Abstract
An employer coalition in Indiana sponsored a study by the Rand Corporation examining commercial insurer payments as a percent of Medicare. The employers sought to understand why their health care costs were high and increasing. The study showed that, on average, their insurer was paying three times what Medicare pays for the same services. In this, a follow-up study, we demonstrate that these high payments resulted in very high profit margins for central Indiana’s major health systems, along with elevated costs and poor performance on key efficiency measures. We also see indications that hospitals appear to be using aggressive revenue cycle management techniques. The paper concludes with a discussion of policy issues.
Highlights
A client asked our firm to examine the impact of information contained in a Rand Corporation report sponsored by an Indiana employer coalition
Sometimes the data we develop show that a hospital or health system is being underpaid; in such cases, if the data show that the hospitals are efficiently run, 1 White (2017)
/or the health plan has gone too far in pushing down prices, we advocate for increased payments for those health systems
Summary
A client asked our firm to examine the impact of information contained in a Rand Corporation report sponsored by an Indiana employer coalition. In our work over the past decade, we have been surprised at how managers in health plans have not looked at critical data to hold health systems accountable for their prices This includes calculating actual rates of increase in unit prices compared to what was negotiated in the contract; hospital profits and contribution margins (what insurers pay over and above the health system’s costs as shown on their cost reports); and costs and efficiencies compared within and across markets. Despite that fact that selffunded employers have access to their own claims data, it appears that neither they nor their benefits consultants examine payment as a percent of Medicare when evaluating health plan contracting effectiveness. As noted previously, they focus on favorable payment rates among commercial payers in evaluating total cost of care. We have not explored any of the data on quality or community benefit activities of central Indiana health systems
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