Researchers: Hospital Payment Caps Could Safely Save Millions

A team of researchers at Brown University, writing in the December issue of Health Affairs, is arguing that state employee health plans could institute payment caps that would save a great deal of money while not harming hospitals.

Roslyn C. Murray, Christopher M. Whaley, Erin C. Fuse Brown, and Andrew M. Ryan, writing under the headline “Hospital Payment Caps Could Save State Employee Health Plans Millions While Keeping Hospital Margins Healthy,” assert that “State employee health plans are consuming an ever-larger portion of state budgets because of rising health insurance premiums. Often the largest purchaser of commercial health insurance in their state, state employee health plans possess a unique opportunity to implement cost containment strategies,” they write.

Roslyn C. Murray, Ph.D., M.P.P., is an assistant professor of health services, policy and practice in Brown University’s School of Public Health; Christopher M. Whaley is associate director of the Center for Advancing Health Policy through Research at Brown; Erin C. Fuse Brown, J.D., M.P.H., is a professor of health services, policy and management in the School of Public Health at Brown; and Andrew Michael Ryan, Ph.D., is director of the Center for Advancing Health Policy through Research, at Brown.

Indeed, the researchers state, “This study estimated potential savings from hospital payment caps among state employee health plans and the impact on commercial hospital operating margins. Using data from forty-six states and Washington, D.C., we estimated that payment caps set at 200 percent of Medicare rates would have saved state employee plans an average of $150.2 million per state in 2022 (0.35 percent of state expenditures), leading to aggregate savings of $7.1 billion nationally. Commercial hospital operating margins would remain healthy under this cap, falling from an average of 42.7 percent to 41.7 percent. Payment caps are a promising purchasing strategy for states to generate substantial reductions in health care spending.”

The researchers cite the experience of the state of Oregon, writing that “One key example is the Oregon state employee plan’s implementation of a hospital payment ap starting in October 2019. Oregon’s legislation limits hospital payments to 200 percent of Medicare rates for in-network inpatient and outpatient facility services or 185perent of Medicare rates for out-of-network services. The policy generated substantial savings, amounting to $107.5 million, or 4 percent of plan spending in the first twenty-seven months of implementation, with all hospitals remaining in network.”

What’s more, the researchers note, “Hospital payment caps have the potential to generate substantial savings for state employee health plans, with limited impacts on hospitals’ commercial operating margins. Although our primary analysis focused on state employee plans,” they write, “payment caps set at comparable levels could generate significant savings if extended to all commercially insured people within a state. However,” they concede, “a broader application might result in a more pronounced impact on hospitals’ finances.”

In the end, the researchers conclude that “Our study suggests that state employee plans can use hospital payment caps to alleviate fiscal pressures with potentially limited impact on hospitals. A cap set at 200 percent of Medicare prices would generate substantial savings for many states without a major impact on hospital finances. Tailoring caps to specific classes of vulnerable hospitals could address concerns about hospitals’ financial stability while maintaining savings for states.”