Between 2012 and 2019, there was a significant divergence in the ratio of commercial prices to Medicare prices in regional health markets across the country, resulting in insurance companies paying wildly different rates to hospital systems.
In areas such as Chico, California and Tacoma, Washington, private payers have seen hospital treatment price ratios increase by more than 100 percentage points. At the other end of the spectrum, Gulfport, Mississippi saw a 109 percentage point decline.
Nationwide, hospital charges charged to commercial health plans averaged 173% of Medicare payment rates in 2012, according to a recent report from the RAND Corporation, while the country’s commercial-to-health price ratio only increased to 180% in 2019. year. study.
However, individual hospital referral regions largely surpassed this overall minimum change of seven percentage points, increasing and decreasing their commercial price to Medicare price ratio by an average of 38% during the study period.
According to Christopher Whaley, a health care economist at the RAND Corporation and lead author of the study, areas where prices rose tended to be more supplier consolidation and higher market concentration, while areas with declines tended to be rural and faced problems. health care financing.
In particular, the Seattle-Tacoma region has seen a trend over the past decade towards merging healthcare systems, which can contribute to lack of competition and higher prices. Several reports show that in a concentrated market, hospital mergers can increase the costs of insurers as well as Patients to up to 20% or more.
The study used data from the Health Care Provider Cost Reporting Information System to analyze how pay rates for commercial hospitals have changed compared to Medicare rates in 3,612 hospitals and 306 hospital referral regions, which are health care markets made up of zip code groups based on referral templates for tertiary care.
In areas with high commercial price to Medicare price ratios and large increases in the ratio, prices increased by an average of 38 percentage points between 2012 and 2019. In other high-cost areas with significant ratio declines, prices fell by an average of 38 percentage points.
In regions with a low initial price ratio and a large increase, the price ratio increased by an average of 31 percentage points, while in similar areas with a large decrease it decreased by 16 percentage points.
“The market you’re in and the dominance of a health plan will determine how strong a health plan negotiation tactic can be,” said Rick Kees, senior health industry analyst at RSM. “It all comes down to how strong your position as a healthcare system or health care provider is compared to how strong a health plan is, and who has the advantage.”
If an insurance company owns the majority of the partially insured market, Kes said, they have some power to negotiate better rates. But if there’s no clear dominant payer and a few health insurers have market share, then the provider tends to have more leverage over its rates, he said.
Among the 19 high-cost areas experiencing the most price increases, 11 are in California and three are in Wisconsin. The areas with the largest declines were more geographically diverse, although four of the 19 major regions were in Indiana.
Whaley said some of the areas with the highest price increases were near regions with the lowest coefficients, or where prices declined the most.
Commercial prices in the Greeley hospital referral region of Colorado rose from 266% of Medicare rates in 2012 to 296% in 2019. In the Pueblo region of Colorado, a few hours south, prices have dropped from 275% to 197% of Medicare rates.
The study estimates that if all individual hospital referral regions were to limit price ratio growth to seven percentage points—which was the overall national increase from 2012 to 2019—then the national average commercial to medical price ratio would be 164% in 2019. year. , not 180%, and health care spending would be reduced by $39 billion during the same year.
The study says that in 2019, U.S. hospital spending was $1.2 trillion and accounted for 32% of all healthcare spending. The researchers found that these high costs are partly due to rising prices paid by commercial health insurance plans. The gap between the prices paid by government programs such as Medicare and private insurance companies is widening.
Politicians and other organizations are pushing for greater price transparency from hospitals, while some see price regulation or increased competition in the hospital market as a way to lower hospital prices for commercial payers and improve access to healthcare.