Price caps, spending floors, and penalties, oh my! The latest in state hospital policy

Hospitals have recently come under the spotlight for overcharging, avoiding price transparency laws, and not spending enough on community benefits– and now state policymakers are taking action. What’s going on in the state policy space and how will it impact the hospital landscape? Let’s take a look.

A new community benefit standard in CO

With a proposed bill introduced this month, Colorado is setting a (much needed) higher standard for hospital community benefit spending. And we are buzzing about it.

Here’s what looks promising about this bill:

  • It would establish a minimum level of community benefit spending based on hospitals’ federal and state tax exemption amounts (or 3% of net revenue, whichever is lower)
  • The community benefit total excludes Medicaid shortfall, research costs, and health professions training (focusing on categories of community benefit spending most meaningful for community health).
  • The bill includes both carrots (eligibility for DSH funds if hospitals meet min) and sticks (corrective action plan for noncompliance and potential fines of up to $20K per day for repeated intentional noncompliance). 

If passed, this would put Colorado as leaders for holding hospitals accountable on community benefit spending. This bill will no doubt face considerable pushback from hospitals in the state, but we are looking forward to seeing where the legislation goes.

Price caps in Indiana

When hospitals provide a service, they get paid a set amount for Medicare and Medicaid patients. But for privately insured patients, the prices that hospitals demand are notoriously variable, because they’re based on negotiations between hospitals and insurers. Depending on the market power of the hospital or insurer, prices for the same service can be very different. For example, a 2022 study found huge variation in insurer-negotiated prices for cardiac procedures at America’s “best” hospitals, with the median insurer-negotiated price of a stent ranging from $657 at one hospital to $25,521 at another.

The Indiana state legislature is considering a bill that would cap hospital commercial prices at a certain percentage the amount of Medicare prices. Price caps are not a crazy idea; in fact, they’ve been proposed by health policy experts as a way to constrain out-of-control prices.

But of course, the devil is in the details, and the most important detail–the actual benchmark for the cap– is still up in the air. The current bill directs the health department to cap prices at “a percentage of Medicare or using another nationally recognized metric.” News sources have been reporting that the cap will be 260% of Medicare prices, which is an ambitious goal, but perhaps too ambitious to work. Among the 46 private nonprofit acute care hospitals that would be included in the regulation, only 7 achieved that goal in 2021 or 2020, according to RAND hospital price data. Rather than target the specific hospitals that are overcharging far beyond the state median, this regulation could end up penalizing nearly all the private nonprofits in the state.

The success of the bill will depend on where the state’s insurance department decides to set the cap. They could set the cap at a certain percentage of Medicare prices, either for prices in general or for specific services that tend to be overpriced. Or they could set the cap at a certain level of commercial prices, so that hospitals can’t argue that the cap is unfairly low. There’s no exact “right answer” here, but there are examples from other states and proposals from health policy experts that lay out advantages and disadvantages of capping prices at certain levels.

But here’s one thing in the bill that definitely needs to change. Currently, the regulation would only apply to nonprofit hospitals, even though most of the Indiana hospitals charging upwards up 500% of Medicare prices are for-profit hospitals (see table below). If the goal is to constrain outliers price-wise, restricting the bill to nonprofit hospitals only misses a huge opportunity.

HospitalOwnershipPrices as % of Medicare, 2021
Source: RAND prices from NASHP Hospital Cost tool

Price transparency in Ohio and NYC

A federal rule went into effect in 2021 that requires hospitals to make public the prices they negotiate with insurers, and create a consumer-friendly tool for “shoppable” services. However, most hospitals are still not fully compliant–and policymakers are understandably getting inpatient.

In Ohio, legislators are following in Colorado’s footsteps with a proposed bill that will penalize hospitals for not complying with federal price transparency regulations. Hospitals not in compliance would be barred from taking aggressive billing action such as selling medical debt to debt collectors, suing patients through the state court system for medical debt, or filing negative credit reports against patients for outstanding medical bills.

To me, this is a no-brainer. Hospitals shouldn’t be suing patients or sending their debt to collections, regardless of their compliance with the price transparency rules. But unfortunately these actions are common even among nonprofit hospitals, so any legislation that puts limits on these aggressive billing practices is a win. Maybe next Ohio can go all the way and bar these practices for all nonprofit hospitals.

In New York City, the city council is taking action on hospital prices as well, but in a very different fashion. The city is considering creating a new Office of Healthcare Accountability, which would have the authority to get pricing data and other data from hospitals and create recommendations for lowering healthcare costs. Having price data across NYC hospitals all in one place will make it clear which hospitals are overcharging, and can help put pressure on them (from both patients and payers) to lower their prices.

Another benefit of this new Office would be the ability to request hospital data on their property values, which would allow the city to know how much hospitals receive in local tax exemptions. In our analysis of Fair Share Spending in NYC, we found that the enormous real estate holdings of some large nonprofit hospitals gave them millions in tax breaks– but this information is not easy to uncover because hospitals may hold numerous parcels under different names. Having property values of nonprofit hospitals out in the open would make it much more obvious which hospitals are giving back enough to the city in meaningful community investment.

Community benefit spending floors in Oregon

Oregon made big strides in 2019 when they passed legislation establishing standards for financial assistance across all hospitals and setting minimum benchmarks for hospital community benefit spending. Now, a report from Oregon’s Health Authority shows where the policy is succeeding, and what parts still need work.

The good news is that hospitals are complying with the reporting requirements and accepted their spending floors for community benefit set by OHA. But even though hospitals are reporting the right things, they are still finding ways to skirt around rules when it comes to implementation. For example, hospitals have expanded their eligibility requirements, but patients report that information about financial assistance is still difficult to find on hospital websites. Moreover, some hospitals haven’t dropped requirements like county residency or asset tests, which are not allowed under the new state rules. Another example from the OHA report showed that some hospitals were inappropriately shifting unreimbursed Medicare costs (which are not considered a community benefit) into the line item for subsidized healthcare services to boost their community benefit spending numbers.

The regulation has also revealed the fragmentation in hospital systems when it comes to billing. In the OHA report, hospitals reported that the vendors they use for billing and debt collection have nothing to do with financial assistance applications, so it’s hard to get them to work together.

The OHA report shows that state regulation paired with good communication with hospitals can result in some big changes– but also reveals the lengths to which some hospitals will go to find loopholes.