HCCI: Physician Prices 122% of Medicare Rates on Average

August 18, 2020 - Physician prices for commercial insurers are still well above those paid by Medicare, but there is significant variation in how much more the payers reimburse physicians for professional medical services, according to a new Health Care Cost Institute (HCCI) analysis.

The average commercial price was 122 percent of Medicare rates in 2017, revealed the analysis of 210 million claims for individuals who had employer-sponsored insurance coverage in 2017.

But commercial insurers in Alabama paid significantly lower physician prices, at an average of 2 percent below Medicare rates, while those in Wisconsin paid a high of nearly twice Medicare rates.

In seven states, average physician prices for commercial insurers exceeded 150 percent of Medicare rates, HCCI also pointed out. And while no state had average prices above 200 percent of Medicare rates, some localities did, including LaCrosse-Onalaska, Eau Claire, Marinette, Green Bay, and Sheboygan.

In contrast, physician prices among commercial insurers well below Medicare rates in 23 metro areas and just one state.

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The analysis examined claims for the delivery of approximately 500 professional services, including physician office visits, venipuncture, and vaccine administration, in more than 250 metro areas in 48 states. The services accounted of about of third of all healthcare spending on the commercially insured population.

"There are multiple national and state policy proposals aimed at reducing health costs or addressing surprise billing that use Medicare rates as a benchmark," Niall Brennan, president and CEO of HCCI, said in a press release. "This new research shows that the potential impacts of policy proposals tied to Medicare rates would vary widely across states and metro areas."

Healthcare costs remain a top concern for Americans, especially as employers seek to cut their own healthcare costs through high-deductible health plans.

With workers and their families becoming increasingly responsible for their healthcare costs, policymakers and healthcare industry leaders have put a target on healthcare prices.

Some states, HCCI noted, have implemented or are pursuing healthcare reform proposals that tie commercial physician reimbursement rates for state employee health plans to lower Medicate rates. Other states have placed caps on what physicians can charge commercial plans for services based on Medicare rates.

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On a national level, proposals such as a public insurance option or Medicare For All have also wanted to link commercial physician reimbursement to Medicare rates.

However, implementation could result in massive revenue reductions for providers in certain states and localities, the analysis confirmed.

A policy limiting commercial physician reimbursement rates for out-of-network providers at 150 percent of Medicare rates, HCCI researchers used as an example, would reduce rates paid to providers in Bakersfield, California on average while boosting the rates paid to providers in Santa Cruz.

“Given the disparity between them, policies that tie commercial prices more closely to Medicare rates, could create the opportunity to lower costs,” HCCI stated in the analysis. “Those possible cost savings also indicate the potential for concern and pushback among providers whose payments would be reduced.”

The analysis’ findings, HCCI added, “clearly indicate that the impact of policies tying payment to Medicare rates would vary based on geography, specialty, and service.” They also suggest a potential change in practice patterns, the organization explained, that could lead to some areas increasing or decreasing the utilization of certain services as the average reimbursement rate moves toward a mix of higher and lower margin services.

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“Market changes and pushback resulting from cost savings are likely to be greater in areas where commercial prices are particularly high relative to Medicare rates,” HCCI wrote.

Lower reimbursement rates, such as those proposed in Medicare For All, could also exacerbate the physician shortage, with lower provider payment for a greater demand of services putting pressure on the shrinking workforce, previous research from the Congressional Budget Office stated.

But physician prices were much closer to Medicare rates than inpatient and outpatient services.

Previous analyses from HCCI show that inpatient service prices for commercial insurers ranged from 151 percent to 222 percent of Medicare rates and estimates of outpatient service prices ranged from 161 percent to 358 percent of Medicare.

The gap between commercial rates for physician services, however, still prove that healthcare prices are “irrational,” according to Hunter Kellett, director of payment reform at Arnold Ventures, which contributed to the HCCI analysis.

“The wide variation in commercial rates and gap between commercial and Medicare rates raise questions about whether the health care market is truly functioning as it should, especially since numerous studies have shown no correlation between higher prices and better quality or better outcomes,” explained Kellett.

The coronavirus pandemic will put more pressure on policymakers to implement payment reform in order to reduce rising healthcare costs as more people need medical services.

“As the crisis continues to wage its toll and states face looming budget deficits, policymakers are increasingly looking for opportunities to make health care more affordable for patients and to lower health care costs — a key driver in state and federal spending. HCCI’s findings help inform policy solutions that would link commercial prices to Medicare rates — an idea sometimes referred to as “Medicare Prices for All,’” Kellett stated.

The American College of Physicians endorsed a single payer system earlier this year despite evidence that the proposal would lower reimbursement rates for providers across the industry.

Meanwhile, industry groups like the American Medical Association have opposed single payer proposals.