition.

The RAND report runs to 50 pages, with a substantial data annex.  So just the Key Findings, and some highlights:

https://www.rand.org/content/dam/rand/pubs/research_reports/RRA1100/RRA1144-2/RAND_RRA1144-2.pdf

https://www.rand.org/content/dam/rand/pubs/research_reports/RRA1100/RRA1144-2/RAND_RRA1144-3.annex.zip

Prices Paid to Hospitals by Private Health Plans
Findings from Round 5 of an Employer-Led Transparency Initiative
Published May 13, 2024
By Christopher M. Whaley, Rose Kerber, Daniel Wang, Aaron Kofner, Brian Briscombe

Research Question

What were the levels and range of hospital prices paid by employers and private insurers across the United States from 2020 to 2022?

Because employer-sponsored spending comes from employee wages and benefits, employers have a fiduciary responsibility to administer benefits in the interest of participants. The lack of transparency of prices in the health care market limits employers' ability to knowledgeably develop or implement benefit design decisions. This study uses 2020–2022 medical claims data from a large population of privately insured individuals, including hospitals and other facilities from across the United States, to allow an easy comparison of hospital prices. An important innovation of this study is that hospitals and hospital systems (hospitals under joint ownership) are identified by name, which is usually not allowed under data use agreements.

Key Findings

Only Arkansas had an overall relative price below 170 percent of Medicare prices, while other states (California, Florida, Georgia, New York, South Carolina, West Virginia, and Wisconsin) had relative prices that were above 300 percent of Medicare prices.

In 2022, across all hospital inpatient and outpatient services (including both facility and related professional claims), employers and private insurers paid, on average, 254 percent of what Medicare would have paid for the same services at the same facilities.

State-level median prices have remained stable across the past three study rounds: 254 percent of Medicare prices in 2018 (Round 3), 246 percent in 2020 (Round 4), and 253 percent in 2022 (Round 5—the current study).

Prices for common outpatient services performed in ambulatory surgery centers (ASCs) averaged 171 percent of Medicare prices but would have averaged approximately 107 percent 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 percent of average sales price (ASP) compared with 106 percent of ASP paid by Medicare for administered drugs.

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.

A perspective from an Indiana conference on the RAND report:

https://www.therepublic.com/2024/05/14/indiana-hospital-prices-8th-highest-in-nation-study-finds-but-hospitals-dismiss-analysis/

Indiana hospital prices 8th-highest in nation, study finds, but hospitals dismiss analysis
By Whitney Downard | May 14, 2024

INDIANAPOLIS — U.S. Sen. Mike Braun — the Republican nominee for Indiana governor — made a surprise appearance at the National Healthcare Price Transparency Conference Monday, earning recognition for his work on health care price transparency on the federal level.

Conference emcee Gloria Sachdev, the president and CEO of Employers’ Forum of Indiana, presented both Braun and fellow U.S. Sen. Bernie Sanders of Vermont with an award recognizing them as “Champions of Healthcare Price Transparency.” The two, at opposite ends of the political spectrum, worked together on a measure to tackle transparency for hospital and insurer pricing.

“This is reforming the system, not more government spending on it,” Braun said. “I’ll keep pushing hard for the five months or so that I’ve got left (in Congress). Hopefully we‘ll see that maybe cascade further. If not — and if I’m successful in November(‘s general election) — I’m going to be the most entrepreneurial governor the country’s ever seen on fixing health care.”

Braun’s appearance coincided with the release of the latest hospital prices study by the RAND Corp., a think tank, which found Indiana’s hospital prices were 8th-highest in the nation. Also on Monday, the Employers’ Forum of Indiana launched Sage Transparency 2.0, a dashboard providing cost breakdowns and revenue information for hospitals.

The Indianapolis conference drew nearly 200 in-person attendees and dozens more online, with speakers like entrepreneur and venture capitalist Mark Cuban, national accountant experts, state legislators and patient advocates. The forum, which hosts the conference, seeks to improve health care transparency, prices and quality with an emphasis on the value for employers.

Indiana’s hospital lobbying organization continued to push back against the RAND analysis, pointing to its own data on thin — or even negative — hospital margins and saying the study’s data provided a “distorted” view of prices in Indiana.

“We’ve been rather consistent (with criticism) about the RAND reports in that they are presented, I think, without the proper context and usually with an agenda,” Indiana Hospital Association President Brian Tabor told the Capital Chronicle. “When you look at the totality of what employers spend for medical services and health care services with our hospitals and health systems, you have to take into account that we have massive subsidies and financial losses associated with providing physicians.”

Tabor said the study didn’t include the entirety of spending on hospital and health system services, which would actually put Indiana in the middle of states in terms of costs nationwide.

He also said Monday’s presentations “(beat) up on hospitals, particularly health systems,” without providing solutions or acknowledging the full context of Indiana’s low Medicaid reimbursement rates.

Price data and information

The biggest takeaway from the RAND study was that employers paid, on average, two-and-a-half times more than Medicare prices — a federally set number that is supposed to be close to a “breakeven” number for providers giving care.

But Chris Whaley, one of the RAND researchers and a professor at Brown University, noted that there is a lot of variation between states and within states but Indiana’s prices still ranked high even when compared with its neighbors. For example, Michigan’s prices compared to Medicare hovered below 200% while Indiana was closer to 300%, on average.

“(We) collectively spend about $1.5 trillion on health care, with the largest chunk of the pie — half a trillion dollars — going towards hospitals,” Whaley said. “… hospital care, over the last few decades, has increased … by over 200%.”

Whaley said the purpose of the study was to give employers information on prices negotiated on their behalf. The analysis then compares prices at more than 4,000 hospitals and 4,000 ambulatory surgical centers with Medicare.

“Without both price transparency and market competition, it’s not possible to have an efficient market-based health care system. And so, if we’re going to keep relying on markets in the United States for health care, we need to have both greater transparency and improved market competition,” Whaley said.

The key driver to prices appeared to be the percentage of market share a hospital system had in its area, not its quality or payer mix. That means hospitals with high low-income populations on government insurance programs fared no better or worse than their counterparts.

The lack of market competition is a problem in nearly every corner of the country, according to Whaley’s analysis, and state legislators have been interested in exploring the impacts of monopolies on Indiana’s markets.

Braun said that “sooner or later the (Federal Trade Commission) will get involved” when it comes to monopolies, stressing that he “(doesn’t) want the government meddling in anything other than keeping the markets competitive and fair.”

“… It’ll come apart,” Braun told attendees. “I’ve told CEOs of drug companies and hospitals, ‘You better start embracing (pushes for reform) or otherwise Bernie Sanders will run your business someday.”

Hospitals, however, say they’re struggling.