Hospital Transparency: State Efforts Reveal More Comprehensive Financial Data than Current Federal Requirements
Federal efforts to increase hospital price transparency are falling short as hospitals fail to fully comply with requirements. However, states with transparency laws that give them access to comprehensive hospital financial data are using the pricing information to more fully analyze hospitals’ fiscal health and inform states’ cost containment efforts.
In August 2018, the Centers for Medicare & Medicaid Services (CMS) issued a rule based on then-President Trump’s executive order that required hospitals to publish their chargemaster pricing online. CMS released an additional rule in 2019, which went into effect at the beginning of this year, expanding the types of charges a hospital is required to disclose to include gross charges, discounted cash prices, and negotiated rates, all of which need to be disclosed through a comprehensive, machine-readable file and a consumer-friendly shoppable services file.
However, not all hospitals are heeding these federal directives, and the threat of the $300-a-day fine is proving to be an insubstantial motivator to larger health systems. An investigation shows that New York City’s five largest systems are only partially – if not at all – complying with the federal requirement. A recent study of 1,000 hospitals across 27 states found that 30 percent of hospitals were entirely noncompliant, and additional hospitals only complied with one form of required disclosures. To date, the Biden Administration has not taken any public position on the executive order nor the rules.
For state agencies seeking to better understand rising health care costs, the price of shoppable services is a relatively small piece of the hospital financial puzzle. The federal regulation falls short of requiring other key metrics and data points that states need for oversight and/or for informed policymaking, such as bad debt, net gains/losses, profit margins, charity care, and more.
Additionally, neither the federal executive order nor subsequent regulations outline any sort of standardization for reporting the required data. Having a consistent standard for accounting documents – such as balance sheets, income statements, and statements of cash reserves – would provide comparability and clarity that states would be able to utilize in a multitude of ways. So even if hospitals comply with the current federal requirements, state officials will still lack access to the information they need to fully understand hospital financials and effectively combat rapidly rising health system costs in their states.
Building on a number of state hospital transparency efforts to date, the National Academy for State Health Policy (NASHP) has developed a reporting template and model legislation states can use to require health systems to provide comprehensive, standardized financial data that can inform policymaking and help state agencies better understand what is driving rising hospital costs. Connecticut and Oregon have been collecting hospital financial data for several years –their experiences informed the development of NASHP’s model law and reporting template, and they may be useful to other states.
The Connecticut Office of Health Strategy collects data to evaluate increased hospital expenditures against their revenue to determine if such expenditures are necessary and warranted. Connecticut also uses this data to help answer key questions about hospitals’ ability to continue to meet their debt obligations, pay their employees and vendors, and continue to provide quality care to patients. The standardized data Connecticut collects also helps the state evaluate the changing health care market, which includes health system mergers and acquisitions, increased capital costs, and the differences between increased expenses and revenues.
Assessing hospital financials helps states develop a range of cost containment strategies, from payment and care delivery reforms to policies designed to restrict cost growth. For example, hospital financial reporting serves as a critical companion to Connecticut’s cost-growth benchmark program by helping to contextualize claims reporting data when evaluating system costs over time. When paired with quality measures, all-payer claims database information, facilities fee reporting, discharge data, and cost benchmark data, hospital financial transparency has given Connecticut a fuller, more accurate picture of the health market’s performance statewide. Financial data on its own may not necessarily reveal price variation over time, but when tied with other data, such as reporting on payer mix (public vs. private payers) differences, states can better evaluate their hospital market’s performance.
With hospital costs making up a significant portion of health care spending, states have been interested in tracking the impact of hospitals’ payer mixes and the proportion of hospital costs on overall premium dollar changes over time, especially when compared to federal data. The Oregon Health Authority has been collecting hospital financial data for years and in 2014 began publishing quarterly reports. Oregon documented a rise in state health spending at an average of 6.5 percent per person per year from 2013 to 2017, compared to a 4.5 percent annual increase at the national level. This discrepancy between federal and state-level health cost annual increases encouraged Oregon to develop cost-containment strategies. Additionally, while hospital profit margins were about 7.3 percent statewide in 2019, some Oregon hospitals reported losses that year, which were quickly identified in the state’s standardized financial reporting format.
