Across Colorado, hospitals regularly charge patients with private insurance three or four times what Medicare pays for the same services, according to a groundbreaking new study from the RAND Corp. that will likely further increase pressure on hospitals in the state to lower their prices.
The RAND study looked at hospital prices in 25 states and found that Colorado ranked sixth among that group for most expensive hospitals, measured relative to Medicare prices.
The study found Colorado hospitals charge privately insured patients, on average, 269% of the Medicare price for services. Inpatient services were billed at, on average, 221% of Medicare’s price, while outpatient services were billed at 350%, on average.
There was also a lot of variability among hospitals. Some — such as Aspen Valley Hospital in Pitkin County or Wray Community District Hospital in Yuma County — were found to charge little more than Medicare prices overall and actually charged below Medicare prices for outpatient services, according to the study. Both hospitals are independently run.
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Meanwhile, hospitals in Fort Morgan and Summit County were each found, on average, to charge private-pay patients more than five times what Medicare would pay. Both of those hospitals are part of larger systems.
Christopher Whaley, a researcher at RAND who was one of the report’s co-authors, said the study just looked at data and didn’t try to assign a reason for why some states had more expensive hospitals than others. But he offered a theory for Colorado’s prices.
“Anecdotally, Colorado is a market that has had lots of hospital consolidation,” he said. “And that’s one thing that’s been linked to higher prices.”
Whaley said researchers had “a pretty robust data set” for Colorado because they pulled numbers from the state’s All Payer Claims Database, which collects details on what private and public insurers pay for medical services. That meant Colorado’s payment figures in the study were based on more than a half-million inpatient and outpatient services, the most of any state included.
But the Colorado Hospital Association, in responding to the study, pointed out that numbers from the state’s claims database are incomplete. They don’t include a large percentage of claims paid by employer-based health plans that are self-insured. They also don’t include the prices paid by people who are uninsured or who choose to pay hospitals for care directly instead of going through their insurance.
“We appreciate the detailed and multi-state approach used in this report,” Steven J. Summer, the president and CEO of the hospital association, said in a statement, “but we do have concerns about the conclusions reached based on this data.”
The study reignites a fiery debate that has already flared once this year — specifically, the question of whether hospitals overcharge patients with private insurance.
Roughly half the state is covered by insurance plans through employers, while another 8% of Coloradans buy private plans on their own. In January, officials with the state Department of Health Care Policy and Financing released a scathing report alleging that hospitals had excessively shifted costs onto privately insured patients. Had hospitals better controlled their costs and lowered their margins, they could have saved patients more than $11 billion over a nine-year period, the report argued.
Hospital representatives rejected that report’s findings and led a revolt that kept the report from being approved by a state Medicaid board. But now the RAND study gives more fuel to criticisms of Colorado hospital prices.
To those advocating for hospital reform, Medicare prices represent a good benchmark because they are derived from a standardized process but are also given local adjustments based on inflation or other factors — such as the cost of hiring workers in a particular area.
Hospitals, though, argue that Medicare prices are too low — in Colorado, hospitals often say that Medicare pays only 69 cents on the dollar for a service — and aren’t a good starting point.
“Medicare payments fall far from covering the cost of care,” Summer said in his statement.
Even that is controversial.
In its annual report to Congress this year, the nonpartisan Medicare Payment Advisory Commission said Medicare payments nationwide in 2017 fell about 10% short of meeting hospitals’ costs. But efficient hospitals were able to get much closer to breaking even on Medicare payments, falling only 2% short. And, when considering all sources of revenue, hospitals across the country had near-record profits of above 7%.
Hospitals says they also have to shift costs onto privately insured patients to cover care for uninsured people from whom they receive no money. But there is a rebellion brewing among state officials and employers over prices.
The RAND study was released on Thursday, coincidentally at the same time as a meeting of the Colorado Business Group on Health, an organization of employers looking for ways to drive down their health care costs. It quickly became the talk of the meeting, with speakers urging employers to use their leverage and demand lower prices.
“Employers not only could change health care,” said Robert Smith, the group’s leader, “you’re the only ones who can.”
Kim Bimestefer, the executive director of the Department of Health Care Policy and Financing, said the state wants to work with employers on lower health care costs. Though her department administers Medicaid in the state, Bimestefer said the top goals she has been given by Gov. Jared Polis all involve lowering health prices for everyone.
And, speaking at the Business Group on Health meeting, she pulled no punches about her intentions.
“We,” she said, “have got to disrupt where health care becomes wealth care.”
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