Why Hospitals Charge Auto Insurance, Workers’ Compensation Patients Much More Than Health Insurers

Insurer market power matters in hospital pricing. Patients with automobile, workers’ compensation, and other non-conventional commercial insurance plans paid much higher prices than patients with HMO/PPO health insurance coverage for hospital services in Florida, new research confirms.

A new Johns Hopkins University hospital costs study, published today in the October issue of Health Affairs, shows a growing gap between the rates paid by public and private insurers and a growing gap between the rates paid by the different types of commercial insurers for hospital services between 2010 and 2016.

The median price paid by HMO/PPO health insurers at 153 private hospitals in Florida increased from 1.9 times to 2.5 times the price paid by the Medicare program. The median price paid by auto insurers and other non-conventional commercial insurers increased from 2.8 times to 3.8 times the Medicare rate during the same period.

“Because automobile insurers and other non-conventional commercial health insurers cover a relatively small number of patients, they have little negotiating clout with the hospital. Hospitals are in a dominant position to unilaterally dictate the price,” says first author Ge Bai, an associate professor of accounting at the Johns Hopkins Carey Business School.

Professor Gerard Anderson, a professor of health policy and management and director of the Johns Hopkins Center for Hospital Finance and Management, co-authored the article, titled “Market Power: Price Variation Among Commercial Insurers for Hospital Services.”

He cautioned that “people with auto and workers’ compensation insurance need to be especially careful about which hospitals they choose to receive care since the prices can be very high in some hospitals.”

Anderson notes that the “high prices paid by private insurance is a main reason that health care is more expensive in the United States than in other industrialized nations.”

The article cites the Medicare Payment Advisory Commission’s March 2018 report to Congress, which said payments by commercial health insurers were about 50 percent higher than those made by Medicare. This paper shows that the rates are much higher for other insurers and varied substantially across hospitals.

“Large hospital systems take advantage of their market power to get non-conventional commercial insurers to pay much more,” says Bai. According to the study, the 20 Florida hospitals owned by Tennessee-based Hospital Corporation of America charged these between 7.8 and 14.1 times the Medicare rate in 2016.

(A statement at the end of the paper acknowledges that Bai is serving as an expert witness for plaintiffs in a class-action lawsuit against HCA-affiliated hospitals.)

Non-conventional commercial insurers were often paying prices closely linked with each hospital’s self-determined chargemaster prices, which are the high prices each hospital sets as a starting point for various products and services without considering negotiations, Medicare remittances, private health insurer reimbursements, competition or other factors.

“Chargemaster prices are relevant to the prices paid by patients and insurers with little negotiating power,” says Bai. “That’s particularly bad news for people covered by auto insurers and other non-conventional commercial insurance, and worse still when you consider that the chargemaster prices set by hospitals have been steadily increasing over the past decade.”

To address the issue at the heart of the study, Bai says, policymakers, hospitals, and insurers must act to limit the high prices that affect the patients covered by insurers with the least negotiating power. “If market forces fail to generate a reasonable price for these patients, policymakers should step in to address this market failure,” she says.