Tip Sheets

Resources to help you track hospital costs for patients with COVID-19, other ailments

By Joseph Burns 

Year after year, economists, journalists and health care researchers have analyzed what hospitals charge for inpatient, outpatient, and emergency room care, and with good reason. Taken together, what health insurers, employers, federal and state governments and consumers spent on hospital care rose by 4.5% in 2018 to $1.2 trillion, according to a report from the federal Centers for Medicare and Medicaid Services’ Office of the Actuary. Spending on hospital care is expected to continue to rise by 5% or more per year through 2027 to almost $2 trillion, according to a report early last year in Health Affairs based on National Health Expenditure data.

Now that the novel coronavirus has dominated the news this year, high hospital charges have been relegated to the background. Kimberly Adams recently raised the issue of costs in her reporting for American Public Media’s Marketplace. At the top of her article, she cited a report from Covered California showing that testing for the virus and treating infected patients will cost the commercial health market between $34 billion and $251 billion, increasing insurance premiums for private plans by 4% to 40%. “That’s a pretty big range, and it has a lot to do with no one knowing how costs will be distributed across the health care landscape,” she wrote.

And over the past few years, these experts have taken a close look at what hospitals charge. Now that the United States, as of April 2, had more than 213,144 confirmed COVID-19 cases and more than 4,513 deaths, according to the CDC, the issue of how much hospitals charge may come under more scrutiny.

Since 1996, average standardized payment rates per inpatient hospital stay, by primary payer, rose steadily, and then since about 2002, what private payers paid rose more sharply than Medicare and Medicaid payments.
Source: Differences Between Public and Private Hospital Payment Rates Narrowed, 2012–16, Thomas M. Selden, Health Affairs 2020 39:1, 94-99. Reprinted with permission.

Long before the first death due to the virus outbreak, researchers and health policy analysts reported that payments for hospital care accounted for one-third of total U.S. health care spending. Therefore, they recognized that it was important to track hospital payment rates across payers and over time. Writing in the January issue of Health Affairs, one of those researchers, Thomas M. Selden, made that point in an analysis based on federal data from the Medical Expenditure Panel Survey (MEPS). The federal Agency for Healthcare Research and Quality (AHRQ) publishes MEPS and says it’s the most comprehensive source of data on the cost and use of health care and health insurance coverage.

Selden’s analysis showed how the average differences in what private and public insurers (meaning Medicare and Medicaid) paid for inpatient, outpatient and ER care have changed over time. As the director of the Division of Research and Modeling in AHRQ’s Center for Financing, Access, and Cost Trends, Selden wrote the article as an update to earlier research he and colleagues published in 2015.

Selden’s most recent analysis, “Differences Between Public and Private Hospital Payment Rates Narrowed, 2012–16,” is significant for many reasons, and five in particular are cited. (The cost of treating patients infected with the coronavirus will be sixth reason when those numbers are available.)

Surprise bills and out-of-network care

First, the rapid increase in what hospitals charge relates closely to the national debate over surprise medical bills and out-of-network care and to the public policy debate over what insurers and the uninsured pay for hospital care, Selden wrote.

Since 1996, average standardized payment rates per emergency room visit, by primary payer, rose steadily, and then since about 2002, what private payers paid rose more sharply than Medicare and Medicaid payments.
Source: Differences Between Public and Private Hospital Payment Rates Narrowed, 2012–16, Thomas M. Selden, Health Affairs 2020 39:1, 94-99. Reprinted with permission.

Often those who lack health insurance pay the highest rates (called the chargemaster or list prices) for hospital care, as researchers reported in Health Affairs in 2017, “Mystery of the Chargemaster: Examining the Role of Hospital List Prices in What Patients Actually Pay.” “Specifically, we found that list prices varied predominantly across hospitals and within markets, were well predicted by observable hospital characteristics, and were positively related to prices actually paid by patients and their insurers,” the researchers wrote.

Second, in earlier research, Selden and colleagues documented a dramatic rise in hospital charges from 1996 through 2016 in, “The Growing Difference Between Public and Private Payment Rates for Inpatient Hospital Care,” that Health Affairs published in 2015. That research showed that in those 21 years, hospital charges rose by four or five times over what Medicare paid. Since then, the latest research showed hospital charges leveled off or modestly declined compared with Medicare payments.

Using hospital data, employers make changes

Third, Selden’s analysis builds on research the RAND Corporation published in May, showing significant price discrepancies between what Medicare pays and what commercial health insurers and employers pay for hospital care. The RAND report is, “Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely: Findings from an Employer-Led Transparency Initiative.”

