Nationwide Evaluation of Health Care Prices Paid by Private Health Plans

Findings from Round 3 of an Employer-Led Transparency Initiative

by Christopher M. Whaley, Brian Briscombe, Rose Kerber, Brenna O'Neill, Aaron Kofner

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Research Questions

  1. How much are employers and their employees paying for hospital services?
  2. Have the relative prices for hospital care continued to rise in recent years?
  3. Do hospitals with relatively high prices tend to deliver more value?

In the United States, low levels of price transparency make it hard for employers and other purchasers of health care to assess the prices that they pay for health care services. Using data from 2016 to 2018, the authors document variation in facility prices for the commercially insured population, reporting differences in standardized negotiated prices and prices relative to Medicare reimbursement rates for the same procedures and facilities.

The data come from all but one state in the United States and cover $33.8 billion in hospital spending from three sources: self-insured employers, state-based all-payer claims databases, and health plans. 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.

The authors calculate how much employers and employees are paying for hospital services, examine recent price trends, and identify strategies employers can use to address high hospital prices.

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

Key Findings

  • In 2018, across all hospital inpatient and outpatient services, employers and private insurers included in the report paid 247 percent of what Medicare would have paid for the same services at the same facilities. This difference increased from 224 percent of Medicare in 2016 and 230 percent in 2017.
  • From 2016 to 2018, the overall relative price for hospitals (including inpatient and outpatient care) increased from 224 to 247 percent, a compounded annual rate of increase of 5.1 percent.
  • Some states (Arkansas, Michigan, Rhode Island) had relative prices under 200 percent of Medicare; others (Florida, West Virginia, South Carolina) had relative prices that approached 350 percent of Medicare.
  • High-value hospitals — those offering low prices and high safety — do exist. In at least some parts of the country, employers have options for high-value facilities that offer high quality at lower prices. However, there is no clear link between hospital price and quality or safety.

Table of Contents

  • Chapter One

    Background

  • Chapter Two

    Overview of Hospital Markets and Pricing

  • Chapter Three

    Data and Methods

  • Chapter Four

    Findings

  • Chapter Five

    Discussion

  • Chapter Six

    Conclusion

Research conducted by

This research was funded by the Robert Wood Johnson Foundation and conducted by the Payment, Cost, and Coverage Program within RAND Health Care.

This report is part of the RAND Corporation 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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