High and rising health costs impact all purchasers of care, including state employee health plans (SEHPs) that are funded by both state residents’ taxpayer dollars and public employees who contribute to their coverage. Increasingly SEHP administrators must balance providing comprehensive coverage and access to care for state employees while striving to contain costs to ensure long term health plan sustainability. Oregon’s SEHP is implementing multiple approaches to contain high costs and ensure a level of predictability for its public employees and their health plan.
As this effort resulted in observed savings and price reductions for joint replacements, the state passed legislation in 2017 that expanded the initiative to all SEHP hospital payments. Specifically, the state limits or caps reimbursement rates paid by the insurers that contract with the SEHP (known as third party administrators or TPAs) at a multiple of Medicare’s reimbursement rate. Services and supplies provided by in-network providers are paid up to 200 percent of the Medicare rate and those provided by out of network providers are capped at payments of 185 percent of what Medicare pays.
OEBB and PEBB applied the hospital payment caps to 24 of the approximately 62 hospitals in the state, representing 60 percent of spending by the plans. The state recognized the differing needs of certain hospitals and exempted some from the cap. The roughly 38 hospitals not included in the cap were out-of-state hospitals, rural hospitals with fewer than 50 beds, critical access hospitals, and sole community hospitals that received at least 40 percent of their patient revenue from Medicare while being in a county with less than 70,000 people.
As one of the first states to pursue reference-based pricing to Medicare, Oregon’s experience has helped inform important considerations for other states. For instance:
- Does a reimbursement cap that sets a ceiling become the new standard for reimbursement?
- Are all services (e.g., maternity care, pediatric care) well-suited for comparison to the Medicare Diagnosis-Related Group codes? If not, what else can be used as a reference for reimbursement?
- How might stakeholder groups (e.g., insurers, employee unions) influence public support for the cost-savings initiative?
Though the plans are still conducting a final analysis of cost-savings (made more challenging as the first full year of the strategy took place amidst the COVID-19 pandemic), initial reports estimated savings of at least $81 million, encompassing roughly five percent of total costs for each PEBB and OEBB. As the state anticipates savings through its payment caps, in turn lowering spending for plan members, it also serves to contribute to another important state cost-containment strategy: a cost growth target.
In the same bill that laid out the hospital payment caps, the state directed the plans to limit growth in per member health care expenditures and premiums to 3.4 percent annually, adopting a cost growth target that would later be expanded statewide through 2019 legislation.
As the responsible agencies craft the details of the statewide cost growth strategy, OEBB and PEBB have largely achieved success in keeping plan cost growth below 3.4 percent annually. While OEBB and PEBB joined other cost growth target states in experiencing a cost growth increase in 2019, the plans limited cost growth to less than two percent in 2020/2021. At the same time, the commercial insurers in the state experienced a six to eight percent increase in health care cost growth.
Policies in addition to the hospital payment caps likely also contributed to the SEHPs cost growth target success. However, reports of the Montana SEHP’s savings from similar hospital payment policies may support the idea that OEBB and PEBB’s caps played a significant role in their meeting of the cost growth target. As such, additional states seeking to meet their cost growth targets might consider adopting reference-based pricing to Medicare as a tool to do so.
As Oregon finalizes its analysis of cost-savings from the hospital payment cap for SEHPs, and more states implement innovate policies such as cost growth targets and reference-based pricing to Medicare, NASHP will track further developments and aid states in their efforts to ensure all patients and families can access quality, low-cost health care.
To join NASHP’s network of state employee health plans aimed at addressing health system costs, supported by Arnold Ventures, email firstname.lastname@example.org.