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Feb. 24, 2023

MSU research: Variation in COVID-19 PCR test costs may put extra financial burden on insurance policyholders

When you get a COVID-19 PCR test at the hospital, your insurance will cover the cost. What you might not realize is the cost that insurance companies pay for that PCR test can vary — and potentially increase your individual premiums, the amount you pay as a policyholder for your medical insurance.

 

John (Xuefeng) Jiang
John (Xuefeng) Jiang

New research from Michigan State University shows that commercial prices for COVID-19 PCR tests vary within major insurance companies, and even within the same hospital. A hospital may charge different prices for the same test based on its relationships with particular insurance companies. The study revealed that major insurance companies, who often can afford higher rates, actually get better deals from hospitals, while smaller insurance companies have to pay more for the same PCR test. Policyholders of these smaller insurance companies, in turn, may be charged higher premiums.

 

The study, led by John (Xuefeng) Jiang, Eli Broad Endowed Professor of accounting and information systems in the MSU Broad College of Business, analyzed commercial negotiated prices and cash prices across five major insurance providers and nearly 1,700 U.S. hospitals. Commercial prices are costs paid by private insurance companies, while a cash price is the upfront charge without a private provider.

 

Jiang and his colleagues found that among the disclosing hospitals, the median negotiated commercial price for a COVID-19 PCR test was $90, 1.8 times more than the Medicare reimbursement rate. Their research also showed that test prices under different insurance plans can vary greatly within the same hospital. On average, the difference in test price between the most expensive and least expensive insurance plan is $60. In addition, major insurance companies contracting with more hospitals had slightly lower median negotiated prices.

 

“COVID-19 PCR tests are a highly standardized and widely utilized routine procedure. It is surprising to see such large variations in prices. While it may be more costly for some hospitals to conduct the test, it is unclear why a hospital would charge different prices for patients with different insurance plans,” said Jiang.

 

“What we have found is only the tip of the iceberg for health care pricing challenges faced by private payers. Many of them have clearly left money on the table by not getting good prices,” said study co-author Ge Bai, former doctoral student in the MSU Broad College of Business and current professor of accounting at the Johns Hopkins Carey Business School.

 

The Hospital Price Transparency Rule, which went into effect in 2021, requires U.S. hospitals to disclose pricing information for shoppable services, including COVID-19 PCR tests. A shoppable health care service is one that a patient can schedule in advance.

 

“When you get gas for your car, you know the price before you fill up, and you can compare the cost of a gallon at different stations. But, for a lot of medical services, they do not give you your price first. The only time you get the price is when you’re billed after the service,” Jiang said.

 

Increased transparency allows for hospitals to effectively negotiate and partner with the insurance companies that are best for them. However, these negotiations remain a challenge, as the information made available by the Hospital Price Transparency Rule is often too difficult to understand.

 

Hospitals know insurance companies negotiate with different hospitals, but prior to the Hospital Price Transparency Rule taking effect, they wouldn’t have known how much an insurance company offered to a competitor. Knowing this information — and understanding what it means — can help hospitals negotiate more effectively with insurance companies.

 

Price transparency also provides patients with more information to search for the insurance provider and/or health care professional that fits their financial and medical needs.

 

"For the patient, if they know pricing ahead of time, maybe they can demand their insurance plan do a better job to get a lower price, because at the end of the day, they have to pay a higher premium. If the price that the insurance company negotiated with the hospitals is higher, then individuals within the insurance plan have to pay the cost,” Jiang said.

 

While the Hospital Price Transparency Rule has made it easier for commercial payers to compare costs, Jiang said commercial payers interested in controlling their spending should understand the limitations in insurance companies’ ability to negotiate lower prices.

 

“Prices for shoppable medical services vary widely, even for common tests like the COVID-19 PCR test," he said. "The way the U.S. health care system is structured, we rely on the market to solve the problem. But this doesn’t always work, and health care costs remain a concern. We hope our study can bring some awareness to the need for even greater transparency among private health care insurers.”



Jiang, Bai and their colleagues have conducted a similar study showing health insurance companies may be overpaying for common radiology services, leading to higher costs for patients and providers. They also summarized the overall findings from multiple studies that use data from the Hospital Price Transparency Rule.

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