New study finds stark difference in prices between private insurance and Medicare

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New study finds stark difference in prices between private insurance and Medicare

A report released today from the Health Care Pricing Project highlights the stark difference between Medicare and private health insurance pricing for common health procedures. The report has garnered media attention, including an in-depth article from The New York Times’ The Upshot.

At the Washington Health Alliance, we believe the study is directionally accurate. However, it is missing data from the largest commercial insurers in our market, which may skew prices upwards. Nonetheless the report is consistent with what we’ve found in our own reports. Our Hospital Sticker Shock report found that the billed price for common procedures among hospitals often varied by three-fold or more and was commonly tens of thousands of dollars more than the reimbursement. Because those billed prices are the starting point for negotiations with commercial insurers, it’s not a surprise to find that lower Medicare spending doesn’t translate into lower prices for the commercially insured.

The good news from the study is that utilization rates in our region are similar across all payer types, which means eliminating wasteful care can save money for both systems. Unfortunately, higher commercial prices have a counter effect on savings from eliminating waste.

The Alliance has been using data from all the health plans in Washington to understand quality and cost. Commercial pricing for common hospitalizations, like joint replacements and deliveries, can vary 40 percent or more among hospitals, even though patients have similar illness burdens.

We know from our purchaser members that they are hungry for accurate price transparency information so that they can develop benefit strategies that reward high-value care. We continue to work with our stakeholders to push for more effective price transparency. The latest Community Checkup report shows how much Washington state is spending on Medicaid and public employee (PEB) health care.

Studies like the HCCI report also highlight the need for stronger and more rapid efforts to move towards contracting for value-based purchasing, such as total cost of care. The Alliance is working with the State, as the largest purchaser of health care, to educate purchasers and consumers about the need to move away from our current fee-for-service system toward one that pays providers on the basis of high quality and lower cost.

The Health Care Pricing Project report confirms the following patterns that we have been seeing in Washington’s health care market:

  • Medicare spending for a region – such as Seattle – doesn’t give an accurate reflection of pricing/spending for private insurance or total cost of care.
  • In Medicare, differences in spending are driven mostly by the amount of health care patients receive (utilization) not price per service, given the standardization of pricing.
  • Medicare spending is low in Seattle, but according to this study, when it comes to private health insurance, spending is average.
  • For private health insurance, health care pricing is a major driver of spending.
  • Larger, integrated hospital systems tend to set higher prices in private markets because of their market power and relatively little local competition. This is where the consolidation that we see in our market can be worrisome.
  • The new research found that places that offer patients fewer treatments in Medicare also use fewer medical treatments for privately insured patients – i.e., practice patterns extend across payer types. This means that efforts to eliminate wasteful care can save money in both systems. BUT the higher prices charged to private insurers can have a counter effect in wasteful spending.
  • This is why effective price transparency and consumer engagement as smart shoppers are so urgently needed. It’s also why we need stronger and more rapid efforts to move towards contracting for total cost of care balanced with meeting aggressive quality and safety targets.

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