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Oregon’s health care cost-growth controls hit a crucial stage

Critics disagree on whether the state’s proposed final rules for insurers and hospitals are too weak or will have unintended effects
May 16, 2024

This story has been updated with comment from the Hospital Association of Oregon.

A program intended to curb soaring health care costs for consumers and businesses in Oregon is nearing a crucial stage, with lobbyists and members of the public debating whether its proposed rules are too weak to have any effect or will backfire. 

Oregon’s Sustainable Health Care Cost Growth Target Program has an ambitious goal: to prevent the annual growth of per-capita spending on medical costs from exceeding 3.4%. Insurers, hospitals and providers who don’t meet the target over multiple years could face financial penalties. 

The program was approved by lawmakers in 2019 and 2021, with significant tweaks in 2023. But now, as a state advisory committee finalizes rules for the program, how large these penalties should be has become a major fault line. The 40-member advisory committee working on the rules includes leaders of hospitals, medical clinics and insurers, as well as representatives from trade associations, a large labor union and others. 

Hospitals have pressed regulators to take a light touch on penalties, arguing that the untested program could hurt patient care. 

“Regardless of how penalties are calculated, it remains critically important to cap them at a level that does not limit investments in the workforce, reduce access to care, or increase costs,” Andrea Seykora, the Hospital Association of Oregon’s director of public policy and legal affairs, wrote in an April 24 letter to regulators. 

Executives from both Legacy Health and Salem Health called for regulators to cap penalties at $10,000. 

“No one’s saying it’s easy. But we also know that if things don’t change, if we stay with the status quo, the affordability crisis for patients, for consumers and for employers will just get worse. It's already at a crisis point.”

Lisa Goodman, vice president of communications for the Hospital Association of Oregon, told The Lund Report in a statement that containing health care costs requires “broad, systemic policy conversations” and the program’s goal of holding individual companies accountable is “unlikely to be a comprehensive solution.” 

“The hospital association has long believed that holding hospitals to a 3.4% annual cost growth target in a time of skyrocketing expenses is unrealistic to maintain access to care,” she said. 

She further stated that penalties could achieve the opposite of the program’s goal by raising costs and restricting access. One bright spot, she said, is that the health authority has agreed to reevaluate the penalty structure after it has been in place for a few years. 

But others argued that larger companies might opt to just pay a penalty rather than find ways to reduce wasteful spending and reduce costs. For example, Matt Swanson, political strategist for SEIU Oregon State Council, told The Lund Report in an email that $10,000 is about the median amount Oregon hospitals charge for a routine birth. 

“We need to get serious about enforcing this target to rein in the rising costs that are straining working families and employers across the state,” he said. “While hospital, pharmaceutical, and for-profit healthcare industries collect billions in payments, patients are emptying savings accounts and filing for bankruptcy.”

The costs of health care have been growing far greater than overall inflation. Between 2000 and 2021 in Oregon, health insurance premiums grew by more than 200% while personal income increased by 116% between, according to a state report.

Nine other states have adopted programs that set health care cost-growth targets, but Oregon was the first state to authorize financial penalties against companies that consistently report exceeding its target, according to the National Academy for State Health Policy. California recently established a similar program.

Under the current rules, Oregon regulators won’t issue penalties against any companies until 2029 at the earliest. And first they need to finish drafting the program’s rules to set the penalties. The proposed rules go before a public hearing in June before being finalized in July. 

Bill Kramer, a senior advisor for a national nonprofit representing large employers and states called Purchaser Business Group on Health, has been tracking the program. He told The Lund Report that Oregon’s cost growth target has the potential to slow health care spending increases.

“No one’s saying it’s easy,” said Kramer, a member of the advisory committee. “But we also know that if things don’t change, if we stay with the status quo, the affordability crisis for patients, for consumers and for employers will just get worse. It's already at a crisis point.”

“While the rest of the country is trying to recruit more primary care, to do preventative medicine in their communities, we’ve designed a program here that will suck potentially hundreds of millions of dollars out of primary care and cause it to shrink, which will reduce access,”

Penalties would be delayed

Under the program’s draft rules, health care providers or insurers that exceed the target would first be placed on what’s called a performance improvement plan. 

If a company exceeds the target cumulatively over the course of  a five-year period, regulators can penalize the company using a formula based on how many people were affected, how much the companies were over and for how long. The draft rules state that money from the penalty will be paid directly to consumers or spent in a way that benefits them. 

For example, a company covering about 8,333 people that exceeded the target by $679,000 over five years would see a penalty of $33,803. That figure would factor in any years the company met or was below the target. If that company continued to exceed the target, it would see penalties of up to $821,636.

The current draft of the program’s rules allow exceptions to the cost-growth calculations for what are called “reasonable” causes of growth. They include changes in federal law, new pharmaceuticals, changes in taxes of administrative requirements, natural disasters, investments to improve community health, most labor costs, macroeconomic factors and unusually costly patients. 

In March, Charlie Fisher, the state director of consumer advocacy group OSPIRG, asked regulators to scale back the acceptable or “reasonable” reasons to exempt a specific expenditure from cost-growth tallies. He said costs should not be exempted unless companies can demonstrate they are “clearly” reasonable, and that new pharmaceuticals should be exempted only when they “improve value of care commensurate with the increased cost.” 

The draft rules allow regulators to make an exception for hospital pay for rank-and-file workers. Previously, OSPIRG opposed a bill in 2023 that exempted pay and benefits to hospital workers making less than $200,000 annually from counting toward the target. The group argued that it would water down the program before it even got started, but lawmakers passed it in response to rapidly increasing post-pandemic labor costs.  