Using data from self-insured employers, health plans and state-based all-payer claims databases, RAND researchers Chapin White and Christopher Whaley evaluated hospital prices, variation and trends from 2015 through 2017 in 25 states. The report is useful for journalists in any of these states, and a follow-up report expected later this spring will include data from more states.

Employers have used the RAND data to change how they negotiate with hospitals. Writing in Modern Healthcare, Harris Meyer reported in January that groups of self-insured employers are steering employees to high-value hospitals and negotiating prices as a percentage of Medicare payment rates.

An important factor driving this strategy was data from the RAND report showing that employer-sponsored health plans paid hospitals an average of 241% of what Medicare would have paid for the same inpatient and outpatient services in 2017, Meyer added.

The market concentration factor

Fourth, Selden’s work also builds on research published in the Quarterly Journal of Economics in February 2019, “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured,” by economists Zack Cooper at Yale, Stuart V. Craig at the University of Pennsylvania, Martin Gaynor at Carnegie Mellon University and John Van Reenen at the Massachusetts Institute of Technology. We’ve covered Cooper’s similar work in a previous blog post and tip sheet.

Cooper and colleagues used insurance claims data covering 28% of individuals with employer-sponsored health insurance to study the variation in health spending on the privately insured, the structure of insurer-hospital contracts, and variation in hospital prices. They found that health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a low correlation with Medicare spending.

Also, their work shows that prices at monopoly hospitals are 12% higher than those in markets with four or more rival facilities. Monopoly hospitals also have contracts that shift more risk onto health insurers because they have more cases in which the charge for that care is set as a share of hospital charges. But in markets where health insurers are concentrated, the opposite occurs, meaning hospitals have lower prices and bear more financial risk.

After the researchers examined the 366 hospital and health system mergers and acquisitions from 2007 through 2011, they found that hospital prices increased by more than 6% when the merging hospitals were geographically close — five miles or less apart — but not when the hospitals were more than 25 miles apart.

Hospital price transparency

Fifth, Selden’s analysis will be useful for journalists and others writing about the Trump administration’s plans to require hospitals and health insurers to report the prices they charge to consumers.

In August, the federal Department of Health and Human Services proposed a rule requiring all hospitals to publish their standard charges on the Internet. By November, HHS and the federal Centers for Medicare and Medicaid Services issued a final rule on price transparency for hospitals and health systems. They proposed a price transparency rule for health insurers, “Trump Administration Announces Historic Price Transparency Requirements to Increase Competition and Lower Healthcare Costs for All Americans.”

Michael Brady explained in an article for Modern Healthcare that the hospital price transparency rules require hospitals and health systems to publish their standard fees online and make them available on-demand. The rule is scheduled to go into effect on Jan. 1, 2021, but may be delayed due to a legal challenge that hospital groups filed last December.

HHS also proposed a rule to require health insurers, including those health plans that employers offer to workers, to provide information about price and cost-sharing requirements to employees, retirees and family members before they would need care. Insurers opposed that rule, which is set to go into effect in 2022.

“The agency hopes increased price transparency will boost competition among hospitals and insurers to drive down health care spending,” Brady explained.

Groups representing the nation’s hospitals (including the American Hospital Association, the Association of American Medical Colleges, the Federation of American Hospitals, the National Association of Children’s Hospitals, Memorial Community Hospital and Health System and Providence Health System) filed a lawsuit against HHS Sec. Alex Azar in U.S. District Court for the District of Columbia on December 4.

In the lawsuit, the hospitals charged that HHS exceeded its authority by requiring hospitals to publish on the Internet “a huge quantity of confidential pricing information reflecting individually negotiated contract terms with all third-party payers, including all private commercial health insurers, with which the hospital contracts.”

If the hospital groups’ lawsuit succeeds, then the work of researchers such as Selden, Whaley and White at RAND, Cooper and colleagues and others would be the only source of data on what hospitals charge and what public and commercial insurers pay.

Since 1996, average standardized payment rates per outpatient hospital visit, by primary payer, rose steadily, and then in about 2002, what private payers paid rose more sharply than Medicare and Medicaid payments.
Source: Differences Between Public and Private Hospital Payment Rates Narrowed, 2012–16, Thomas M. Selden, Health Affairs 2020 39:1, 94-99. Reprinted with permission.

Additional resources