Oregon has also been able to utilize its financial data to assess the impact of the COVID-19 pandemic on its statewide health systems. As have many states, Oregon observed a decrease in hospital utilization in the second quarter of 2020, caused by the suspension of elective procedures and stay-at-home orders. This resulted in a steep reduction of about 80 percent in net patient revenue during April. Combined with data collected on hospital financial reserves, Oregon was able to prepare for the potential of rapid consolidation – which frequently leads to increased prices impacting consumers and boosting premiums.
While it’s unlikely that hospital transparency efforts on their own will produce lower health care costs, states may want to consider the value of this approach in collecting comprehensive health system data – particularly as care utilization has changed over the past year and its effect on the system remains unknown. NASHP’s model law and reporting template, informed by state experiences, offer a more robust health system financial picture than the current federal price transparency effort.
Community Benefit Twitter Chat – 3 p.m. (ET) Wednesday, April 7, 2021
The National Academy for State Health Policy (NASHP) and Community Benefit Insight are hosting a TwitterChat at 3 p.m. (ET) Wednesday, April 7, 2021, as a part of National Public Health Week. It will discuss community engagement, how hospital community benefit improvement activities can address health disparities, and how this has changed as a result of the COVID-19 pandemic. Make sure to follow @NASHPhealth on Twitter and use #CommunityBenefitChat.
How to participate:
- Follow @NASHPhealth on Twitter.
- Join us at 3 p.m. (ET) Wednesday, April 7, 2021, and follow the conversation using #CommunityBenefitChat
- Share your thoughts and ideas on policies and support resources.
- Use links to your website, programs, initiatives, and partners in your tweets to promote the good work you, your organization, and/or state are doing!
- Include #CommunityBenefitChat in all of your tweets so chat participants can easily follow you and others during this event.
How it works:
- Each question will be numbered Q1, Q2, Q3, etc.
- Start your responses with A1, A2, A3 etc. to correspond with the question.
- You only have 280 characters per tweet but you’re not limited to only one tweet per question. Use A1a, A1b, A1c, etc. to indicate either a multi-part answer or multiple responses to a given question.
The questions:
Q1: How can nonprofit hospitals help address community needs during the COVID-19 pandemic and recovery?
Q2. How can community benefit programs address social determinants of health and reduce health disparities worsened by the COVID-19 pandemic?
Q3. How can community benefit programs make public health services more accessible to vulnerable populations?
Q4. What steps can non-profit hospitals take to effectively engage community members in their community health needs assessments?
Q5. How is your state or community working to ensure meaningful community benefit spending?
Q6. What steps can states take to ensure community benefit spending meets identified community needs?
This chat is an excellent opportunity to highlight some of your exciting initiatives, innovations, and resources!
How States Can Leverage Hospital Community Benefit Policy to Advance Health Equity
For decades, nonprofit hospitals have received large tax exemptions for investments in their communities. Currently, federal requirements do not define minimum spending by hospitals on community benefit programs nor are hospitals required to link community benefit dollars to identified health needs. With limited federal guidance, states are leading the way and establishing impactful community benefit policies. This slide deck outlines the levers states are using to hold nonprofit hospitals accountable for their investments in community health improvement. For more information, read NASHP’s blog, Now Is the Time for States to Hold Hospitals Accountable for their Community Benefit Expenditures.
Will Laws to Lower Drug Prices Harm Innovation? The Evidence Says No.
Drug makers claim high prices are necessary to support new drug development and innovation, but research shows that public investment in drug research and development combined with large industry profits leaves manufacturers room to lower prices while continuing to innovate.
Drug manufacturers have brought new vaccines to market in record speed to stop the spread of COVID-19. That notable achievement was made possible by massive financial investments from the public. More than $19 billion in government funding has been invested in the research, development, manufacturing, and distribution of COVID-19 vaccines. In total, the United States has guaranteed purchase of 900 million doses for a population of approximately 330 million and assumed financial risk so manufacturers don’t have to.
Even companies that did not accept federal funding for research and development have benefited from previous taxpayer-funded research. The Pfizer vaccine contains a publicly-funded, government-developed spike protein technology that rapidly accelerated its development process.
Public funding is not unique to vaccines though. The drug industry relies heavily on public funding for all forms of drug development. Taxpayer-funded research for each of the 356 drugs approved by the US Food and Drug Administration in the last decade totals $230 billion. Despite this level of public investment in drug development, manufacturers face few restrictions on what they can charge for their drugs in the United States despite taxpayers’ investments.
