Prices and Costs

Health care services and prescription drugs rarely come with a single, straightforward price tag. There are usually many different prices for the same service, and these prices vary depending on who is paying (employers, insurers, government entities, and individual patients), the patient’s source of health coverage (e.g., Medicare, Medicaid, or commercial), and where in the delivery system and supply chain the price is measured. Negotiations between purchasers and providers often play a huge role in determining the final prices paid.

Recent policies have compelled some providers to publicly disclose their prices, but most of the data made available thus far have not been easy to understand or use. For most people, health care prices remain obscured by complexity.

The experts at RAND understand these complexities. They use innovative methods, working with a wide range of data sets, such as insurance claims and proprietary pricing files, to analyze health care prices and make them more transparent and understandable. Results from RAND studies help payers more fully comprehend the prices they pay and make changes accordingly. RAND also uses its analytic skills to evaluate how changes in health care delivery affect costs.

Highlights

Hospital Price Transparency

"Hospital" letters against a reflective building, photo by alinghiblue/Getty Images

Photo by alinghiblue/Getty Images

Employers spend billions of dollars every year on health care for employees and their families. Yet the lack of transparency around health care prices has limited the ability of employers to understand prices negotiated on their behalf. In a study that has spanned multiple years, RAND has worked with employers across the country to use data from their hospital claims to analyze the prices they pay relative to a publicly available benchmark: the prices paid by Medicare for the same service at the same hospital. In Round 5, the most recent update to the study that used 2022 data, the key findings were consistent with previous rounds: Median prices vary substantially by state, from below 200% of Medicare prices to above 300%; overall prices nationwide are about 2.5 times what Medicare pays. These and other insights on price variations across hospitals, health systems, and states in this one-of-a-kind study have informed rate negotiations and other efforts to contain costs.

Prescription Drug Prices

Close up of a pharmacist holding two boxes of prescription medication, photo by izusek/Getty Images

Americans spent an estimated $603 billion on prescription drugs in 2022. Most purchasers consider this high, relative to what people pay in other countries for similar drugs, but apples-to-apples comparisons of drug prices are difficult to make without intense analysis. RAND has created methods to deliver those comparisons. Our researchers have produced reports comparing drug prices internationally, including for all drugs, for categories of drugs like brand-name versus generic drugs, and separately for insulins. A new report also examines the effect of the launch timing of a drug on its pricing, across the United States and several economically similar countries.

Effects of Model Tests on Costs

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The Centers for Medicare & Medicaid Services (CMS) pays for a substantial amount of health care for patients across the United States. CMS tests new strategies to deliver care while saving taxpayer dollars through model tests that unfold over multiple years, such as the Medicare Advantage Value-Based Insurance Design Model and the Part D Senior Savings Model. With the health of millions of people on the line, as well as billions of dollars at stake, it’s important to measure the effectiveness of these strategies. RAND helps CMS understand the effects of many of these model tests by integrating qualitative and quantitative methods that evaluate these model tests and their effects on stakeholders, such as Medicare and Medicaid beneficiaries, insurers, providers, manufacturers, and associated third parties.

Similarly, state governments shoulder significant health care costs for populations within their boundaries. RAND has evaluated the effects of novel, state-based programs aimed at reducing health care costs and improving care quality for state Medicaid enrollees and uninsured individuals. For the state of California, for example, RAND evaluated the California Global Payment Program, which provided funding to improve access to primary care and preventive services for uninsured populations. For New York, RAND conducted multiple evaluations of the state’s Medicaid redesign efforts through 1115 Waivers and their cost implications. These included examinations of the Managed Long-Term Care program, a program to support self-directed care (to help some Medicaid beneficiaries purchase items and services to help their health recovery and stability), and Health and Recovery Plans (for people with significant behavioral health needs, including addiction), among others.