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 information limits the ability of employers to monitor the prices negotiated on their behalf, to implement innovative insurance benefit designs, and to ensure insurers are negotiating favorable prices. If employers have access to the information on prices needed 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 embarked a four-part study:

  • 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 50 states
  • Round 4: Further expansion to include price data from additional hospitals.

Key Findings

Through multiple rounds of data analysis, RAND researchers used data from self-funded employers and 11 All-Payer Claims Databases (APCDs) to assess hospital prices paid by private health plans and by Medicare for the same services. In the most recent round, data sources included $78.8 billion in spending from more than 4,000 hospitals and $2.0 billion from about 4,000 ambulatory surgical centers (ASCs).

Results

  • Employers and private insurers paid more than 2 times what Medicare would have paid for the same services at the same hospitals in 2020.
  • Prices varied significantly by state. Relative prices in some states (Hawaii, Arkansas, and Washington) were less than 2 times the amount of Medicare prices, while relative prices in 19 states (e.g., Florida, West Virginia, and South Carolina) were more than 3 times that of Medicare.
  • Prices for COVID-19 hospitalizations were similar to prices for overall inpatient admissions, almost 2.5 times higher than Medicare.
  • Data from employers and private insurers that participated in multiple analytic rounds showed that relative prices stayed stable from 2018 to 2020, at about 2.5 times Medicare.
  • In all but three states with APCDs, prices were below average.
  • Prices for common outpatient surgical services performed in ASCs averaged more than 1.5 times that of Medicare. Site of care payment differences between ASCs and Hospital Outpatient Departments were larger in commercial payments than in Medicare.
  • Most price variation is explained by hospital market power; little variation is explained by a 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.