5 Key Takeaways from RAND Corporation’s Hospital Price Transparency Study
Employer-sponsored health plans cover roughly half of all Americans, account for $480 billion in hospital costs, and their cost has outpaced wages and inflation for more than a decade.
Employers have a fiduciary responsibility to monitor their health care spending, but how can they fulfill those obligations without knowing prices?
1) There’s a Wide Variation in Hospital Prices Across States
The relative price for inpatient and outpatient procedures varies widely between states, with Illinois paying 253% of Medicare and Wisconsin paying 307% – the 4th highest of all states.
There’s also a significant variation for different payers at the same hospital for the same service. For example, RAND analyzed hip replacements at one hospital and found commercially paid prices jumped from below $15,000 (the Medicare price) to over $85,000.
2) Facility Fees Are Higher than Professional Fees Nationally
Facility fees are payments that go to hospitals, while professional fees go to the physicians performing the service. Although facility fees are markedly higher nationwide, Wisconsin ranks as the 2nd highest state for professional fees at 375% of Medicare.
3) States with All-Payers Claims Databases Have Lower Prices
It makes sense that better hospital price transparency produces more competition – improved consumerism – because it enables patients to “shop.”
Wisconsin has an APCD in the Wisconsin Health Information Organization (WHIO). Despite analyzing claims data from nearly 5 million citizens, WHIO’s effectiveness is limited for two reasons:
- It’s not publicly funded like many other APCDs
- The data WHIO receives is made on a voluntary basis and, until very recently, hospital systems have not been incentivized to share their data
4) Ambulatory Surgery Centers (ASCs) Are Typically Priced Lower Than Hospitals
ASC prices adjusted for Medicare are consistently 40 to 50 percentage points lower than what hospitals charge commercial payers for the same services; among the top five most common procedures nationally, employers pay roughly 210% of Medicare at ASCs and 260% for those same procedures at hospitals.
But there’s also a wide variation of relative prices between ASCs at the state level. Many are priced at 100-200% of Medicare, however, Wisconsin ranks 4th highest at nearly 300% of Medicare.
5) Non-Private Patients Do Not Explain High Prices
Medicare, Medicaid, charity care, and uninsured patients – what hospitals sometimes refer to as “uncompensated care” – do not explain hospital prices based on RAND Corporation’s research. That being said, there is a correlation between hospital market share and hospital prices; hospitals with more market share charge higher prices.
That’s why when it comes to hospital price transparency, just a 10% reduction in hospital market share could purportedly lower prices by $25 billion annually.
Fairer Prices Start with Improved Transparency
Rising health care costs place additional pressure on employers (and the wages they provide), especially during a pandemic. The wide variation in prices presents a potential savings opportunity for employers. Still, they must demand transparency from providers.
The Alliance is pleased to work with great brokers, consultants, and advisors to use that transparency of information to shape self-funded employers’ benefit plan design and change health care together.
We don’t know what the right price is for health care, but we believe that comparing prices to Medicare rates provides a great starting point for fairer prices. (And that’s why more than 90% of our contracts use Reference-Based Contracting by The Alliance®.)
Want to learn more about hospital price transparency? Read more.
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