There is significant variation in reimbursement rates established by different private payers for different hospitals, according to a MedPAC blog post.
"While commercial rates vary widely from hospital to hospital and insurer to insurer, on average, commercial rates are about 50% higher than hospital costs and often far more than 50% above Medicare rates," the authors cited..
- High private payers rates can be partly attributed to hospital consolidation, which increases hospitals' market power and ability to negotiate favorable rates.
The trend in healthcare toward consolidation has been well-documented. However, it is unclear what effect consolidation is having on costs and quality. MedPAC focused on implications of consolidation at its November public meeting.
MedPAC made a similar determination. Higher rates paid to hospital networks with strong market power don't give them incentive to contain costs. On the other hand, providers with lower private payers reimbursement rates are able keep costs down while staying profitable.
One concern associated with the difference in private payer rates versus Medicare rates is that it could discourage providers from serving Medicare beneficiaries. MedPAC concluded there is still financial incentive to treat Medicare patients and that access shouldn't be an issue in the near future. However, it is worth monitoring these trends to see if strategies to contain costs, such as accountable care organizations and reference pricing, are working.