Commercial negotiated rates for health benefits 'fundamentally flawed'

The United States spends more on healthcare, with worse results, than any other country. There are often wild variations in negotiated inpatient and outpatient commercial rates across different payers, facilities, care settings and geographies, according to a Trilliant Health report. 

In 2023, U.S. healthcare spending reached $4.9 trillion, and employer-sponsored insurance was the most common type of insurance, accounting for 53.7% of the population and funding more than $1.3 trillion in healthcare spending, Trilliant found. 

Employers have historically lacked access to the information needed to make informed healthcare benefits purchasing decisions, according to Trillliant, which offers a data platform.

Longstanding provisions of the federal antitrust law have made it difficult for employers to provide high-value coverage to employees, the report said. This "information asymmetry" has stifled meaningful competition between providers and insurers, authors said.

Trilliant Health Chief Research Officer Dr. Allison Oakes told Healthcare Finance News that the one thing that can be counted on in the health plan price transparency data is variation. Even at the same hospital, there were large differences in negotiated rates between two large national payers. 

"I think it's surprising and problematic that, for the exact same procedure at the exact same hospital, the amount that the procedure will cost depends on who is paying," said Oakes. "No other industry works that way. For too long, healthcare has been an exception to the rule, and that needs to end. In most industries, you can expect to 'get what you pay for,' meaning that if you spend more, you get a higher quality product. But that isn't the case in healthcare. Because prices have been proprietary for so long, providers and insurance companies have not had to compete on price, and as a result, price is not a reliable 'signal' of quality."

In 2020, CMS issued the Transparency in Coverage (TiC) final rule, which requires health plans to disclose negotiated rates. However, the size and complexity of the TiC files have made it difficult for employers and researchers to leverage the data. 

Among the report's findings: Commercially insured patients across the country pay widely varying amounts for the same procedure, the costs of which are primarily underwritten by employers. Across six inpatient procedures, negotiated rates varied by an average ratio of 9.1 across the country. 

Different payers negotiate very different amounts for the same procedure at the same hospital. The average difference in price between the Aetna and United Healthcare negotiated rate was equivalent to 30% of the national median price.

Within a sample of 10 hospitals that have been featured on various "best hospital" lists, there was no correlation between aggregate measures of cost and quality. And across outpatient surgeries examined, the national median ambulatory surgical center (ASC) rate was always lower than the median rate for hospital outpatient departments.

"The extent of this variation highlights the importance of facility-level data," said Oakes. "There are certainly market-level factors that might contribute to variation in rates, things like provider and payer market share or payer mix, but when price and quality aren't correlated with one another, the existing level of variation is impossible to justify."

Many employers lack analytic resources, but there are first steps a self-funded employer can take to use this data in purchasing decisions – and according to Oakes, they have a fiduciary duty to purchase health benefits that are in the best interests of their employees. Knowing that this amount of variation and wasteful spending exists, employers need to start asking the hard questions and demand that benefit brokers and health plans provide them with the data they need to select high-value plans for their employees.

"Employers are a hugely important stakeholder in our healthcare system, responsible for about 30% of total national health expenditures," said Oakes. "They need to realize how much leverage they have and start demanding answers. In order for this data to be helpful, I don’t think that every single employer or patient necessarily needs access to every single data point. Sure, we would love to get to that level of access, but for right now, people just need to know that this variation exists, and they need to start asking the hard questions. At the same time, providers and insurers that are above the median market rate need to re-evaluate their pricing strategy."

The Transparency in Coverage initiative, said Oakes, was a big step in the right direction in terms of changes that could meaningfully increase competition and reduce wasteful spending. This data, she said, disrupts decades of secrecy around commercial negotiated rates and allows for near-time analysis of hospital and nonhospital negotiated rates for individual health plans and individual providers for individual procedures. With this data, the public has the potential to know the exact rate for every single provider in the country, said Oakes.

"Moving forward, the only way to continue to win the commercially insured patient is to deliver value for money," she said. “A market with proprietary pricing is doomed to fail. Now that this information is available, providers and payers need to start competing on price. Reducing unnecessary variation in healthcare prices is a straightforward way to reduce spending, while maintaining the same level of quality and access for people."

Most of the work on price transparency to date has put the onus on patients, said Oakes, forcing them to become healthcare consumers and to shop around for the lowest price or highest-value service. The data, she said, revealed that commercial negotiated rates are fundamentally flawed.

"Realistically, we shouldn't expect a handful of patients to 'shop' our way out of this problem," said Oakes. "A problem of this scale requires a larger-scale response from providers and insurers. We hope that this data will inaugurate an era of value-based competition. Every health economy stakeholder needs to be ready to compete."

She expects this kind of data transparency to drive a convergence in prices.

"Moving forward, the only way to continue to win the commercially insured patient is to deliver value for money," said Oakes. "Providers can do this in one of three ways: better-than-average quality at the market price, better-than-average quality below the market rate, or average quality below the market rate. There is no value for money proposition in offering worse-than-average quality at any rate.”