title: Why Medicare Advantage Plans Pay hospitals traditional Medicare prices.
abstract: The policy community generally has assumed Medicare Advantage (MA) plans negotiate hospital payment rates similar to those for commercial insurance products and well above those in traditional Medicare. After surveying senior hospital and health plan executives, we found, however, that MA plans nominally pay only 100-105 percent of traditional Medicare rates and, in real economic terms, possibly less. Respondents broadly identified three primary reasons for near-payment equivalence: statutory and regulatory provisions that limit out-of-network payments to traditional Medicare rates, de facto budget constraints that MA plans face because of the need to compete with traditional Medicare and other MA plans, and a market equilibrium that permits relatively lower MA rates as long as commercial rates remain well above the traditional Medicare rates. We explored a number of policy implications not only for the MA program but also for the problem of high and variable hospital prices in commercial insurance markets.
authors.affiliation: Robert A. Berenson (RBerenson@urban.org) is an Institute Fellow at the Health Policy Center, Urban Institute, in Washington, D.C.
authors.forename: Robert A
authors.initials: RA
authors.lastname: Berenson
authors.affiliation: Jonathan H. Sunshine is president of Sunshine and Associates, in Chevy Chase, Maryland.
authors.forename: Jonathan H
authors.initials: JH
authors.lastname: Sunshine
authors.affiliation: David Helms is a senior associate in the Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, in Baltimore, Maryland.
authors.forename: David
authors.initials: D
authors.lastname: Helms
authors.affiliation: Emily Lawton is a research associate at the Health Policy Center, Urban Institute.
authors.forename: Emily
authors.initials: E
authors.lastname: Lawton
mesh_terms: D004469:Economics, Hospital / Q000331:legislation & jurisprudence* / Q000706:statistics & numerical data*; D017048:Health Care Costs; D019538:Health Care Surveys; D005102:Health Expenditures; D006291:Health Policy; D006801:Humans; D007349:Insurance, Health, Reimbursement; D007882:Legislation, Hospital / Q000191:economics*; D006278:Medicare / Q000191:economics / Q000458:organization & administration*; D010359:Patient Readmission / Q000331:legislation & jurisprudence / Q000706:statistics & numerical data; D011682:Purchasing, Hospital; D011785:Quality Assurance, Health Care / Q000331:legislation & jurisprudence / Q000706:statistics & numerical data*; D011787:Quality of Health Care / Q000458:organization & administration / Q000592:standards; D013997:Time Factors; D014481:United States; D062505:Value-Based Purchasing
keywords: Cost of Health Care; Financing Health Care; Hospitals; Insurance; Medicare