The results are in. The RAND Corporation has published findings from an analysis of $13 billion of hospital spending in 25 states during 2015-2017. Their goal was to assess how much commercial health plans pay, compared to Medicare, for the same procedures in the same facilities and to reveal variation in hospital payments within communities and among different regions. The analysis includes payments (allowed amounts) and not the amount charged. Adjustments were made for intensity of services.

Key findings from the report: 

1. On average, commercial plans paid hospitals 241% of Medicare payments, with wide variation.
   
   
2. Low-range payments were 150% to 200% of Medicare, found in Michigan, Kentucky, New York, and Pennsylvania. High-range states included Colorado, Illinois, Maine, Montana, Wisconsin, and Wyoming, at 250% to over 300% of Medicare.
   
   
3. Missouri was somewhere in the middle range at 221%.
   
   
4. Relative to Medicare payments, commercial plans paid hospitals considerably more for outpatient services than for inpatient care in 17 of the 25 states, including Missouri.

Since Medicare payments are sufficient to cover a hospital’s expenses with a fair margin, these high payment levels are worth noting. Research dispels the myth of “cost shifting” by demonstrating that many hospitals make money on Medicare payments. Yet, those with “market clout” and plenty of commercially-insured lives in their market tend to add more expenses of marginal value and extract higher prices from commercial payers to cover them. The increased payments are needed to cover their inefficiencies. This article from Health Affairs explains this phenomenon.

Findings for the major St. Louis hospitals are consolidated for your review (BHC member-only access). The sample size for the St. Louis area is particularly small, and while the aggregate and directional findings are reliable, limited comparison should be made across individual hospital findings. Another important nuance is that Medicare payments for hospitals can be different. For instance, an inner-city teaching hospital’s payment will be larger than a community hospital. The percent of Medicare payment shown is based on the hospital’s actual Medicare payment amount. As you will see, the research finding about Medicare payments and market power is actually supported by the reimbursement levels in the St. Louis example.

So what can be done? RAND recommends that private insurers:

• Shift to contracting models that are based on a percent of Medicare or similarly fixed prices.
  
  
• Share data with state all-payer claims databases in order to increase transparency.
  
  
• Support the 2020 Hospital Payment Comparison by sharing data with RAND now. The more employers contributing data, the more accurate the results.

The BHC encourages employers to get engaged with the 2020 RAND analysis, and we are available to assist. Contact Michael Hely, BHC’s Senior Director, Legal & Policy Services, at mhely@stlbhc.org to learn more.

Warm regards, 

Louise Probst
BHC Executive Director