States push hospital price caps to rein in spending

Modern Healthcare – Thursday, June 12, 2025
By Alex Kacik

States are turning to hospital price caps as other regulatory policies have yet to significantly slow healthcare spending.

Nearly a dozen states have introduced bills over the past year that look to curb healthcare cost growth by limiting hospital prices, borrowing strategies from early price cap adopters in Rhode Island and Oregon. More states are poised to crack down on hospital prices because cost growth benchmarks, price transparency and other policies have yet to dent healthcare spending, industry observers said.

“Transparency alone doesn’t empower employers to negotiate fair prices, and antitrust enforcement is too slow to unwind decades of unchecked consolidation,” said David Kelleher, president and CEO of the Employers’ Forum of Indiana, an employer-backed coalition. “That is why other reforms like price ceilings and site-neutral payments are gaining traction.”

Employers, residents and lawmakers hope that the price caps temper hospital cost growth, which can erode wages and inflate insurance premiums. However, health systems warn that price caps will lead to service cuts.

Hospital care accounted for about a third of the $4.9 trillion the U.S. spent on healthcare in 2023, according to Centers for Medicare and Medicaid Services data. Spending rose 7.5% in 2023, up from 4.6% in 2022.

“It’s almost as if we have argued for decades whether we should use competition or regulation in healthcare to control costs and the result was that we did neither. There has been so much consolidation that we may have already lost that potential,” said Paul Ginsburg, senior fellow at the University of Southern California Schaeffer Center for Health Policy and Economics. “It’s not surprising that some states are picking this regulatory approach.”

Rising healthcare spending fueled a law signed last month by Indiana Gov. Mike Braun (R) that targets the state’s five largest nonprofit systems. Starting in 2029, regulators will be able to revoke those health systems’ nonprofit status if their commercial price increases exceed the statewide average.

Washington Gov. Bob Ferguson (D) also signed a law last month that limits prices for services provided to state employees to 200% of Medicare reimbursement. The law, which excludes critical access and sole community hospitals and sets a floor for primary care and outpatient behavioral health payments, will start reining in reimbursement in 2027.

Indiana and Washington are among a growing number of states that have modeled parts of their hospital price cap policy after Rhode Island and Oregon.

Rhode Island capped annual increases in the rates hospitals negotiate with commercial insurers to inflation plus 1%. The 2010 initiative led to a 9.1% average drop in hospital prices over a 12-year period and reduced annual premiums by 12% per member, according to a May study published in Health Affairs.

Oregon has a narrower approach to its price cap law, focusing on its state employee health plan. Since 2019, policymakers have limited prices of hospital inpatient and outpatient services to 200% of Medicare rates for those workers. The law excludes certain providers such as critical access hospitals.

The policy contributed to a 9.5% reduction in out-of-pocket spending per outpatient procedure for workers with high-deductible health plans, according to a study published last year in the Journal of the American Medical Association.

“All states are experiencing significant budgetary pressures, so starting with state employee-specific pricing alleviates some of that pressure,” said Roslyn Murray, assistant professor of health policy at Brown University, who studies price cap policies.

Virginia Mason Franciscan Health says the focus on state employee pricing in Washington will reduce revenue by about $30 million a year. The Tacoma, Washington-based system, which is part of CommonSpirit Health, linked planned layoffs of 116 workers to the reimbursement change.

The Washington State Hospital Association said the price caps will reduce revenue by $340 million a year across all hospitals in the state.

“It shifts the burden of covering costs from the state to hospitals and commercially insured people, or it means hospitals will cut services for everyone,” an association spokesperson said in a statement.

Health systems, including St. Louis-based Ascension, Indianapolis-based IU Health, Mishawaka, Indiana-based Franciscan Health, Renton, Washington-based Providence and Vancouver, Washington-based PeaceHealth declined to comment, deferring to the hospital associations.

Indiana Hospital Association President Scott Tittle said in a statement the state’s hospitals are concerned by the potential loss of nonprofit status based on meeting an unknown statewide average commercial price.

“This does not take into consideration the uncertainty of rising cost pressures such as tariffs, inflation and other significant economic factors that will further threaten the financial stability of Indiana’s healthcare ecosystem,” he said.

Dr. Jason Row, chief value transformation officer at Fort Wayne, Indiana-based Parkview Health, said the state’s new law will create a significant administrative burden for all hospitals.

“Given the ambiguity in the law, which creates unprecedented private market interventions, we are unable to say how it may impact costs or access to high-quality care in Indiana’s rural communities,” Row said in a statement.

In addition to potential price caps, hospitals are reporting their pricing data as part of the 2021 price transparency law. Hospitals must post machine-readable files with data on prices they negotiated with payers, gross charges and discounted cash prices for 300 services.

Also, nine states have cost growth benchmarks, which are designed to track healthcare spending trends and reduce cost growth.

But price caps tend to work better than these other mechanisms, which have limited regulatory teeth, policy experts said.

Price caps may also force health systems to revamp their operating models, research shows. Hospital operating costs in Rhode Island grew at half the rate of Massachusetts hospitals from 2010 to 2019, suggesting price growth limits played a role in hospital operating cost reductions, authors of the study published in Health Affairs said.

Health systems and hospital associations argue providers cannot afford to cut back their commercial insurance revenue, which hospitals need to offset Medicare and Medicaid reimbursement rates that do not cover costs, as well as rising expenses.

“Capping commercial rates limits hospitals’ ability to cover those losses,” a spokesperson for the American Hospital Association said. “Hospitals may seek higher rates for other services to ensure hospitals can continue to offer essential services.”

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