Hospital prices for health plans vary widely across the U.S., study finds

Hospital prices for health plans vary widely across the U.S., study finds


Regional healthcare markets across the country have experienced significant divergence in commercial-to-Medicare price ratios between 2012 and 2019, causing insurers to pay wildly different rates to hospital systems.

In areas like Chico, California and Tacoma, Washington, private payers saw hospital price ratios increase by over 100 percentage points. On the other end of the spectrum, Gulfport, Mississippi had a decrease of 109 percentage points.

Nationwide, hospital costs charged to commercial health plans averaged 173% of Medicare payment rates in 2012, and the national commercial-to-Medicare price ratio only increased to 180% in 2019, according to a recent RAND Corporation study.

However, individual hospital referral regions largely surpassed this overall minimal change of seven percentage points, increasing and decreasing their commercial-to-Medicare price ratios by up to 38% on average during the study period.

Areas where prices went up tended to have more provider consolidation and a higher market concentration, whereas areas with declines were usually rural and facing healthcare financing challenges, said Christopher Whaley, health economist at RAND Corporation and a lead author of the study.

The Seattle-Tacoma region in particular has seen a trend of health system mergers in the last decade, which could contribute to its lack of competition and higher prices. Several reports suggest that in a concentrated market, hospital mergers can drive up costs for insurers and patients by up to 20% or more.

The study used data from the Healthcare Provider Cost Reporting Information System to analyze how commercial hospital payment rates changed relative to Medicare rates across 3,612 hospitals and 306 hospital referral regions, which are healthcare markets composed of zip code groupings based on tertiary medical care referral patterns.

Regions with high commercial-to-Medicare price ratios and large ratio increases grew by an average of 38 percentage points between 2012 and 2019. Other high cost areas with large ratio decreases declined by an average of 38 percentage points.

In regions with low initial price ratios and large increases, the price ratio increased by 31 percentage points on average, while decreasing by 16 percentage points in similar areas with large decreases.

“The market that you’re in and the dominance of a health plan will drive how strong a health plan’s negotiation tactics can be,” said Rick Kes, a healthcare industry senior analyst at RSM. “It all comes down to how strong your position is as a health system or provider versus how strong the health plan’s position is, and who has the upper hand.”

If an insurer owns the majority of partially insured enrollees in a marketplace, they have some power over negotiating more attractive rates, Kes said. But if there isn’t a clear dominant payer and several health insurers each hold a share of the market, then the provider typically has more leverage to negotiate their rates, he said.

Among the 19 high cost areas with the largest price increases, California is home to 11 regions, and another three were in Wisconsin. Areas with the largest decreases were more geographically diverse, although four of the top 19 regions were in Indiana.

Some areas with the highest price increases were near regions with the lowest ratios or where prices decreased the most, Whaley said.

Commercial prices in Colorado’s Greeley hospital referral region increased from 266% of Medicare rates in 2012 to 296% in 2019. In Colorado’s Pueblo region a few hours south, prices decreased from 275% to 197% of Medicare rates.

The study estimates that if individual hospital referral regions had all capped their price ratio increases at seven percentage points—which was the overall national increase from 2012 to 2019—then the nationwide average commercial-to-Medicare price ratio would have been 164% in 2019, rather than 180%, and health spending would have been reduced by $39 billion during the same year.

In 2019, hospital care spending in the U.S. cost $1.2 trillion and accounted for 32% of all healthcare expenditures, the study said. Those high costs are partially attributed to rising prices paid by commercial health plans, researchers found. The gap between the prices paid by public programs like Medicare and private insurers grows.

Policymakers and other entities have sought more price transparency from hospitals, while some consider regulating prices or increasing hospital market competition as a way to reduce hospital prices for commercial payers and improve healthcare access.



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Marie Maynes
Marie Maynes is a Sports enthusiast and writes for the Sports section of ANH.