posted by AHIP
on February 17, 2016
In 2012, average payments for commercial inpatient hospital stays were higher than Medicare fee-for-service payments for 96 percent of the diagnosis related groups (DRGs) analyzed.
Between 2008 and 2012, the commercial-to-Medicare payment difference had an average increase of 14 percent.
Longer hospital stays do not appear to be a factor for higher average commercial payments. During this period, 86 percent of the DRGs analyzed had commercial-to-Medicare average length-of-stay of ratios less than one.
Evidence shows that one of the key factors driving these large price differences is provider consolidation. Cost shifting may also be a contributing factor to commercial-Medicare price differentials and the degree of cost shifting can vary based on a hospital’s bargaining power.
Understanding differences in payments between private and public payers and the factors that drive these differences is critical to addressing the affordability challenges facing patients. In addition, provisions in the Affordable Care Act (ACA) that reduce Medicare payments to hospitals have created a renewed interest in understanding the payment differences between private payers and Medicare.
Numerous studies assessing the variation between hospital payments across commercial payers and Medicare point to provider market power and cost shifting as key factors contributing to the cost differences. It is important to re-examine differences in such payments and to analyze the degree to which these differences are driven by provider consolidation and cost shifting. This data brief analyzes differences in Medicare and commercial payments for inpatient hospital stays from 2008 to 2012 as well as changes in these payment differences over time.