Hospital Price Transparency Study

Modern hospital facade, photo by peterspiro/Getty Images

U.S. employers spend billions of dollars on health care services. However, a lack of contextualized public price information limits the ability of employers to monitor the prices negotiated on their behalf, implement innovative insurance benefit designs, and verify that insurers are negotiating favorable prices. If employers have access to the information on prices in a format that allows them to be better-informed customers, they can do a better job shopping for health care on behalf of their employees.

To demystify hospital pricing, RAND researchers conducted multiple rounds of analysis:

  • Pilot (Round 1): Examined hospital prices in Indiana
  • Round 2: Expanded to an analysis of hospital prices in 25 states
  • Round 3: Expanded to include price data from hospitals in all states (except Maryland), including claims data from 6 All-Payer Claims Databases (APCDs)
  • Round 4: Further expansion to include price data from additional hospitals, including claims data from 11 APCDs, as well as comparisons to ambulatory surgical center (ASC) prices
  • Round 5: Further expansion to include price data from 12 APCDs, as well as prices for medications infused in a physician office setting.

Data from this study are also incorporated into a free online dashboard from Sage Transparency, which brings together price, quality, and cost data on hospitals and ASCs from multiple sources.

Key Findings

RAND researchers used data from self-funded employers and 12 All-Payer Claims Databases (APCDs) to assess hospital prices paid by private health plans. In the most recent round, data sources included $77.4 billion in spending from more than 4,000 hospitals and $3.1 billion from more than 4,000 ambulatory surgical centers (ASCs). The results below highlight findings from Round 5 and some comparisons to results from prior rounds of this study.

Results

  • Prices varied significantly by state. In 2022, states with commercial prices averaging below 200 percent of Medicare prices were Arkansas, Iowa, Massachusetts, Michigan, and Mississippi. Washington’s relative prices appeared significantly lower in the previous round of this study (Round 4), mainly because some Medicare Advantage claims were erroneously included in that round from Washington’s APCD dataset. That error has been corrected in the current version of this study. States with commercial prices averaging above 300 percent of Medicare were California, Florida, Georgia, New York, South Carolina, West Virginia, and Wisconsin.
  • Employers and private insurers paid about 2.5 times what Medicare would have paid for the same services in the same hospital 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. Relative prices for inpatient hospital facility services averaged 255 percent of Medicare prices; outpatient hospital facility services averaged 289 percent; and all associated professional services (inpatient plus outpatient) averaged 188 percent of what Medicare would have paid for the same services.
  • State-level median prices have remained stable across study rounds, at about 2.5 times higher than Medicare. Changes in the composition of data contributors could introduce changes into the study sample and lead to differences in prices across the five study rounds, but median prices were 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 ASCs averaged more than 1.7 times Medicare prices (170 percent). However, because of differences in Medicare payment models between ASCs and hospital outpatient departments (HOPDs), prices would have averaged approximately 107 percent of Medicare prices if paid using Medicare payment rates for HOPDs.
  • Commercial insurance prices for select administered drugs received in a hospital setting averaged 278 percent of average sales price (ASP), if weighting each state’s prices equally, compared with 106 percent of ASP paid by Medicare.
  • Most variation in prices is explained by hospital market power. Very little is explained by each hospital’s share of patients covered by Medicare or Medicaid.

Implications

To increase the value of the health care they pay for, employers could consider several options:

  • Change their network and benefit designs to encourage patients to use lower-priced, higher-value providers (where provider quality and convenience are comparable).
  • Monitor how contracts are negotiated on their behalf.
  • Exert pressure on health plans and hospitals to shift from discounted charge contracts to other forms of contracting that limit price variability.
  • Support the development and maintenance of APCDs and allow these APCDs to be used for price reporting purposes.
  • Request state or federal policy changes to strengthen health plans’ leverage in negotiating with hospitals. Such changes could include addressing noncompetitive health care markets, limiting payments for out-of-network hospital care, and allowing employers to buy into a public option that pays providers prices based on Medicare.