States Experiment With Health Care Rate Setting

By Leslie Small

As Congress tries to tackle the issue of surprise medical bills and as Medicare for All proposals remain a hot topic during the Democratic presidential debates, a common concept unites the two issues: limiting how much health care providers get paid. But in addition to what's being discussed at the federal level, providers are increasingly finding themselves fending off rate-setting efforts taken up by states.

"Hospital consolidation pushed prices up, and for all the attention on drug prices, hospital prices are a much bigger driver of health care cost growth," says Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation. "The national debate over Medicare for All or a public option has created a fertile political environment for states to go after hospital prices in their own ways."

A recent example comes from North Carolina, where State Treasurer Dale Folwell (R) led an effort to move the state employee health plan to a reference-based pricing model that ties payments for health care services to Medicare rates. But less than a year after debuting the project, Folwell revealed that most hospitals in the state refused to join his newly created network.

In Connecticut, Democratic Gov. Ned Lamont's budget proposed to establish a maximum price — set at a percentage of Medicare — that the state employee health plan will pay for health care services, according to the National Academy for State Health Policy. Both Connecticut's and North Carolina's efforts come in the wake of Montana's successful implementation of a reference-pricing program for its state employee health plan, NASHP noted in an issue brief.

Rate setting is also a feature of "public option" plans for individual insurance markets in states such as Washington, which implemented such a program, and Colorado, which is planning to.

But according to Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy, "all of these state proposals to date are sort of tiptoeing into rate setting, restraining from pushing too hard on the status quo, still allowing quite high hospital payment rates relative to Medicare rates or the cost of providing that care."

From Health Plan Weekly