Medicare Advantage Plans Pay Less to Hospitals than Traditional Medicare Plans

Medicare Advantage plans pay less for hospital services than traditional fee-for-service (FFS) Medicare, according to a study in which investigators compared prices paid to providers by Medicare Advantage plans to prices paid by traditional FFS Medicare.

In one of the largest systematic analyses to date on prices paid to hospitals by Medicare Advantage plans compared to prices paid by traditional FFS Medicare or commercial plans, the study found that between 2009 and 2012 Medicare Advantage plans paid 8% less to hospitals for services compared to traditional FFS Medicare.
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When adjusted for the smaller and cheaper network of hospitals that Medicare Advantage plans permit their patients to use, the price paid for hospital services by Medicare Advantage plans was 5.6% less than that paid by traditional FFS Medicare. 

In the study, investigators used data from Medicare and the Health Care Cost Institute, to identify prices paid for hospital services between 2009 and 2012 by traditional FFS Medicare plans, Medicare Advantage plans, and commercial insurers.  To compare the prices paid during this period by type of insurance plan, the investigators calculated the average price per hospital admission, and its trend over time, for fixed baskets of hospital admissions across metropolitan areas. 

The finding that Medicare Advantage plans paid 5.6% less than traditional FFS Medicare took into account differences in geographic areas, case-mix, and hospital networks.

The study also found that commercial plans paid the highest for hospital services among the three insurance plans, finding that rates for hospital services paid by commercial plans were much higher than both Medicare Advantage plans and traditional FFS Medicare.

“The surprise is that Medicare Advantage is paying hospitals less,” lead author of the study Laurence C Baker, PhD, professor of research and policy at Stanford Medicine, said in a press release.

“This 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,” Dr Baker said. “It seems they are negotiating better prices.” —Mary Beth Nierengarten