Strategies
States have multiple levers available to address hospital pricing strategies. The approach chosen will depend on state goals, program design features, available data, and existing regulatory authorities. There are at least five possible approaches states can take:
| Question | Answers |
|---|---|
| State purchasing authority | Though state employee and retiree health plans typically represent a small segment of the total commercial market, they are usually the largest employer-based plan in a state and include a significant number of covered individuals. Using state purchasing authority to pursue hospital pricing policies can result in direct state budget impacts, making such policies appealing to policymakers concerned about balancing the state budget. While hospital pricing policies implemented through state purchasing authority may not require new statutory authority, such authority can be beneficial. For example, Oregon state law sets both in-network and out-of-network price caps on hospital payments by the State’s two public employee health plans. Statutory authority was required to establish an out-of-network price cap below the in-network level, which discourages hospitals from leaving the plans’ networks. Enforcement: Contractual penalties. |
| State insurance regulation | States can impose payment limits or payment growth limits on insurers in the fully insured market via state insurance regulation, an authority all states possess. To monitor and enforce compliance, states have several options, some of which may require seeking new authority. States can use rate review authority with public interest and/or affordability standards, enabling regulators to consider insurer compliance with hospital pricing strategies when approving, disapproving, or modifying proposed premium changes. States can also use state insurance regulation to require compliance with payment limits or payment growth caps in insurers’ contracts with hospitals. Enforcement: Rate review and/or market conduct exams. |
| Market oversight regulation | Where states have authority to impose conditions on certificate of need or merger and acquisition decisions, they may be able to introduce price constraints for particular facilities. These processes can involve multiple state agencies and departments, including the department of health (or other licensing authorities), a health care commission, and/or the office of the attorney general. This regulatory lever may require new authority in states where conditions of approval are not currently allowed. Enforcement: Conditions on approval. |
| Regulation of non-profit status | State attorneys general are typically charged with regulating non-profits and other charitable organizations, including ensuring that non-profits serve the public good and meet requirements for tax exempt status. This regulatory lever would likely require new authorities enabling revocation of hospital non-profit status for failure to meet state laws on hospital pricing. States should also consider that this regulatory lever cannot be used to enforce hospital price constraints for for-profit hospitals. Enforcement: Revocation of non-profit status. |
| Provider rate-setting authority | Provider rate-setting authority allows states to implement hospital pricing policies such as caps on the payments providers can charge and accept, or requirements to implement specific payment methodologies. Provider rate-setting has the broadest scope of all regulatory approaches, potentially regulating all commercial payments to a state’s hospitals, including for the fully and self-insured markets. It also has the highest degree of implementation difficulty, requiring significant resources and expertise. This regulatory lever would require new authorities in almost all states. Enforcement: Financial penalties. |
State Insurance Regulation/Rate Review
The Rhode Island Office of the Health Insurance Commissioner (OHIC) is statutorily authorized to protect consumer interests and advance the public welfare. The agency has used this authority when developing regulatory parameters for premium rate review. OHIC’s rate review examination includes consideration of whether insurers have complied with affordability standards to lower costs and improve quality, which include a hospital price growth cap equal to the Consumer Price Index plus 1%. OHIC’s rate review authority further allows it to approve, disapprove, or modify proposed premium increases, giving the agency further leverage to push back on premium increases if an insurer does not comply with the price growth cap or other rate review criteria. OHIC also performs periodic market conduct examinations to monitor compliance with the growth cap and other affordability standards by reviewing insurer-hospital contracts and other supporting documentation, and to determine compliance with other Rhode Island insurance laws. In addition to authority over rate review decisions, OHIC has broad statutory authority to levy administrative penalties for noncompliance. While Rhode Island’s affordability standards only legally apply to the fully insured market segment, the requirements have generated spillover effects in the self-insured market as insurers have applied similar contracting approaches across both market segments. For further details on Rhode Island’s policy and relevant state authorities, see the Price Growth Caps strategy page.
Market Oversight Regulation
In Massachusetts, the Health Policy Commission (HPC) has authority to review and analyze the impact of proposed market changes. This Cost and Market Impact Review (CMIR) process ensures transparency of provider actions involving mergers, acquisitions, and other material changes that are likely to result in a significant impact on cost, quality, or access; on the State’s ability to meet its health care cost growth benchmark; or on market competitiveness. Under separate statutory authority , the HPC also receives all Determination of Need applications for facility expansions submitted to the Department of Public Health (DPH) and can provide comments to DPH as a party of record. As part of the CMIR process and review of Determination of Need applications, the HPC may make recommendations to the Office of the Attorney General, the Department of Public Health, or other state agencies. For example, informed by the HPC’s recommendations to the Attorney General, the legal order that allowed Beth Israel Deaconess Medical Center and Lahey Health to merge required a seven-year price growth cap to ensure that spending increases remained below the state’s cost growth benchmark.
Regulation of Non-Profit Status
In 2025, Indiana passed HB 1004, which requires the state’s largest nonprofit hospital systems to keep their inpatient and outpatient commercial prices below the state average by June 2029. Systems that fail to meet this requirement forfeit their nonprofit status for at least one year, and until they come into compliance. The State’s Office of Management and Budget is tasked with calculating average inpatient and outpatient commercial prices using a methodology to be approved by the legislature. Under the enacted bill, the Office also received new hospital data collection authorities to support this requirement. For more details on Indiana’s policy and relevant state authorities, see the Price Caps strategy page.
Provider Rate-Setting Authority
In 2025, Vermont’s General Assembly passed Act 68, requiring implementation of reference-based pricing for Vermont hospitals. The policy will be phased in over several years starting in 2027. The Green Mountain Care Board (GMCB), which regulates Vermont hospitals’ budgets and performs insurer rate review and other functions, is tasked with using its existing but previously unused provider rate-setting authority to implement this change. The legislation also instructs the GMCB to continue pursuing hospital global budgets, and gives the GMCB authority to set rate floors for non-hospital services in alignment with state policy goals. For further details on Vermont’s policy and relevant state authorities, see the Price Caps strategy page.