Study Finds Hospital Prices Paid by Employers and Private Insurers Averaged 254% of Medicare in 2022, with Wide State-Level Variation

The wide variation in prices paid to hospitals by employers and private insurers compared to what Medicare would have paid in 2022 has raised concerns about the impact on healthcare costs for Americans with private insurance. According to a new RAND report, prices for both inpatient and outpatient services averaged 254% of Medicare rates, with some states seeing prices well above 300% of Medicare.

States like Arkansas, Iowa, Massachusetts, Michigan, and Mississippi had relative prices under 200% of Medicare, while others such as California, Florida, Georgia, New York, South Carolina, West Virginia, and Wisconsin had prices above 300% of Medicare. Despite the increase in the number of hospitals and insurance claims analyzed, the state-level average price has remained above 200% of Medicare over the years.

Spending on hospital services accounted for 42% of total U.S. personal healthcare spending for privately insured individuals in 2022, with hospital price increases driving growth in per capita spending. Recent federal policies requiring hospitals to post prices for “shoppable” services and insurers to disclose negotiated rates have not been fully complied with, leading to challenges in transparency and cost control.

The study found that prices for inpatient hospital facility services averaged 255% of Medicare rates, outpatient services averaged 289%, and professional services averaged 188% of Medicare payments. Prices for common outpatient services in ambulatory surgical centers were 170% of Medicare payments. The report also highlighted the disparity in prices for specialty prescription drugs administered in hospital settings compared to physician offices.

Market power was identified as a key factor influencing price variation, with little impact from the hospital’s share of Medicare or Medicaid patients. The study, based on data from over 4,000 hospitals in 49 states, aims to provide employers and policymakers with valuable information to make informed decisions about healthcare purchasing.

Overall, the report underscores the need for greater transparency and accountability in healthcare pricing to address the rising costs faced by Americans with private insurance.