Hospital Prices Paid by Commercial Health Plans Varied Across US

Hospital prices paid by commercial health plans varied between 2012 and 2019, as hospitals with both high and low initial commercial to Medicare price ratios saw increases and decreases over the years, according to a Health Affairs study sent to journalists.

US spending on hospital care totaled $1.2 trillion in 2019 and accounted for 32 percent of healthcare spending. Hospital prices paid by commercial health plans are a driving factor behind this substantial amount. Commercial hospital prices vary across the country, but they are typically higher than the prices public health plans pay.

To document the trends and variation in commercial hospital prices across 306 different hospital referral regions (HRRs), researchers gathered estimates of commercial to Medicare payment rate ratios from 2012 to 2019 from the Healthcare Cost Report Information System (HCRIS).

The results revealed that commercial to Medicare price ratios remained generally stable between 2012 and 2019, seeing an average increase of 7 percentage points.

However, researchers discovered trends among HRRs that started with exceptionally high or low ratios in 2012.

For example, HRRs with high price ratios in 2012 saw a significant divergence in growth throughout the study period. Some regions with high initial ratios saw large ratio increases across the years, averaging a 38 percentage point increase. Other areas with high starting ratios had substantial reductions and saw an average decrease of 38 percentage points.

Ratio trends among HRRs that had low initial price ratios were also divided. Among HRRs with low ratios that experienced large increases, the price ratio rose by an average of 31 percentage points over the years. In the HRRs that had large decreases, ratios declined by an average of 16 percentage points.

These varying results reveal that some HRRs with low or high initial commercial to Medicare price ratios moved toward the national average throughout the study period, while others drifted to further extremes.

The greatest variation in price ratios occurred in regions with high initial ratios.

“We found that these trends in price ratios were driven primarily by hospitals changing their commercial prices relative to Medicare rates rather than by patients switching to facilities with higher or lower price ratios,” researchers wrote.

Out of the 19 hospital referral regions with high price ratios in 2012 that saw large increases, 11 were located in California, with eight in Northern California. Researchers suggested the rising prices within the California HRRs could be attributed to the legal action against Sutter Health—the dominant hospital system in Northern California. The health system faced allegations of anticompetitive behavior that ended in a $575 million settlement.

Massachusetts HRRs started 2012 with low commercial to Medicare price ratios and maintained low prices throughout the study period. This may be because of the Health Policy Commission the state established in 2012 to monitor and reduce healthcare spending, the researchers suggested.

However, there was notable variation in price ratios even within states.

The Greeley, Colorado HRR and the Pueblo, Colorado HRR both had high ratios in 2012, but one region saw price increases while the other saw decreases. Between 2012 and 2019, commercial prices increased from 266 percent to 296 percent of Medicare rates in the Greeley HRR. Meanwhile, commercial prices decreased from 275 percent to 197 percent of Medicare rates in the Pueblo HRR.

The variation in price ratio trends presents opportunities to constrain commercial hospital price growth, researchers said.

If policymakers had capped percentage point ratio increases at the observed national level of 7 percentage points, the average ratio would have been 164 in 2019, compared to the observed 180 percent. The ratio decrease would have resulted in $39 billion in savings in commercial payer spending.

The study suggested other policy options that could help reduce hospital prices and price growth, including regulating prices directly and increasing competition in hospital markets with greater antitrust regulations or better price transparency.