A multi-state report released in May by the RAND Corporation in collaboration with the Colorado Business Group on Health (CBGH), CIVHC and others places Colorado 20th out of 25 states for highest relative commercial health care prices compared to Medicare. The analysis indicates that across the 25 states participating, prices paid to hospitals by private insurers in 2017 averaged 241 percent of what Medicare would have paid. Colorado is on the high-end of the spectrum with relative prices across both inpatient and outpatient services paid at 269 percent of Medicare. Outpatient services average 350 percent of Medicare in Colorado while inpatient services average 221 percent of Medicare.

Rand examined the prices of 1,598 hospitals in 25 states for 2015 to 2017 as a percent of Medicare – including Colorado – using Medicare’s grouping and pricing formulas. The prices reflect what hospitals were paid in 2017 (not what they charged) for/by privately insured patients. The study includes claims from over 4 million people, with information coming from self-insured employers, state all-payer claims databases, and records from health insurance plans that chose to participate.

The report was a highlight at the CBGH annual meeting in early May, attended by CMS Chief Strategy Officer Chet Seward. “The forum was attended by about 100 large and self-insured employers that featured Polis Administration leaders and included a very lively, daylong discussion on rising costs and what employers can do about them,” he said. “In addition to this RAND report, there were other breakout sessions with even more detailed analyses and tools – some of which listed Colorado physicians by name – that employers are using in their demands for decreased costs and increased quality. The takeaway is that as we have been saying, the tipping point on costs is not coming – it’s already here.”

According to the RAND study authors, if employers and health plans participating in the study had paid hospitals using Medicare’s payment formulas, total payments over the 2015-2017 period would have been reduced by $7 billion – a decline of more than 50 percent.

The Colorado Hospital Association has stated in various forums that Colorado hospitals lose 31 percent on Medicare and Medicaid, though "because these costs are not necessarily limited to the costs of providing care, we have no reason to doubt that," said CBGH Executive Director Bob Smith. “But in light of that statement, the Rand report prompts two pressing and practical questions for employers with fiduciary responsibility to shareholders or taxpayers as well as for insurers, legislators and policymakers: Since, as MedPAC reported to Congress in March in its detailed analysis of payment adequacy, hospitals nationally lose about 9 percent overall on Medicare and since efficient hospitals lose only 2 percent on Medicare, why then do Colorado hospitals lose 31 percent? ... [And] even if we were to accept that losses of 31 percent are justified and reasonable, why are prices charged to Colorado employers, employees and retirees almost 9 times higher than their stated loss ratio?”

Colorado Health Institute examines market competition and its influence on the cost of health insurance

Another report released in May by the Colorado Health Institute – the Competition Conundrum – spotlights uncompetitive markets for hospitals and insurance in the state, showing that Colorado counties with the least competition among both hospitals and insurance carriers have the state’s highest insurance premiums. These low-competition, high-premium counties are more likely to be in rural and mountain areas, where market conditions make it difficult to increase competition.

Illustrated by their interactive “competition matrix” (found midway down the page) the upper-left corner of the graph contains 13 counties with the lowest hospital competition and lowest carrier competition, and some of the highest rates for insurance. In the lower right are eight counties along the Front Range with the highest competition among insurers and hospitals, and some of the lowest premiums in the state.

CHI offers four solutions to the problem, some of which are already in the works following the 2019 Colorado General Assembly.

  • Reduce risk for insurance carriers, such as through a reinsurance program and tightening enrollment rules to reduce excess “churn.”
  • Increase health insurance options by requiring carriers to expand to rural areas or creating a state “buy-in” option.
  • Increase oversight of mergers and acquisitions among insurance carriers, hospitals and physician groups.
  • Encourage new models of health care such as telehealth, which removes geographic boundaries and can increase competition across communities.
The report concludes: “CHI’s Competition Matrix shows a clear relationship between low levels of insurance and hospital competition and high insurance prices. However, CHI’s research finds a nuanced relationship between competition and premium prices: Competition is important, but so are other market challenges that exist in many rural areas.”

Categories: Communications, ASAP, Resources, Practice Evolution, Payment Reform, Interacting With Payers, Health System Reform