Private Insurance Payments to California Hospitals Average More Than Double Medicare Payments

The West Health Policy Center’s report on hospital pricing in California reveals significant disparities in payments to hospitals by private insurers compared to Medicare. In 2015 and 2016, private insurers paid California hospitals more than double the rates that Medicare paid for similar services. The payment ratios varied greatly among hospitals; the top 10 percent of hospitals in terms of private insurance to Medicare payment ratios received around 364 percent of Medicare rates, while the lowest 10 percent received about 89 percent. Notably, larger hospitals like Stanford University Hospital and Cedars-Sinai Medical Center had some of the highest ratios.

The report discusses two perspectives on why such discrepancies in payments exist. One view suggests that hospitals leverage their market power to secure higher payments from private insurers due to factors like industry consolidation and the necessity to maintain extensive network coverage demanded by private insurers. The alternative view posits that hospitals charge higher rates to private payers to offset the lower reimbursements from Medicare and Medi-Cal, suggesting that these high rates are essential for hospital operations to remain financially viable.

The implications of these findings are crucial for policy discussions around hospital rate-setting and potential shifts to a single-payer system in California. The data provided could help in evaluating the potential impact of such proposals on hospital payments and financial sustainability, offering a resource for policymakers, hospital board members, and the public to better understand hospital pricing dynamics within the state.