Why Do Hospitals Charge Payers Different Rates?
How Do We Compare Payment Rates Across Health Plans and Hospitals?
Recently we were asked by a hospital client to address three common questions they hear from the public regarding price transparency. We’ve already answered “Why do Hospitals Offer Lower rates to Some Payers?” and “What Is The Relationship Between Insurance Contracts and What Members Pay?” so let’s look at “Why do Hospitals Offer Lower Rates to Some Payers?”
Comparison of payment rates across health plans is a complex process because of the large number of contractual provisions and it is often difficult, if not impossible, to conclude that one health plan has more favorable terms. While this statement is true, there are factors that can and do create difference in payment terms across health plans.
Administrative costs: Specific administrative costs such as contract negotiation and claims payment can, and often do, vary by the size of health plan volume. Health plans with larger volumes will naturally incur lower costs per procedure than plans with lower volumes. Health plans with a historical record of claims denial or delayed payment might also have higher payment terms than a plan that has a lower rate of claim denials and a record of prompt payment.
Plan/Coverage design differences: The nature of specific plan provisions such as deductible and coinsurance terms affect payment terms. Plans with higher deductibles and coinsurance often result in unpaid patient responsibility amounts and may require higher payment to cover expected costs of treatment.
Patient population differences: The underlying risk pool of the health plan’s insured population may also affect payment terms. For example, a health plan with an older population might require higher payment terms because the intensity of services for specific procedures might be higher due to the greater presence of preexisting conditions.
Hospitals are in a unique position where what they are paid and how and when can vary dramatically between each person who walks through their door, even if they have the same insurance. There are a lot of factors in play as hospitals balance these differences.
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