Brief Blog: Discordant Ratio of Private and Medicare Payments, for Hospital versus Lab Services

The March 2, 2020, issue of Business Week has an article by John Tozzi and Emma Court that compares statewide hospital prices for commercial payers versus the benchmark of Medicare prices for the same inpatient or outpatient services.

For example, in Michigan, commercial inpatient and outpatient prices are about the same as CMS prices.  Everywhere else, they're higher.  They're 80% higher in NY, but they're more like 300% higher in Indiana.  See graphic (attributed to Rand).

Why?  Well, from an armchair, you might guess that in Michigan, hospitals are fragmented and their is one highly consolidated payer, so the payer gets hospitals to bend to low prices.  You might think that in Indiana, hospitals are highly consolidated, and payers are fragmented, so hospitals can contract to high prices and make it stick.   Of course, any real-world conclusions would require a lot of analysis.

Labs and PAMA

The interesting for labs, under PAMA surveys of commercial payer prices, at least for freestanding labs, often commercial prices were lower than CMS prices, at least in CY2017.

That is, the PAMA data points would be displaced off the left-hand side of the graphic and below the 100% line which is the bottom of the chart.

Suggesting the payer-provider dynamics were very different for labs than for hospitals in most states, vis-a-vis the payer industry segment.

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From the March 2, 2020, paper issue.  The online version has the same text but not the same graphic I've shown above.  Here. I suspect the underlying source is RAND, 2019, here.