RAND Report on Prices Paid to Hospitals by Private Health Plans Includes Arkansas Data for First Time

May 25, 2022


Craig Wilson, JD, MPA
Director, Health Policy

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Commercial insurers in Arkansas paid hospitals rates that more closely matched Medicare rates compared to commercial insurers in other states in 2020, according to a new research report by the RAND Corporation that examines inpatient and outpatient hospital payment rates for more than 4,000 hospitals in nearly all states.

Dubbed an “employer-led transparency initiative” and funded by the Robert Wood Johnson Foundation and participating employers, the RAND report is in its fourth round of data collection and analysis. For the first time, the report contains Arkansas data, with RAND expanding to 11 the number of states with all-payer claims databases that are included.

Historically, commercial payment rates for hospital services vary greatly, with commercial payment rates for the same service generally exceeding Medicare, and Medicare exceeding most Medicaid rates. In fact, the report finds that the overall relative rate paid to hospitals included in the report by commercial insurers was 224% of the rate paid by Medicare in 2020. This was up only slightly from 222% of Medicare in 2018.

In its state-by-state analysis, the report finds that Arkansas was among three states (Hawaii and Washington being the others) with commercial insurance rates that were below 175% of Medicare. In three states — West Virginia, South Carolina, and Florida — commercial insurance rates paid to hospitals were more than 310% of Medicare. The report indicates that the higher overall rates were largely driven by outpatient rates, with 19 states having outpatient rates more than 300% of Medicare rates.

Other interesting findings in the report include:

  • The rate of payment from commercial insurers had no significant correlation with the hospitals’ share of Medicare and Medicaid patients.
  • Variations in payment rates were associated with hospitals’ relative market strength. A 10% increase in hospital market share was associated with a statistically significant 0.5% increase in a hospital’s payment rate relative to Medicare.
  • Payment rates for COVID-19 hospitalizations were similar to payment rates for overall inpatient admissions, averaging 241% of Medicare.

Although hospitals and private insurers sometimes engage in complex negotiations over payment rates for certain services, the starting point for those negotiations is often Medicare payment rates, which hospitals often cite as falling short of actual costs to provide services. Hospitals and other healthcare providers are challenged with price increases for supplies due to inflation and staggering salary costs due to heightened demand for nurses and other clinical staff. Understanding how both private and public payers respond to these challenges will be critical over the next several years as hospitals seek to ensure continued access to services within their communities.

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