May 10, 2019 - Health

Hospital costs are high and all over the place

Data: Rand Corporation; Chart: Lazaro Gamio/Axios

Private insurance plans pay hospitals, on average, 241% of what Medicare pays for the same services — and those rates vary widely from hospital to hospital, according to a new report by the RAND Corporation.

Why it matters: Hospitals make up the largest portion of health care spending, and even people who don't use hospital services pay for them through their premiums.

The big picture: This report reinforces that private insurance generally pays a lot more than Medicare, but it also is the first broad-based study to compare individual hospitals by name — giving it some practical utility for employers and insurers, which is often hard to come by because of the industry's secrecy.

Details: The study includes 1,600 hospitals in 25 states, covering $13 billion in payments from 2015 to 2017.

  • If hospitals had been paid Medicare rates over this period, the employers included in this study would have saved $7.7 billion.
  • Prices ranged from 150% of Medicare to more than 400%, depending on the hospital system. There was also significant variation among states.
  • Outpatient service rates were, on average, 293% of Medicare, while the average inpatient price was 204%.

Yes, but: Hospitals argue that they lose money on Medicare patients because the reimbursement rate is too low, so they have to charge private enrollees more to make up the difference.

The bottom line: Health care costs are only going to rise for those with private insurance. This study suggests that while tackling hospital rates may not be easy, it's an area that's ripe for reform, if employers — or policymakers — decide that they've had enough.

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