Because employer-sponsored spending comes from employee wages and benefits, employers have a fiduciary responsibility to administer benefits in the interest of participants. The lack of transparency of prices in the health care market limits employers’ ability to knowledgeably develop or implement benefit design decisions. This report is designed to allow an easy comparison of hospital prices using a single metric.

Prices Paid to Hospitals by Private Health Plans

Findings from Round 5 of an Employer-Led Transparency Initiative

Christopher M. Whaley, Rose Kerber, Daniel Wang, Aaron Kofner, Brian Briscombe

ResearchPublished May 13, 2024

Cover: Prices Paid to Hospitals by Private Health Plans
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Because employer-sponsored spending comes from employee wages and benefits, employers have a fiduciary responsibility to administer benefits in the interest of participants. The lack of transparency of prices in the health care market limits employers' ability to knowledgeably develop or implement benefit design decisions. This study uses 2020–2022 medical claims data from a large population of privately insured individuals, including hospitals and other facilities from across the United States, to allow an easy comparison of hospital prices. An important innovation of this study is that hospitals and hospital systems (hospitals under joint ownership) are identified by name, which is usually not allowed under data use agreements. 

Key Findings

  • Only Arkansas had an overall relative price below 170 percent of Medicare prices, while other states (California, Florida, Georgia, New York, South Carolina, West Virginia, and Wisconsin) had relative prices that were above 300 percent of Medicare prices.
  • 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.
  • State-level median prices have remained stable across the past three study rounds: 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 ambulatory surgery centers (ASCs) averaged 171 percent of Medicare prices but would have averaged approximately 107 percent of Medicare prices if paid using Medicare payment rates for hospital outpatient departments (HOPDs).
  • Although relative prices are lower for ASC claims priced according to HOPD rules, HOPD prices are higher than ASC prices.
  • Commercial insurance prices for administered drugs received in a hospital setting averaged 278 percent of average sales price (ASP) compared with 106 percent of ASP paid by Medicare for administered drugs.
  • Very little variation in prices is explained by each hospital's share of patients covered by Medicare or Medicaid; a larger portion of price variation is explained by hospital market power.

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Citation

RAND Style Manual
Whaley, Christopher M., Rose Kerber, Daniel Wang, Aaron Kofner, and Brian Briscombe, Prices Paid to Hospitals by Private Health Plans: Findings from Round 5 of an Employer-Led Transparency Initiative, RAND Corporation, RR-A1144-2, 2024. As of September 7, 2024: https://www.rand.org/pubs/research_reports/RRA1144-2.html
Chicago Manual of Style
Whaley, Christopher M., Rose Kerber, Daniel Wang, Aaron Kofner, and Brian Briscombe, Prices Paid to Hospitals by Private Health Plans: Findings from Round 5 of an Employer-Led Transparency Initiative. Santa Monica, CA: RAND Corporation, 2024. https://www.rand.org/pubs/research_reports/RRA1144-2.html.
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This research was funded by the Robert Wood Johnson Foundation and participating employers and was carried out within the Payment, Cost, and Coverage Program in RAND Health Care.

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