May 24, 2022 – Prices paid to hospitals during 2020 by employers and private insurers for both inpatient and outpatient services averaged 224 percent of what Medicare would have paid, with wide variation in prices among states, according to a new RAND Corporation report.
Some states (Hawaii, Arkansas, and Washington) had relative prices under 175 percent of Medicare, while other states (Florida, West Virginia, and South Carolina) had relative prices that were at or above 310 percent of Medicare.
The study, based on information from more than 4,000 hospitals in 49 states and Washington D.C. from 2018 to 2020, expands and refines earlier research by RAND on the topic.
Researchers analyzed health care claims obtained from self-insured employers, 11 state all-payer claims databases, and records from health insurance plans that chose to participate. For each private claim, researchers repriced the service using Medicare’s grouping and pricing formulas. Each claim was benchmarked to what would be paid by Medicare—the federal insurance plan for Americans aged 65 and older—as a way to assess variation in health care costs nationally.
The study found that the percentages remained relatively stable over the study period. Private insurers paid 222 percent of Medicare prices in 2018 and 235 percent in 2019. In 2020, relative prices for hospital facility–only services averaged 224 percent, while associated professional services such as physician fees averaged 163 percent of what Medicare would have paid for the same services.
The 224 percent total for 2020 is a reduction from the 247 percent figure reported for 2018 in RAND’s previous study. This reduction is the result of a substantial increase in the volume of claims in the analysis from states with prices below the previous average price.
Prices for common outpatient services performed in ambulatory surgical centers averaged 162 percent of Medicare payments, but if paid using Medicare payment rates for hospital outpatient departments would have averaged 117 percent of Medicare payments.
Among a set of five procedures commonly performed in both ambulatory surgery centers and hospital outpatient departments, the average hospital outpatient department’s price was $6,304 and the average ambulatory surgery center’s price was $2,404.