As health care costs continue to soar in the US, a growing number of states are setting limits on how much hospitals can charge. These policies, known as hospital payment caps, aim to contain costs by tying hospital prices to Medicare rates, which are typically much lower than what commercial insurers pay.
In 2019, Oregon became the first state to implement such a limit, applying it to the health plan that covers state employees. Under the policy, hospitals cannot bill the state more than twice what Medicare pays for the same service. For example, if Medicare pays $1,000 for a service, the state health plan won’t pay more than $2,000 below that cap.
The move was expected to save money for taxpayers and lower premiums for workers, but the policy also raised alarms about whether hospitals would absorb the losses by cutting staff, reducing services or providing lower-quality care. A new study led by researchers from Brown University’s Center for Advancing Health Policy Through Research reinforces findings that those fears are unfounded, at least so far in Oregon.
“The analysis showed that Oregon’s payment cap had minimal impact on hospital finances and, through that, on hospital operations and the patient experience,” said lead study author Roslyn Murray, assistant professor of health services, policy and practice at Brown’s School of Public Health. “Our research shows that targeting the higher, more exorbitant prices paid to hospitals through price caps can be a meaningful way to improve health care affordability while allowing hospitals to make room for patient care and keep their doors open.”
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 to 2023. They included financial metrics such as revenue and operating margins, as well as staffing levels and availability of services and responses to federally collected patient satisfaction surveys.
Published in Health Affairs, the study supports previous estimates that these policies target only the highest paid rates and apply to only a small share of commercially insured hospital patients. As a result, savings from state employee plan payment caps represent a small portion of hospital revenue and have only a modest impact on operating margins.
The researchers found that while Oregon hospital revenue fell by an average of $2.6 million after the cap went into effect in 2019, the change was not statistically significant and operating margins remained stable. Meanwhile, some patient satisfaction scores — such as communication with nurses and doctors — saw small improvements. For example, patients who said nurses and doctors communicated well increased by 1.4% and 1.2% respectively. More patients also said that staff explained medicines better and that they got help when they needed it.
“This may mean that prices greater than the cap represent provider rents — such as additional fees based on hospitals’ market power or name recognition — and hospitals may be able to get lower prices with reduced profitability and cover their costs and continue to operate smoothly,” Murray said. “It also suggests that the exorbitant and rising prices paid to hospitals do not represent things that people value.”
The findings come as more states are considering similar reforms aimed at reducing premiums and costs without sacrificing care. This year alone, Colorado, Indiana, Montana and New York have introduced bills to cap hospital prices for certain services or patient populations, even at the commercial level.
“We see huge increases in premiums every year as a way to try to deal with the rising cost of health care,” Murray said. “This is one way that states can try to manage some of these rising cost pressures, which come primarily from high hospital prices.”
Previous research has shown that these higher prices are not necessarily associated with better quality or because care is more expensive, but mainly because some hospitals have more power to set higher prices. These are costs that ultimately come out of workers’ wages and strain household budgets, Murray said.
By limiting in-network payments to 200% of Medicare payments and out-of-network payments to 185%, Oregon generated an estimated annual savings of $50 million and reduced out-of-pocket costs by 9.5%. Over 27 months, the researchers estimate that Oregon saved $107.5 million, which was equivalent to 4 percent of the plan’s costs.
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, researchers estimated that if adopted nationally, hospital payment caps could save other states about $150.2 million per state based on data from 46 states and Washington, DC. Cost tool.
“The thinking is that all people who get health insurance through their employer can realize some of these savings, and we, as a country, can improve the affordability of health care,” Murray said.
