Hospitals charge nonconventional payers more than health insurers, study finds

Meg Bryant

Oct. 3, 2018

Dive Brief:

• When it comes to negotiating hospital prices, market clout counts, a new study in Health Affairs shows. 
• Researchers from Johns Hopkins University compared pricing obtained by HMO/PPO insurers and other commercial payers, such as automobile and worker's compensation insurance companies, at 153 Florida hospitals. Nonconventional insurers had far less negotiating power than their HMO/PPO counterparts.
• Between 2010 and 2016, the median price paid by HMO/PPO insurers rose from 1.9 times to 2.5 times the amount paid by Medicare. During the same period, the median price paid by other insurers grew from 2.8 times to 3.8 times the Medicare rate — more than 50% above the HMO/PPO price.

Dive Insight:

The study offers further evidence that healthcare costs often have little to do with type or quality of care.

It also shows a strong correlation between some hospitals' chargemaster, or undiscounted prices, and prices negotiated for nonconventional insurers. For example, in 2016, HCA had a median chargemaster price of 10.2 times the Medicare rate and a 15% discount for other commercial payers. By contrast, Community Health Systems' median chargemaster price was about nine times the Medicare rate, but allowed an 80% discount.

"This finding is consistent with the notion that other insurers possess weak negotiating power, while hospitals have a favorable market position," the authors write. "What is surprising, however, is how closely the relative prices for other payers were related to hospitals' self-determined chargemaster [undiscounted] prices."

Insurers can help patients avoid high-cost encounters by increasing price transparency across hospital systems, but that won't protect patients in emergencies if their insurer has little bargaining power, the report says. Moreover, some hospitals use high chargemaster prices to boost revenue from insurers whose bills are tied to those prices.

To avoid that happening, states could bar hospitals from charging any commercial insurer more than a certain factor above its rate for large HMOs/PPOs — similar to surprise medical bill laws some states have passed, according to the report. 

"Such an approach, relying on a market-based pricing mechanism and hospital-specific price reference, has the potential to protect payers with little market power, such as other and out-of-network payers, from excessive charges that they can scarcely negotiate and to preserve the autonomy of individual hospitals," the authors write.

Hospitals are getting more pressure to be open about their pricing and to make it more clear to patients what out-of-pockets expenses they can expect. CMS has finalized a rule that will require hospitals to post their standard charges online in machine-readable format and issued a request for information seeking more ideas for furthering price transparency.

Rising and unpredictable healthcare costs are pushing more employers to self-insure or work directly with providers. According to a Will Towers Watson survey released earlier this year, just 6% of employers currently contract directly with providers, but 22% are considering that move for 2019.

Among the employers bypassing health insurers are Walmart and the Pacific Business Group on Health. The Amazon, J.P. Morgan and Berkshire Hathaway joint venture, led by Atul Gawande, is also focused on employee healthcare.

https://www.healthcaredive.com/news/hospitals-charge-nonconventional-payers-more-than-health-insurers-study-fi/538729/