Editing Openai/692cb885-da9c-8002-9696-e985fae204bd (section)

===== State Policy Innovations to Regulate Prices =====

States serve as laboratories for healthcare cost reforms, and recently many states have advanced policies to tackle high prices and provider market power:
* All-Payer and Reference-Based Price Caps: In 2025, states broke new ground by extending reference pricing caps beyond state employee plans to the broader market. Vermont became the first state to enact across-the-board hospital price caps for all payers, directing its Green Mountain Care Board to set upper limits on hospital payments as a percentage of Medicare ratesmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=In%20June%202025%2C%20Vermont%20became,are%20passed%20along%20to%20ratepayers|publisher=milbank.org|access-date=2025-11-30}}</ref>. These caps (to be in place by 2027) are a stepping stone toward all-payer global hospital budgets by 2030 for Vermontmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=settings%2C%20such%20as%20primary%20care,services|publisher=milbank.org|access-date=2025-11-30}}</ref>, similar to Maryland’s global budget model. Indiana likewise passed a law capping hospital prices (though limited to nonprofit hospitals): by 2029, Indiana’s nonprofits must lower their average prices to or below the statewide average (which will be calculated by the state) or else lose their tax-exempt statusmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=Like%20Vermont%2C%20Indiana%20also%20established,nonprofit%20hospital%20fails%20to%20meet|publisher=milbank.org|access-date=2025-11-30}}</ref>. This approach essentially pressures high-priced hospital systems to rein in charges under threat of significant penalty. Washington State, meanwhile, built on earlier efforts by capping prices in its public employee health plan: reimbursement to in-network hospitals is limited to 200% of Medicare rates (185% if out-of-network)milbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=|publisher=milbank.org|access-date=2025-11-30}}</ref>. Washington also set minimum floors for primary care and rural critical-access hospitals (e.g. paying at least 150% of Medicare for primary care) to ensure cost-cutting doesn’t undercut essential servicesmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=As%20of%20this%20legislative%20session%2C,law%20establishes%20separate%20reimbursement%20caps|publisher=milbank.org|access-date=2025-11-30}}</ref>. These state initiatives were inspired by evidence from earlier pilot programs: Oregon’s state employee plan capped hospital payments at 200%/185% of Medicare and saved over $81 million in the first plan year (around 5% of costs)kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=In%202017%2C%20lawmakers%20in%20Oregon,of%20total|publisher=kff.org|access-date=2025-11-30}}</ref>. Montana’s state employee plan similarly saved $47.8 million over 3 years by using reference-based pricing agreements with hospitals (capping inpatient at ~220% and outpatient at 230–250% of Medicare)kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=between%20230%C2%AD%E2%80%93250,by%20the%20decrease%20in%20prices|publisher=kff.org|access-date=2025-11-30}}</ref>kff.org<ref>{{cite web|title=kff.org|url=https://www.kff.org/health-costs/price-regulation-global-budgets-and-spending-targets-a-road-map-to-reduce-health-care-spending-and-improve-affordability/#:~:text=prices%20of%20between%20239%E2%80%93611,by%20the%20decrease%20in%20prices|publisher=kff.org|access-date=2025-11-30}}</ref>. The average state could save ~$150 million in their employee plan by implementing such caps, according to one analysismilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=employee%20health%20plan%20used%20reference,2%20million%20from%20the%20policy|publisher=milbank.org|access-date=2025-11-30}}</ref>. Now that Vermont and Indiana are applying caps market-wide, we will see much larger impacts. For instance, Vermont expects its all-payer hospital cap and subsequent global budgets to bend the cost curve statewide, directly lowering premiums for employers and consumers as mandated savings are passed throughmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=hospital%20price%20caps%20for%20all,law%20also%20permits%20GMCB%20to|publisher=milbank.org|access-date=2025-11-30}}</ref>.
* Increasing Competition and Oversight of Consolidation: States are also directly addressing provider monopolies. In 2024, Indiana and New Mexico enacted laws requiring notice and state review of any proposed hospital mergers or acquisitionsnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,hospital%20and%20health%20system%20costs|publisher=nashp.org|access-date=2025-11-30}}</ref>. More states are considering such “merger review” or pre-approval requirements to stop deals that would create dominant systems. Some states are revisiting Certificate of Need (CON) laws – while traditionally CON regulations aimed to prevent redundant facilities, today there’s debate: some argue loosening CON could allow new entrants and more competition, whereas others prefer tightening CON or adding state oversight of expansions to control consolidationnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,increase%20competition%20and%20address%20consolidation|publisher=nashp.org|access-date=2025-11-30}}</ref>. Massachusetts has a Health Policy Commission that reviews major provider transactions for cost impact and can impose conditions. California in 2023 launched an Office of Health Care Affordability with authority to review large healthcare mergers and set cost growth targets. These state oversight mechanisms act as a check on unchecked growth of big health systems. Additionally, states have moved to ban anti-competitive contract clauses between providers and insurers: for example, some states prohibit “all-or-nothing” contracting (where a hospital system forces an insurer to include all its facilities in-network) and anti-steering or anti-tiering clauses that previously allowed dominant hospitals to block insurers from steering patients to lower-cost competitors. By outlawing these practices, states foster more price competition and give insurers leverage to negotiate better rates.
