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Stanford study shows Medicare Advantage plans pay hospitals less than traditional Medicare

There's much debate among health policy researchers about the performance of the Medicare Advantage plans, which are sold and run by private insurance companies but regulated by the government to provide Medicare benefits.

Enrollment in these plans — mostly commonly HMOs and PPOs — grew from 5.4 million consumers in 2005 to 16.8 million in 2015, or about 31 percent of the Medicare population, according to the Kaiser Family Foundation.

Some argue the private alternative to the traditional insurance program for seniors is less expensive than the public programs; others say it’s just the opposite. And still others argue that that the government overpays for people enrolled in private plans since traditional Medicare could have covered these patients for less money. But there previously hadn't been a broad analyses of the prices actually paid by these plans.

Now, Stanford researchers have conducted one of the largest systematic analyses of the prices that Medicare Advantage plans pay to doctors and hospitals, relative to the prices paid by Medicare fee-for-services or commercial plans.

The researchers, whose work appears in an online article in Health Affairs this week, found Medicare Advantage plans actually pays 8 percent less to hospitals for their services than traditional Medicare. If you make adjustments for the smaller, cheaper network of hospitals that Advantage plans allow their patients to use, the program pays 5.6 percent less to hospitals than FFS Medicare.

“The surprise is that Medicare Advantage is paying hospitals less,” said lead author Laurence Baker, PhD, a professor of health research and policy at Stanford Medicine and a senior fellow at the Stanford Institute for Economic Policy Research.

“That 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,” Baker, who's also a core faculty member at Stanford Health Policy, told me. “It seems they are negotiating better prices.”

Either way, the savings or losses are always going to impact the patient.

“If you’re looking at it as a question of policy, this may be useful,” Baker said. “In the long run, we could pay less taxes to support the Medicare program and maybe people in Medicare Advantage would get to share in those savings.”

Previously: When physicians work together, costs can riseHealth-care policy expert Arnold Milstein weighs in on Medicare's plan to prioritize "value over volume" and Competition keeps health-care costs low, Stanford study finds

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