As a result, drug prices are on average 2.5-times higher in the United States than comparable countries, even though those countries also contribute considerably to research and development (R&D) costs. High drug prices in the US market have generated substantial profits for the pharmaceutical industry. Between 2008 and 2018, the profitability of pharmaceutical companies was almost double that of other large, public companies.
Despite the significant amount of taxpayer funding, pharmaceutical industry officials argue that high drug prices reflect the cost of R&D and the risk associated with developing a new drug. However, high US drug prices exceed what is necessary to fund R&D. For example, drug manufacturers Amgen, Biogen, Pfizer, and Teva generated more than double their global R&D budgets from excessive US prices, and three companies covered or nearly covered all of their research spending through high US prices on their top-selling products alone:
- AbbVie’s Humira (an immunosuppressant);
- Biogen’s Tecfidera (treats multiple sclerosis); and
- Teva’s Copaxone (an immunomodulator that treats multiple sclerosis).
Two of these drugs – Humira and Tecfidera – appear on the Institute for Clinical and Economic Review’s 2020 list of drugs that have prices increases unsupported by new clinical evidence.
With little action on drug prices from the federal government, states are considering new ways to control drug spending, and lawmakers have filed more than 200 bills this session, including bills with the potential for real impact on prices. Five states have introduced the National Academy for State Health Policy’s (NASHP) model legislation to establish international reference rates to bring prices in line with Canadian rates, which could result in savings ranging from 60 to 85 percent. Three states have introduced NASHP’s model legislation that fines pharmaceutical manufacturers whose drug price increases are unsupported by new clinical evidence – including Humira and Tecfidera cited above – based on the Institute for Clinical and Economic Review’s research.
As states ramp up their efforts to address excessive drug prices, the industry continues to argue that lower prices would harm innovation. Trail-blazing states can be reassured, however, that there is room for manufacturers to lower prices while still maintaining their profit margins and preserving their capacity for innovation.
NASHP Issues an RFP for Online Database Developer – Due March 30, 2021
The National Academy for State Health Policy (NASHP), a non-profit, nonpartisan forum of policymakers, is issuing this request for proposal (RFP) to identify future contractor(s) to create an online searchable database that shares data from a tool we developed. Proposals are due by 5 p.m. (ET) Tuesday, March 30, 2021.
Background
Through its Center for State Health Care System Costs (the Center), NASHP has developed a hospital cost tool to analyze a hospital’s costs versus its prices. The tool is an Excel workbook that requires manual data entry from a hospital’s annual Medicare Cost Report (MCR) to identify its costs for providing hospital services, the largest portion of health care spending. Formulas are embedded in the tool to calculate several hospital financial metrics. Entering the data can be very time consuming and prone to data-input errors when used by individuals who are unfamiliar with the MCR.
In September 2020, NASHP began working with Vivian Ho, director of the Center for Health and Biosciences at the Baker Institute at Rice University, to auto-populate the MCR data from the national Healthcare Cost Report Information System (HCRIS) using the tool’s formulas. Ho and her team have successfully used Strata software to link NASHP’s tool with HCRIS, creating a data set of about 40 key points from the tool’s calculations. The data set resides in an Excel format, with 10 tabs (each representing a year of data from 2011 – 2020) each containing the 40 data points for each of the approximately 6,500 hospitals nationwide that submit an MCR. The data points include:
- Net income
- Profit margin
- Reserves
- Cost-to-charge ratio
- Uncompensated care costs
- Payer mix and profit/loss from Medicare, Medicaid, and commercial payers
- Break-even financial points
- Comparison to Rand 3.0, and
- Hospital pricing as a multiple of Medicare
NASHP has used the data set to prepare reports, Microsoft PowerPoint presentations, and deeper analyses for states and employer health plans that allow for benchmarking hospitals by bed size, state, national, and other measures. The work is intensive and requires a level of data expertise that not all state policymakers either have access to or the resources for. As a result, to date only a few people are working with the data. However, NASHP intends to make analysis from this data available to all state policymakers who want it.
Next Steps: Share an Online National Database of Hospital Costs
NASHP is interested in sharing (and regularly updating) the data set it created with Rice University on NASHP’s website to make it is accessible to states. To ensure the online database is useful to states and other health care purchasers, it should be searchable and include interactive features that allow users to create customized comparison charts, etc. Further, using the most recent data available (by a certain month, to be determined, in 2021), NASHP wants to create standardized reports for each state and Washington, DC that provide information through charts and graphs on hospital cost trends in their states that include national benchmarks.
