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Medicare Advantage plans pay hospitals less than traditional Medicare

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There is much debate among health policy researchers about the performance of the Medicare Advantage plans, which are sold and run by private insurance companies, but are regulated by the government to provide Medicare benefits.

Enrollment in Medicare Advantage plans — mostly commonly HMOs and PPOs — grew from 5.4 million consumers in 2005 to 16.8 million in 2015, or about 31 percent of the Medicare population, according to the Kaiser Family Foundation.

Some argue the private alternative to the traditional insurance program for seniors is less expensive than the public programs; others say it’s just the opposite. And still others argue that that the government overpays for people enrolled in private plans since traditional Medicare could have covered these patients for less money.  But there had not been broad analyses of the prices actually paid by these plans.

Now, researchers from Stanford Medicine, the Stanford Law School and the Graduate School of Business have conducted one of the largest systematic analyses of the prices that Medicare Advantage plans pay to doctors and hospitals, relative to the prices paid by Medicare fee-for-services or commercial plans.

They found Medicare Advantage plans actually pays 8 percent less to hospitals for their services than traditional Medicare. If you make adjustments for the smaller, cheaper network of hospitals that Advantage plans allow their patients to use, the program pays 5.6 percent less to hospitals than FFS Medicare.

The researchers shared their findings in an online article in Health Affairs this week.

“The surprise is that Medicare Advantage is paying hospitals less,” said lead author Laurence C. Baker, professor of health research and policy at Stanford Medicine and a senior fellow at the Stanford Institute for Economic Policy Research

“That suggests that in an era when there are real questions about escalating health-care costs, we may want to think more about the potential benefits of Medicare Advantage plans,” Baker said. “It seems they are negotiating better prices.”

Either way, the savings or losses are always going to impact the patient.

“If you’re looking at it as a question of policy, this may be useful,” Baker said. “In the long run, we could pay less taxes to support the Medicare program and maybe people in Medicare Advantage would get to share in those savings.”

The other co-authors of the study are M. Kate Bundorf, professor of health research and policy and a faculty research fellow at the National Bureau of Economic Research; Aileen M. Devlin, a research fellow at the Law School and Daniel P. Kessler, a professor in the Law School and the Graduate School of Business.

They used data from Medicare and the Health Care Cost Institute to identify the prices paid for hospital services by Medicare Advantage, FFS Medicare and commercial plans in 2009, 2011 and 2012.

The data included information from Aetna, Humana, and UnitedHealthcare on approximately 40 million individuals who represent all 50 states, accounting for 27 percent of the nonelderly population covered by commercial insurance, and 31 percent of the elderly Medicare Advantage population.

The authors also found the rates paid to hospitals by commercial plans were much higher than those of either Medicare Advantage or FFS Medicare, and that these rates are continuing to grow.

Some of the difference is a result of the much higher prices commercial plans pay for very profitable services such as orthopedics and interventional cardiology.

“However, commercial plans pay higher prices than FFS Medicare for almost all types of admissions in almost all geographic areas,” they wrote. “Thus, our work echoes the growing concerns expressed by several researchers about the consequences of high commercial-plan prices for health spending.”