Oregon’s Hospital Payment Cap Shows Minimal Financial Impact and Maintains Care Quality

Oregon's pioneering hospital payment cap policy, initiated in 2017 and phased in from 2019, limits reimbursements for state employee and educator health plans to no more than 200% of Medicare rates for in-network hospitals and 185% for out-of-network hospitals. A recent comprehensive study by Brown University analyzed its financial and operational effects on 22 major Oregon hospitals, revealing minimal disruption to hospital revenues, staffing, and patient care quality during the policy's implementation period from 2019 through 2023. Despite initial concerns from hospital leaders about potential financial harm and service reductions, the research found no significant downturns in net patient revenue or increased expenses and no reductions in service capacity or patient volumes. Interestingly, patient experience indicators showed slight improvements in communication and responsiveness, suggesting hospitals may have invested in quality enhancements possibly to maintain competitiveness with commercial insurers. The study further examined whether hospitals offset lower payments through cost-shifting to other patients and found no evidence to support such practices. This outcome aligns with prior research indicating Oregon's price caps contributed to overall price reductions within the public employee plan segment. The cap currently affects approximately 15% of hospitals’ commercially insured patient base in Oregon, which may explain the muted financial impact observed. Policymakers are considering expanding similar price controls to the broader commercial insurance market due to rising hospital prices and premiums, which have increased more than 20% for common inpatient procedures despite an 18% drop in procedure volumes. Analysts suggest that reimbursement rates set at 150% of Medicare could allow hospitals to break even, making the existing 200% cap potentially sustainable if expanded. Oregon’s initiative has drawn national interest, inspiring legislative proposals in various states aiming to implement hospital price caps for certain services or patient groups. These developments reflect growing efforts to address the escalation of healthcare costs through regulatory oversight, while balancing hospital financial stability and patient care quality. The study provides valuable insights into the consequences of payment reform, indicating that targeted payment caps can control costs without compromising hospital operations or patient satisfaction, at least within a limited scope.