An Exploration of Inpatient Maternity Rates in Price Transparency Data: How One Payer Negotiated the Lowest Rates in the Region

By Gregory Mottet

Health Watch, January 2025

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This study explores the inpatient maternity rates negotiated by four large commercial payers in the state of Washington. Payer price transparency data suggests that one carrier gained a competitive advantage by negotiating rates well below those of other payers. Aggregate hospital reimbursement is not explored in this study; however, a deeper exploration shows the rates negotiated for maternity admits are lower than initially suggested, raising the possibility of lower costs in aggregate.

Further, the price transparency data strongly suggests the lower-rate payer aligned rates with the Newborns’ and Mothers’ Health Protection Act (NMHPA) of 1996. This study illustrates how the payer consistently negotiated lower rates for NMHPA minimum-stay scenarios. The study does not explore whether the payer applied prior authorization for extended stays to increase the proportion of admits falling within such scenarios.

The study demonstrates price transparency data as a useful resource in understanding how competitors are negotiating with the same providers and the levers used to achieve lower rates. It should not be taken as a suggestion for other payers to follow suit.

Data Specifications

The underlying data was acquired from payer machine-readable files (MRFs) accessed in December 2024 and filtered down to the records required for the study:

  • Delivery Medicare Severity Diagnosis Related Groups (MS-DRGs), including both normal and cesarean section (C-section)
  • Top 20 Washington hospitals by Medicare allowed volume
  • The flagship preferred provider organization (PPO) networks of four large commercial carriers

Duplicate rates were removed.

Among these carriers and hospitals, the large majority negotiated inpatient rates based on MS-DRG contracts. Some of the top 20 hospitals were noncontracted or outside the carrier’s service area. However, for each carrier, a minimum of 15 hospitals were in the service area with an MS-DRG contract in place. Ideally, the study would consider contracts on all payment models, but it was deemed unlikely that the inclusion of these additional contracts would materially affect the findings of the study.

The accuracy of price transparency data was heavily relied upon in this study. Additionally, some of the conclusions depend on the interpretation of comments within price transparency data. Consequently, the conclusions in this article depend on the degree to which the underlying data and interpretations are correct.

Other data sources, such as commercial allowed volume by facility and DRG, could have aided the study had they been available. Instead, a simplifying assumption of equal weight among the top facilities was used.

First Look at Inpatient Maternity MS-DRG Rates

The distribution of MS-DRG delivery rates, shown in Figure 1, reveals a competitive edge for one payer specifically. Payer 4 achieved the lowest median rate of $16,938 per admit, significantly below the range of $19,825 to $22,000 achieved by other payers.

Figure 1
Delivery MS-DRG Rate Distributions (Normal and Cesarean)
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It is clear from the distributions that Payer 4 delivery rates are generally lower. However, Figure 1 does not conclusively prove that Payer 4 negotiated the lowest rates in the region. The medians aggregate across facilities and DRGs. Since each rate will occur with a different frequency, and each payer can submit data in a different way, it is possible for mix effects to create an advantage in appearance only. The question must be asked: did Payer 4 really negotiate the lowest rates in the region? Understanding how each payer submitted data is a helpful exercise in determining the answer.

Understanding the Data by Reviewing Single DRGs at Providence Everett Medical Center

One simple thing we can do to isolate true competitive differences is to look at a single DRG to understand how payers report their data. By inspecting a single DRG, we remove the effect of DRG mix. The following two DRGs are the lowest acuity normal and cesarean DRGs and are good targets for study:

  • DRG 807—Normal delivery without complications, comorbidities or additional procedures
  • DRG 788—Cesarean section without complications, comorbidities or additional procedures

Further, by selecting a single facility, we remove the effect of facility mix. Providence Everett Medical Center is one of the larger facilities among the top 20, providing a good target for further investigation.

Tables 1 and 2 show the data reported by each payer. In both tables, we can see that:

  • Payers 1, 2 and 3 all submitted one rate per DRG.
  • Payer 4 submitted two rates, a lower rate and a higher rate roughly in line with others.

The additional information suggests the lower rate applies to short stays of either two days for normal deliveries or four days for C-sections. It appears the payer may be negotiating lower rates when the length of stay falls within a certain window. The remainder of the information references the room-and-board revenue code range, as would be expected with inpatient stays.

Table 1
Normal Delivery (DRG 807) Rates at Providence Everett Medical Center
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Table 2
C-Section (DRG 788) Rates at Providence Everett Medical Center
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Expanding to all DRGs, we see that Payer 4 negotiated one low rate applying to all normal deliveries and another low rate applying to all cesarean deliveries. In other words, the lower rates of $8,791 and $18,868 are reported for all normal and cesarean deliveries at Providence Everett, respectively. While we would expect the frequency of short stays to decline for higher acuity admits, it would appear the lower rates apply to short stays, regardless of DRG acuity. Table 3 summarizes all Payer 4 records at Providence Everett, showing short-stay rates reported across all maternity DRGs.

Table 3
Payer 4 Maternity DRGs at Providence Everett Medical Center
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With a greater understanding of how this data is being reported by each payer, we can now begin to look across facilities to confirm the pattern and draw conclusions. However, before going any further, it’s helpful to understand the notes submitted by Payer 4.

