Private insurers pay hospitals 2.4 times what Medicare pays

Hospitals were paid, on average, 241 percent of Medicare rates for services provided to privately insured patients in 2017, according to a RAND Corp. study done in collaboration with the Employers' Forum of Indiana.

The report, which examined prices from 1,598 hospitals across 25 states, analyzed claims for more than 4 million patients.

Researchers found wide variation in hospital prices across states. Hospitals in Kentucky, Michigan, New York and Pennsylvania had average relative prices that were 150-200 percent of Medicare. Hospitals in Colorado, Indiana, Maine, Montana, Wisconsin and Wyoming had average relative prices upward of 250-300 percent of Medicare.

Had private payers and employers paid hospitals based on Medicare's payment formula, hospital payments would have plunged $7 billion — more than 50 percent — from 2015-17.

RAND researchers "recommend that private insurers move away from discounted-charge contracting for hospital services and shift to contracting based on a percent of Medicare or another similar fixed-price arrangement," according to a news release.

The American Hospital Association said it has a "number of concerns" with the study.

"Medicare payment rates, which reimburse below the cost of care, should not be held as a standard benchmark for hospital prices," AHA said. "Simply shifting to prices based on artificially low Medicare payment rates would strip vital resources from already strapped communities, seriously impeding access to care. Hospitals would not have the resources needed to keep our doors open, innovate to adapt to a rapidly changing field and maintain the services communities need and expect."

Editor's note: This article was updated May 9 at 2:30 p.m.

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