Hospitals charge private insurers more than 2x what Medicare pays: 6 things to know

Alia Paavola - Print  | 

Hospitals across the U.S. charge private insurers an average of 247 percent more than what Medicare would pay for the same care, according to a RAND Corp. study published Sept. 18. 

For the study, researchers at RAND Corp. analyzed 750,000 claims for inpatient hospital stays and 40.2 million claims for outpatient services between 2016 to 2018. The sample included data from 3,112 hospitals across 49 states. Data from Maryland was collected but excluded because of its all-payer rate setting program.

Six things to know:

1. If private health plans paid hospitals using Medicare's payment rates, the total payments to hospitals from 2016 to 2018 would be reduced by $19.7 billion. This represents a potential savings of 58 percent.

2. From 2016 to 2018, the overall price for hospital and outpatient care rose by a compounded annual rate of 5.1 percent.

3. There is variation in hospital care pricing based on state. Private insurers in some states, including Florida, Tennessee, Alaska, South Carolina and West Virginia, paid three or more times what Medicare did for inpatient stays and outpatient care.

4. In contrast, hospitals in some states like Arkansas, Michigan and Rhode Island charged under 200 percent of what Medicare would pay. 

5. The RAND study also found a wide variation in prices within the same hospital system. For example, in the Boston-based Mass General Brigham, its Massachusetts General Hospital charged private insurers nearly three times what Medicare paid, while its Newton-Wellesley Hospital charged private insurers about two times what Medicare paid. 

6. The American Hospital Association raised concerns about the study. "It is unfortunate that RAND continues to make broad claims about pricing based on a cherry-picked and limited data set. This includes a hand-picked sample of employers and insurers whose claims represent just 0.7 percent of inpatient admissions and 1.8 percent of outpatients visits over the study period, as well as measuring quality through Leapfrog data that may be old or imprecise," said Tom Nickels, executive vice president of the American Hospital Association. 

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