As more states in the U.S. seek ways to control rising health care costs, hospital payment caps are emerging as a potential solution. These policies limit how much hospitals can charge, often tying prices to Medicare rates, which are lower than those paid by commercial insurers.
Oregon was the first state to implement such a cap in 2019, applying it to its state employee health plan. Under this policy, hospitals cannot bill the state more than twice what Medicare would pay for the same service.
A recent study led by Brown University's Center for Advancing Health Policy through Research examined the effects of Oregon's payment cap on hospital finances and patient care. The researchers analyzed data from 22 affected Oregon hospitals and compared them with similar facilities in other states between 2014 and 2023. They looked at financial metrics like revenue and operating margins, staffing levels, service availability, and patient satisfaction survey responses.
"The analysis showed that Oregon's payment cap had a minimal impact on hospital finances, and through that, hospital operations and patient experience," said Roslyn Murray, assistant professor at Brown's School of Public Health and lead author of the study. "Our research shows that targeting the highest, most excessive prices that are being paid to hospitals through price caps can be a meaningful way to improve health care affordability, while still allowing hospitals to generate a margin on patient care and keep their doors open."
The study found that after the cap took effect in 2019, average hospital revenue in Oregon dropped by $2.6 million but this change was not statistically significant; operating margins remained stable. Patient satisfaction scores related to communication with nurses and doctors improved slightly—by 1.4% and 1.2%, respectively—and more patients reported better explanations about medications and timely assistance from staff.
"What this may mean is that prices greater than the cap represent provider rents - such as extra charges based on hospitals' market power or name recognition - and hospitals may be able to receive lower prices with reduced profitability and still cover their costs and keep running smoothly," Murray said. "It also suggests excessively high and increasing prices being paid to hospitals do not represent things that people value."
Other states—including Colorado, Indiana, Montana, and New York—have introduced bills this year aiming to cap hospital prices for certain services or groups of patients.
"We're seeing massive increases in premiums each year as a way to try to address the rising costs of health care," Murray said. "This is a way that states can try to manage some of those rising cost pressures, which are primarily coming from high hospital prices."
Research indicates these higher prices are not necessarily linked with better quality or higher costs of providing care but rather reflect some hospitals’ ability to set higher rates due to market power.
By capping payments at specific percentages above Medicare rates—200% for in-network services and 185% for out-of-network—Oregon achieved an estimated $50 million per year in savings while reducing out-of-pocket spending by nearly 10%. Over just over two years (27 months), total savings reached $107.5 million or about 4% of plan spending.
Murray emphasized that all Oregon hospitals stayed within network under these rules: "Importantly...all hospitals there remained in-network, demonstrating that well-designed payment caps can achieve significant savings without compromising access to care."
A previous study from this research group estimated nationwide adoption could save other states about $150 million each annually—with only minor effects on hospital profit margins—based on data from most U.S. states including Washington D.C., using resources like the National Academy for State Health Policy Hospital Cost Tool.
"The thought is that all individuals that receive health insurance through their employer can realize some of these savings and we, as a country, can improve health care affordability," Murray said.
