By Erica Hahn, Abigail Knapp, and Kennah Watts
U.S. well being care spending is quickly rising, pushed primarily by excessive costs that proceed to outpace the speed of inflation. To curtail spending development and enhance well being care affordability, states have begun to make use of methods that set, cap, or restrict development of hospital costs. On this weblog, we describe totally different state approaches to cost regulation. For extra info on which states at present regulate hospital costs and the insurance policies they select, discover CHIR’s lately printed interactive maps detailing state oversight of hospitals.
Background: Understanding Worth Regulation
In the previous few a long time, rising consolidation within the well being care system has given hospitals and well being programs an outsized benefit in worth negotiation with business insurance coverage. This consolidation has led to larger costs, notably within the hospital setting, with out commensurate good points in high quality or effectivity. Worth regulation reforms thus provide alternatives to enhance affordability for sufferers, whereas fostering hospital competitors over high quality as an alternative of costs.
Relying on their coverage objectives and political atmosphere, states might select amongst a number of approaches to cost regulation. These insurance policies can apply to suppliers, payors, or each. We checklist and outline 4 varieties of worth regulation under:
- Worth development caps constrain the general price at which hospital costs can enhance. These caps may be tied to exterior benchmarks, such because the Shopper Worth Index (CPI) which measures common inflation, or set as a hard and fast most development price laid out in statute or regulation. Rhode Island and Delaware have carried out worth development caps to regulate the year-over-year worth development.
- Reference pricing units reimbursement charges tied to a specified benchmark, which is commonly outlined as a a number of of Medicare’s fee-for-service charges. In some fashions, these benchmarks set the value the payors pay; in others, these benchmarks function as a worth cap for suppliers. Reference pricing usually targets particular payor teams, comparable to State Well being Worker Plans (SEHPs), as demonstrated by reference pricing initiatives in Oregon, Washington, and West Virginia.
- Worth caps impose an higher restrict on how a lot suppliers cost. Whereas worth caps may be tied to an current reference price comparable to Medicare, they will also be listed to nationwide or native common negotiated costs, or different charges – all of which may be adjusted over time according to these benchmark charges. Within the 2025 legislative session, Vermont and Indiana grew to become the first states to put worth caps on hospital prices, slightly than the charges insurers pay, and thus apply worth caps to their state’s complete business market.
- Price setting establishes cost charges for companies. The federal authorities units reimbursement charges for Medicare fee-for-service funds, and the states set charges for Medicaid and different public applications. For instance, some states like Oklahoma and South Carolina set charges for his or her SEHPs. Maryland, which started setting hospital charges for all third-party payers in 1974, will proceed constructing on its a long time of expertise because it implements the AHEAD mannequin, which limits hospitals’ all-payer income below a worldwide funds method, in early 2026.
These worth regulation approaches should not mutually unique and distinct, as many states use reference costs to outline their worth caps. For instance, Vermont’s new program will use Medicare-based reference costs to set an higher restrict on what hospitals can cost. Moreover, inside these classes, states can additional tailor their approaches. We provide two such examples – Oregon and Rhode Island – to showcase how states can successfully comprise hospital spending by means of numerous worth regulation fashions.
Oregon and Rhode Island Supply Examples of Profitable Worth Regulation
Oregon and Rhode Island have taken distinct approaches to hospital worth regulation. Whereas Oregon selected to undertake reference charges for a particular market – the state’s SEHP – Rhode Island adopted a complete system that limits development of hospital funds for all state-licensed business insurance coverage.
Oregon’s Mannequin Employs Focused Reference Pricing to Cut back Hospital Spending
In 2017, Oregon handed laws to determine reference-based pricing for its Public Worker and Educator Profit Boards (PEBB/OEBB) — the state’s model of a SEHP — to scale back quickly rising spending for the state’s public worker well being advantages. The statute caps cost for all hospital companies at 200 p.c of Medicare cost charges for in-network hospitals, and 185 p.c of Medicare cost charges for out-of-network hospitals. To protect entry to hospital care in underserved areas, rural and important entry hospitals are exempt from this coverage. The SEHP saved an estimated $107.5 million, which represents 4 p.c of plan spending, within the first two years of the coverage.
Rhode Island’s Method Goals for Market-wide, Average Financial savings Over Time
In 2010, Rhode Island’s Workplace of the Well being Insurance coverage Commissioner (OHIC) adopted affordability requirements for state-licensed medical insurance plans. These requirements cap the quantity by which insurers can enhance their reimbursement charges for hospital companies to the inflation price, outlined as CPI-City plus one p.c. State-licensed plans that submit proposed premium will increase with hospital cost charges that exceed this cover should endure OHIC evaluate and the Commissioner might approve, disapprove, or modify charges. These price caps are additionally paired with different necessities for payer-provider contracts, together with high quality incentive funds and better funding in major care, all enforced by means of OHIC’s evaluate and approval of plan premium filings. This method has led to vital financial savings throughout the business market: Between 2012 and 2022, Rhode Island’s affordability requirements led to a mean 9.1 p.c discount in hospital costs within the business market relative to comparability states. Totally insured premiums decreased by greater than $1,000 per member per 12 months by 2022, and quarterly fee-for-service spending decreased by $76 per enrollee within the broader business market between 2010 and 2016.
Wanting Forward
Oregon and Rhode Island reveal that efficient worth regulation can take numerous kinds, highlighting that there isn’t any single blueprint for profitable worth regulation. Whereas Oregon used focused, benchmark-based reference pricing to attain fast, contained financial savings, Rhode Island pursued a broader regulatory framework throughout the business market, pairing development caps with enhanced price evaluate. These approaches reveal that states can draw on a spread of coverage designs to mitigate rising well being care costs. For extra concepts and examples of how states have designed and carried out insurance policies to restrict anti-competitive hospital pricing and enhance well being care affordability, discover our new interactive maps.