Since the feds won’t act, states seeking to limit healthcare costs
I have made the case that healthcare reform is largely frozen at the national level — with neither party really willing to tackle the root causes of healthcare’s costs. Republicans line up to skinny down benefits, while Democrats advocate for greater and greater subsidies. While I support universal access and tackling the affordability crisis with experimentation, price reform (teamed with primary care and prevention and affordable universal access), is the core of true reform.
Under Trump 45, the administration sought to make some meaningful incremental reforms, only to have them reversed by the Biden administration. Trump 47 has come back with some of the same reforms:
- Modest Medicare site neutral payment reform that equalizes outpatient/ambulatory payment across places of service (physician, freestanding centers, and outpatient hospital).
- Retirement of the Medicare Inpatient Only list.
- Expansion of procedures eligible to be performed at Ambulatory Surgery Centers (ASCs).
- Reform the out-of-control 340B drug discount program.
In the end, these are indeed modest reforms and Congress appears reluctant to truly jump into the fundamental issue of price. That is why states have begun doing their best to tackle prices and trends in healthcare. The problem is that vast areas of healthcare are preempted by federal law. That is, states are precluded from passing polices or price reforms in areas like Medicare and self-funded employer ERISA health plans. Unless the federal government specifically allows states to intervene, they can at best hope to influence these healthcare lines.
But states still want to do their best to sort out price and trend in healthcare and hospitals specifically. And efforts to do so transcend politics, including progressive states as well as conservative ones.
The state landscape
States are starting to regulate hospital prices in various ways. These can be broken down into several categories:
- True price regulation or caps
- Cost growth caps / affordability boards
- Transparency laws
Vermont’s hospital example
Progressive Vermont is the first state to pass explicit hospital price caps tied to Medicare rates. A 2025 law sets upper payment limits across all payers. Vermont is moving toward global hospital budgets by 2030. In many ways, this is the most aggressive and comprehensive hospital price regulation model thus far.
Indiana’s hospital regulation
On the other side of the political spectrum, conservative Indiana passed a law targeting high-priced nonprofit hospitals. The law sets a pricing benchmark for these hospitals. Hospitals that do not comply – moving prices below a statewide average by 2029 — could lose their tax-exempt status. Indiana’s law is not a pure price cap like Vermont but clearly makes for big state leverage over these hospitals.
What is interesting about Vermont and Indiana is that both have very little hospital competition, which tends to mean they have very high overall hospital prices. In America, hospital consolidation is occurring at a fast pace. In almost half of metropolitan areas in 2023, one or two health systems controlled the entire inpatient market. And numerous studies show that such mergers and takeovers increase price and may even hurt quality.
Both states are forecasting major savings in their health systems.
Maryland was a hospital price trailblazer
Maryland was actually a trailblazer in the price and budget regulation world. It has a longstanding all-payer global hospital budget system, perhaps the most mature system of hospital price regulation in the U.S. The system caps total hospital revenue annually, which limits how fast costs can rise and indirectly constrains hospital pricing.
Maryland actually received permission via a model that includes Medicare in it. But a change coming 2028 will move to a hybrid model where Medicare FFS and to some degree Medicare Advantage will be treated differently.
Washington reduces costs for state healthcare
With limited exceptions, reimbursement for inpatient and outpatient services provided to state employees will be capped at 200% of the Medicare rate at in-network facilities and 185% at out-of-network facilities beginning in 2027.
Maine growth limitations
A Maine bill would limit growth rates to the annual inpatient prospective payment system market basket. It would apply only to individual, small group and state employee health plans.
New York site neutral proposal
A proposal in New York would begin to go down the road of site neutral payments. Payments for certain outpatient services (about 60 low-complexity, routine outpatient services) would be capped at no more than 150% of Medicare rates.
This is a faily aggressive attempt to regulate commercial hospital prices using a site-neutral plus price cap framework. If adoped, the proposal would save about $1 billion annually in commercial insurance spending. Some hospitals are exempted.
California and more have affordability boards or cost growth benchmarks
California has set up an affordability board that caps annual healthcare cost growth at a target of about 3%.
Other states with similar models include the following. They track hospital spending, set targets, and can impose penalties (including corrective actions):
- Massachusetts (also an early pioneer)
- Rhode Island
- Oregon
- Washington
- Connecticut
- Nevada
States are pushing price transparency
This is the most common approach and includes the following states:
- Ohio
- Oklahoma
- Nevada
- Washington
- Virginia
Similar to federal regulatory requirements, these states require public posting of negotiated rates, consumer-friendly pricing tools, and penalties. We know how opaque healthcare pricing is but that is especially true of hospital pricing.
The movement grows
States already named and more are very interested in expanding their oversight. Massachusetts may move down the road of limiting hospital charges as could Oklahoma.
Conclusion
States’ power to regulate much of this can be small. Further, a patchwork of state laws certainly does not transform the system as a whole. But the explicit price regulation, global caps, and transparency requirements certainly are reforms that Capitol Hill should look at. Of course, site neutral policies at the federal level would have huge value in reducing hospital outpatient prices in both Medicare and commercial coverage (which “piggybacks” on Medicare). Hospital prices generally have soared by 250% since 2000 – twice the rate for healthcare and three times inflation. And it could be done over time so as to protect hospital finance and allow a glidepath to better efficiency.
In the end, both sides of the political spectrum seem to understand the problem and are willing to reform – at least at the state level. Conservatives have gotten over the thought that price controls are bad, recognizing that most of healthcare is not a free market. It is more akin to a utility, which should be regulated. Hospitals in some of these states argue the regulation could stifle innovation and lead to poorer quality and closures. But I go back to incremental change to protect hospitals and gain efficiency over time.
#hospitals #healthcarereform #coverage #transparency #pricetransparency
— Marc S. Ryan
