Researchers found that, across 120 Indiana hospitals, prices negotiated for employers in Indiana averaged 272 percent of what Medicare would have paid for the exact same services. (Photo: Getty)

An employer group in Indiana is using a price transparency study to create a new standard for negotiating health care prices with carriers and providers. In an article published in Health Affairs, the Employers Forum (Forum) of Indiana said that using Medicare pricing data and working with carriers to narrow networks can bring down health costs for employers.

Forum worked with RAND Corporation in 2017 and again in 2019 on hospital price transparency studies using claims data from self-insured employers. The studies looked at what employers were paying for health services from hospitals, compared with a baseline of Medicare prices. It found that in Indiana, self-insured employer plans in 2019 paid on average a relative price that was 311 percent of the baseline Medicare prices.

Related: Transforming health care with transparency: 4 considerations beyond price

"The relative price in Indiana (311 percent) was the highest among the 25 states analyzed, followed by Wyoming, Maine, Wisconsin, Montana, and Colorado," the article said. "The pricing information generated from these studies gave self-insured employers unprecedented insight into the actual contracting outcomes between their carriers and hospitals."

The Forum/RAND studies

The Indiana study in 2017 was the first to publicly report relative hospital prices by hospital name, Forum officials said. The researchers found that, across 120 Indiana hospitals, prices negotiated for employers in Indiana averaged 272 percent of what Medicare would have paid for the exact same services at the same hospitals over the period 2013–16.

The 2019 study expanded the work to look at national data and found that relative prices for hospital services across 25 states was 241 percent of the Medicare baseline in 2017. The prices varied substantially across health systems and states, particularly for hospital outpatient services.

"The pricing information generated from these studies gave self-insured employers unprecedented insight into the actual contracting outcomes between their carriers and hospitals," the Health Affairs article said. "Since Medicare prices have already been adjusted for geographic variations in the standard of living, employers can compare the relative prices with local, regional, and national relative price benchmarks and monitor the trends over time."

Pushing for lower prices in Indiana

In Indiana, Forum members used the pricing information to work with carriers on negotiating lower prices from providers in the state. "In 2017, Forum employers started a dialogue with leadership from Anthem Blue Cross Blue Shield, the dominant carrier in Indiana, demanding new health benefit and payment model options based on high quality care and low price," the article said.

The solution that Forum members and carriers landed on was narrower networks. "Wide-open networks, by placing the bargaining power in the hands of the providers, hamstringed carriers' ability to negotiate effectively," the article said. "Continued dialogue resulted in Anthem developing both a narrow network product and a tiered network product, designed for employers interested in encouraging their employees, through health benefit design, to use providers with high quality care and low price."

Basing outpatient prices on Medicare

Forum members began working with Anthem on a second innovation this year: negotiating outpatient prices for self-insured plans based on Medicare rates. The article notes this was already the case for inpatient care, but using this standard for outpatient care has potential for creating more transparency and efficiency. "This Medicare-based price negotiation (up from a well-understood reference point) is a sharp departure from the previous charge-based price negotiations (down from an arbitrary point determined by the hospital), offering self-insured employers a reliable measure of how much they pay for outpatient services relative to Medicare and how well the insurance carrier actually created value for them," the article's authors said.

The article concludes by calling for policy makers to continue efforts on price transparency in health care costs. However, the article's authors added, employers cannot sit around and wait for government to fix the problem. Instead, they must insist on better data, in order to monitor prices and control costs.

"U.S. employers play a vital role in financing the health care system. Employers' efforts to control health care spending have profound implications on their own financial status and the welfare of U.S. workers and their families," the article said. "The Indiana experience suggests that self-insured employers, if equipped with useful price information, have the potential to become informed and effective shoppers and create value for themselves and their employees."

Read more: 

• How to improve transparency and take control over health care costs
• Reference-based pricing: where do carriers go from here?
• The cost of an outpatient visit? $500