Facing rising health care costs and increased consolidation of hospitals and provider groups into large health systems, states are exploring ways to contain costs and provide oversight of the growing market power of large hospitals. Through model policies from the National Academy for State Health Policy (NASHP), states can leverage their existing health market authority via insurance departments to slow cost growth and aim to ensure there is a level playing field between hospitals and insurers to drive fair negotiations for lower prices.

State insurance departments and specifically offices that oversee health insurance products have a long history of working to protect consumer access and affordability. Insurance departments have the authority to engage in market conduct reviews to determine whether health insurers are offering reasonably priced products, complying with regulations, and operating in a manner that is fair to consumers.

Under existing premium rate review authority, insurance departments can also examine proposed premium rate increases charged by health insurers offering plans in a state’s small and individual insurance markets. Rate review is used to assure the financial viability of insurers and to assess they have sound justifications for raising premium costs each year.

Given their existing oversight capabilities, insurance departments are a natural starting point for states to leverage in the following cost containment efforts:

• limiting hospital price growth;
• prohibiting anticompetitive contract terms; and
• enforcing limits on unwarranted facility fees.

Each of these policies could work independently or jointly to make health care more affordable. While they are distinct policies seeking to address different issues related to rising costs, each highlights the potential role of state insurance commissioners.

Limiting Hospital Price Growth

Using their consumer protection mandate and existing knowledge of and authority over insurers, states can further leverage the premium rate review process to control hospital price growth. For more than a decade, Rhode Island has used a unique insurance rate review approach to keep hospital costs from rising any more than inflation plus 1 percent. Through a set of “affordability standards” Rhode Island requires insurers to comply investment and cost containment goals to have premium rates approved.

Modeled after Rhode Island, NASHP’s new toolkit includes model statutory and regulatory language to give an insurance commissioner the authority to require that insurers limit price growth in contracts with providers to have premium rates approved. The model statute is designed to be broad and give an insurance commissioner the flexibility to pursue policies that will protect public interest and promote affordability.

The specific affordability standard is outlined in the model regulation. Some states’ existing rate review laws may include sufficient authority to implement affordability standards without additional changes to state law.

NASHP’s model requires insurers to limit the aggregate hospital reimbursement rate increase to the Consumer Price Index for All Urban Consumers plus one percent (CPI-Urban + 1%). Recognizing the diversity of health care markets within and across states, the model regulation also includes a waiver process which would allow the insurance commissioner to modify or waive the cost growth cap if appropriate or necessary.

If state insurance departments are engaged in efforts to lower health care costs and have authority to review contracts between insurers and providers, they are well positioned for multiple strategies. Department officials can assess contracts for hospital price growth similar to Rhode Island’s strategy, as well as review anticompetitive practices that can contribute to high costs.

Prohibiting Anticompetitive Contract Terms 

In increasingly consolidated markets, dominant hospital systems can use their market power to demand higher prices and add anticompetitive terms in their contracts with health insurers, which increases prices and thwarts insurers’ cost-containment efforts. Separate NASHP model legislation prohibits four common anticompetitive contract provisions that health systems have used in consolidated markets:

• all-or-nothing contracting,
• anti-tiering or anti-steering clauses,
• most-favored-nation clauses, and
• gag clauses.

This model gives an insurance commissioner the authority to examine all materials related to a contract negotiation and deny a carrier the ability to sell a plan where there may be anticompetitive contract terms. An insurance commissioner can also impose a civil penalty on carriers with anticompetitive contracting practices. The model is designed to level the playing field between insurers and dominant health systems, giving insurers the bargaining leverage to resist price demands and direct patients to higher-value providers.

Enforcing Limits on Unwarranted Facility Fees 

Facility fees were originally designed to compensate hospitals for “stand-by” capacity required for emergency departments and inpatient services. However, they are now increasingly added to bills for diagnostic testing and other routine services provided by physicians that are acquired by large hospital systems and may be located miles away from hospitals. As more providers are acquired by hospitals, facility fees for non-hospital services are becoming more common and contributing to higher patient out-of-pocket and system costs.

NASHP’s model legislation does not eliminate all facility fees, but restricts their use by location and service, mirroring a Medicare provision that prohibits any provider that is located more than 250 yards from a hospital campus from charging a facility fee. NASHP’s model also prohibits providers from charging facility fees for certain classes of outpatient services, including but not limited to evaluation and management (E&M) services, regardless of the location where that specific service was provided.

The model allows a state to determine the appropriate agency for oversight and enforcement of the facility fee prohibition. Given insurance department’s experience protecting consumers, it may be an appropriate agency to oversee the prohibition of facility fees and collection of related data. Insurance departments have valuable expertise and relationships with insurers that could be leveraged to determine if there is a violation.

To learn more about NASHP’s models to lower hospital costs, see the Center for Health System Costs’ model legislation and resources.