While NASHP will continue to work with Rice University to update the data set using its evolving tool and the strata code already developed, the online data set needs to easily allow such updates. NASHP is seeking to contract with one or more entities that can advise NASHP on the best way to present this large data set online and make it as useful as possible to its core audience of state policymakers. NASHP is seeking expertise in organizing and presenting complex data sets online that can be manipulated by users with differing needs without making changes to the original data set. Please consider that NASHP wants flexibility built into the online data set to allow for quarterly updates, which is the frequency that the HCRIS data base is updated. Also, over time NASHP will likely expand the tool with additional data points as states need more information and/or as the MCR evolves. It also anticipates adding information from future resources, e.g., Rand 4.0. NASHP is also seeking help to develop and create easy-to-understand state reports with graphs, charts, and other visual representations of the data to offer a snapshot of hospital costs for each state. NASHP recognizes that the skills needed for this project may require contracting with two different entities – one with expertise in creating large online data sets and another with the graphics knowledge to create informative, visual reports. We are open to contracting with one or multiple parties to complete the work.
Anticipated Deliverables
To achieve these goals, NASHP is seeking proposals from entities with expertise in creating online searchable online databases that can be routinely updated and/or entities with expertise in developing graphics from complex data. It is NASHP’s intention to begin this work in the late spring or early summer of 2021 so that the online database and individual reports will be available early in 2022 (or before, if possible.) NASHP welcomes interested entities to submit proposals related to the following anticipated deliverables and questions noted below.
- Develop an online, searchable database from the data set that NASHP now has from the HCRIS database using the strata code developed in partnership with Rice University. It must include:
- Accessible display of large data set that includes approximately 40 data points for about 6,500 hospitals over a 10-year-plus period of time (2011 and beyond);
- A search tool that allows users to query the database to access specific data points and to customize analytic reports based on their needs, which may include:
- Access to a single hospital’s cost information across all 40 data points throughout multiple years to understand a specific hospital’s cost trends;
- Access to multiple hospitals in a specific location (city, state, multiple state region, and/or national) to compare single or multiple cost data points; and
- A search that allows users to have options for viewing the data.
- Provide an overview of the data set that includes:
- A brief, written introduction of the resource that includes examples of how it can be used;
- A clear, concise instructions for using the resource; and
- A brief recorded training for users to view.
- Design informative charts, graphs, and other visuals to share critical data points and trends from the NASHP database to be used in state reports and presentations.
- Create standard reports using the data set – both national reports and individualized state reports –with graphics. NASHP will collaborate on the commonly requested information that should be included in the reports.
Request for Proposal
NASHP is seeking proposals from potential contractors with expertise, capabilities, and availability to do the work of presenting our data set online. In reviewing responses to this RFP, NASHP hopes to understand respondents’ experience with large data sets, their ability to create accessible graphics, and learn about their successful work with states. NASHP is also looking for information that will assist it in balancing respondents’ relevant experience with proposed budgets and timelines to complete the type of work we contemplate undertaking.
Please note if your proposal is responding to both areas or work/sets of deliverables (creating the online database and developing graphic reports) or if it is just focused on one of the areas of work and identify which one. Proposals responding to this this RFP will be accepted through 5 p.m. (ET), Tuesday, March 30, 2021.
All proposals should include the following:
- Organization and/or individual name and location(s);
- Description of the organization/company and explanation of the type of services provided, please note your audiences/recipients of your services;
- Please describe the experience you/your organization has with the work NASHP is seeking to do, including:
- Creating searchable, online databases that can be used by individuals with various backgrounds, including those with limited statistical experience (up to two pages), and
- Designing graphic-based reports that share critical information in a digestible manner (up to two pages)
- Describe your/your organization’s approach to the work by briefly explaining how either or both sets of the deliverables will be accomplished, as well as the proposed communication plan with NASHP. Please note the strengths and weaknesses of your approach and how you will assure quality work. (Up to three pages per set of deliverables – the online database and/or the graphical reports).
- Describe the people who would work on this project and a summary of their experience.
- Please provide the timeline you/your organization would need to accomplish the work and finish all deliverables and note how soon you/your organization would be available to do the work (up to two pages).
- Please provide the proposed detailed budget for the work and note if you/your organization would be the sole contractor or if there would be a subcontractor used as well.
- Please disclose any possible conflicts of interest.
- Please provide disclosure of complaints, current or pending actions, legal or otherwise.
*Examples of similar work can be included as an appendix to the proposal.
