A recent analysis of hospital claims data by the RAND Corporation determined that commercial payment rates for Washington hospitals are among the lowest in the nation, when compared to Medicare payment for the same services. According to the analysis, the aggregate differential for Washington hospitals was the third lowest among the 49 states and District of Columbia. For Washington hospitals, average commercial payment was less than 175 percent of Medicare rate compared to the national average of 224 percent. In addition, health systems that include Washington hospitals were generally in the lower end of the range of commercial payment rates as a proportion of their Medicare payment rates compared to health systems nationally.
The relatively low rate for Washington hospitals is noteworthy given the massive underpayments they experience under the Medicare and Medicaid programs. To remain financially viable, hospitals must be able to subsidize their losses on Medicare and Medicaid though other revenues, including commercial payment. While Washington State has dramatically expanded its Medicaid program to now include more than 1.8 million enrollees, Medicaid hospital payment rates have not had a general increase in more than 20 years and the payment rates do not reflect increases to wages, rising drug costs, or other factors influencing the cost of care. Currently, Medicaid pays about 65 percent of the actual cost of providing hospital care to Medicaid enrollees, resulting in an aggregate loss of more than $1.4 billion per year.
While WSHA appreciates the work done to better understand differences in commercial payment among hospitals, we encourage more study and consideration of the impact of Medicaid underpayments and cost inputs such as labor and drugs on the overall cost of providing care.