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New Medicaid Rule Adds to Commercial Hospital Price Inflation

Summary:
New Medicaid Rule Adds Fuel to The Fire of Commercial Hospital Price Inflation, Health Affairs Opinion Piece Hospital services prices grew faster than any other sector of the US economy. To address the underpayment of hospitals by Medicaid, the federal government issued a regulation correcting the underpayment of hospitals. However, the issue of higher prices and Medicaid paying more to correct the underpayment does not fit in the opinion of The National Alliance of Healthcare Purchaser Coalitions. The outcome of doing so under the new regulation could push hospital prices higher for 66 percent of the US population who have commercial health insurance coverage. Growing evidence of the cause of hospital price variation shows such is the result of

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New Medicaid Rule Adds Fuel to The Fire of Commercial Hospital Price Inflation, Health Affairs Opinion Piece

Given their size and dominance in some states, big health systems increasing their commercial rates can have an outsize impact on the state average commercial rate. Now big healthcare systems have an added incentive to raise their commercial rates because when they do, they are likely to raise the “average” commercial rate used to set their maximum Medicaid rates. This is possible in the 12 states we identified.

In short, CMS has given big hospital systems already having the means to command unreasonable commercial prices more motivation to squeeze the US’s families harder.

Unintended Consequences of The New Medicaid Rule

The new May 2024 rule permits Medicaid programs to increase hospital rates when hospitals extract higher prices from employer and other commercial plans. If hospitals raise prices by 7 percent for employer-sponsored plans, they can also get a 7 percent increase from MMC plans in states that peg Medicaid rates to average commercial prices.

Finally, a lack of transparency may exacerbate all of the unintended consequences of the new rule. Both hospitals and states are permitted to keep the methodology used to calculate average commercial prices secret. Such makes it nearly impossible for employers or researchers to verify these figures.

Looking Ahead

If federal and state Medicaid officials want to target more Medicaid funds to hospitals, they should do it without incentives for hospitals with market power to keep raising prices paid by commercial plans covering working families. Returning to a federal Medicaid upper-payment limit for hospitals tied to Medicare or a multiple of Medicare would eliminate the perverse incentives described here. As noted above, federal rules do allow states to target additional Medicaid funds to safety-net hospitals, but states struggle to resist pressure to spread subsidies around based on hospital political and market power.

Hospital consolidation is likely to march on regardless. Employers and workers ask federal policy makers not to fuel consolidation and hospital price inflation with misguided policies that create unintended consequences for the more than 150 million Americans with employer-sponsored coverage.

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