Proposals will be evaluated based on the respondent’s demonstrated experience with this type of work, the organization’s capacity to take on this assignment, the proposed workplan, and proposed cost. Note that the final award of this contract is contingent upon NASHP securing adequate funding for this initiative.
Point of Contact
Respondents can send questions and responses to this RFP to Maureen Hensley-Quinn at mhq@oldsite.nashp.org.
Q&As about NASHP’s RFP
Will this new online database will be a stand-alone, cloud-based web solution?
The database will most likely need to be housed on a stand-alone, cloud-based solution separate from the NASHP website. However, the user-friendly interface should align with the look and feel of our website.
How many general users will be accessing the system – just searching the database? How many will be administrators – with permission to update/edit the data?
We are seeking a contractor that can take our database content and create a user-friendly interface so that the public can access the information as needed. We expect a small number of NASHP staff will need permissions to update and edit the data on a fairly regular base, e.g., quarterly or annually.
Will general users need to log in to use the database or will it be open for anyone to use?
It will be open.
Will the reports need to be downloaded? If so, what format(s) are needed (ex. PDF, JPEG, etc.)? Will the data for each report also need to be downloaded? If so, what format(s) (ex. CSV, Excel, etc.)?
NASHP is seeking one or two contractors to develop:
1) The user-friendly interface for the large excel database we have created so that the public can access the information from that database. It would be ideal to have an option to download the data accessed from this online database in excel format.
2) Point in time individual state reports with charts and graphs to highlight key data elements for that state.
NASHP is open for contracting with one organization to do both parts of this work, but we are also open to separating the work into two different components and contracting with two different entities.
Is there an existing developer that you work with who will also be bidding?
No
We know the deadline to submit our proposal is March 30, 2021. After that, when do you anticipate making a decision? When do you estimate that work will begin? When do you want the project to be completed/go live?
NASHP will begin considering all proposals after the submission deadline and will notify the successful bidder as soon as possible, likely by the end of April/early May. As noted in the RFP, we hope to launch the work in “late spring or early summer of 2021 so that the online database and individual reports will be available early in 2022 (or before, if possible.)”
What type of hosting/on-going maintenance will you be needing post-launch?
Ideally, NASHP will host the online interface and database as it does our website, but we are open to advice and input from the successful bidder on the best way to do so. We don’t expect ongoing maintenance will be needed, but we are open to advice and feedback from bidders on that as well.
What is the budget for the initial project development? Budget for long-term support?
NASHP has not specified an established dollar-value range for this contract and will consider price as well as a respondent’s ability to complete quality work within our preferred timeline of spring 2021 until winter 2021.
Would the contractor need to ingest the data NASHP and Rice University has prepared (the Excel tool data), or would the contractor ingest that data directly from HCRIS and merge with additional data produced by Rice University?
The contractor will use the large excel file that NASHP put together with Rice University as the calculations from HCRIS database have already been made.
Would the contractor need to interface or make use of the NASHP/Rice Stata code or would the contractor be building a separate system not linked to this existing code?
It is our expectation that the contractor will be creating an online, user-friendly interface so that users can easily access the critical cost data points within NASHP’s existing large, excel file.
Would we expect to make all deliverables accessible to the public or provide differential access to certain users?
The goal is to make all deliverables accessible to the public.
Are there any constraints on the platform and programming language used by the contractor? For example, are there any constraints on whether the contractor can use cloud computing to work with and host the data and reports?
Ideally this online database will be housed on NASHP’s website. However, we are open to input and feedback about how best to make that happen – whether it live our website’s server or be stored via a cloud-based solution.
The RFP states that “Also, over time NASHP will likely expand the tool with additional datapoints as states need more information and/or as the MCR evolves. It also anticipates adding information from future resources, e.g., Rand4.0.” How does NASHP plan to implement future changes after go-live. Although most tools would provide flexibility to update the input data and refresh existing reports, some changes may require an operations and maintenance support. Should we assume additional support after go-live date or would the continued updates of the evolving Rice University’s tool be scoped under a different maintenance and support contract if needed?
At this point, NASHP seeking a contractor that use flexible tools that our staff would be able to maintain. However, if the database needs significant updates, we would seek assistance through a different contract.
Insurance Rate Review as a Hospital Cost Containment Tool: Rhode Island’s Experience
For more than a decade, Rhode Island has used a unique insurance rate review approach to keep hospital costs from rising any more than inflation plus 1 percent. As states confront COVID-19 and its accompanying budget crisis, Rhode Island’s approach that allows regulators to oversee hospital costs and requires insurers to invest in the state’s health priorities offers a new model for curbing health care costs.
