Hospitals often charge commercial plans double or more than MA for same services, study finds

Hospitals nationwide charge payers more than double for healthcare services covered under commercial plans than they do for the same insurer’s Medicare Advantage (MA) plans, according to a recent Johns Hopkins analysis of hospitals’ published pricing data.

The work, published this week in Health Affairs, reviewed more than 200,000 unique combinations of hospitals, insurers, settings and services for which a commercial and an MA price were available for direct comparison. In total, it included pricing data from 2,434 hospitals and 118 insurers collected in September 2022.

Commercial prices were, on average, between $600 and $707 more expensive than MA prices, or 2.1 to 2.2 times more expensive.

The dollar gap for prices was widest within the surgery and medicine service category where median commercial prices were nearly $800 more expensive than the charges for MA plans ($1,702 versus $928), 1.8 times higher. The median price increases were consistent across the other three reviewed service categories: imaging ($490 versus $191, 2.6 times higher), lab tests ($32 versus $12, 2.7 times higher) and ED visits ($519 versus $262, 2.0 times higher).

The researchers found that commercial prices often remained twice as high or greater even when looking at the same hospital, insurer and services, though there was “substantial variation” in the commercial-to-MA price ratio across the data set.

While a small portion (3.7% and 6.6%, depending on service category) of the prices were equivalent between plan types, some hospitals’ commercial prices were also five times or more than the MA prices for the same service (6.5% to 27.2%). Researchers also found differences in the median ratio from state to state, with commercial prices highest in Delaware (5.1 times higher) and South Carolina (4.2) and broadly higher ratios in the country's most populous states such as California (2.8), Texas (2.5) and Florida (2.7).

“The substantial gap in prices between commercial and MA, when negotiated by the same insurers and hospitals, [reveals] the pricing consequences of differing incentives and regulations across markets,” Mark Meiselbach, Ph.D., assistant professor in the Department of Health Policy and Management at Johns Hopkins University and the study’s lead author, told Fierce Healthcare. “These differences include out-of-network price benchmarks, competition from traditional Medicare, and that insurers bear more risk in the MA market than in the commercial market.”

Subsequent analyses linked the higher median price difference ratios with hospitals affiliated with a health system, nonprofit hospitals and teaching hospitals, according to the study. Greater hospital market concentration and a higher number of hospital beds were also tied to “modestly” higher price ratios.

Meanwhile, large national insurers were also associated with greater ratios, while greater insurance market concentration was linked to “modestly” reduced ratios, they wrote.

“All of the major insurers generally had median price ratios above 2.0 for most or all service categories, with the exception of Centene. Kaiser Permanente generally had the highest median ratios, which were as high as 3.7 and 4.1 for imaging and laboratory tests, respectively,” the researchers wrote, noting that the integrated system’s high ratio was “unsurprising, given that our sample contained non-Kaiser hospitals.”

The researchers noted in the study that insurers bear more risk for their MA plans than they do commercial plans, as much of the cost for the latter is self-funded by employers. Though insurers should still be incentivized to negotiate lower commercial prices as they compete for employers’ business, “insurers may accept higher prices for their commercial plans if it allows them to remain competitive in the MA market, where gross margins are nearly twice as high per enrollee,” they wrote.

Further exploring that incentive—alongside other pricing pressures such as competition with traditional Medicare and government requirements that out-of-network MA prices fall in line with traditional Medicare prices—could represent a path for policymakers interested in reducing commercial charges that are, ultimately, passed along to employers and their employees, researchers wrote.

“Though employers should be concerned with the much higher prices they pay, these findings suggest that changes in regulation and incentives could meaningfully impact prices,” Meiselbach said.

The researchers' study is the latest in a string of healthcare cost analyses enabled by recent federal requirements that hospitals, and later payers, share their prices for common services with the public. Others have found substantial differences in the commercial prices for brain MRI depending on a hospital’s characteristics or outlined frequent pricing discounts when patients pay with cash.