Strategies
A hospital price growth target establishes a public expectation for hospital commercial price growth in a given year. This strategy sets a benchmark against which to compare the rate of growth rather than directly capping hospital price growth using purchasing or regulatory power.
This strategy might be most helpful to states that already measure performance against a statewide cost growth target and therefore have the resources and infrastructure to implement a complementary, additional hospital price growth target. Setting the hospital price growth target in addition to the statewide cost growth target would enable states to spotlight hospitals as a major driver of commercial health care spending growth. Creating hospital accountability for price growth could help states with cost growth targets meet their total health care expenditure targets, advancing affordability more broadly. This strategy could also be helpful to states where directly capping hospital prices or hospital price growth is not currently politically feasible.
The Guide to Hospital Price Growth Targets describes the hospital-specific market basket methodology, which states can use to calculate hospital performance against the hospital price growth target.
To date, no states have implemented this strategy, although it has been a topic of conversation and interest among states participating in the Peterson-Milbank Program for Sustainable Health Care Costs.
| Question | Answers |
|---|---|
| How should the state apply a hospital price growth target? | Hospital price growth targets can be applied statewide or across the commercial market, noting that self-insured data are underrepresented in the primary data source – state all-payer claims databases – used to measure hospital performance against the price growth target. In states considering application of a hospital price growth target statewide, states could consider exempting the hospital price growth target for self-funded plans, depending on state data limitations and relevant regulatory authorities. |
| What authority is needed to establish a price growth target? | While an explicit statutory directive or executive order to set a state target for hospital price growth is ideal, state agencies without either can still pursue a target with existing data collection mechanisms if their overarching statutory charge includes improving patient affordability and/or access. |
| Which services should be subject to the target? | Hospital price growth targets can be applied to inpatient and outpatient hospital services separately or combined. A combned target would afford hospitals more flexibility in terms of how they meet the hospital price growth target. |
| Which hospitals should be accountable? | States may consider implementing the target with certain types of hospitals (based on factors such as size or current price levels) or simplifying implementation and applying the target to all hospitals. To determine the best approach, states should weigh the benefits of broad scope and methodological simplicity against targeting hospitals with high prices and/or price growth. States should note that any exemptions or variations in the external benchmark could empower hospitals to argue for further exemptions or varied price growth targets, decreasing hospital accountability for constraining price growth. |
| At what value should the hospital price growth target be set? | States implementing this strategy should consider potential consequences for hospitals’ financial stability and their ability to provide high-quality care if a price growth target is too low. Further, a price growth target may perpetuate underlying disparities in payment because higher-priced providers’ prices will grow more in absolute dollars than lower-priced providers. For states with an existing statewide cost growth target, the hospital price growth target could be set to the cost growth target value or below it to account for anticipated utilization growth. |
| How can states increase hospital compliance with the hospital price growth target? | States should consider how to incentivize hospitals to comply with the hospital price growth target. As states have seen with cost growth targets, transparency alone is often insufficient to constrain cost growth. States should develop or leverage enforcement mechanisms (e.g., compelling testimony by hospital officials, requiring performance improvement plans, or assessing financial penalties) to increase the likelihood of target compliance and impact. |
| How can the state mitigate the potential risk of exacerbating existing hospital price variation? | One major consequence of hospital price growth targets is perpetuating and exacerbating existing disparities in payment. Adjustments or different targets for different hospitals can help remedy these payment disparities. States will also need to ensure they have the analytic resources and capability for oversight and monitoring activities. |
Hospital Price Growth Target Legislative Proposal
New Jersey introduced legislation in the 2026-2027 session to codify the state’s health care cost growth benchmark program and establish a governance structure to set future benchmarks, including one for hospital price growth. The legislation stipulates that the hospital price growth benchmark(s) would be based on each hospital’s total facility plus physician price as a percentage of Medicare. If a health care entity substantially or consistently charged or received more for health care services than the benchmark(s), the governing body would require the entity to submit and comply with requirements of a performance improvement plan.