PROVIDENCE, R.I. [Brown University] — As health care costs continue to soar across the U.S., a growing number of states are setting limits on how much hospitals can charge. These policies, known as hospital payment caps, aim to curb spending by tying hospital prices to Medicare rates, which are typically far lower than what commercial insurers pay.
In 2019, Oregon became the first state to implement such a cap, applying it to the health plan covering state employees. Under the policy, hospitals cannot charge the state more than double the Medicare payments for the same service. For example, if Medicare pays $1,000 for a service, the state health plan would pay no more than $2,000 under this cap.
The move was expected to save money for taxpayers and reduce premiums for workers, but the policy also raised alarms about whether hospitals would absorb the losses by cutting staff, reducing services or delivering lower-quality care. A new study led by researchers from Brown University’s Center for Advancing Health Policy through Research bolsters findings that those fears are unfounded, at least so far in Oregon.
“The analysis showed that Oregon's payment cap had a minimal impact on hospital finances, and through that, hospital operations and patient experience,” said the study’s lead author Roslyn Murray, an assistant professor of health services, policy and practice in Brown’s School of Public Health. “Our research shows that targeting the highest, most excessive prices that are being paid to hospitals through price caps can be a meaningful way to improve health care affordability, while still allowing hospitals to generate a margin on patient care and keep their doors open.”
The 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 through 2023. This included financial metrics like revenue and operating margins, as well as staffing levels and service availability and responses to federally collected patient satisfaction surveys.
Published in Health Affairs, the study supports earlier estimates that found hospitals’ finances were not overly impacted. Hospital payment cap policies target only the highest prices being paid and only apply to a small share of hospitals’ commercially insured patients. As a result, the savings from state employee plan payment caps represents a small portion of hospital revenue and has only a modest effect on operating margins.