5 Takeaways from the Fifth Round of RAND’s Hospital Price Transparency Study

Healthcare costs in the US are staggering. The Center for Medicare & Medicaid Services (CMS) predicts healthcare spending will reach a monumental $1.3 trillion, including $490 billion on hospital services in 2024. This not only highlights the magnitude of healthcare spending but also underscores the critical need for price transparency, especially for employer-sponsored health plans, which cover approximately 160 million Americans. 

Health benefits rank among the largest expenses for both employers and employees. Premiums and deductibles have seen exponential increases, significantly outpacing general inflation rates. Premiums prices have surged by 473% and deductibles by 355%, while wages and general inflation have risen by comparably modest figures of 178% and 167%, respectively. This disproportionate growth places financial strain on both employers and employees, prompting a demand for more effective healthcare purchasing strategies.  

The Role of Price Transparency 

Under the Consolidated Appropriations Act (CAA) of 2021, self-funded employers have a fiduciary responsibility to not overpay for healthcare. But if employers do not know the price of healthcare, how can they make effective purchasing decisions?  

Unlike most consumer markets where prices are upfront and competitive, healthcare prices are not widely accessible. This lack of transparency inhibits efficient resource allocation and effective decision-making. So, price transparency and free market competition are crucial for employers seeking to optimize their healthcare purchasing and ensure quality care for their employees. 

The Alliance recently hosted a webinar featuring Christopher Whaley, lead researcher for RAND Corporation’s Hospital Price Transparency Study, to explore insights from the fifth round of the study – RAND 5.0. Read on to get key insights on hospital pricing and analysis in Wisconsin and Illinois. Also, see how these insights can empower employers as healthcare purchasers. 

RAND Hospital Price Transparency Study  

The RAND Hospital Price Transparency Study gives employers and other healthcare purchasers the information they need to make informed purchasing decisions. The study leverages claims data from self-funded employers, All-Payer Claims Databases (APCDs), and other health plans to analyze price variations among hospitals. The prices in these claims are measured relative to a Medicare benchmark and price per case-mix weight. As the largest healthcare purchaser in the world, Medicare’s transparent payment structure offers a solid benchmark for comparison. 

1. Employers pay over two times what Medicare pays   

According to NASHP, Medicare rates nationally are close to the price required for hospitals to break even. However, in 2022 employers paid hospitals on average 254 percent of what Medicare would reimburse for the same services at the same facilities. For inpatient services, the average relative price was 246 percent and hospital outpatient procedures averaged 263 percent.  

2. Price variation is not explained by quality  

The prices employers pay for hospital services are high and variable. The variation is not correlated with the quality or safety of the care provided or the actual costs incurred. Facility fees contribute significantly to the disparities observed, driving higher prices in Wisconsin and Illinois. There is less variation in professional fees paid to physicians, but Wisconsin leads the nation in professional fees.  

3. High prices are not explained by cost-shifting  

High commercial healthcare prices are not explained by a hospital’s share of patients covered by Medicare or Medicaid. In fact, there is no evidence that hospitals need to make up for “uncompensated care” by charging higher prices for commercial plans. Rather, a large portion of price variation is explained by health system market power.  

4. Market concentration drives high prices 

Market concentration is driving high healthcare prices. Results show that as providers consolidate, prices increase. Areas with fewer competing hospitals tend to have higher prices, reflecting the influence of market monopolies and oligopolies in setting healthcare costs. 

5. Reference-based contracting saves money  

Initiatives like reference-based contracting have emerged as viable strategies for cost management. Reference-Based Contracting by The Alliance^® uses Medicare as a benchmark for fair pricing instead of focusing on savings of total charges. Our bargaining power lets us contract better prices than large PPOs so our employer-members can keep more money in their employees’ pockets. While Wisconsin healthcare payers pay 318 percent of Medicare on average, The Alliance contracts at 175-275 percent.  

Price transparency helps employers be active healthcare purchasers  

High healthcare costs place tremendous pressure on both employers and employees. And as the largest purchasers of healthcare, employers play a crucial role in driving change. As healthcare costs continue to rise, employers must prioritize initiatives that promote transparency and efficiency in healthcare spending. 

The findings from the RAND study underscore the need for enhanced price transparency and competitive market forces in healthcare. Employers should advocate for reforms that prioritize transparency, encourage competition among healthcare providers, and empower consumers with the information needed to make cost-effective healthcare choices. By leveraging data-driven insights and advocating for transparent pricing structures, employers can foster a healthcare system that not only meets the needs of employees but also ensures sustainable financial health for businesses.  

Learn how The Alliance is involved in fighting for healthcare price transparency and how you can get involved here.