Among large insurers, the lowest reimbursement rates were between 6% and 27% below the mean price, while the highest were 5% to 26% more than the mean price. (Photo: Shutterstock)
Private health care insurers pay at least 25% more for the same hospital services than Medicare, according to a new study from the National Bureau of Economic Research (NBER). The study analyzed $1.8 trillion in hospital charges from 2009 to 2016 from 474 hospitals across 38 U.S. states, relying on information from the American Hospital Utilization Database.
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When analyzing prices paid for the five most common Medicare Severity Diagnosis Related Groups (MS-DRG)—a classification system that groups together similar clinical characteristics and costs—NBER researchers found that while private insurers pay 25% more than Medicare Advantage, that cost variation rises to 37% when compared to traditional Medicare. In addition, insurers tend to receive a discount of 52 to 62% off of hospitals' chargemaster rates.
On average, the study found that Medicare Advantage paid 10% more for hospital services than traditional Medicare, though it noted the extent of the disparity depends on the specific diagnosis and treatment, as well as what insurer was offering Medicare Advantage. While national insurers' Medicare Advantage plans paid around the same reimbursements rates as traditional Medicare, regional insurers Medicare Advantage offerings paid an average of 17% more.
To be sure, there was also a wide disparity between how much private insurers paid for the same service. Examining what the five largest private U.S. insurers paid for the 20 most common MS-DRGs, the study found that the lowest reimbursement rates were between 6% and 27% below the mean price, while the highest were 5% to 26% more than the mean price.
One factor influencing what insurers pay is their market power. The study found that a 10% increase in insurer market share correlated to a 7% decrease in negotiated rates. Notably, the study found that average prices paid by larger, national insurers showed significantly less variation than smaller, regional insurers.
NBER researchers also found a high variation of what all insurers paid to the same hospital, with private and Medicaid reimbursement rates varying considerably more on any given diagnosis than traditional Medicare or Medicare Advantage.
The NBER's study is far from the only one to find that private insurers pay more for the same services than Medicare. Last year, a study by RAND and the Employers' Forum of Indiana (EFI) of almost 1,600 hospitals in 25 states found much larger price discrepancies—on average private insurers were charged 240% more than Medicare. While prices charged to private insurers varied by hospital system, they fell within the range of 150% to 400% of Medicare prices.
Still, the RAND and EFI study was not without its criticism. In a statement, the American Hospital Association said it had a 'number of concerns" about the study, including what it called a small sample size.
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Rhys Dipshan
CT-born, New York-based legal tech reporter covering everything from in-house technology disruption to privacy trends, blockchain, AI, cybersecurity, and ghosts-in-the-machine. Continually waiting for law to catch up with tech. (It's like waiting for Godot, but without the clowns)
