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Lawmakers consider revising Oregon’s health care cost-growth target

Inflation, the pandemic as well as labor and pharmaceutical costs cast doubt on the feasibility of the state’s cap on health care expenses
April 4, 2023

Legislation that would water down a state program designed to curb the ever-rising cost of health care is gaining momentum as part of a compromise lawmakers are seeking on a controversial hospital staffing bill.

But supporters of the cost curbs say the amendments would effectively gut the innovative program that lawmakers created in 2019.  

The House Behavioral Health and Health Care Committee is scheduled to vote on Wednesday on House Bill 2742. The bill would exclude cost increases related to the workforce, pharmaceutical drugs and many basic services that are currently included in Oregon’s statewide mandate capping the overall annual per-capita increase in health care spending at 3.4%. 

Health care providers and insurers who exceed the cap for multiple years could begin facing additional scrutiny next year as the program’s enforcement provisions kick in.  

The bill emerged as a bargaining chip in a deal that three unions representing health care workers and the Oregon Association of Hospitals and Health Systems announced last week over hospital staffing legislation. As part of the deal, the two sides agreed to more flexibility around the staffing bill’s requirements and enforcement. The unions also agreed to back H.B. 2742, which the hospital association favors.   

Hospital association lobbyists argue that pandemic disruptions, historically high inflation and rising labor costs make the 3.4% cap unrealistic. They also argue the cap is at odds with the widely shared goal of ramping up the hiring of needed medical workers. 

State Rep. Christine Goodwin, R-Canyonville, told The Lund Report she sponsored the bill because hospitals are still expected to cap rises in health care costs while saddled with mandates from the Legislature. She said hospital labor costs have risen around 30% since the start of the pandemic. 

Oregon House of Representatives in Salem.

“I don’t know how we keep them at a cost-growth target of 3.4%,” she said. 

Opponents of the bill say it would weaken Oregon’s health care cost-growth cap, which they say already gives leeway to providers facing extenuating economic or other factors outside of their control. They also point out lawmakers put the cost control program in place to provide financial relief to patients. 

“Folks that are in the worst shape after the pandemic are low-income and middle-income people,” Dr. John Santa, a member of the Oregon Health Policy Board, told The Lund Report. “And the industry needs to put these people first.” The board sets Oregon Health Authority policy.

‘Penalties for something we want the system to do’

Oregon’s health care cost-growth cap grew out of a task force — which included hospital interests — that in 2018 recommended setting a spending benchmark to contain escalating medical expenses. The next year, lawmakers adopted the goal of reducing per capita growth in annual health care spending to 3.4%. That’s the same rate Oregon pledged for its unique Medicaid system as well as its Public Employees’ Benefit Board and Oregon Educators Benefit Board members.

The program, which the Oregon Health Authority is implementing, involves monitoring the largest Oregon health care entities’ spending  — including hospitals and insurance companies — and holding them to the per-capita spending limits over a period of years. The program lets companies exceed the cap if they can provide reasonable justifications.

Santa said health care providers, at the time, agreed to the cost-growth target as an alternative to the more-stringent rate-setting model Maryland adopted. 

Per person health care costs in Oregon have exceeded wages and inflation, growing 49% between 2013 and 2019, according to Oregon Health Authority figures. That’s an average of nearly 7% a year. 

Nine states have health care cost-growth benchmark programs. Maureen Hensley-Quinn, senior program director at the National Academy for State Health Policy, told The Lund Report that Oregon’s enforcement mechanisms stand out. 

Oregon’s program to cap health care cost-growth is designed with accountability mechanisms to goad providers and insurers into keeping expenses in check. Insurers and providers that exceed the cost-growth target and can’t provide an acceptable explanation — such as new taxes, a change in federal law or a pandemic — are supposed to be placed on a performance improvement plan. They face financial penalties (which the health authority is working out the details of) if they continue to miss the target.   

But Oregon insurers and health care providers have pleaded for a break before the program’s more punitive measures kick in. The Oregon cost-growth Target Advisory Committee in January agreed to delay the performance improvement plans until 2024. 

Of particular concern are the spiraling wages that employers are having to pay to keep health care workers on the job.

Bryan Boehringer, executive vice president of the Oregon Medical Association, told the House Behavioral Health and Health Care Committee in written testimony submitted in February that medical clinic staff vacancy rates are at “an all-time high” and remaining workers are at risk of burning out. 

“We know that our healthcare system is still suffering from the long-term impacts of the COVID-19 pandemic,” he wrote. “If we do not ensure that we are doing everything possible to keep from adding additional burdens to the system, access to quality healthcare in Oregon is at stake.”

Oregon State Capitol in Salem.

Maribeth Guarino, health care advocate at the Oregon State Public Interest Research Group, noted to The Lund Report the program already makes exceptions for insurers and providers who miss the target because of extenuating factors, such as historically high inflation. Because the program already makes exceptions, she said it should be fully implemented before lawmakers make any changes to it. 

“The cost-growth target hasn’t really gotten a chance to get off the ground,” she said. 

The program is also designed to identify what might be driving the cost of health care above the target, such as pharmaceutical prices. Guarino said the bill’s provisions removing labor, pharmaceutical and other expenses from the program would mean less data that could be used to address cost drivers. The bill would also exclude “essential services,” including treatment of chronic conditions, care coordination and services related to pregnancy and prevention.   

During a hearing on the bill in February, state Rep. Maxine Dexter, D-Portland, pressed hospital association lobbyist Sean Kolmer on why these costs should be excluded from the program given that the data are needed and the program is already flexible.

“What we’re trying to prevent here is penalties for something we want the system to do,” he responded. “We don’t want the system to hesitate to deliver services and make sure access is happening in the community.”

The hospital association, lawmakers and others are seeking to spur the hiring of more nurses. But Kolmer said hiring more nurses could drive hospital spending above the 3.4% threshold. 

Bigger questions

Former Oregon Gov. John Kitzhaber, who spearheaded health care reforms during his long tenure in Salem, told The Lund Report that if lawmakers pass the bill they might as well repeal the program. 

“There’s nothing left,” he said. 

But Kitzhaber also said the health care cost-growth target is “simply not sustainable” because it was originally developed against a very different economic backdrop.

The 3.4% target mirrors the growth rate Oregon health officials promised the federal government in 2012 as part of an overhaul of the Medicaid-funded Oregon Health Plan. Kitzhaber said the growth figure was developed when inflation and labor costs were significantly lower. 

Instead of gutting the program, Kitzhaber said lawmakers should replace the target number with a new one that is below general inflation and medical inflation. 

Hensley-Quinn, with the National Academy for State Health Policy, said it’s difficult to compare the nine states that use health care cost-growth programs because of the differences in their medical systems. But she said they have all prompted debate on how to contain health care costs. 

Health care cost increases are likely to exceed the targets that each state set, she said.

“But the question becomes,” she said, “did the benchmark keep it lower than it would have been?” 

You can reach Jake at [email protected] or via Twitter @jakethomas2009.