From Medicare reference-based pricing to cost-growth benchmarks, states are exploring a number of innovative approaches to stabilize health care costs. Hospital costs are a particularly significant driver of insurance premiums rates. As health care consolidation increases, costs rise and insurers may be less likely to exert negotiating power to lower those costs.
As states renew their focus on health care costs, Rhode Island’s affordability standards, which require the inflation plus 1 percent cap in insurers’ negotiated prices with hospitals in order to have their premium rates approved, offers an avenue for health care cost controls. While the degree of regulatory oversight over insurance markets varies across the country, many states may be able to replicate Rhode Island’s approach.
Background on Insurance Rate Review
The insurance rate review regulatory tool gives state insurance departments the authority to examine proposed premium increases charged by health insurance companies that offer plans in a state. Rate review is used both to assure the financial viability of insurers and to ensure that companies have a legitimate reason to raise costs.
While rate review was ongoing on the state-level before the Affordable Care Act (ACA) was enacted, the ACA created a floor for review of “unreasonable” increases or a 10 percent increase in the individual or small-group market. The federal government defers to state review of premium rate changes unless a state doesn’t have an “effective” program, defined by the Centers for Medicaid & Medicare Services’ Center for Consumer Information and Insurance Oversight. Currently only three states (Oklahoma, Texas, and Wyoming) defer to the federal government for rate review. The ACA also added in the medical loss ratio (MLR) requirement, which limits the amount of premium dollars that insurers can spend on administration, marketing, and profits. The ACA requires most individual and small-group market insurers to spend 80 percent of premium income on health care claims and limits other expenses to the remaining 20 percent of premium income.
The scope of rate review varies across states – some states only have authority over individual and small-group markets while others also have authority over the fully insured, large-group markets as well. Some states have “prior approval” authority, which allows them to reject, approve, or reduce proposed premium rates, while others have “file-and-use” oversight, which gives officials the authority to review, but not reject proposed increases. Whether states have prior approval or file-and-use authority can also vary based on the market – states typically have less oversight over the fully insured, large-group market than the individual and small-group market.
In 2015, Health Affairs reported that adjusted premiums in the individual market were lower in states that had “prior approval” authority along with MLR requirements from 2010 to 2013. While more stringent rate review is shown to keep premiums lower, some states have expanded the scope of their rate review processes to tackle issues of accessibility and affordability. Since 2010, Rhode Island has been using its unique regulatory structure with the Office of the Health Insurance Commissioner (OHIC) to better control rising hospital costs through insurance rate review.
Rate Review as a Cost Containment Tool
In 2004, Rhode Island enacted a law that split the Office of the Health Insurance Commissioner (OHIC) from the rest of its insurance department in order to better understand and oversee the relationship between insurers and providers. In Rhode Island, the health insurance commissioner has oversight over the individual market, the small-group market, and fully insured, large-group markets. Although the ACA required the OHIC to complete a more comprehensive review of consumer protections in the individual and small-group markets, the OHIC has the authority to review and approve rates for all three markets – including for fully insured, large-group plans.
The legislature also charged the newly created health insurance commissioner with promoting greater accessibility, quality, and affordability in the health insurance market – a unique charge compared to other states – that ultimately led insurance regulators to oversee negotiated rates between insurers and hospitals. The OHIC’s work to oversee hospital costs largely relies on a “public interest” criterion in the state’s insurance statutes. The rate review statute requires proposed rates to be, “consistent with the proper conduct of its business and with the interest of the public,” and the public has an interest in affordability. The 2004 statute also created the Health Insurance Advisory Council, which was responsible for making recommendations on a number of issues, including requiring that the market for small businesses be affordable and fair.
The council led efforts to better understand health care cost drivers in Rhode Island and found that hospitals were a main “pain point” for affordability. Insurers argued they did not have the leverage to negotiate lower rates in contracts with providers. In 2009, the council reviewed the state’s options to address these cost drivers and eventually developed the Affordability Standards and Priorities for Rhode Island Commercial Health Insurers, which emphasized the need for reduced insurance costs, and by extension, reduced hospital costs. In 2010, the insurance commissioner documented significant variances between the rates of payment for inpatient costs across health systems in Rhode Island, prompting additional questions about the contracted rates between insurers and providers. This finding, combined with a lack of insurer-motivated payment reforms, spurred the commissioner to adopt a set of four “affordability standards” for insurance rate review.
