Contact: Roslyn C Murray
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Hospital prices for commercially insured people have risen steadily during the past few decades and have been identified as the key contributor to rising health care spending in the US.1,2 On average, commercial insurers paid hospitals 235 percent of what Medicare paid for inpatient and outpatient facility services in 2020.3 Prices for the same service also have been found to vary widely within and across markets.1,4–6 In the absence of strong federal action, states have taken a leading role in adopting new strategies to address high and variable prices. A key example is legislation in Oregon, authorized by the passage of Senate Bill 1067 in 2017, which seeks to control price growth by limiting hospital facility prices to 200 percent of Medicare payments for in-network and 185 percent of Medicare payments for out-of-network services.7 Implemented in October 2019 and January 2020, it applies only to the members of Oregon’s state employee health insurance plan, which includes state educators and public employees.
The impact of Oregon’s hospital payment cap has been heretofore unknown. Some studies suggest that policies that directly regulate hospital prices may be the most promising approach to containing healthcare spending.8,9 Yet success depends on a variety of factors, including where the cap is set. If the cap is set below hospitals’ marginal costs, hospitals may respond by turning away patients, closing service lines, or shutting down altogether. If the cap is set too high, most hospitals will already be in compliance, and the state will not experience savings. Further, hospitals with prices below the cap may respond by increasing their prices, viewing the limit as a signal of insurers’ maximum willingness to pay.10–12 Understanding the effect of Oregon’s hospital payment cap thus has important implications for states pursuing similar policies.
In this context, we used 2014–21 commercial claims data from Oregon’s All Payer All Claims Reporting Program to examine whether Oregon’s hospital payment cap led to reduced price levels and changes in price variation for enrollees in Oregon’s state employee plan.