Hospitals' average prices for commercial payers only slightly distanced themselves from Medicare rates from 2012 to 2019, although broad variations spotted between individual geographic regions suggest room for policies to limit commercial price growth, according to a recently published RAND Corporation study.
Citing data submitted by hospitals to the federal government’s Healthcare Cost Report Information System (HCRIS), researchers found hospital prices for commercial health plans in 2012 averaged 173% of what Medicare was paying. That gap widened by seven percentage points to 180% on average in 2019, they wrote in April’s Health Affairs.
But while the average commercial-to-Medicare hospital price ratio was “relatively stable” at a national level, RAND’s researchers found substantial movement in the price ratios of hospital referral regions (HRRs) that were already on the far ends of the bell curve.
For instance, among HRRs that were already considered to have high commercial-to-Medicare ratios at the beginning of the study period (defined as HRRs in the top quartile in 2012), researchers reported a further 38 percentage point average growth among the group’s top quartile of growers and a matching 38 percentage point average decrease among the bottom quartile.
Similarly, HRRs that began the study with low ratios (the lowest quartile HRRs in 2012), the top quartile increased their average price ratio by 31 percentage points while the bottom quartile fell another 16 percentage points on average.
Said another way, “many HRRs with either low or high commercial-to-Medicare price ratios in 2012 converged substantially to the national average, whereas many other HRRs drifted to further extremes,” the researchers wrote in the study.
While movement was common among HRRs with both high and low initial ratios, the researchers noted that ratio variation peaked among regions that began with the highest ratios.
Additionally, researchers said that more than half of the 19 HRRs where researchers saw large increases were in California, while three were in Wisconsin. The geographic spread of HRRs with large decreases was more diverse, although four were located in Indiana, they wrote.
Such broad regional variations present a target for policymakers looking to rein in rising healthcare prices.
Here, the researchers floated a hypothetical measure that would have capped individual HRRs’ maximum ratio growth to the 2019 national average of seven percentage points; the new national average ratio would have landed at 164% in 2019. This 9% decline in the $438 billion spent by private insurers that year translates to savings of $39 billion.
“Restraining the growth of commercial prices has the potential to achieve significant reductions in health care spending,” the researchers wrote.
RAND’s study was funded by Arnold Ventures and included a final sample of 3,612 hospitals and 306 HRRs. The group conducted its investigation using RAND Hospital Data, its collection of annual HCRIS reports “cleaned and processed” to remove outliers, interpolate missing years and otherwise prepare for analysis.