Rhode Island’s Affordability Standards
With the adoption of the affordability standards, the commissioner directed insurers to comply with four new criteria in order to have their premium rates approved:
- Expanding and improving primary care infrastructure;
- Spreading the adoption of the patient-centered medical home model;
- Supporting CurrentCare, the state’s health information exchange; and
- Working toward comprehensive payment reform across the delivery system.
The primary care criteria required insurers to increase their share of medical spending on primary care by 1 percent from 2010 to 2014, while not increasing consumer premiums. The additional investments also couldn’t lead to increased overall medical expenses – and instead were intended to reflect a shift to new payment strategies. Beyond primary care, the standards required insurers to provide financial support for the Rhode Island Chronic Care Sustainability Initiative, the all-payer, patient-centered medical home pilot project, and CurrentCare, the state’s health information exchange
As far as cost containment, the most striking change to Rhode Island’s rate review process was the implementation of the fourth standard – comprehensive payment reform. In order to set measurable goals to hold insurers accountable for this, the commissioner put six conditions into place that insurers had to adopt in their hospital contracts. The conditions included:
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- Paying for inpatient and outpatient services using “units of service” that encourage efficient resource use.
- Limiting the average annual effective rates of price increase for both inpatient and outpatient services to a weighted amount equal to or less than Centers for Medicare & Medicaid Services’ National Prospective Payment System Hospital Input Price Index (“IPPS”) plus 1 percent for all contractual years.
- Giving hospitals an opportunity to increase total annual revenue based on meeting mutually agreed upon quality goals.
- Including contract terms to meet agreed upon obligations for administrative simplification.
- Including contract terms that promote and measure improved care coordination.
- Including transparency for these six terms in contracts.
The #2 condition, requiring insurers to limit the average price increases for hospital services, was groundbreaking in its impact on the contractually agreed-upon prices paid by insurers to providers. In addition to tagging rate increases to IPPS, the affordability standards also required that at least 50 percent of the annual hospital rate increases be earned through the agreed-upon quality measures. These hospital contracting provisions were an early and still innovative approach to regulating hospital costs.
Impact of Affordability Standards
A 2019 Health Affairs review found that implementation of Rhode Island’s affordability standards led to a net reduction in per enrollee spending by a mean of $55 from 2010 to 2016. The study showed that outpatient and inpatient utilization did not significantly change, but spending per encounter decreased in Rhode Island compared to a control group. Quarterly fee-for-service spending actually decreased by $76 per enrollee, but the requirement to increase non-fee-for-service primary care spending raised per enrollee spending by $21, netting out to a quarterly savings per enrollee of $55. In addition, patient cost sharing was lower in Rhode Island after the affordability standards were implemented compared to a control group.
Quality metrics did not change with implementation of the standards. In fact, interviews conducted for a 2013 review of the standards found that the “at-least-50-percent” provision for hospital contracting caused a “culture shift” among hospitals by focusing their attention to meeting quality measures.
The one challenge in understanding the impacts of Rhode Island’s affordability standards is that it is impossible to totally untie the provisions around hospital contracting from the primary care investments, making it somewhat difficult to know how a state might fare if it only enacted standards around payment reform without the primary care investment.
Since implementation in 2010, Rhode Island has updated its affordability standards over time to align with other goals, such as further promoting the patient-centered medical home model and alternative payment methods that emphasize value rather than volume. The most recent affordability standards, adopted in 2016, require insurers to spend at least 10.7 percent of their annual medical spend on primary care. Among other requirements, the standards also maintain the hospital contracting provisions. The standards require insurers to limit hospital rate increases so that the average rate increase is no greater than the Urban Consumer Price Index (CPI) (less food and energy) percentage increase plus 1 percent.
Future of Rate Review as a Cost Containment Tool
Rate review is a promising tool for cost containment. As evidence shows it can keep premiums low but can also be used to impact payer-provider negotiations as in Rhode Island. Placing responsibility for hospital cost containment alongside insurance rate review not only allows for coordinated reform across insurers, but also gives an insurance department, like OHIC, insight into where unintended consequences might occur or other costs might pop up as the state works to control other health care cost drivers.