Alignment with Newborns’ and Mothers’ Health Protection Act (NMHPA) of 1996

The additional information provided by Payer 4 aligns with the minimum stays required under NMHPA. This regulation mandates[1]:

  • Minimum stays: Health plans that offer maternity coverage must provide at least a 48-hour hospital stay following a vaginal delivery or a 96-hour stay after a C-section.
  • Early discharges: The mother and newborn can only be discharged before these minimums if the attending health care provider makes the decision, after consulting with the mother.
  • No prior authorization requirement: Health insurance issuers cannot require prior authorization for these minimum hospital stays (48 or 96 hours). However, they may require prior authorization for extended stays beyond the minimum.
  • No benefit reduction for minimum stays: Health insurance issuers may not reduce benefits for the initial minimum stay under any circumstances. However, the benefits for coverage beyond the minimum stays may be subject to both prior authorization and different benefits than the initial minimum stay.

Confirming the Pattern Across Facilities

Combing through the data from the remaining hospitals, it is clear that the pattern shown in Table 3 is repeated. In rare cases, other payers follow Payer 4’s example with a higher rate in line with usual commercial MS-DRG reimbursement and a lower rate.

Across the 20 hospitals—while not all were in-network or in service area for each payer—the prevalence of multiple rates was significantly higher for Payer 4. Payer 4 reported multiple rates at 15 facilities. In contrast:

  • Payer 1 never negotiated multiple rates.
  • Payer 2 negotiated multiple rates at two facilities.
  • Payer 3 negotiated multiple rates for some delivery DRGs at one facility.

For the remaining facilities, each payer submitted either a single rate or no DRG rate at all.

Payer 4 Negotiated the Lowest Maternity Rates Overall

In Table 4, short-stay rates were blended with extended-stay rates to develop an average rate under the assumption that 70% of admits were short stays. For these calculations, since no payer reported more than two rates for a single DRG and facility, the lower rates were assumed to be short-stay rates, and the higher rates were assumed to be extended-stay rates. Payer 4 was the only payer that explicitly confirmed this assumption in the notes provided. However, the frequency with which the other payers submitted multiple rates was low enough that if the assumption were incorrect, the influence on the analysis would be minimal. For the purpose of determining whether Payer 4 negotiated lower delivery rates, the assumption is appropriate.

Under these assumptions, Payer 4 negotiated rates ranging from:

  • 21% to 43% lower for normal deliveries
  • 11% to 38% lower for C-sections

Overall, these results are driven by the prevalence with which Payer 4 negotiated lower rates for stays falling within the NMHPA minimums.

Table 4
Payer 4 Advantage by DRG with 70% Short-Stay Assumption
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Did Payer 4 Achieve Lower Aggregate Reimbursement?

Table 4 shows that Payer 4 negotiated the lowest delivery rates in the region by negotiating rates aligned with NMHPA minimum stays. However, whether Payer 4 was able to use this strategy to lower overall facility reimbursement remains in question. If they negotiate lower maternity rates but higher rates overall, they’ve won the battle but lost the war. Typically, a facility that accepts lower reimbursement in one area will demand higher reimbursement in another to offset the loss. This case may be an exception in that shorter stays place a lower burden on the hospital’s resources, in which case they may be willing to accept lower reimbursement in aggregate. On the other hand, if shorter stays result in unoccupied beds, hospitals might perceive this as a loss of potential revenue.

How to Achieve Lower Aggregate Reimbursement with Price Transparency Data

While this study may be interesting, it’s not at all the type of analysis I recommend payers prioritize first. The highest return on investment (ROI) activity with competitor price transparency data is aligning your analytics with negotiation cycles, so that at the point of negotiation, competitor contracts are clearly understood to the greatest extent possible. Ideally, these terms will also be modelled on your own claims alongside your own terms. However, this can be a major exercise, especially when other payers use a different reimbursement methodology.

By focusing first on efficiently extracting competitor terms for both facilities and professional groups, payers can get a quick, high-level view of the competition. Often, this is enough to know whether there’s a large competitive gap. If so, it’s worth the extra time to model the competitor’s contract on your own data to measure just how large the gap is. Even for payers with a relatively strong network, the chances are good that with a few other competitors, someone else has a better contract. If you also bring more volume and easier prior authorization requirements, there’s a strong argument for better rates in aggregate.

By bringing this information into every negotiation, payers can start to close competitive gaps and achieve better overall network performance.

Conclusion

Price transparency data is the most exhaustive source of information available for understanding strengths and weaknesses against competitor networks. Previously, the best sources of competitive intel were industry discount studies and coordination of benefits (COB) claims. Industry discount studies didn’t have sufficient granularity, and their weakness was that they focused too much on the discount, which isn’t necessarily a reflection of the underlying allowed amounts. Information extracted from COB claims was also helpful but rarely provided the level of information required to understand detailed carve-out terms. In contrast, price transparency data offers a view that is comparatively exhaustive and, in many cases, can provide an extensive set of terms negotiated by competitors.

Regardless, the study illustrates that it’s important to know what your competitors are doing. And your competitors’ price transparency files offer the best available view of where they stand and the moves they make. By harnessing this data source, health care economics teams can elevate their competitive intelligence and move health care forward by making networks more competitive across the country.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.

Gregory Mottet, FSA, is the founder of Vairate. Greg can be reached at greg@vairate.com.

Endnote


[1] Internal Revenue Service, Employee Benefits Security Administration and Centers for Medicare & Medicaid Services, “Final Rules for Group Health Plans and Health Insurance Issuers Under the Newborns’ and Mothers’ Health Protection Act,” Federal Register, Oct. 20, 2008, https://www.federalregister.gov/documents/2008/10/20/E8-24666/final-rules-for-group-health-plans-and-health-insurance-issuers-under-the-newborns-and-mothers.