Health Care

Private Health Plans Paid Hospitals 224 Percent of What Medicare Would Pay

A new RAND report shows that prices paid to hospitals during 2020 by employers and private insurers for both inpatient and outpatient services averaged 224 percent of what Medicare would have paid, with wide variation in prices among states. Some states (Hawaii, Arkansas, and Washington) had relative prices under 175 percent of Medicare, while other states (Florida, West Virginia, and South Carolina) had relative prices that were at or above 310 percent of Medicare.

The study includes associated spending from 4,000 hospitals in 49 states from 2018 to 2020. The analysis includes facility and professional claims for inpatient and outpatient services provided by both Medicare-certified short-stay hospitals and other facility types. It also includes more than 4,000 ambulatory surgical centers.

The researchers found that very little of the variation in prices is explained by a hospital’s share of patients covered by Medicare or Medicaid, but a larger portion of the price variation can be explained by hospital market power.

Spending on hospital services accounts for 37 percent of total personal health care spending in 2019, and hospital price increases are key drivers of growth in per capita spending among the privately insured. While recent price transparency initiatives have increased information about procedure-level prices available to patients, employers (who provide most private insurance) typically do not have usable information about the prices negotiated with hospitals on their behalf.

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