By Erica Hahn, Abigail Knapp, and Kennah Watts
U.S. health care spending is rapidly rising, driven primarily by high prices that continue to outpace the rate of inflation. To curtail spending growth and improve health care affordability, states have begun to employ strategies that set, cap, or limit growth of hospital prices. In this blog, we describe different state approaches to price regulation. For more information on which states currently regulate hospital prices and the policies they choose, explore CHIR’s recently published interactive maps detailing state oversight of hospitals.
Background: Understanding Price Regulation
In the last few decades, increasing consolidation in the health care system has given hospitals and health systems an outsized advantage in price negotiation with commercial insurance plans. This consolidation has led to higher prices, particularly in the hospital setting, without commensurate gains in quality or efficiency. Price regulation reforms thus offer opportunities to improve affordability for patients, while fostering hospital competition over quality instead of prices.
Depending on their policy goals and political environment, states may choose among several approaches to price regulation. These policies can apply to providers, payors, or both. We list and define four types of price regulation below:
- Price growth caps constrain the overall rate at which hospital prices can increase. These caps can be tied to external benchmarks, such as the Consumer Price Index (CPI) which measures general inflation, or set as a fixed maximum growth rate specified in statute or regulation. Rhode Island and Delaware have implemented price growth caps to control the year-over-year price growth.
- Reference pricing sets reimbursement rates tied to a specified benchmark, which is often defined as a multiple of Medicare’s fee-for-service rates. In some models, these benchmarks set the price the payors pay; in others, these benchmarks operate as a price cap for providers. Reference pricing often targets specific payor groups, such as State Health Employee Plans (SEHPs), as demonstrated by reference pricing initiatives in Oregon, Washington, and West Virginia.
- Price caps impose an upper limit on how much providers charge. While price caps can be tied to an existing reference rate such as Medicare, they can also be indexed to national or local average negotiated prices, or other rates – all of which can be adjusted over time in line with those benchmark rates. In the 2025 legislative session, Vermont and Indiana became the first states to place price caps on hospital charges, rather than the rates insurers pay, and thus apply price caps to their state’s entire commercial market.
- Rate setting establishes payment rates for services. The federal government sets reimbursement rates for Medicare fee-for-service payments, and the states set rates for Medicaid and other public programs. For example, some states like Oklahoma and South Carolina set rates for their SEHPs. Maryland, which began setting hospital rates for all third-party payers in 1974, will continue building on its decades of experience as it implements the AHEAD model, which limits hospitals’ all-payer revenue under a global budget approach, in early 2026.
These price regulation approaches are not mutually exclusive and distinct, as many states use reference prices to define their price caps. For example, Vermont’s new program will use Medicare-based reference prices to set an upper limit on what hospitals can charge. Additionally, within these categories, states can further tailor their approaches. We offer two such examples – Oregon and Rhode Island – to showcase how states can effectively contain hospital spending through various price regulation models.
Oregon and Rhode Island Offer Examples of Successful Price Regulation
Oregon and Rhode Island have taken distinct approaches to hospital price regulation. While Oregon chose to adopt reference rates for a specific market – the state’s SEHP – Rhode Island adopted a comprehensive system that limits growth of hospital payments for all state-licensed commercial insurance plans.
Oregon’s Model Employs Targeted Reference Pricing to Reduce Hospital Spending
In 2017, Oregon passed legislation to establish reference-based pricing for its Public Employee and Educator Benefit Boards (PEBB/OEBB) — the state’s version of a SEHP — to reduce rapidly rising spending for the state’s public employee health benefits. The statute caps payment for all hospital services at 200 percent of Medicare payment rates for in-network hospitals, and 185 percent of Medicare payment rates for out-of-network hospitals. To preserve access to hospital care in underserved areas, rural and critical access hospitals are exempt from this policy. The SEHP saved an estimated $107.5 million, which represents four percent of plan spending, in the first two years of the policy.
Rhode Island’s Approach Aims for Market-wide, Moderate Savings Over Time
In 2010, Rhode Island’s Office of the Health Insurance Commissioner (OHIC) adopted affordability standards for state-licensed health insurance plans. These standards cap the amount by which insurers can increase their reimbursement rates for hospital services to the inflation rate, defined as CPI-Urban plus one percent. State-licensed plans that submit proposed premium increases with hospital payment rates that exceed this cap must undergo OHIC review and the Commissioner may approve, disapprove, or modify rates. These rate caps are also paired with other requirements for payer-provider contracts, including quality incentive payments and greater investment in primary care, all enforced through OHIC’s review and approval of plan premium filings. This approach has led to significant savings across the commercial market: Between 2012 and 2022, Rhode Island’s affordability standards led to an average 9.1 percent reduction in hospital prices in the commercial market relative to comparison states. Fully insured premiums decreased by more than $1,000 per member per year by 2022, and quarterly fee-for-service spending decreased by $76 per enrollee in the broader commercial market between 2010 and 2016.
Looking Ahead
Oregon and Rhode Island demonstrate that effective price regulation can take various forms, highlighting that there is no single blueprint for successful price regulation. While Oregon used targeted, benchmark-based reference pricing to achieve quick, contained savings, Rhode Island pursued a broader regulatory framework across the commercial market, pairing growth caps with enhanced rate review. These approaches demonstrate that states can draw on a range of policy designs to mitigate rising health care prices. For more ideas and examples of how states have designed and implemented policies to limit anti-competitive hospital pricing and improve health care affordability, explore our new interactive maps.
