A report published by the nonprofit Rand Corp. on Monday revealed that in 2022, employers and private healthcare insurers paid, on average, 254% of what Medicare would have paid for both inpatient and outpatient hospital services. This significant pricing gap varied widely across different states, with some reporting average prices below 200% of Medicare rates, while others exceeded 300%.
Several factors contribute to this pricing gap, according to Rand’s findings. Provider consolidation, which may increase hospitals’ negotiation leverage, and the choice of performing procedures in hospital or nonhospital facilities are among the key drivers. Notably, outpatient surgeries in ambulatory surgery centers were priced “well below” those in hospitals between 2020 and 2022, indicating potential cost savings in nonhospital settings.
Contrary to the hypothesis that hospitals charge private payers higher prices to offset underpayments by public payers, Rand found no strong relationship between prices and the share of patients with nonprivate coverage. This suggests that hospitals’ pricing strategies are not significantly influenced by the payer mix.
The report’s findings offer opportunities for employers to reduce healthcare spending by steering patients toward lower-priced providers or negotiating with third-party administrators for better pricing. However, Rand emphasizes that price transparency alone may not lead to changes unless employers take action based on the information.
These findings echo similar analyses from other sources. For instance, a Kaiser Family Foundation literature review and a Congressional Budget Office report both highlighted the disparity between private insurance and Medicare rates for hospital services.
As healthcare costs continue to rise, employers are increasingly concerned about managing healthcare expenses. Cost pressures have led many patients to postpone healthcare needs despite having insurance coverage, underscoring the urgency for employers to address rising healthcare costs.
