Cover: Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely

Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely

Findings from an Employer-Led Transparency Initiative

Published May 9, 2019

by Chapin White, Christopher M. Whaley

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Research Questions

  1. What prices do private health plans pay for hospital services relative to what Medicare would pay for the same services at the same facilities?
  2. What type of price transparency information can help employers become better-informed purchasers of health care?

Note: This research and visualization were expanded and updated with the publication of Nationwide Evaluation of Health Care Prices Paid by Private Health Plans: Findings from Round 3 of an Employer-Led Transparency Initiative (RR-4394-RWJ).

Large price discrepancies exist between what private health plans pay for hospital services and what Medicare pays. RAND Corporation researchers used data from three sources — self-insured employers, state-based all-payer claims databases, and health plans — to assess $13 billion in hospital spending in terms of hospital price levels, variation, and trends from 2015 through 2017 in 25 states. In this report, prices reflect the negotiated allowed amount paid per service, including amounts from both the health plan and the patient, with adjustments for the intensity of services provided. These negotiated prices are then compared with Medicare reimbursement rates for the same procedures and facilities to determine relative prices.

Key audiences for this report are (1) self-insured employers that have participated in the study and that are assessing the reasonableness of the prices they are paying for hospital care, (2) other employers that are struggling with high and rising health care costs and that want to better understand patterns and trends in hospital prices, and (3) policymakers and researchers who are concerned with hospital pricing and price transparency. Employers can use this report to become better-informed purchasers, and this report illustrates for policymakers that it is feasible and worthwhile to use claims data from private health plans to measure and compare hospital prices at a high level of detail.

This is the first broad-based study that reports prices paid by private health plans to hospitals identified by name and to groups of hospitals under joint ownership (hospital systems) identified by name.

Visualizing the Data: Mapping Hospital Prices Relative to Medicare in the United States

Key Findings

Relative prices, including all hospitals and states in the analysis, rose from 236 percent of Medicare rates in 2015 to 241 percent of Medicare rates in 2017

  • Relative prices varied twofold among states. Some states (Michigan, Pennsylvania, New York, and Kentucky) had relative prices in the range of 150 to 200 percent of Medicare rates; other states (Colorado, Montana, Wisconsin, Maine, Wyoming, and Indiana) had relative prices in the range of 250 to 300-plus percent of Medicare rates.
  • Relative prices increased rapidly from 2015 to 2017 in Colorado and Indiana, but they fell over the same period in Michigan.
  • Among hospital systems, prices varied nearly threefold, ranging from 150 percent of Medicare rates at the low end to 350 to 400-plus percent at the high end.

Relative prices for hospital outpatient services were 293 percent of Medicare rates on average, far higher than the average relative price for inpatient care (204 percent of Medicare rates)

  • However, eight states — Michigan, New York, Tennessee, Massachusetts, Louisiana, New Hampshire, Montana, and Maine — stand out as exceptions to this general finding, with relative prices that are roughly equal for inpatient and outpatient services.


  • Employers can exert pressure on their health plans and hospitals to shift from discounted charge contracts to contracts based on a multiple of Medicare or some other prospective case rates.
  • Employers can use networks and benefit designs to move patient volume away from high-priced, low-value hospitals and hospital systems.
  • Employers can encourage expanded price transparency by participating in existing state-based all-payer claims databases and promoting development of new ones.
  • Transparency by itself is likely insufficient to reduce hospital prices, and employers may need state or federal policy interventions to rebalance negotiating leverage between hospitals and employer health plans. Such interventions could include placing limits on payments for out-of-network hospital care or applying insurance benefit design innovations to target high prices paid to providers and allowing employers to buy into Medicare or another public option that pays providers prices based on Medicare rates.

Research conducted by

The research described in this report was funded by the Robert Wood Johnson Foundation, the National Institute for Health Care Reform, and the Health Foundation of Greater Indianapolis and participating selfinsured employers and was carried out within the Payment, Cost, and Coverage Program in RAND Health Care in collaboration with the Employers' Forum of Indiana.

This report is part of the RAND research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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