Many Hospitals Charge Double or Even Triple What Medicare Would Pay

In contrast to private insurers, “Medicare has been much more zealous about keeping its payments down,” said Sherry Glied, dean of the Robert F. Wagner Graduate School of Public Service at New York University.

Hospitals argue that they lose money under Medicare, and many say they are aggressively trying to lower costs. Paying the hospitals at Medicare rates would have a significant impact on the industry, causing many hospitals to close, according to some experts.

“The whole system is symbiotic,” Ms. Glied said. If private insurers paid the hospitals less, they “would look different and have a different cost structure.”

But some critics say hospitals are clearly flush and that private insurers are paying too much.

“It explains some of the market behaviors we’ve seen,” said Robert J. Smith, executive director of the Colorado Business Group on Health, which represents employers. Although the hospitals in his state are only two-thirds full, they are building new facilities and buying physician practices.

The purpose of the research, Ms. Hempstead said, was to arm employers with information about prices. While previous efforts focused on giving consumers information so they could be smarter shoppers, employers are the ones that can benefit, she said. “The real consumers are the employers,” she said.

Employers can use Medicare as a starting point for how much they should be paying the hospitals, for example, or combine information about the quality of individual hospitals with the prices they charge to steer workers to those facilities that offer the best value. “What was missing was price,” said Ms. Sachdev of the Indiana employers group.

In Indiana, where a pilot study on hospital prices led to the Rand research, the realization that insurers were paying so much has already altered how insurers are contracting with hospitals. Anthem, the for-profit insurer headquartered there that operates the state’s Blue Cross plan now uses Medicare as a basis for how much it will agree to pay the hospitals.

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