New EBRI Research: Differentiated Hospital Reimbursement Could Modify Behavior of Hospitals and Patients

8/13/2003

From: Jim Jaffe, 202-775-6353, jaffe@ebri.org, or Paul Fronstin, (202) 775-6352; fronstin@ebri.org, both of the Employee Benefit Research Institute

WASHINGTON, Aug. 13 -- A new type of benefit structure that provides differing cost- sharing levels for various hospital options could change both hospital and beneficiary behavior, according to new research from the Employee Benefit Research Institute (EBRI).

The continuing emphasis on containing costs and giving consumers greater power has resulted in a growing number of plans that offer "tiered" hospital coverage, not unlike the preferred provider option for physicians that many of the insured are already familiar with. This movement could encourage some hospitals to renegotiate contracts so as to assure that they were in the most-preferred provider group, according to the August EBRI Issue Brief ("Tiered Networks or Hospital and Physician Health Care Services"). But no one yet knows how large the payment differential would have to be to cause any substantial modification of consumer behavior.

In 2001, Americans spent $451 billion on hospitals, a bit more than 26 percent of the nation's total health care bill. Hospital bills grew by 8 percent that year, although other components of health spending are growing at a significantly faster pace. Americans covered by the Medicare program pay the same amount for a hospital admission regardless of the facility selected.

During the past decade, hospitals have increased their bargaining power with insurers by organizing into systems that sometimes dominate a single market, the EBRI analysis notes. Between 1994 and 2001, the number of hospitals affiliated with such systems rose from 37 percent to 46 percent. Insurance plans have typically favored particular hospitals within a given community, generally as a result of reimbursement patterns, giving patients the choice of getting high reimbursement for a hospital that is included in their plan and low payments for one that is not. The new tiered plans tend to offer a continuum of choices instead of this binary one.

While this change could save money for insurers while providing consumers with broader choice, it is not clear yet whether either goal will be achieved or see any changes in consumer behavior.

"The jury's still out on the question of impact of tiered hospital coverage," said EBRI President and CEO Dallas Salisbury, "and definitive answers are probably still a few years away."