Bench‐Marking the Prices Paid By Commercial Insurers for Professional Services

Research Objective Rising prices have been frequently cited as a primary driver of health care spending growth among the commercially insured. Concerns have been raised that the prices paid by commercial insurers for medical services have diverged from provider costs. We report the degree to which the prices paid for professional services by commercial insurers relative to Medicare benchmarks vary both across and within different markets in the United States. Further, we document how prices may vary within markets across physician specialties. Study Design We applied the Medicare physician fee schedule to re‐price commercial claims based on the specific service delivered and location of the provider listed on each claim. We then benchmarked commercial prices by comparing the allowed amount for each claim to the Medicare rate, as determined by the physician fee schedule. Using our sample of commercial claims, we computed a price index as a weighted average of commercial to Medicare price ratios for a common, robust set of professional services—accounting for more than 80% of claims and spending in our commercial sample. We separately compute indices by provider specialty—where we classify each provider as a primary care provider, hospitalist, or other specialty. Population Studied Using data from the Health Care Cost Institute, we studied the allowed amounts paid for more than 400 million professional service claims across 112 core‐based statistical areas across 43 states in 2017. Principal Findings Most conveys the intended meaning. everywhere the prices paid by commercial insurers for professional services were well in excess of Medicare prices. Further, we document wide variation in the wedge between commercial and Medicare prices across markets. At the low end, commercial prices were on average 25% above Medicare, compared to almost 500% at the high end. We also document how the disparity between commercial and Medicare prices varies within markets. Conclusions Our findings quantify the degree to which commercial insurers are paying higher prices than Medicare for the same professional services in metro areas around the country. Our findings are consistent with related work benchmarking the unit prices of inpatient and outpatient care paid by commercial insurers relative to Medicare. We also demonstrate that the gap between commercial and Medicare prices varies widely both across and within metro areas. Implications for Policy or Practice While commercial professional prices have not grown as quickly as inpatient and outpatient services, the prices paid for professional services by commercial insurers are still well in excess of Medicare. Understanding the difference between commercial and Medicare prices can help identify areas where provider prices have deviated from health care costs and can inform policy discussions. For example, this work may further an understanding of the impact of proposals to pay providers rates that are benchmarked to Medicare such as a Public Option or Medicare for All. Primary Funding Source Arnold Ventures.