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House Healthcare Committee hears experts on capping hospital prices; models show large savings
Summary
Experts told the House Healthcare Committee during testimony on S126 that tying commercial hospital payments to Medicare or using reference‑based pricing could reduce Vermont commercial hospital spending substantially, with studies citing large variation in commercial prices and case studies from California and Oregon.
The House Healthcare Committee on April (date not specified) heard expert testimony on S126 about options to limit commercial hospital prices, including reference‑based pricing tied to Medicare rates and other benchmarks. Christopher Whaley, an associate professor at Brown University and health‑care economist, told the committee that commercial insurers nationally pay roughly 250% of Medicare rates, and Vermont’s commercial prices average about 275% of Medicare.
Whaley said price growth, not service volume, has driven recent health‑care spending increases and argued market power — not cost‑shifting or clear quality differences — best explains why some hospitals negotiate much higher commercial rates. “These percent‑of‑Medicare prices are a price benchmark and not a price endpoint,” he said, adding that Medicare rates are roughly a breakeven point for efficient hospitals.
The committee heard that reference‑based pricing — which anchors maximum commercial payments to a multiple of Medicare or another benchmark — has reduced spending in other public purchaser programs without clear evidence of harm. Whaley cited CalPERS evaluations showing about 20% savings for services targeted by reference‑based pricing and Oregon’s program capping some public plan payments at 200% of Medicare, which he said produced about $50 million in state savings and no detectable change in staffing or provider viability.
Alina Barabee, former director of health systems finance at the board and a Dartmouth doctoral student who continues to work part time with the board, briefed the committee on how payment models differ and when each is typically used. Barabee described fee‑for‑service (activity‑based), capacity/capitation (population‑based), and hybrid approaches and said reference‑based pricing can increase price transparency and competition while capitation may be better where an integrated delivery system can manage a global budget.
Committee members pressed experts on likely patient effects, pass‑through of savings to premiums and cost sharing, and phased implementation. Whaley said patients would likely see reduced cost sharing when provider prices fall because many deductibles and coinsurance amounts are tied to provider prices. On the question of whether savings to a public‑employee plan would raise prices for other commercial payers (a “balloon” effect), Whaley said evaluations have not found a corresponding increase in prices for nonparticipating populations and pointed to spillover price reductions in California after CalPERS actions.
Modeling presented to the committee applied a 200%‑of‑Medicare cap across Vermont’s commercial population (not just public employees and teachers) and estimated roughly $400 million in reduced commercial spending statewide; Whaley said the bulk of modeled savings would come from larger, higher‑priced hospitals such as the University of Vermont. He and Barabee both recommended careful monitoring, phased implementation options and mechanisms to ensure that savings are passed through to patients in lower premiums and cost sharing rather than retained solely by insurers.
No formal committee action or vote on S126 was recorded in the transcript excerpt provided. Committee members indicated continued interest and follow‑up; the hearing continued with additional testimony after the presentations.
