Exploring Hospital Pricing Under Medicare Advantage and Traditional Medicare to Generate Lessons for Medicare Costs and Policy Options

The researchers conducted key informant interviews to understand new findings from MedPAC and others suggesting that Medicare Advantage (MA) plans’ payments to hospitals mirror reimbursements paid under traditional fee-for-service (FFS).  Through these interviews and a meeting that convenes relevant experts and stakeholders, they tried to identify (1) why parity occurs, (2) under what circumstances it might not occur, and (3) any insights for policymaking to address growing hospital pricing power in the non-Medicare commercial market (e.g. policies that limit negotiated payments or out-of-network payments to a certain percentage above Medicare rates).  Until recently, there was no valid and reliable information about the performance of MA plans in holding down hospital prices in comparison to traditional FFS Medicare’s Diagnostic Related Group (DRG)-based prices.  As a result, policymakers (e.g. the Congressional Budget Office), researchers, and advocates have often extrapolated from the experience of private health plans when modeling potential Medicare policy changes like “premium support” approaches.  The objective of this project was to inform policy discussions of current market dynamics and future potential long-term reforms of Medicare.