Variation in Health Care Prices Across Public and Private Payers
We study a unique all-payer data set spanning 38 states to examine the differences in inpatient reimbursement rates paid by traditional Medicare (TM), Medicare Advantage (MA), Medicaid, and private (under-65) insurers, and the differences in negotiated rates across the 60 largest private insurers. After controlling for enrollee and hospital mix, we find that private insurers pay 37 percent more than TM, and MA pays 10 percent more than TM for the five most common inpatient diagnoses. The correlation in risk-adjusted payments by private insurers and by TM at the same hospital for the same diagnosis is only 0.10. There is significant variation in negotiated prices within and across private payers. Among the five largest US insurers, the most expensive insurer negotiates prices that are 5-26 percent higher than the mean price for the 20 most common inpatient diagnoses. Additionally, we find a 10 percent increase in insurer market share corresponds to a 7 percent decrease in inpatient negotiated prices and a 10 percent decrease in the standard deviation of prices. This finding suggests that increased insurer market power allows payers to negotiate prospective payment contracts – rather than the more common fee-for-service payments – thereby offloading financial risk to providers.
We are grateful to the Foundation for Precision Medicine and to their data contributors, without whom this research would not be possible. Special thanks to Ayin Vala from the Foundation for Precision Medicine. None of the authors received funding for work on this study. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- While Medicare pays similar rates to hospitals across the board, the prices private insurers negotiate vary significantly within and...