A new study on hospital prices from the RAND corporation finds that patients with private insurance in Maine pay nearly three times what Medicare would pay for the same service.
The nonprofit think tank is urging employers to use the findings to push for lower costs in their health plans, but the Maine Hospital Association says the study findings come with caveats.
The RAND study evaluated hospital claims data in 25 states.
Senior Policy Researcher Chapin White says that in 2017, the prices paid to hospitals overall averaged about 241 percent of what Medicare would have paid. In Maine, the average price was even more: 283 percent.
"Maine is definitely on the higher end among the states we looked at," White says.
States on the lower end, like Pennsylvania and New York, paid average prices that were between 150 to 200 percent of Medicare payments.
White says it is difficult to say what is a reasonable price for private insurers to pay compared to Medicare. The benefit of the study, he says, is that employers — who have historically been kept in the dark about prices — can use it as a reference point to start asking their health plans how much they are paying for services.
"The second takeaway is, I think, employers should be asking their health plans not just what prices are we paying, but how are we paying for hospital services?" says White.
Most private health plans negotiate complicated discount rates for services. But another option is to base payments on a set percentage of what Medicare pays — a method that White says typically elicits lower costs.
"Paying multiples of Medicare is a simple approach to contracting that enables shopping."
But Jeff Austin of the Maine Hospital Association cautions against that approach.
"Moving towards Medicare rates — I can understand why commercial folks and the industry would want to do that. We would have a hard time making it, if that were to happen, though."
Austin says Medicare reimbursement rates in Maine cover only about 85 to 90 percent of the cost of services. Medicaid rates are even lower. Commercial plans help cover those losses. Even then, he says, the average operating margin for hospitals in Maine is one percent.
"At the end of the day, out of every dollar, there's one penny left. And that's an average,” Austin says. “As you know, about 16, 17 hospitals are in the red. They actually walk away with a deficit."
Trevor Putnoky of the nonprofit Healthcare Purchaser Alliance of Maine, recognizes that rural hospitals are struggling, and says that his organization is not currently pushing for health plans to negotiate prices based on Medicare rates.
"But that being said, we do know employers are looking at this as a means to control costs and get more transparency into their health care spend," Putnoky says.
And the prices unveiled in the RAND report, he says, should be used to help steer Maine toward lower health costs.
Originally published May 10, 2019 at 5:36 p.m. ET.