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Report Shows Potential for Transparency to Reduce Employer Health Care Costs and Increase Value

A new RAND report found that in 2020 employers paid 224% of what Medicare would have paid for the same services across all hospital inpatient and outpatient services, including both facility and related professional charges, giving employers a valuable tool to address costs and quality of care. 

The report utilizes claims data from more than 4,000 hospitals and over 4,000 ambulatory surgical centers in all 50 states from 2018 to 2020 to develop standardized and relative price measures.

  • Relative prices have the advantage of incorporating all of Medicare’s adjustments for case mix, wages, and inflation and are comparable across service lines (e.g., inpatient vs. outpatient).

Importantly, Medicare and Leapfrog quality metrics are included in the analysis.

Major findings include:

  • Some states (Hawaii, Arkansas, and Washington) had relative prices below 175% of Medicare prices, while other states (Florida, West Virginia, and South Carolina) had relative prices that were at or above 310% of Medicare prices; and

  • Very little variation in prices is explained by each hospital’s share of patients covered by Medicare or Medicaid – a larger portion of price variation is explained by hospital market power.

However, price transparency alone will not lead to changes if employers do not act on the information.

Implications for employers: Driven by new laws and regulations, substantial price and claims data will become publicly available online over the next two years. Employers, working with data aggregators, researchers, and consultants, will finally be able to increase the value of the health care benefits they offer and reduce health care costs by utilizing contextualized claims data like that in the RAND report to modify their networks and benefit design, and reformulate how provider contracts are negotiated on their behalf.

Published on: May 20, 2022

Authors: D. Mark Wilson

Topics: Transparency, Quality and Cost Containment

D. Mark Wilson

President and CEO, American Health Policy Institute

Detailed Bio

Contact D. Mark Wilson LinkedIn

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