New tool finds all CT health systems’ commercial prices are far higher than needed to cover expenses

According to a new tool, Connecticut hospitals would have needed commercial rates equal to 135% of Medicare levels in 2020 to cover their expenses, much higher than the US average of 114%. However, every health system in Connecticut charged well above that level, far more than needed to cover expenses. The National Academy for State Health Policy presented on their new tool yesterday at Connecticut’s Health Care Cabinet meeting. The full interactive version will be released next month.

In both 2019 and 2020, Hartford Healthcare had the largest spread in the state between their breakeven point to cover expenses and the rates they command from insurers. In 2019, HHC’s breakeven point was 125% of Medicare rates, while commercial rates paid to HHC were over 200% of Medicare.

Compared to neighboring states, Connecticut hospitals had high breakeven points (when r3evenues equal expenses) and hospitals in Fairfield County had both higher breakeven points and commercial prices.

The tool’s breakeven point is when revenues equal expenses. Revenues include payments from all sources, including returns on investments. Expenses include hospital operations, administration, ancillary services, and non-operating expenses. It’s worth noting that hospitals control their own expenses. The tool takes no position on whether hospital expense levels are reasonable or efficient. Revenue and expense data came from CMS‘s Medicare Cost Reports; commercial payment rates came from RAND. Medicare payment levels are used only for comparison purposes.

The tool’s author noted that there is no evidence of cost shifting from less-generous Medicaid and Medicare rates to commercial rates. There is no correlation between hospital government and commercial rates. Studies have found that when government payment rates go up, commercial rates do not drop – hospitals spend the extra money.