Some Houston hospitals are charging private insurers up to 3x what Medicare pays as deductibles rise

Hospitals in Texas on average are charging employer-sponsored insurers more than triple the amount that Medicare would pay, raising health care costs for companies and their workers, according to a new analysis.

Rates set by Medicare, the government insurance program for the elderly, are often used as a benchmark for health care costs. Hospitals typically charge private insurers higher rates to make up for shortfalls from lower reimbursements paid by Medicare and Medicaid, the government program for the poor. But the analysis found that three of the Houston area’s biggest hospitals — Houston Methodist, Memorial Hermann, and HCA Houston Healthcare Clear Lake — are billing insurers far more than what they need to break even — in fact double.

The findings are based on data from the RAND Corporation, a California think tank, the National Academy for State Health Policy, a Washington think tank, and Sage Transparency, a price comparison tool using data from RAND, the federal government and other sources. The data, from 2019, is the most recent available.

The findings were presented Tuesday by the Houston Business Coalition on Health, a group that advocates for affordable health care prices for employers. The analysis examined billing practices at Houston’s four major health system’s flagship hospitals: Houston Methodist, Memorial Hermann, the HCA Houston Clear Lake location, and Baylor St. Luke’s.

Methodist, Memorial Hermann and HCA each charged insurers more than 250 percent over Medicare rates. Baylor St. Luke’s charged 216 percent over Medicare, according to RAND data.

Memorial Hermann is charging insurers about double what is needed to break even, and HCA Healthcare Clear Lake location was charging more than double, according to a National Academy for State Health Policy analysis. Houston Methodist charged roughly 75 percent more than breakeven, and St. Luke’s about 50 percent more.

A Memorial Hermann spokesperson said there is room for improvement with health care prices, but is unfair to use Medicare as a comparison point.

“It is disappointing that, yet again, researchers are choosing to handpick data points that are skewed and not reflective of the overall care we provide,” the spokesperson said. Medicare reimbursement is a flawed and inappropriate benchmark to use for commercial payments, as Medicare payments do not cover the cost of services provided.”

The other hospitals couldn’t immediately be reached for comment.

Maureen Hensley-Quinn, a senior program director at the National Academy for State Health Policy, said it’s not reasonable to expect hospitals to charge just enough to break even — they need reserves to buffer them against unexpected events, such as a pandemic. “But,” she added, “it shouldn’t be double of Medicare.”

This mean employers are paying more than they could be, Christopher Whaley, a policy researcher at the RAND Corporation said. Generally, when employers have to pay more for health insurance, employees pay higher premiums and deductibles.

Deductibles have increased by 162 percent in the last decade, according to the Rand Corporation. Employers fund health insurance for 160 million people roughly half of Americans.

“We’re entering a new age of transparency and it’s clear from these tools that pricing is not directly correlated with quality, but rather on what the market will bear,” said Chris Skisak, executive director of the Houston Business Coalition on Health. “While this is a cause for concern, there are opportunities for change and these resources will enable employers and health plans to negotiate future contracts to select health systems that offer the best value — the highest quality at the lowest costs.”

The issue of how much hospitals charge reaches beyond Houston and Texas. The RAND Hospital Price Transparency Report examines claims data from employers, private insurers, and 11 state databases encompassing for more than 4,000 hospitals and 4,000 additional ambulatory surgical centers across 49 states and the District of Columbia. Hospitals, on average, are charging employers almost three times what they are charging for the same services under Medicare.

The Houston Business Coalition on Health. said it will soon post the results for all Houston area hospitals on its website.

This story will be updated.