Employers play an important role in the U.S. health care system both in financing health care spending and selecting health plans to offer to their employees. Spending on hospital services accounts for 44% of total personal health care spending for the privately insured, and hospital price increases are key drivers of recent growth in spending per capita among the privately insured. Employers, however, generally lack useful information about the prices their health plans are paying to hospitals.
This 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. Because employers are important buyers of health care services, equipping them with useful information on provider prices can help them be better consumers.
This study aimed to
- Enable employers to be better-informed consumers when shopping for health plans and provider networks.
- Hold hospitals, hospital systems, and health plans accountable for the prices they have negotiated.
- Report hospital prices relative to a Medicare benchmark.
Focusing on 2015 to 2017, researchers analyzed claims data from 4 million people who received hospital services from 1851 hospitals in 24 states. Hospitals included in the analysis are from Colorado, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Maine, Michigan, Missouri, Montana, North Carolina, New Hampshire, New Mexico, New York, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Washington, Wisconsin and Wyoming.
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Prices paid by employers for hospital care varied across states, hospitals, and hospital systems. On average these prices were high and rising over time relative to Medicare prices. Our findings suggest that employers have opportunities to redesign their health plans to bring hospital prices in better alignment with the quality and value of care provided.
- 1,598 hospitals across the United States were analyzed in this study.
- Researchers reviewed health care claims data for more than 4 million people.
- Examining U.S. hospital prices covering 25 states in 2017, prices paid to the hospitals for privately-insured patients averaged 241% of what Medicare would have paid.
- Relative prices among all hospitals and states included in the analysis rose from 236% of Medicare prices in 2015 to 241% of Medicare prices in 2017.
- The relative prices of hospital care vary widely among hospital systems, from around 150 percent of Medicare at the low end to four times Medicare at the high end.
- If employers and health plans participating in the study had paid hospitals using Medicare’s payment formulas, total payments over the 2015-2017 period would have been reduced by $7 billion.
Private insurers should
- 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
- steer enrollees away from high-priced, low-value hospitals and hospital systems and encourage the use of lower-priced providers
- contract directly with a hospital or health system (this is especially relevant to self-insured employers with a high concentration of employees in one location).