The Growing Difference Between Public And Private Payment Rates For Inpatient Hospital Care

Abstract

The difference between private and public (Medicare and Medicaid) payment rates for inpatient hospital stays widened between 1996 and 2012. Medical Expenditure Panel Survey data reveal that standardized private insurer payment rates in 2012 were approximately 75 percent greater than Medicare's-a sharp increase from the differential of approximately 10 percent in the period 1996-2001. Expenditures for hospital care in the United States are projected to exceed $1 trillion for the first time in 2015, 1 and debate is intensifying over pricing transparency, provider and insurer competition, and differences between private and public payment rates. The stakes involved are high, and there are stark examples of variations in payment rates across hospitals and geographic areas. 2-6 However, there is limited evidence on how payment rates for privately insured patients compare to those for patients covered by Medicare and Medicaid, or on how payment rate differences have changed over time.We examined amounts paid per inpatient hospital stay in the period 1996-2012 for patients whose primary payer was private insurance, Medicare, or Medicaid. Payment rates were adjusted for inflation and standardized across patient and stay characteristics.We found that payment rates for privately insured patients exceeded those for Medicare and Medicaid beneficiaries throughout the study period, but the difference widened rapidly in the latter half of the period (Exhibit 1). In 2012 private insurers' payment rates for inpatient hospital stays were approximately 75 percent greater than Medicare's payment rates-a sharp increase from the approximately 10 percent differential in the period 1996-2001.

Hospital Prices in Indiana: Findings from an Employer-Led Transparency Initiative

“…6. A growing body of research reports private prices relative to Medicare prices, allowing benchmarking and comparisons with the findings from the current study (Ginsburg, 2010;White, 2012;Nguyen, Kronick, and Sheingold, 2013;Selden et al, 2015;Clemens and Gottlieb, 2017;Pelech, 2017).…”

“…Recent estimates suggest that private prices are typically around twice those of Medicare (Cooper et al, 2015;Selden et al, 2015), with a larger price gap for outpatient services and a smaller gap for inpatient services. In Indiana, the gap between private hospital prices and Medicare prices is unusually large-closer to three to one than two to one-which underscores the need to understand and address that gap.…”

“…Hospital prices have been identified in previous research as a key contributor to recent growth in spending per capita among the privately insured (Health Care Cost Institute, 2016) and a key driver of geographic variation in spending among the privately insured (Franzini et al, 2014;White, Reschovsky, and Bond, 2014a;Cooper et al, 2015). Hospital prices paid by private health plans have been growing well in excess of price growth in public plans (Selden et al, 2015), and that divergence has been linked to provider consolidation and the exercise of monopoly power by hospitals and hospital systems (Ginsburg, 2010;Berenson, Ginsburg, et al, 2012;Gaynor and Town, 2013).…”

“…To give some context for this finding, a recent study used national data on payments for inpatient hospital care and found that the overall average relative price was 1.75 in 2012 (Selden et al, 2015). Relative prices equal the ratio of the amounts actually paid divided by the amounts that would have been paid-for the same services provided by the same hospital-using Medicare's price-setting formulas.…”

“…The Selden et al (2015) study, using national data, found that relative prices for inpatient care have risen steadily since 2000. One important question for employers in Indiana is whether the relative prices for hospital care have been rising or falling in recent years.…”