* Prescription Drug Pricing Initiatives: States are tackling drug costs through multiple avenues. Over 10 states have established Prescription Drug Affordability Boards (PDABs) – independent boards that review extremely high-cost drugs or those with rapid price increases and can set upper payment limits for certain payers. For instance, Maryland’s PDAB (the first in the nation) can put price caps on select drugs purchased by state and local government plans, and other states (e.g. Colorado, Washington) have similar powersnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,the%20cost%20of%20prescription%20drugs|publisher=nashp.org|access-date=2025-11-30}}</ref>. Insulin price caps have become common – nearly 22 states limit insulin co-pays (often $25 or $35 per month). In 2024, New York went further by eliminating cost-sharing for insulin altogether for state-regulated plansnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,health%20plans%20in%20the%20state|publisher=nashp.org|access-date=2025-11-30}}</ref>, essentially ensuring insulin is free at point of sale (shifting cost to insurers/employers, who in turn have negotiating pressure on insulin manufacturers). Washington capped out-of-pocket costs for asthma inhalers and EpiPensnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,health%20plans%20in%20the%20state|publisher=nashp.org|access-date=2025-11-30}}</ref>. While these caps help patients directly, some states are also exploring drug price regulation at the source: Vermont, for example, is studying a drug review board to potentially regulate launch prices or price hikes for medications (similar to how some countries use health technology assessments to set drug prices)nashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,the%20cost%20of%20prescription%20drugs|publisher=nashp.org|access-date=2025-11-30}}</ref>. States are also enforcing transparency from pharmacy benefit managers (PBMs) and banning PBM practices like “spread pricing” to ensure savings from negotiated drug rebates are passed to consumersnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,particularly%20independent%20pharmacies%2C%20and%20more|publisher=nashp.org|access-date=2025-11-30}}</ref>. For example, Idaho, Vermont, and Washington in 2024 all enacted comprehensive PBM reforms to increase transparency and fairness in drug pricingnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,hospital%20and%20health%20system%20costs|publisher=nashp.org|access-date=2025-11-30}}</ref>.
* Other State-Level Price Measures: A notable trend is states targeting specific billing practices that inflate costs. Facility fee bans or limitations are emerging: Connecticut extended its ban on additional facility fees for telehealth servicesnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,the%20cost%20of%20prescription%20drugs|publisher=nashp.org|access-date=2025-11-30}}</ref>, so providers can’t tack on extra charges beyond the professional fee. This is essentially a site-neutral payment reform at the state level to prevent hospitals from charging more for services delivered remotely or at hospital-owned clinics. Some states also set or negotiated out-of-network payment standards for surprise bills (building on the federal No Surprises Act) – for instance, Oklahoma in 2024 adopted reference-based reimbursement for out-of-network ambulance servicesnashp.org<ref>{{cite web|title=nashp.org|url=https://nashp.org/state-legislatures-pursue-policies-to-address-high-health-care-prices/#:~:text=,the%20cost%20of%20prescription%20drugs|publisher=nashp.org|access-date=2025-11-30}}</ref>.
* Financial Impact: State reforms, while varied, are starting to move the needle on costs. Reference pricing and caps in public employee plans have saved states tens of millions within a few yearsmilbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=network%20hospitals,2%20million%20from%20the%20policy|publisher=milbank.org|access-date=2025-11-30}}</ref>milbank.org<ref>{{cite web|title=milbank.org|url=https://www.milbank.org/publications/how-states-strengthened-their-health-care-markets-in-the-2025-legislative-session/#:~:text=employee%20health%20plan%20used%20reference,2%20million%20from%20the%20policy|publisher=milbank.org|access-date=2025-11-30}}</ref>, and by expanding these caps to all payers, states like Vermont anticipate hundreds of millions in savings annually once fully implemented (Vermont’s hospital spending was >$2.5 billion annually, so even a 10% price reduction would save $250M+). Stronger competition oversight prevents future price hikes that could cost state residents dearly – for example, stopping a merger that would have allowed a hospital to charge 30% more in a region protects employers and consumers from those higher premiums (potentially saving hundreds of dollars per person annually in that area). Drug affordability boards, although new, aim to negotiate or cap certain high-cost drugs; if, say, a state PDAB caps the price of a $1 million gene therapy to $700k for state plans, that’s $300k per treatment saved for payers (and similar logic for insulin: capping co-pays reduces patient costs immediately, while pushing manufacturers to keep net prices lower). In aggregate, states that aggressively pursue cost containment could slow healthcare premium growth and yield billions in system-wide savings, especially as more states learn from early adopters. Importantly, many state actions also serve as pilots for federal policy – successful state models (like Maryland’s all-payer system or Massachusetts’ cost growth benchmark, which kept growth around 3.2% for several years) could be scaled up nationally to amplify savings.