RAND Corporation Releases Round 3 of Its Nationwide Evaluation of Health Care Prices Paid by Private Health Plans

On September 18, 2020, RAND Corporation released its Nationwide Evaluation of Health Care Prices Paid by Private Health Plans “designed to allow an easy comparison of hospital prices using a single metric.”[1] This was Round 3 of its employer-led transparency initiative. Round 3 evaluated data from 2016 to 2018 from 49 of 50 states and the District of Columbia.[2] The Evaluation covered $33.8 billion in hospital spending by self-insured employers, state-based all-payer claims databases and health plans at 3,112 hospitals.[3]

Here are the key facts from Round 3:

  • In 2018, employers and private insurers paid 247% of what Medicare would have paid for the same services at the same facilities, which is an increase from 224% in 2016 and 230% in 2017.
  • Arkansas, Michigan and Rhode Island had relative prices under 200% of Medicare.
  • Florida, Tennessee, Alaska, West Virginia, and South Carolina had relative prices that were above 325% of Medicare.
  • Relative prices for hospitals is increasing at a compounded annual rate of increase of 5.1%.
  • When professional and facility fees are compared, an average of 13% of overall hospital price difference relative to Medicare is driven by professional fees.
  • Using both star ratings and Leapfrog Hospital Safety grades, it was determined that high-value hospitals (those offering low prices and high safety) exist throughout the U.S.[4]

And key conclusions about potential employer cost-savings solutions:

  • To effectively increase the use of lower-priced providers, employers need to change the underlying incentives for employees and their dependents
    • High-deductible plans have limited success achieving this goal.
    • Narrow networks, tiered networks, and reference pricing, which use patient cost-sharing incentives to shift patients towards lower-priced providers are effective at achieving this goal.
  • An opportunity for immediate savings is to use cost-sharing incentives to move patient care outside the hospital.
  • Employers should get involved in health care policy and regulatory matters.[5]

To read the Round 3 Evaluation click here.

[1] Christopher M. Whaley et al., Nationwide Evaluation of Health Care Prices Paid by Private Health Plans, 1 (RAND Corporation 2020).

[2] Maryland was excluded due to its all-payer rate setting program. Id. at 3.

[3] Id. at 13.

[4] Id. at 13-14, 18-20.

[5] Id. at 24, 26.

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