Oregon’s first-in-the-nation hospital price cap cut costs without comprising care

(Press-News.org) PROVIDENCE, R.I. [Brown University] — As health care costs continue to soar across the U.S., a growing number of states are setting limits on how much hospitals can charge. These policies, known as hospital payment caps, aim to curb spending by tying hospital prices to Medicare rates, which are typically far lower than what commercial insurers pay.

In 2019, Oregon became the first state to implement such a cap, applying it to the health plan covering state employees. Under the policy, hospitals cannot charge the state more than double the Medicare payments for the same service. For example, if Medicare pays $1,000 for a service, the state health plan would pay no more than $2,000 under this cap. 

The move was expected to save money for taxpayers and reduce premiums for workers, but the policy also raised alarms about whether hospitals would absorb the losses by cutting staff, reducing services or delivering lower-quality care. A new study led by researchers from Brown University’s Center for Advancing Health Policy through Research bolsters findings that those fears are unfounded, at least so far in Oregon.

“The analysis showed that Oregon's payment cap had a minimal impact on hospital finances, and through that, hospital operations and patient experience,” said the study’s lead author Roslyn Murray, an assistant professor of health services, policy and practice at Brown’s School of Public Health. “Our research shows that targeting the highest, most excessive prices that are being paid to hospitals through price caps can be a meaningful way to improve health care affordability, while still allowing hospitals to generate a margin on patient care and keep their doors open.”

The researchers looked at financial, staffing and patient experience data from 22 Oregon hospitals affected by the cap and compared them to similar hospitals in other states from 2014 through 2023. This included financial metrics like revenue and operating margins, as well as staffing levels and service availability and responses to federally collected patient satisfaction surveys.

Published in Health Affairs, the study supports earlier estimates that these policies target only the highest prices being paid and only apply to a small share of hospitals’ commercially insured patients. As a result, the savings from state employee plan payment caps represent a small portion of hospital revenue and have only a modest effect on operating margins.

Researchers found that while hospital revenue in Oregon dropped by an average of $2.6 million after the cap went into effect in 2019, the change wasn’t statistically significant and operating margins stayed flat. Meanwhile, some patient satisfaction scores — such as communication with nurses and doctors — saw slight improvements. For instance, patients who said nurses and doctors communicated well rose by 1.4% and 1.2% respectively. More patients also said staff explained medications better and that they got help as soon as they needed it.

“What this may mean is that prices greater than the cap represent provider rents — such as extra charges based on hospitals’ market power or name recognition — and hospitals may be able to receive lower prices with reduced profitability and still cover their costs and keep running smoothly,” Murray said. “It also suggests excessively high and increasing prices being paid to hospitals do not represent things that people value.”

The findings come as more states consider similar reforms aimed at lowering insurance premiums and out-of-pocket costs without sacrificing care. This year alone, Colorado, Indiana, Montana and New York introduced bills to cap hospital prices for certain services or patient populations, even at the commercial level.

“We’re seeing massive increases in premiums each year as a way to try to address the rising costs of health care,” Murray said. “This is a way that states can try to manage some of those rising cost pressures, which are primarily coming from high hospital prices.”

Previous research has shown these higher prices are not necessarily correlated with better quality or because care is more expensive to provide, but largely because some hospitals have more power to set higher prices. These are costs that ultimately come out of worker paychecks and strain household budgets, Murray said.

By capping in-network payments at 200% of Medicare payments and out-of-network payments at 185%, Oregon generated an estimated $50 million in annual savings and reduced out-of-pocket spending by 9.5%. Over 27 months, the researchers calculate Oregon saved $107.5 million, which was equivalent to 4% of plan spending.

Importantly, Murray noted, all hospitals there remained in-network, demonstrating that well-designed payment caps can achieve significant savings without compromising access to care.

In a study published last year, the researchers calculated that if adopted nationwide, hospital payment caps could save other states  about $150.2 million per state based on data from 46 states and Washington, D.C. The savings would have a nominal impact on hospital operating margins and ranged from $2.7 million in Rhode Island to $933 million in California according to the analysis, which examined data from multiple sources, including the National Academy for State Health Policy Hospital Cost Tool.

“The thought is that all individuals that receive health insurance through their employer can realize some of these savings and we, as a country, can improve health care affordability,” Murray said.

END