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Commercial Payer Prices Outpace Medicare, Medicare Advantage

Commercial payers charge up to four times as much as Medicare and Medicare Advantage for certain common clinical services.

CBO report shows commercial prices ahead of Medicare charges

Source: Thinkstock

By Jesse Migneault

- Commercial payers charge significantly higher prices for common clinical services than Medicare fee-for-service (FFS) and Medicare Advantage plans, according to a new report from the Congressional Budget Office (CBO).

Commercial insurers charged an average of 200 percent more than Medicare or Medicare Advantage (MA) plans for five of the 21 services included in the report, including PET/CT scans, knee arthroscopy, abdominal MRI, intensity-modulated radiotherapy( IMRT), and brain MRIs.

Despite the significant differences in price for many tests and procedures, however, commercial payers and Medicare plans tended to list similar prices for physician office visits by established patients. 

There has been limited data on how commercial prices stack up against  Medicare FFS and MA rates, the CBO said.  

For a private payer in the commercial market, paying high healthcare costs directly impacts their members’ premium rates.   Higher premiums could ultimately result in a decreased competitive advantage against other payers in selling policies.  

Medicare FFS and Medicare Advantage prices were more or less evenly matched across procedures and markets, with little deviation in all 21 procedures measured. This contrasted to commercial prices, which varied greatly by region and network. 

The report also indicates that provider prices for MA can impact plan participation.  This increase in MA plan participation can have a direct link to reduced federal healthcare spending.  Lower Medicare and MA rates are also vital to payers and providers in evaluating commercial rates, by serving as a benchmark for lower overall cost variation between the two. 

Within Medicare, prices are controlled by federal regulation and the negotiating power derived from over 50 million enrolees. Medicare is also limited to the amount it can pay for procedures due to federal regulations.  The Social Security Act further limits the price a physician can charge when a Medicare beneficiary goes out of network. 

The Medicare program currently costs the government $595 billion a year and accounts for 20 percent of national healthcare spending.  Medicare Advantage makes up a quarter of Medicare expenses.

The MA model, which integrates private payers with government regulation and capitated payments, has formed an ecosystem where rates between MA plans are evenly matched across both procedures and geography.   

With an aging population, Medicare and MA enrollment are increasing. Those larger member numbers, and the increase in healthcare usage, are reflected in greater overall expenditures. 

By analyzing data in the report, payers have the ability to gauge MA care costs.  This can aid them in being able to plan bids and forecast provider participation in a MA plan.

In conclusion, the report cites the importance of Medicare Advantage prices for informing how commercial prices are determined.  It also aligns future federal savings with greater MA plan involvement by payers, who may see the savings in MA rates versus their commercial counterparts as motivation enough to make a bid.  

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