The following is a summary of Peter Hallum’s presentation highlighting key points of the progress and methodology of the Milliman analysis. 

Please note a single payer model is not included in the analysis. 

Data Collection & Analysis:

• Public and proprietary data are used, with some limitations on Medicaid and PEBB data.
• Three benefit scenarios are modeled: Medicaid-like, PEBB/SEBB-like, and Cascade silver-like.
• Focus on populations such as state employees, uninsured, ERISA groups, and low-income Medicaid-eligible individuals.

Projected Results:

• Analysis covers actuarial values, reimbursement rates, and medical management assumptions.
• Sensitivity testing will show the impact of different cost-sharing scenarios and spending shifts.

Next Steps:

• Internal reviews to conclude by month-end, with feedback incorporated before releasing to FTAC and the public.
• The goal is to refine assumptions and provide a comprehensive view of cost-sharing impacts.

Oregon's Politically Feasible Rate Setting Strategy 

A comprehensive discussion on Oregon's Politically Feasible Rate Setting Strategy highlighted that Oregon's model represents a politically feasible and effective approach to hospital rate-setting.  Could Washington learn from their experience?

By starting gradually, tying rate-setting to fiscal responsibility, and engaging key political allies, Oregon has managed to control costs while preserving the stability of its hospital system. States can adopt similar lower-intensity rate models (e.g., price caps, out-of-network caps, and flexible hospital global budgets) to address healthcare market failures and generate savings, all while avoiding the complexity and potential pitfalls of more rigid models.

Below is a summary of key points:

Context and Need for State-Based Rate Setting

• State Positioning: States have a unique ability to craft rate models tailored to their needs, as federal action on healthcare rate-setting remains unlikely in the near future.
• Hospital Market Failures: U.S. hospitals have significant market failures, primarily due to non-competitive markets created by hospital consolidations. The moral hazard associated with these failures leads to substantial wealth transfers from workers to hospitals (higher premiums, lower wages).
• Ineffective Insurance Role: Insurers have not effectively constrained hospital pricing or spending, making rate setting by the state a necessary solution.
• Global Success Models: All OECD countries use mandatory rate-setting models to control hospital prices and spending, and U.S. analyses by organizations like RAND and CBO project that state-based rate-setting can generate significant savings.

Oregon's Strategy: Gradual and Political Feasibility

• Price Caps on State/Public Employee Benefit Program (SPEHBP): Oregon initially set price caps for its public employee benefit program at 200% of Medicare rates. This model resulted in substantial savings (~$107 million in 27 months) without negatively impacting hospital access or quality.
• Gradual Implementation: Oregon's strategy began with generous caps and gradually reduced them, thereby avoiding significant disruption in the hospital sector. The caps applied specifically to larger hospitals while exempting smaller ones like Critical Access Hospitals (CAHs).
• Targeted Savings: The state used claims data and established 3.4% growth caps for Medicaid spending and overall state healthcare costs, setting a precedent for other regions.
• Political Support: The legislation passed because it was linked to broader state budget requirements, gaining support from public employees and unions, as well as avoiding a major increase in premiums for employees.

Expansion and Enlisting Support

• Gradual Expansion: Oregon plans to extend its price cap strategy to non-governmental self-funded plans and potentially private payers in the future. The strategy could eventually cover out-of-network services and evolve toward an All-Payer Hospital Global Budget model.
• Labor and Small Businesses: Building political alliances with labor unions (Taft-Hartley plans) and small businesses have been crucial in gaining widespread support for the rate-setting model.

Recommendation for Low-Intensity Rate Models

• Price Cap Models: States should implement lower-intensity rate models like price caps for state/public employee health benefits and out-of-network services. These are simpler and can be administered with existing state capacities, avoiding the complexities of comprehensive rate systems.
• Flexible Hospital Global Budgets (HGBs): States should consider flexible HGBs, which set a global budget for hospitals while allowing some flexibility in adjusting payments based on local needs and efficiencies.
• Public Utility Model: A Public Utility-style regulatory commission could oversee hospital global budgets to ensure transparency and minimize regulatory capture—a common problem in past models.

Hospital Global Budgets: Advantages and Challenges

• Pros: HGBs incentivize hospitals to control costs while still ensuring predictable revenue. They allow hospitals to focus on comprehensive care, including care coordination and reducing unnecessary service volumes. These budgets also tie healthcare spending growth to broader economic factors like the gross state product.
• Cons: Fixed global budgets can lead to care restrictions, such as longer wait times for services. They can also cause hospitals to shift care to non-hospital services, which can lead to inefficiencies. The flexible HGB model addresses these issues by giving hospitals more discretion in managing resources.

Price Caps on Out-of-Network (OON) Services

• OON Price Cap: Imposing caps on out-of-network hospital prices (benchmarked to Medicare) can restore negotiating power to insurers and reduce overall healthcare spending. This approach prevents hospitals from exploiting their leverage by threatening to go out-of-network.
• Savings Potential: Capping OON prices could lead to lower in-network negotiated rates over time, as insurers gain more leverage in negotiations. The analysis of Washington state data suggests that this could result in significant savings for private insurers.

Administrative and Logistical Considerations

• Ease of Implementation: Most of these rate-setting strategies, especially price caps and OON caps, are simple and can be implemented using existing state regulatory structures. For more complex models like Global Budgets, it is recommended that states establish independent regulatory commissions to prevent regulatory capture and ensure effective governance.
• Federal vs. State Approach: While federal solutions remain a distant possibility, states are in a better position to tailor rate-setting approaches to their unique needs. Models like price caps and flexible global budgets have worked successfully in other countries, and lessons from these models can be adapted for U.S. states.

Key Observations from Oregon's Model

• Savings and Benefits: Oregon’s price caps have saved significant amounts without negatively impacting access or hospital care. There have been reductions in outpatient prices, and hospitals have not engaged in widespread cost-shifting.
• Clarification of Rules: The program initially faced challenges with hospital price interpretation but was clarified to apply the lower of previously negotiated rates or 200% of Medicare, which has helped reduce prices and increased savings.

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