Finances for Oregon’s hospitals have improved somewhat since the pandemic, but many continue to struggle as labor costs have grown faster than their revenue. 

“The current financial environment for hospitals is broken,” said Goodman, of the hospital association. She said that hospital labor costs make up over half of a hospital’s expenses and are up 30% since 2020. She added that the association questions “whether the cost growth target program is focused on the right data and policy questions.”

In April, James Parr, CFO and executive vice president of operations at Salem Health, told regulators that the hospital spends “sixty-seven cents of every dollar on labor – most of it on frontline workers.” 

Although Oregon’s health care cost-growth target will leave out a sizable source of spending, Kramer said there remains “an enormous amount of opportunity within the healthcare system to reduce costs.”

“There are many studies that have documented the amount of what some people call, ‘waste in the healthcare system,’” he said. “That could be overuse of low value services, or it could be excess prices that are not warranted.”

He pointed to research by the Rand Corporation that found that commercial health plans have paid significantly different prices at hospitals for the same procedures in different states. Sage Transparency, an online dashboard using data from the study, shows that hospitals in the same state, including Oregon, charge different prices. 

The American Hospital Association has called the Rand Corporation’s research “offers a skewed and incomplete picture of hospital spending.” 

Kramer said the difference in prices is a sign of inefficiencies that Oregon’s cost growth target could address. He also said that the way the program’s penalties are structured could encourage hospitals to budget for them rather than find ways to reduce spending

During the rules advisory committee meeting on Wednesday, Parr, CFO of Salem Health, pushed back on Kramer’s argument saying that the way the penalties are structured will hurt smaller primary care practices that are already scarce in Oregon. 

“While the rest of the country is trying to recruit more primary care, to do preventative medicine in their communities, we’ve designed a program here that will suck potentially hundreds of millions of dollars out of primary care and cause it to shrink, which will reduce access,” he said. 

Sarah Bartelmann, the program's manager, responded that the methodology used to calculate the penalty is designed to take into account the size of the organization and “it’s not sort of a flat rate that applies to all payers and providers equally.”

You can reach Jake Thomas at [email protected] or via Twitter @jthomasreports


Submitted by Debra Bartel on Thu, 05/16/2024 - 13:56 Permalink

While controlling costs in healthcare is definitely needed, this program does not provide any relief.  It blames primary care for all costs relating to each of their patients - yet primary care has no way to affect how individuals seek care outside their 4 walls.  Hospitals, Urgent Care, Emergency Centers, and Specialty providers are given a full free pass - yet these places are where the highest costs are incurred.  The data gathered to 'measure' the costs is only provided by insurance companies....and it is a 'summary' of data, not detail.  Primary care providers are not allowed any access to the data to dispute it when clearly the information is wrong.  Pediatric providers are being held responsible for patients inappropriately assigned to them.  Primary care providers are 'charged' for dollars required by law - things like language interpreters, quality measures, etc.  Finally, comparing health costs in 2022 to 2021 is like comparing apples to oranges.  Patients were still very reluctant to seek non emergent care in 2021 so much of the care provided in 2022 was making up for items previously missed.  This is clearly an unfair comparison and without transparency into the data AND all entities being measured, costs will continue to rise and access to care will suffer.  Without transparency, this program will do nothing except push even more providers out of primary care.  

Submitted by Ken Hart on Mon, 05/20/2024 - 13:54 Permalink

My FQHC met with the OHA team to go over our data that showed our trend was a 10.7% increase.  The staff was very helpful, but when we asked how many patient lives were attributed to us, it was 60% of our UDS reported patient load.  We asked if having over half of our patients be from another state impacted our numbers and trend, there was not a clear answer.  We are happy to be held accountable, but we'd ask that the info being used be accurate and more timely (data presented is from 2021-22) so that we can take actions to address any shortfalls.

Submitted by Michael Ralph … on Mon, 06/10/2024 - 07:25 Permalink

once in a while the capitated at-risk, outcome based process produces some innovation in spite of the OHA stacking the rules looking backwards. When the system is chasing widgets, the bigger the widget the bigger the cost, the innovation goes to more expensive solutions of the chase. All the while the entire system sits in its little factories waiting for people to show up with the need for widgets to be fixed. The biggest most expensive factory is called a hospital. Now no one wants a bad ED or not to be able to get one nor a hospital bed when needed, but how much hospital is needed and at what cost. Oral health when I started was around 13.4% of the total Medicaid spend and now it is around 5% and when I survey folks in the system most say it is not working! I have to respectfully disagree for this system manages 1.2 million or so Oregonians. It is one of few in the US that actually has a system that works. It may not be perfect, but is works. Because of this payment methodology most of the dental profession does not like it for it wants to continue to produce widgets. Dentistry's endo of disease procedure is an implant and implant crown at the tune of $5-6000 per tooth and a minimum of 4 (four)can be needed!! One thing that came out of CCO and OHA system if the recognition that most dental disease is caused by a bacterial infection and the cavity is the result of the infection, not the infection. And one cannot drill there way out of this infection. The good news is dentistry has a medicine that was cleared through the FDA by the results of this capitated OHA program that not only stops the cavity its placed on it has been shown to stop future cavities in the same mouth going forward. I hope CMS/OHA/CCO gets it that you cannot squeeze dentistry more by cutting rates because of the archaic way it does its actuarial rate setting and losing the only functioning Medicaid program in the US.

Mike Shirtcliff DMD, President, Equity Dental, LLC