State employee plans used Medicare-based caps to lower hospital spending; Oregon reports savings, Montana case shows trade-offs

At a February legislative committee meeting, Margaret Smith Issa, a program specialist with the Oregon Health Authority, described Oregon’s experience using a Medicare-based ceiling on hospital payments for state employee and educator health plans and said the policy has generated tens of millions of dollars in estimated savings since it took effect in late 2019 and early 2020.

The cap, established by state legislation, limits payments for inpatient and outpatient hospital services at participating hospitals to a percentage of Medicare rates, prohibits balance billing for covered services and exempts many small rural hospitals; Oregon also reported larger savings on outpatient facility charges than on inpatient services in the first years after implementation.

The details: Oregon implemented the hospital-payment limit under Senate Bill 1067 (2017) with follow-up technical changes in House Bill 2266 (2019). For network hospitals the law set a ceiling of 200% of Medicare payment; for nonnetwork hospitals the ceiling was 185% of Medicare. The cap applies only to facility payments for hospital services and excludes professional (physician) fees and services provided outside Oregon. The statute also lists exemption criteria for small and rural hospitals, including CMS-designated critical access hospitals and other hospitals identified in statute as “type A” and “type B,” which are defined by bed counts and distance from the next nearest hospital.

Why it matters: Oregon’s two large public-sector plans — the Oregon Educators Benefit Board (OEBB) and the Public Employees Benefit Board (PEBB) — cover roughly…