Commercial Insurers’ Payments to Hospitals Closer to Medicare Rates in Arkansas Than in Any Other State

Commercial insurers’ payments to hospitals in 2022 were closer to Medicare’s payment rates in Arkansas than in any other state, according to a new research report by the RAND Corporation.

Commercial Insurance Payments vs. Medicare

The report examines inpatient and outpatient hospital payment rates — including the amounts paid by insurers and any amounts due from patients — for more than 4,000 hospitals in nearly all states and compares commercial insurers’ payments to what Medicare would have paid for the same services. It updates findings from a RAND report based on 2020 data that found Arkansas was among the states where commercial insurers’ payments were the closest to Medicare rates.

Dubbed an “employer-led transparency initiative” and funded by the Robert Wood Johnson Foundation and participating employers, the RAND report is in its fifth round of data collection and analysis. The report is based on insurance claims data from three types of sources: all-payer claims databases — available from 12 states, including Arkansas —self-insured employers, and participating health plans.

Historically, commercial payment rates for hospital services have varied greatly, with commercial rates generally exceeding those paid by Medicare for the same service, and Medicare rates exceeding most Medicaid rates. The 2024 report finds that nationally, the median rate paid by commercial insurers for hospital inpatient and outpatient services included in the report was 254% of the rate paid by Medicare in 2022. This is an increase from 224% of Medicare in 2020.

In its state-by-state analysis, the report finds that Arkansas had an overall commercial payment rate for hospital services that was 164% of the rate paid by Medicare. Arkansas was among five states (with Iowa, Massachusetts, Michigan, and Mississippi) with commercial insurance rates that were less than 200% of Medicare. In seven states — California, Florida, Georgia, New York, South Carolina, West Virginia, and Wisconsin — commercial insurance rates paid to hospitals were more than 300% of Medicare.

Other Findings

• High-quality care does not necessarily correlate with higher prices. Hospitals with the highest quality ratings (five stars) have average prices at 262% of Medicare. However, within each star rating there is a wide range of prices, with some hospitals charging close to Medicare rates and others charging over 400% of Medicare.
• Hospitals with higher market share tend to charge higher prices. A 10% increase in hospital market share is associated with a 0.09% increase in prices relative to Medicare. Market share accounts for 18% of the variation in hospital prices​​.
• Average commercial insurance prices for drugs administered in hospitals are 278% of the average sales price, while Medicare pays 106% of the average sale price. This markup is consistent for other hospital-based medical services relative to Medicare​​.
• There is not a strong relationship between hospital prices and the number of patients covered by Medicare or Medicaid. This means that by and large, hospitals do not charge higher prices to offset underpayments from public payers or uncompensated care​​.

The RAND report offers a high-level summary of findings, with detailed data available in a supplemental spreadsheet online that provides average prices for named hospitals and systems, aiding employers and purchasers in evaluating healthcare costs. Although hospitals and private insurers often start negotiations with Medicare payment rates, hospitals frequently face challenges covering actual costs due to rising supply prices from inflation and increased salary costs for clinical staff. Understanding how private and public payers respond to these challenges is critical to ensure continued access to hospital services in our communities.