The cost of getting an appendectomy with private health insurance has soared since the early 2000s. So has the bill for a knee replacement.
But the secrecy of prices negotiated between health care providers and insurance companies makes it hard for employers to understand what they pay for a knee replacement and whether it’s a good price.
Researchers broadly agree workers suffer for it.
“That’s a cost that comes directly out of how much your employer can pay you,” RAND Corporation policy researcher Christopher Whaley said. “In wages or other types of benefits.”
A new study from RAND, a think tank specializing in defense and public policy, analyzes billions of dollars in medical claims pooled largely by employers desperate to know who’s paying what.
They crave transparency that would let them comparison shop among health plans and hospitals in an industry that can charge vastly different amounts to different people for the same services.
In Kansas, private health plans paid more than twice the rate of Medicare for hospital care in 2018, RAND found. Prices at the University of Kansas Hospital and Overland Park Regional Medical Center were among the highest RAND saw. Not just in Kansas, but across the country.
The KU Health System disputes the think tank’s findings that show KU Hospital charged four times what Medicare would have paid for the 676 insurance claims that RAND managed to get.
“It is not a fair representation of charges at KU Health System,” Vice President of Revenue Colette Lasack said, “compared to our annual volumes of 52,000 inpatients, and nearly 2 million outpatients.”
But Whaley says the health care industry could set the record straight if it chose to.
“If hospitals were more transparent,” he said, “we wouldn’t have to rely on employer claims and could be 100% confident that our prices are correct.”
Hospitals are battling a new federal requirement in court that would make them reveal their prices. They argue doing so would be complex and burdensome because so many different prices exist.
What RAND found
The report is RAND’s third and most ambitious round yet in an ongoing project to pry the lid open on prices.
The undertaking began with Indiana employers banding together in 2017. RAND next gathered medical claims from two dozen states in 2019 and this year studied nearly $34 billion in charges from 49 states.
A fourth round is underway to pull together even more bills to analyze.
Nationally, the claims added up to about $20 billion more than Medicare would have paid for those $34 billion in claims. That’s a 247% difference. Kansas claims cost 234% of Medicare.
RAND doesn’t argue that doctors and hospitals should stick to the Medicare rates — an idea loathed by health care providers who say that would put them out of business. But it says Medicare is a way to compare the price for having surgery in places as different as, say, New York City and Topeka.
The federal government tweaks each hospital’s Medicare reimbursement to reflect local labor costs, how sick patients are, whether the facility spends money on training medical students, and other factors.
So RAND analyzed each hospital’s medical claims — including facility and physician fees — as a percent of what Medicare would have paid it for those bills. Then it compared the hospitals.
The study found stark differences even within Kansas.
Claims from Overland Park Regional Medical Center and KU Hospital ranked among the 10% priciest among 1,600 hospitals where RAND compared both inpatient and outpatient services.
By contrast, prices were lower at Lawrence Memorial Hospital than across the state and nationally.
Chris Garmon, an economist at the University of Missouri-Kansas City, has worked on antitrust investigations at the Federal Trade Commission. He said even prices for common services, such as MRI scans, can be maddeningly difficult to compare.
“They’re all over the place,” he said. “I mean, even in the same area, sometimes in the same hospital for the same service.”
The medical bills in the RAND report came in large part from self-insured employers. Those are typically large private companies and public entities — think local governments and colleges — that directly shoulder the cost of care for their workers but use insurance companies to help run the plans.
RAND doesn’t identify them publicly.
Hospitals say RAND not only draws vast conclusions with too little data, but ignores what it costs to operate their facilities.
Stormont Vail Health in Topeka says it sets fair prices for the privately insured that make up for its underpaid care of patients on Medicare and Medicaid and keep its doors open around the clock.
“There is no other industry that is required to provide services to individuals regardless of their ability to pay,” Stormont Vail Health Chief Financial Officer Robert Langland said in an email. “Last year alone we provided $45 million dollars in uncompensated care.”
The KU Health System, meanwhile, says it spends $70 million a year on teaching future physicians and similar costs.
“We are an Academic Medical Center,” Vice President Lasack wrote in an email. “This Mission comes with significantly higher costs.”
Several hospitals contacted by the Kansas News Service pointed to the American Hospital Association’s critiques of RAND’s work, which it calls “beyond reckless.”
“It is unfortunate that RAND continues to make broad claims about pricing based on a cherry-picked and limited data set,” it said in a recent statement lambasting the think tank for releasing its study amid “a global pandemic that represents the greatest financial threat in history for hospitals and health systems.”
RAND argues: “Employers and their workers also face uncertain financial futures.”
The fight over price transparency
KU Health System says it strives to help patients understand what they will pay for care. Patients can call for pricing help, or use an online portal to get estimates for scores of common procedures, with more to come this fall.
But Garmon, the UMKC economist, says patients across the country still struggle to get information. When they do get it, the estimates sometimes turn out to exclude bills from some of the doctors or medical assistants who help with surgery or care.
“You may find some hospitals are doing a good job on this,” he said, “but a lot of them are not.”
The Trump administration wants to make hospitals disclose the prices private insurers pay. The American Hospital Association sued to block that but the group lost in federal court this summer. It is appealing the ruling.
About half of Americans get their insurance through work, and the cost of their health care has risen far faster than inflation.
The Kaiser Family Foundation says prices charged to large employer health plans for knee replacements rose 74% from 2003 to 2016. Appendectomies got 136% more expensive. Prices in the broader economy rose 28%.
In the new RAND study, the gap between what Medicare and private insurance paid for hospital care widened by about 5% a year from 2016 to 2018.
Its sample showed no correlation between prices and how many Medicare or Medicaid patients hospitals serve, a common argument among health care providers for making commercial insurance pay more.
Gloria Sachdev, president of the Employers Forum of Indiana, first conceived of the RAND project and reached out to the think tank, asking if it could analyze claims from her state.
National employers, she said, were baffled to rack up much higher hospital bills in Indiana than elsewhere. As she encouraged more and more employers across the country to pool their medical claims, she says, Indiana prices turned out to be unusually high.
That gave employers leverage to push for better deals, she said. They leaned on insurers, and some bypassed them and negotiated with hospitals themselves.
“Employers feel like they were operating in the dark, and now the light has been turned on,” Sachdev said. “Now they realize how messy their health care ‘house’ is.”
Celia Llopis-Jepsen reports on consumer health and education for the Kansas News Service. You can follow her on Twitter @celia_LJ or email her at celia (at) kcur (dot) org. The Kansas News Service is a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio focused on health, the social determinants of health and their connection to public policy.
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