When it comes to price negotiations for healthcare services between hospitals and insurance companies or self-insured employers, hospitals appear to be winning big time, according to a study in Radiology.
The difference between the lowest negotiated price for a common imaging service such as a brain CT scan varies widely, not only among insurers and employers dealing with a hospital system, but even among different health plans offered by the same insurer or self-funding employer. The highest negotiated price can be nearly four times as much as the lowest.
For instance, the cost for a brain CT scan can range from $134 to $4,065 at the same hospital, according to the study. The 75th percentile within-pair price gap for a brain CT scan was 2.4, the study states, “meaning that 25% of hospital-insurance company pairs had their maximum negotiated price more than 2.4 times their minimum negotiated price.”
Ge Bai, Ph.D., a professor of accounting and health policy at Johns Hopkins University and one of the coauthors of the study, told Fierce Healthcare that the findings surprised her.
“If insurance companies’ incentives had been perfectly aligned with employers, we would have observed little variation in negotiated rate for a given hospital across different health plans administered by the same insurance company,” Bai said.
Bai and coauthors examined the negotiated prices for 13 radiology services, as designated by the Centers for Medicare and Medicaid Services. Only hospitals that contracted with at least two health insurance plans were included. The authors calculated the price gap by dividing the maximum price by the minimum price. A price gap of 1.0 represents no within-hospital price variation. The brain CT price gap was the highest at 5.2.
Then came the pair-level analysis. “For each service, only hospital-insurance company pairs that contained negotiated prices with at least two health plans (operated by the insurance company in the pair) were included in the sample,” the study found. “A hospital-insurance company’s price gap was measured as the maximum price divided by the minimum price in the pair.”
Bai said that she and coauthors have gotten positive feedback from employers, but no feedback from health insurers so far.
“The evidence provided by our study is only the tip of the iceberg,” said Bai. “More research is needed to understand the dynamics in the price-negotiation process in the commercial market.”
Price transparency remains a coveted but elusive target in healthcare, with both hospitals and health insurers getting off to slow starts in new CMS-mandated initiatives, but for different reasons. CMS’s price transparency rule for hospitals took effect in January 2021, but fines for noncompliance—which can be substantial—began in July 2021. Hospital compliance has been somewhat hit or miss, with the industry complaining that the rule put too much of an administrative burden on them in the middle of the COVID-19 pandemic, a point the American Hospital Association made in a lawsuit against CMS that the AHA eventually lost.
Lack of compliance isn’t a problem with insurers, who divulged their price data in July 2022 in an avalanche of information experts still struggle to dig through. CMS knew that this could be a stumbling block and encouraged computer vendors to help in aggregating the data but as Kosali Simon, Ph.D., told Fierce Healthcare in September, “Even to download one tiny, tiny part of it is a giant task, let alone open the file or understand the data.”
Simon, a nationally known healthcare economist at Indiana University, is considered the expert who’s taken the deepest dive into the insurance industry data. She said: “When we talk to people who have amazing capabilities at data processing, they’ll say: ‘OK, we know how to open one or two of these files.’ But to open all of these and make insights? That is pretty close to impossible.”
Employers who self-fund healthcare coverage for employees will next year have an added impetus to pay closer attention to the price and quality of the plans they offer. Provisions of the Consolidated Appropriations Act set to take effect next year make them fiduciaries of the coverage that they offer employees. In other words, more responsibility and more power.
Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, recently told Fierce Healthcare that this might be a turbulent transition.
“There is going to be a lot of change required on the healthcare industry side, and I think it’s going to be challenging for many of the incumbents who have not had this pressure before,” Mitchell said.
Bai agreed: “More skin in the game for employers means more motivated and price-sensitive purchasers in the healthcare market, which can create pricing pressure on providers.”
Even employers who are not self-insured might use price transparency “to impose pressure on insurance companies for better deals or play a more active role directly in price negotiations,” Bai said.