PROVIDENCE - State employee health plans could save more than $7 billion across the U.S. by capping hospital payments to 200% of the Medicare rates in 2022, according to a study from researchers at Brown University's School of Public Health.
"States are under growing budgetary pressure due to rising health care spending, primarily through increases in hospital and drug prices," said Roslyn Murray, an assistant professor of health services, policy and practice at Brown who wrote the study. "Our findings show that hospital payment caps could save state employee health plans millions of dollars, helping ease budgetary strain without causing significant disruptions to hospitals."
Hospital payment caps are a way to limit the prices that hospitals can charge for their services. Capping payments at 200% of Medicare rates means the health plans would pay hospitals no more than twice the amount Medicare pays for similar services.
The study was led by researchers from Brown's Center for Advancing Health Policy through Research and builds on the team's study of Oregon, which implemented payment caps in 2019.
Oregon saved $107.5 million over 27 months - equal to 4% of plan spending - by capping in-network payments to 200% of Medicare rates and out-of-network payments to 185%.
The new study was published in Health Affairs and shows the savings represent about $150.2 million per state based on data from 46 states and the District of Columbia. The savings ranged from $2.7 million in Rhode Island to $933 million in California, according to the study.
State employee health plans cover legislators, executive branch and municipal employees, as well as public school and university teachers and their dependents. Spending on these plans is an increasing part of the state budget, as drug and hospital prices rise, Murray says.
Researchers found that similar caps on the broader commercial market could also lead to savings. They pointed to data that shows there's potential to save $87.7 billion annually for the entire commercial market under caps.
The team recommends that policymakers tailor the caps to local markets and set rates that don't strain hospitals financially. They also said clear language is needed to prevent unintended consequences, such as hospitals increasing prices for services. The team recommended that states should consider exempting financially vulnerable hospitals and direct the benefit of savings to enrollees with lower out-of-pocket costs, premiums and better plan benefits.
The team also developed a Hospital Payment Cap Simulator, which is an interactive tool that offers insights into how much state employee plans in the U.S. could save from payment caps and effects on hospital financials.