Commercial negotiated rates vary wildly, but they don’t correlate with quality.

If you work in benefits, health plan design, or employer strategy, this new white paper from the Purchaser Business Group on Health (PBGH) is required reading. It pulls back the curtain on healthcare price transparency in the commercial market, revealing just how erratic and random U.S. healthcare price variation really is.

Unlike previous regional studies, this analysis spans multiple geographies and specialties, marrying transparency in coverage and hospital price transparency data with claims, quality, and safety measurements. The result: a disturbing portrait of how commercial negotiated rates are essentially arbitrary. What’s worse, the rates have little connection to clinical performance.

As Elizabeth Mitchell, CEO of PBGH, puts it, “It is transformative because it enables employers to fulfill their fiduciary duties, hold vendors accountable, and drive down costs for their workforce.”

(Full disclaimer: I’ve only done a skim, versus a deep dive, on the evidence backing up the analysis. I welcome debate on methodology.)

Medicare uses structured adjustments (e.g. wage indexes) to reflect regional cost differences. But in the commercial world? It’s chaos. The paper notes, “commercial negotiated rates vary arbitrarily and drastically.” One striking example: a Cesarean section without complications cost $11,547 in Chicago but $27,199 in Northern California. This gap goes far beyond plausible differences in labor or facility costs.

Even today, many providers don’t share real dollar amounts. Instead, purchasers see “average regional discounts off billed charges.” Hardly transparent. The authors argue that true commercial price transparency would allow purchasers (employers, health plans) to negotiate more aggressively and push down prices.

Northern California is expensive for maternity services; Oregon is a hot spot for orthopedics...there’s no consistent pattern. That lack of logic undermines any attempt to benchmark or standardize pricing.

Perhaps unsurprising (but deeply concerning) the analysis, citing Embold Health, demonstrates minimal correlation between higher costs and better outcomes. In fact, some lower-priced providers outperform on standardized clinical measures.

The paper points to provider market power, brand loyalty, and positioning, not superior clinical outcomes. In short: reputation and negotiation leverage often matter more than results.

As healthcare prices soar, more cost burden gets shifted to the patient, and surprise medical billing (aka balance billing) continues in many places, despite legal bans. The stress on patients and employees is immense. We already know people skip care or avoid needed treatment to avoid debt.

This system cannot be “fixed” by tweaks. We need structural re-alignment: policies, enforcement, accountability. And in the meantime, employers and benefits leaders must be informed, strategic, and bringing the right partners around the table.

If you’re an employer or benefits leader reading this, the authors of the paper urge:

This white paper is yet another wake up call, as cost surges year after year impact all of us. As we wrote this week, it can’t continue to be absorbed forever. The U.S. healthcare commercial market is operating in the dark, where commercial negotiated rates can vary tenfold or more, and pricing bears little relation to outcomes.

As we head into conference season, let’s stay grounded in the data, and push for solutions, not just rhetoric. See you at HLTH in Las Vegas next week.