Many Hospitals Charge More Than Twice What Medicare Pays for the Same Care

By Consumers For Quality Care, on October 5, 2020

A new study reported by the New York Times shows that many hospitals are charging private insurance companies 2.5 times more than what they get from Medicare – and all for the same care.

The study found that companies and insurers paid almost $20 billion more than Medicare would have for the same care. It demonstrates the aggressive pricing of large hospital systems that have gained market power as a result of consolidation. 

“The prices are so high, the prices are so unaffordable — it’s just a runaway train,” said Gloria Sachdev, the chief executive of the Employers’ Forum of Indiana, a coalition that worked with RAND on the study.

While most hospitals suffered losses from the pandemic, many big-system hospitals were sitting on profit reserves in addition to benefitting from the $175 billion in aid passed by Congress.

Experts say that the findings call into question whether private employers and insurers can competitively purchase health care. Employers say that having to pay so much more in costs highlights the need for change.

“The report lays out in stark terms what the employers have been dealing with for years,” said Elizabeth Mitchell, the chief executive of the Pacific Business Group on Health, a San Francisco group that represents employers and companies in the region. “If we want to keep a private market in U.S. health care, it has to function,” she said. “It’s really not functioning.”

Some health care experts are proponents of a “public option,” which would create a government health plan that would demand lower prices and help bring down the cost of care. This option would do away with private insurance but is less controversial than “Medicare for all” proposals.

Hospitals, meanwhile, argue they wouldn’t be able to function if they charged Medicare rates. Tom Nickels, an executive vice president for the American Hospital Association, warned that hospitals would lose billions of dollars in revenue.

“We cannot survive in that kind of the world,” he said, adding that many hospitals are struggling financially because of the pandemic. “To suggest cutting hospitals during a pandemic is outrageous.”

Some hospital systems defended the prices, arguing that they reflect the quality of care provided. They also said that they lose money on Medicare patients.

Meanwhile, some health care experts argue that the lack of alternatives in a market means that employers can’t negotiate – which may only get worse as big hospitals scoop up smaller hospitals struggling amid the pandemic.

While many employers oppose government intervention, some are coming around to the idea of government action that ranges from rate regulation to a public action.

“They are increasingly seeing in some cases the need for regulatory intervention because the market is broken,” Ms. Mitchell said.