Blog: RAND Gets it Wrong (Again) on Hospital Prices

The RAND Corporation has released the third edition of its hospital price transparency study. The AHA previously highlighted our extensive concerns with the data and methodology used in the last version. Now, with supposedly much-expanded data, the authors double down on their pre-conceived conclusions. And, unfortunately, the data and the rigor of the methods still just do not hold up on examination.  

Once again, the study relies on data from a largely handpicked and self-selected sample of employers and insurers. Collectively, the claims included in the study represent just 0.7% of total inpatient admissions and 1.8% of total outpatient visits in the U.S. over the study period.^[1] The authors also tout that they went from 25 states represented to 49 states. However, more than half the states in the study have fewer than 1,000 inpatient services included in the sample for 2018. For example, in New Mexico, there were just 65 inpatient services included in 2018. And although the authors did show some hospital-specific data, the amount of data for most hospitals identified is similarly underwhelming. For two-thirds of hospitals for which inpatient stays are reported, the authors had fewer than 100 inpatient stays over the three year period of the study upon which to draw their conclusions.

In addition to the limited data set, the central theme – that prices are unchecked – is undercut by trend data at the national level. According to the Centers for Medicare & Medicaid Services, price growth for hospital care services was just 2.4% in 2018, and non-price factors such as intensity of services and inpatient bed days grew slowly as well. These factors combined for historic low growth in hospital spending.^[2] More recent data from the U.S. Bureau of Labor Statistics shows hospital prices have consistently grown less than 3% per year over the last decade and have frequently grown by less than the average rate of inflation. In fact, even when excluding the artificially low rates paid to hospitals by Medicare and Medicaid, annual price growth has still been below 3% in recent years.^[3]

The authors also once again use Medicare payment rates as a benchmark to compare against privately negotiated rates because they make for an “easy comparison.” Yet Medicare knowingly reimburses well below the cost of providing care. In 2018, hospitals were paid only 87 cents for every dollar they spent caring for Medicare patients. The total Medicare payment shortfall was $57 billion in 2018, up from $37 billion in 2014.^[4] If private payers were to adopt Medicare payment rates, it would strip away vital health care resources. 

Hospitals and health systems are open 24/7 and provide treatment for everyone regardless of ability to pay. Their role also increasingly includes providing, often without additional compensation, non-medical social and public health services traditionally provided by state and local governments and caring for communities ravaged by a growing number of severe natural and manmade disasters, such as hurricanes, wildfires and mass shootings. No other part of the health care system has stepped up – and been on the front line – to meet these growing demands.

The study also relies on Leapfrog scores as a measure of quality, despite their significant limits and flaws. These scores are heavily based on faulty measures calculated from billing data. They use old data that do not reflect more recent improvements in care. The scoring methodology is also unfairly biased against those who do not respond to Leapfrog’s voluntary annual survey.

It’s also telling that once again the study ignores the role another important set of stakeholders – health insurers and third party administrators -- plays in health spending. There is no discussion of the leverage insurers and third party administrator often have in markets they dominate. This treatment of one of the most costly parts of the health care system may be explained by the study’s reliance on data voluntarily supplied by insurers; under the explicit terms of the data sharing agreements the authors entered into with insurers, “prices could not be compared among or between health plans.”

We cannot have a serious discussion about our nation’s system of care providers without acknowledging how much has changed during the COVID-19 pandemic. Many hospitals and health systems are now struggling to make ends meet as they continue to care for patients in their community day in and day out. Those already struggling are barely hanging on. It is beyond reckless to cut vital payments to care providers at a time like this, especially with such a faulty rationale as the foundation.

Aaron Wesolowski is AHA vice president of Policy Research, Analytics and Strategy.