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Analysis

Insurers Paid California Hospitals Twice as Much as Medicare

By Jack O'Brien  
   May 20, 2019

Another study shows the significant Medicare overhang hospitals have factored into part of the business model.

Private insurers paid hospitals in California an average of 209% above what Medicare did in 2015 and 2016, according to a West Health Policy Center (WHPC) study released Monday morning.

The research notes the variation among hospitals when it comes to private insurance payments, as the top 10% of hospitals with the highest pay ratio averaged 364% of Medicare and 255% of cost. Meanwhile, the top 10% of hospitals with the lowest pay ratio averaged 89% of Medicare and cost.

During the two year period analyzed in the study, private insurers paid an average of 165% of cost, more than doubling the amount Medicare spent at 79%.

The WHPC study suggests that widespread provider consolidation has allowed hospitals to charge private insurers more for services rendered, even in markets with other competitors present, and that hospitals are charging more for private payment in order to offset shortfalls stemming from Medi-Cal, the state Medicaid program.

Timothy A. Lash, president of WHPC, said the study and the recent RAND report that found private insurers across 25 states paid 241% of what Medicare would have in 2017, show that hospitals "continue to price-gouge" self-insured health plans.

Related: Private Insurers Paid Hospitals 241% of What Medicare Would Have

"It is time for greater transparency in pricing and hospital costs. Data like these provide leverage for employers to negotiate better terms for employees and families buckling under skyrocketing costs," Lash said in a statement.

Doctors Medical Center, an investor-owned medical clinic in Modesto, had the highest private to Medicare ratio at 300%. 

On the other end of the spectrum, Los Angeles County+USC Medical Center, a 600-bed public hospital, had the smallest private to Medicare ratio at 89%.

Eight of the top 10 hospitals with the largest private to Medicare pay ratio were nonprofit hospitals, while only three of the top 10 hospitals with the lowest pay ratio were nonprofits.

WHPC notes that private insurers paid nonprofit hospitals 223% of Medicare rates, 14% above the statewide average, while paying public hospitals 144%, well below the statewide average.

Related: AHA Pushes Back on Politico's Description of Nonprofit Hospital Financials

Broken down by classification, private hospitals constituted 61.5% of costs statewide between 2015 and 2016, while investor hospitals, public hospitals, and University of California hospitals each account for between 10% to 12% of costs each.

District hospitals accounted for 5% of overall costs.

Total cost was distributed primarily among three payer groups: Medicare at 39.9%, Medi-Cal at 29.7%, and private insurers at 27.6%.

Related: Private Insurers Pay Dialysis Providers Four Times Above Medicare

The study concludes that the data should be useful in assessing potential policy proposals aimed at reining in healthcare costs, such as through hospital rate-setting or instituting a single-payer system.

"Further, we hope that they are helpful to the public, hospital board members, and others interested in understanding hospital pricing in California," wrote Richard Kronick, a professor of Family Medicine and Public Health at the University of California, San Diego, and lead author of the study.

Editor's note: This story was updated May 30, 2019.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Private insurers paid hospitals in California 209% above what Medicare did in 2015 and 2016, according to the West Health Policy Center (WHPC).

Stanford University Hospital and Sharp Memorial Hospital topped the average by paying above 270%.

Timothy A. Lash, president of WHPC, said the study and the recent RAND report show that hospitals "continue to price-gouge" self-insured health plans.


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