States have begun to mirror Rhode Island’s affordability standards in their insurance rate review process to advance health policy goals. In 2019, Colorado enacted HB 19-1233, which established a Primary Care Reform Payment Collaborative that, among other things, was tasked with creating an affordability standard to require additional investment by insurers in primary care.
The collaborative recommended that commercial payers be required to increase the percentage of total medical expenditures (excluding pharmacy) spent on primary care by at least one percentage point annually through 2022. The collaborative said the Insurance Commissioner will have to address the risk of costs being passed on to consumers when the affordability standards are promulgated. This standard is similar to Rhode Island’s work to invest in its primary care infrastructure. Importantly, the Colorado collaborative noted in its recommendations that the Insurance Commissioner must include this new affordability standard alongside an effort to reduce overall health care spending. Otherwise, health care costs could rise in the state.
Similarly, Delaware enacted SB 116 in 2019 to create an Office of Value-Based Health Care Delivery within its Department of Insurance. The office’s goal is to reduce health care costs by providing high quality, cost-efficient health insurance products with stable, predictable, and affordable rates. To achieve this mandate, the new Delaware office has been working alongside the Delaware Primary Care Reform Collaborative to develop affordability standards and targets for primary care spending for carriers. In November 2020, the office presented draft affordability standards that would set targets for primary care investment, unit price growth for non-professional services, and the adoption of alternative payment models. Modeling Rhode Island’s work, the targets for primary care investment and capping unit price growth would be enforced through insurance rate review. The draft standards recommend using a phased approach to cap unit price growth beginning in 2022 and would decrease over time, eventually reaching Rhode Island’s cap of CPI plus one percent by 2025. According to a timeline in its November presentation, the office plans to publish the draft standards and accept public comments in February 2021.
With the implementation of Rhode Island’s affordability standards, the state was able to successfully cap growth in hospital costs and thereby constrain premium growth. Rhode Island’s use of rate review to control hospital costs can be a model for other states interested in curbing health care costs. The National Academy for State Health Policy will continue to track state efforts to implement affordability standards and will convene states interested in exploring this policy.
Webinar: How NASHP’s Model Legislation Increases Health System Financial Transparency and Provides a First Step to Address High Hospital Costs
Hospitals account for the largest expenditure of US health care dollars, followed by physician and clinical services, half of which are owned by a hospital or health system. To address rising health care costs, policymakers and the public need detailed financial information to understand a hospital’s assets as well as its expenses and liabilities.
The recording and accompanying slides from this webinar offer an opportunity to learn about NASHP’s recently released model legislation and reporting template directly from state leaders with expertise in hospital finances. Listen to this webinar to learn:
- Why hospital and health system financial transparency is an important first step, particularly with federal financial COVID-19 relief dollars allocated to health care systems and decreased utilization of non-emergency services.
- How NASHP’s model legislation and reporting template increases transparency.
- What critical information the model provides to state policymakers.
- What state entity should be tasked with oversight and review of the data received.
Moderator: Trish Riley, Executive Director, National Academy for State Health Policy
Speakers:
- Nancy Kane, DBA, Adjunct Professor of Management in the Department of Health Policy and Management, Harvard T.H. Chan School of Public Health
- Jeremey Vandehy, JD, Director of the Health Policy and Analytics Division, Oregon Health Authority
- Vicki Veltri, JD, LLM, Executive Director, State of Connecticut Office of Health Strategy
Slide Deck: Understanding the Health Care Cost Conundrum in 2020
To help state policymakers engage in difficult discussions around how best to lower the health care cost trajectory, the National Academy for State Health Policy created the slide deck, Understanding the Health Care Cost Conundrum in 2020, featuring factual information about rising health care costs.
This toolbox features multiple sections that could be used together or featured separately by topic depending on a state’s interests. Addressing health care costs can be a complex and monumental task, this new resource provides a straightforward, easy-to-understand overview to help inform policymakers and the public.
For individuals living with complex, often chronic conditions, and their families, palliative care can provide relief from symptoms, improve satisfaction and outcomes, and help address critical mental and spiritual needs during difficult times. Now more than ever, there is growing recognition of the importance of palliative care services for individuals with serious illness, such as advance care planning, pain and symptom management, care coordination, and team-based, multi-disciplinary support. These services can help patients and families cope with the symptoms and stressors of disease, better anticipate and avoid crises, and reduce unnecessary and/or unwanted care. While this model is grounded in evidence that demonstrates improved quality of life, better outcomes, and reduced cost for patients, only a fraction of individuals who could benefit from palliative care receive it. 
