Hospital payment cap slashes prices in Ore.

March 14, 2024 - An effort to reduce healthcare spending in Oregon has successfully lowered hospital prices and variation, according to a recent study in Health Affairs.

Oregon implemented a cap on hospital prices in October 2019 and January 2020, when it applied the cap to members of the state’s employee health insurance plan. The policy capped hospital facility prices to 200 percent of Medicare payments for in-network and 185 percent of Medicare payments for out-of-network services.

Using commercial claims data from Oregon’s All Payer All Claims Reporting Program between 2014 and 2021, researchers from the University of Michigan and Brown University found that inpatient and outpatient prices dropped over the course of the policy’s implementation.

They found that outpatient price levels dropped by 25.4 percent over the course of the first 27 months of the policy, declining by $130.50 per procedure. This was a significant difference, which was not observed across the entire period for inpatient price levels.

The hospital payment cap was not associated with a significant reduction in inpatient facility prices across the period, with just a $901.9 per admission decrease. However, researchers noted that the policy led to a significant reduction during the second year of implementation, with prices falling by $2,774.20 per admission at that time.

In total, they estimated about $107.5 million in savings to the state employee plan during the first two years of the hospital payment cap policy. That equated to approximately 4 percent of the plan’s total spending.

Additionally, the study showed that price variation decreased in the state as hospitals moved to the payment limit set in the policy. Price variation is a widespread issue, with hospital prices varying within states, regions, and even within the same hospital.

Researchers said the findings can help other states implement hospital price caps, which experts argue are the most promising approach to containing rising healthcare costs.

“Hospital payment caps can be successful in targeting outlier hospital payments and generating savings for the state. But success depends on multiple factors, including what is used as the benchmark, where the cap is set, and how compliance is assessed and enforced,” they wrote in the study.

For example, caps set below hospitals’ marginal costs may result in hospitals turning away patients or closing service lines. In contrast, caps set too high will not lead to savings since most hospitals will be in compliance. Setting a cap based on Medicare rates may be an option with modifications for location, facility, and patient factors.

Researchers also stated that Oregon’s policy was successful in lowering outpatient rates because outpatient prices were typically far above the cap prior to implementation. However, inpatient prices were below the cap for almost half of all hospitals, leading to mixed results for inpatient price levels.

So far, Oregon is the only state to use a hospital payment cap policy to lower healthcare spending, although other states have experimented or are considering a similar policy.