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What RAND Corporation’s Hospital Price Transparency Project (RAND 3.0) Means For Employers
by Melina Kambitsi, Ph.D.

RAND Corporation recently released their National Hospital Price Transparency Study (RAND 3.0) results, which aim to help employers understand the costs they’re paying for hospital services. Employers can use this data to empower their purchasers to contract with hospitals that offer the best value – the highest quality at the best cost.

Here’s some key takeaways from the study:

Employers Pay Nearly 2.5x More Than Medicare

In terms of what Medicare would have paid for the same services at the same facilities for both inpatient and outpatient services, private payers paid 224% of Medicare in 2016. In 2017 they paid 230%, and in 2018 they paid 247% – a compounded interest rate increase of 5.1% annually. In terms of a dollar amount, those savings would have totaled $19.7 billion over those three years.

There’s No Link Between Hospital Prices & Quality or Safety

There are many high-value hospitals, however, there’s no real evidence to suggest that safety and quality are commensurate with price. Per the researchers, “All the outcomes that health care purchasers value, such as patient convenience and hospital reputation, does not show a clear link between hospital price and quality/safety.”

There’s No Evidence Hospitals Need To Make Up For “Uncompensated Care” By Charging Commercial Payers Higher Prices

There was no correlation between the differences in hospital pricing and “low” government reimbursement for Medicare – what health systems refer to as “uncompensated care” – to account for the variation of prices.

What It Means For Employers

This price gap represents a huge savings potential for employers – the second largest purchaser of health care nationwide. Employers must use careful consideration when making health care purchasing decisions – especially for procedures with a large variation in price and services that account for a large percentage of their budgets.

35%-43% of all health care services are potentially shoppable, so by identifying and directing employees to low-cost, high-quality health care they can significantly lower their costs. However, transparency alone is not enough to reduce pricing for the highest-priced hospitals.

For more effective change, employers can design their benefit plans to offer more high-value networks. Further, employers can use tiered networks to offer their employees broad choice while incentivizing smarter, cost-saving options. These initiatives encourage providers to increase quality and maintain competitive prices.

Additionally, The Alliance covers roughly 90% of Wisconsin with its Smarter Networks, and of those contracts, more than 80% are negotiated based on a percentage of Medicare, or Reference-based Contracting by The Alliance®. By using a predictable, simple, and transparent Medicare-based pricing structure, employers can cut spending waste and reward hospitals for quality.

To understand where their money is being spent, make use of their claims data, and develop a benefit plan design strategy, employers can join a purchasing coalition, like The Alliance. In addition to deep data mining and claims analysis, The Alliance uses its large employer membership to negotiate lower prices with providers directly.

Lastly, employers need to further push for transparency – you can’t manage what you can’t measure – and can do so by participating in future RAND Corporation studies.

About the author:
Melina Kambitsi, Ph.D. |SVP, Business Development and Strategic Marketing at The Alliance

Dr. Kambitsi joined The Alliance in 2017 and leads the teams responsible for business development, client development, and strategic marketing. Dr. Kambitsi came from Network Health in Milwaukee and Menasha, Wis. where she was chief sales and strategy officer. Earlier she was SVP of sales at Blue Cross Blue Shield in Honolulu, Hawaii and VP of sales, marketing, and product development at Blue Cross of Northeastern Pennsylvania.

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