Colorado hospitals near top in the nation for charges to privately insured, report finds – The Colorado Sun

May 19, 2022 By admin

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The analysis from the Rand Corp. found Colorado hospitals charged privately insured patients nearly three times what Medicare paid for the same services, but hospitals dispute the numbers
Colorado hospitals in 2020 on average charged privately insured patients nearly three times what Medicare paid for the same services, according to a new report released this week.
The report, from researchers at Rand Corp., a nonpartisan think tank, ranked Colorado 12th in the nation for the gap between Medicare and the privately insured. Nationwide, hospitals charged privately insured patients an average of 224% of what Medicare pays for the same services.
This is the fourth time Rand has looked at the difference between what privately insured patients and Medicare pay for the same health care services. Christopher Whaley, a policy researcher at Rand who is the report’s lead author, said the ratio has remained relatively flat. In 2018, privately insured patients nationwide were charged 222% of Medicare’s prices, on average.
But Whaley said Colorado has seen an increase in the charges to the privately insured.
When Rand first looked at Colorado, in a report published in 2019 that analyzed data from 2015 to 2017, it found privately insured patients here were charged 269% of Medicare’s prices on average. In the latest report, Rand found Colorado’s prices for the privately insured had grown to 288% of Medicare’s rates.
“So this really is reflecting a widening gap between Medicare and private insurers,” Whaley said.
Roughly 56% of Coloradans are covered by private insurance — meaning they receive health coverage through their employers or they buy it on their own from an insurance company. Medicare, the government health insurance program most associated with providing care for older Americans, covers about 11% of the state, according to the Colorado Health Institute.
The prices that Medicare pays for services are often seen by health policy researchers as a benchmark for hospital charges because they come from a consistent formula but also adjust every year for inflation and also vary locally to account for the cost of doing business. Whaley said this makes them a fair measurement against which to judge prices charged to privately insured patients in any given state.
Hospitals, though, argue that they can’t break even being paid Medicare prices. This creates the need for a “cost shift,” charging more to the privately insured to make up for the shortfall from Medicare and the other major government health insurance program, Medicaid.
In 2020, Colorado health officials estimated that hospitals needed to charge privately insured patients 143% of Medicare’s rates to break even. Hospitals say the cost shift needs to be even greater to give them some breathing room to build up a reserve, tackle long-term upgrades and budget for unexpected costs.
In a statement in response to the new report, Tom Rennell, the senior vice president for financial policy and data analytics at the Colorado Hospital Association, said, “Colorado hospitals and health systems are actively working to improve the cost of health care while continuing to serve their communities through the COVID-19 pandemic and the many associated health repercussions our state is facing.”
“We recognize that health care affordability continues to be a crucial issue for many Coloradans, which is why hospitals and health systems continue to focus on advancing the value of health care services, including cost, quality, and access for Coloradans and Colorado communities.”
Some hospitals also raised concerns about the accuracy of Rand’s data — especially in the way it simulated Medicare prices — and argued that the underlying price of a service is a more important measurement than the percentage of Medicare’s price.
Colorado didn’t score particularly well there, either, though. In Rand’s calculations, the state ranked fifth in the nation for the highest average standardized inpatient price for privately insured patients and 16th in the nation for the highest average standardized outpatient price.
The Colorado Hospital Association also noted that Rand’s study was at odds with other data on Colorado hospital pricing. The Colorado Healthcare Affordability and Sustainability Enterprise Board, in its annual reports, calculates what it calls a “payment-to-cost” ratio, essentially looking at whether the money paid for a service covered the underlying cost of providing the service.
In its 2022 annual report — using data from 2020 — the board estimated that Medicare payments covered only 67% of the cost of a service in Colorado, while Medicaid payments covered 83%. Payments from the privately insured covered 166% of the cost of the services they received, and the overall ratio with all payers added in was 102% for the year.
Using those figures to calculate the charges to the privately insured as a percentage of what Medicare paid — dividing 1.66 by 0.67 — yields a percentage of about 248%, lower than what Rand found. 
In a statement, the head of the American Hospital Association said the Rand study “overreaches and jumps to unfounded conclusions based on incomplete data.”
Whaley said Rand’s report raises questions about why some states see average charges so much above Medicare’s rates. Three states in the latest report — Arkansas, Hawaii and Washington — saw average prices for the privately insured below 175% of Medicare’s rates. Just across Colorado’s western border, in Utah, hospitals charged about 200% of Medicare’s prices on average.
Meanwhile, three states — Florida, West Virginia and South Carolina — saw privately insured patients charged, on average, more than 310% of Medicare’s rates.
“The big surprise is how much variation there is in prices across hospitals and across states,” he said.
One possible explanation has to do with how open the hospital market is in a given state. Places with more consolidation — meaning there are fewer independent hospitals and small systems and more large hospital systems — appear to have higher prices.
“There is a clear link between market competition and market share and hospital prices,” Whaley said.
Colorado has seen a notable amount of hospital consolidation in recent decades, something other researchers have pointed to when trying to understand the state’s hospital prices.
But Whaley said more research needs to be done to understand exactly why prices for the privately insured are so high in some places and not as high in others.
Rand drew its analysis from medical claims data in all 50 states, but the amount of data available from each state varied and only covered a portion of the privately insured population in each state. For this reason, Whaley and his co-authors say their rankings of states and even their findings on state prices relative to Medicare may not be perfect.
That’s something Rick Pollack, the president and CEO of the American Hospital Association, hit on in his statement.
“You simply cannot draw credible conclusions from such a limited and biased set of claims,” he said.
The researchers were able to draw more robust data from states like Colorado that have what is known as an all-payer claims database. Such a database, administered in Colorado by the Center for Improving Value in Health Care, collects large amounts of claims data from a wide variety of sources.CIVHC says that the claims cataloged in Colorado’s all-payer claims database cover about 4 million people in the state, more than 80% of the state’s insured population.
The database collects claims from 37 commercial payers — meaning insurance companies and self-funded employers — as well as from Medicaid and a large chunk of Medicare.
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The analysis from the Rand Corp. found Colorado hospitals charged privately insured patients nearly three times what Medicare paid for the same services, but hospitals dispute the numbers
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