Perspective: RAND 4.0 on Hospital Pricing Again Misses the Mark

Hospitals and health systems work hard every day to deliver high-quality health care services to all patients in their communities. At the same time, they also continue to lead many efforts to advance affordability in health care.

Advancing affordability in health care also is a key focus area of the AHA’s advocacy efforts. We have worked to protect patients from out-of-network medical bills (also known as surprise bills) and supported useful price transparency efforts to ensure patients have access to the information they seek when preparing for care, such as what their out-of-pocket costs are given their particular insurance plan.

Among other priorities, we continue to urge Congress and the Administration to rein in the rising costs of drugs; help make health care coverage more affordable; clamp down on wasteful administrative costs caused by certain commercial health insurer practices and support providers to transition to value-based reimbursement where it makes sense.

Earlier this week, we challenged the findings of the RAND Corporation’s fourth paper looking at hospital prices, which measures and reports the prices paid for care at the hospital and service-line level. Like its predecessors, this latest work once again overreaches and jumps to unfounded conclusions based on incomplete data.

For one thing, it looks at claims for just 2.2% of overall hospital spending, which, no matter how you slice it, represents a small share of what actually happens in hospitals and health systems in the real world.

RAND 4.0 also continues to ignore that hospitals are not all the same. Hospitals and health systems provide different services, and many offer different specialties. These differences are meaningful in terms of the cost of delivering services across the wide range of U.S. hospitals — from rural critical access hospitals to large academic medical centers.

Tellingly this year, when RAND calculated more claims as compared to previous versions of this paper, the average price for hospital services actually declined. This suggests what we have long suspected: You just can’t draw credible conclusions from such a limited and biased set of claims.

But perhaps RAND 4.0’s most significant flaw is using Medicare reimbursement rates as an appropriate benchmark for price comparison … when even the Medicare Payment Advisory Commission acknowledges that Medicare does not fully cover the cost of providing care to Medicare beneficiaries.

As noted in a recent AHA blog Medicare reimbursement rates do not cover the actual cost of the care provided, and are slow to respond to inflation, supply shortages and increased costs for staff. They also can be subject to the whims of political pressure.

For these reasons, linking commercial prices to inadequate Medicare rates would cause even more financial strain to hospitals already facing tremendous challenges as a result of the ongoing COVID-19 pandemic and rising inflation. The result could be reduced patient access to care. Policymakers should be strengthening payment rates from Medicare, not holding them up as the gold standard.

Hospitals and health systems are the only sector that provides life-saving 24/7 care to everyone who needs it, and we are committed to make care more affordable by transforming the way health care is delivered in our communities.

But we cannot do it alone. It will take a real effort by everyone involved — providers, the government, employers and individuals, device makers, drug manufacturers, insurers and others.