RAND study reveals private payers pay 250% more than Medicare for healthcare services

Editor's Note

A recent analysis by the RAND Corporation, a research and analysis nonprofit, revealed a disparity between hospital and ambulatory surgery center (ASC) prices paid by employers and private payers compared to Medicare prices, Revcycle Intelligence May 15 reports. The study, covering data from 2020 to 2022, showed private payers paid, on average, 254% more than Medicare for identical inpatient and hospital outpatient services at the same facilities.

The study encompassed data from over 4,000 hospitals and ASC nationwide. It showed inpatient hospital facility services were priced at 255% of Medicare rates, hospital outpatient services at 289%, and associated professional services at 188%. Outpatient services in ASCs averaged 170% of Medicare prices, with researchers noting the disparity would have been lower if not for different Medicare reimbursement systems.

There were also substantial state-level variations. While Maryland was excluded because of its unique all-payer rate-setting model, states like California, Florida, Georgia, New York, South Carolina, West Virginia, and Wisconsin saw relative prices exceed 300% of Medicare rates, while Arkansas, Iowa, Massachusetts, Michigan, and Mississippi had lower relative prices under 200%. Still, the state-level average price has consistently exceeded 200% of Medicare since RAND began its analysis.

For specialty drugs, the study highlighted exorbitant prices administered in hospitals, with private payer prices averaging 278% of the average sales price compared to Medicare's 106%. According to the article, this price inflation significantly impacts the spending of the privately insured population, with hospital services accounting for 42% of total personal healthcare spending—roughly $486 billion. The financial burden is also reflected in the rising premiums for employer-sponsored insurance plans, which have surged by about 50% over the past decade. According to the Kaiser Family Foundation, family coverage premiums rose from $16,350 in 2013 to nearly $24,000 in 2023.

Peter S. Hussey, director of RAND Health Care, emphasized the study's value for employers seeking to make informed healthcare purchasing decisions and for policymakers aiming to curb healthcare costs. However, the American Hospital Association (AHA) criticized the study, arguing it overstates the disparity by comparing against "woefully inadequate" Medicare payments and ignoring the financial and operational challenges hospitals face. AHA also said the study represents a small fraction of overall hospital spending and overlooks the role of commercial insurers in driving up healthcare costs.