Capping high provider prices
- Collection:
- Health Policy and Services Research
- Series Title(s):
- State strategies for controlling health care costs implementation guide
- Author(s):
- Hwang, Ann, author Bailit, Michael, author
- Contributor(s):
- Commonwealth Fund, issuing body.
- Publication:
- [New York, New York] : The Commonwealth Fund, January 2023
- Language(s):
- English
- Format:
- Text
- Subject(s):
- Capitation Fee Cost Control Health Care Costs State Government United States
- Genre(s):
- Technical Report
- Abstract:
- Provider price increases are a leading driver of health care cost growth in the commercial market. Prices are negotiated between each insurer and provider organization, and commercial insurer payments to hospitals have been shown to vary tremendously--in some cases, running many times higher than Medicare payments. Moreover, different hospitals can charge dramatically different prices for the same service. Even within the same hospital, a service can have a range of prices, depending on who is paying. Provider price caps seek to establish some modicum of pricing discipline, especially for hospitals or other providers that charge the most. Price caps can be applied to a narrow set of services or to a more comprehensive set of services. They can be applied to only specific types of insurance or applied more broadly across the insurance market. While taking differing approaches, Montana and Oregon have both achieved limits on hospital prices in their public employee health benefit programs: (1) Starting in 2016, Montana’s state employee health plan implemented Medicare reference-based pricing. Montana used its negotiating leverage to limit hospital payments in its state employee benefit plan to between 220 and 225 percent of Medicare fees for inpatient services and 230 to 250 percent of Medicare for outpatient services. This was estimated to save the state $47.8 million over three years. (2) In 2017, Oregon passed legislation that caps hospital prices in its public employee benefit program. Services and supplies provided by in-network providers are paid at up to 200 percent of the Medicare rate, and those provided by out-of-network providers are paid at up to 185 percent of the Medicare rate. A preliminary analysis estimates $81 million in annual savings. Looking beyond public employee benefit programs, in Massachusetts in 2022 then-Governor Charlie Baker proposed legislation to cap payments for “unforeseen” out-of-network services at the carrier’s median in-network rate. The state’s Health Policy Commission has also proposed capping provider prices and price growth and adopting a default out-of-network payment rate. Because price caps directly affect a key driver of health care spending and spending growth, they are likely highly effective in constraining spending, though the magnitude of their impact will vary depending on how broadly and how aggressively they are applied. Both Montana and Oregon saw significant savings in their public employee benefit program related to their pricing strategies. While other states have not yet implemented broader price caps, several national proposals to institute price caps across the commercial market have been modeled, and all suggest that significant savings are possible. For example: (1) Limiting out-of-network payments to 125 percent of Medicare payments is estimated to yield an annual reduction of $108 billion to $124 billion in nationwide hospital spending. (2) Capping these out-of-network payments at 200 percent of Medicare payments is estimated to reduce annual hospital spending by $56 billion to $94 billion. (3) Capping commercial hospital prices at five times the 20th percentile price is estimated to save $38 billion annually, reducing commercial health care spending by about 3.2 percent and total health care spending by about 1.0 percent. The following steps present a sequence of important decisions states must work through. States should be prepared for a process that is both iterative, where questions may need to be revisited over time, and dynamic, to account for new questions and new answers that may emerge. Step 1. Establish goals for adopting price caps and confirm readiness to proceed. Step 2. Determine what authority the state will need for capping provider prices. Step 3. Determine which prices will be capped. Step 4. Define the level of the cap. Step 5. Take steps to mitigate gaming the system. Step 6. Establish strategies for monitoring and overseeing programs. Step 7. Identify and secure the analytic resources needed. Step 8. Design, implement, monitor, and evaluate the program with equity at the center. Step 9. Engage stakeholders throughout design, implementation, and evaluation.
- Copyright:
- Reproduced with permission of the copyright holder. Further use of the material is subject to CC BY license. (More information)
- Extent:
- 1 online resource (1 PDF file (8 pages, 1 unnumbered page)).
- NLM Unique ID:
- 9918540687606676 (See catalog record)
- Permanent Link:
- http://resource.nlm.nih.gov/9918540687606676