Commercial plans pay Connecticut hospitals 215% of Medicare prices, but that’s better than most states; No evidence of Medicaid or Medicare cost shifting

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A new data set and report from RAND finds that Connecticut hospital prices paid by commercial plan were 215% of Medicare in 2018, varying from 144% for UConn Health to 282% for Stamford Health. If commercial plans had paid the same rates as Medicare that year, consumers would have saved $510 million.

While high, Connecticut did better than all states but Nevada in keeping commercial prices nearer to Medicare. Connecticut hospital outpatient and inpatient rate prices were 16th and 21st lowest in the nation, respectively.

In 2018, CT hospitals overall were paid 230% of Medicare rates by commercial plans for outpatient care and 215% for inpatient care, also with varying levels between hospitals. While prices varied between hospitals, price variation in Connecticut was lower than in other states.

The report found that, despite a persistent myth, there is no correlation between commercial hospital prices and the share of patients covered by Medicare or Medicaid. Hospitals and other providers have argued in the past that they must charge commercial plans more to cover lower rates paid by public programs. However there is no evidence of this in the literature; hospitals charge each provider as much as the market allows. The report also found that commercial prices were not related to the quality of hospital care.

About a third of total healthcare spending in Connecticut is devoted to hospitals. Commercial rates have grown faster than Medicare, widening the gap, each year from 2016 to 2018, for both inpatient and outpatient care at CT hospitals. As hospitals and health systems in Connecticut have consolidated, prices paid by commercial plans have grown.

Medicare rates are set by the Centers for Medicare and Medicaid Services to reflect the costs of delivering care by geographic market area, inflation, and other factors. Commercial payers generally pay hospitals by discounting off hospitals’ charge prices. Charge prices are set solely by hospitals and not necessarily related to the costs of providing care. Several states have moved from paying hospitals based on discounted charges to a percentage of Medicare rates to make hospital prices more fair.