Research on price caps fueling their spread

Policymakers are using research that inaccurately concludes that hospital price caps do not hurt the finances of those organizations to justify the ongoing spread of such policies, says a hospital strategic adviser.

“People are using operating metrics that conveniently make the argument that hospitals are highly profitable in those states,” Jeff Goldsmith, president of Health Futures and longtime healthcare industry analyst, said in an interview.

“And in most cases, that is not the case. And to push back and say, ‘Look, here’s what we’re actually doing, here are our expenses,’ that is a political challenge, it’s a communications challenge.”

Goldsmith recently challenged December research in the policy journal Health Affairs that found “small and nonsignificant changes in Oregon hospitals’ revenues, expenses and margins” after implementation of price caps in 2019.

Oregon’s law

Oregon’s law capped state employee health plans’ payments to in-network hospitals at 200% of Medicare rates and capped out-of-network hospital payments to 185% of Medicare rates.

The law applied to 24 of the state’s large, urban hospitals and exempted critical access hospitals and other small, rural hospitals.

In a letter to Health Affairs, Goldsmith wrote that its conclusion was inaccurate because it was based on calculating their operating margin using Medicare allowable costs. That data source is about 20% lower than hospitals’ actual operating expenses because they do not include costs like information technology infrastructure and support, cybersecurity and legal expenses, he wrote.

Research defended

The Brown University authors responded that operating margins reported by the Oregon Health Authority and others focus beyond overall profitability, including “liquidity, solvency and capital adequacy, so operating margins alone do not provide a complete picture of hospitals’ financial position in those circumstances.”

Additionally, not-for-profit hospitals may reinvest excess revenues into capital improvements, service expansions, workforce investments or other activities.

“Therefore, low or negative operating margins may reflect strategic decisions rather than financial operating health,” they wrote.

They also noted that their research was based on Medicare cost report data, which CMS uses to determine payment and assess hospitals’ financial performance.

Campaign push

Goldsmith agreed that a growing body of research critical of hospitals uses Medicare cost report data, much of which is funded by Arnold Ventures, as was the Health Affairs study.

“I think this study is part of a campaign funded by Arnold Ventures and executed by reputable, prestigious academic researchers and prestigious institutions to try and justify imposing rate controls on hospitals,” Goldsmith said.

Such research has been cited in testimony in multiple states on legislation to institute hospital price caps. The hospital price cap push is spreading at the state level, with several weighing legislation this year to impose various types on hospitals.

However, policy responses focused on hospital prices also have been taken up by both liberal and conservative think tanks.

In April, the left-leaning Center for American Progress (CAP) proposed a health reform blueprint that included a cap on hospital prices in concentrated markets at 300% of Medicare rates.

CAP also funded recent polling that found 62% of voters support policies to “restrict outlier hospital prices.”

Right-leaning policy groups also have urged a response to hospital prices; however, their preferred policies include implementing site-neutral payments and reducing the size of the 340B discount drug program.

There is not yet federal price cap legislation, but Goldsmith warned “there is the beginning of that conversation.”

“We’re at the beginning of a cycle where we’re going to be presented with really facile solutions to complex problems that they [hospital executives] understand better than the people in the general public do,” he said.

Executive action

Goldsmith said hospital leaders will need to make the case to policymakers, including through testimony to their state legislatures, on the actual costs of their organizations.

Additionally, “they’re going to need to explain to people what they’re doing to make care more affordable,” he said.

That response should include:

• Explaining their assistance to uninsured patients
• Detailing their assistance to patients with high deductibles
• Explaining why Medicare and Medicaid add to the cost problem

“There’s a complex communications challenge here,” Goldsmith said. “They’re going to be called in front of state legislatures; they’re going to be in public forums where they’re being challenged by representatives of the employer community, by payers.”

Cost reduction needed

Many hospitals and health systems understand that they need to contribute to reducing the overall cost of healthcare and are undertaking efforts to reduce expenses, he said. Those include ongoing rounds of layoffs.

But health systems also need to “do more of the stuff you’re doing well [and] do less of the stuff you don’t do well,” he said.

“You can’t be all things to all people,” said Goldsmith. “You know, you want to absorb a neighboring hospital that’s really struggling. Well, maybe there’s a case for that hospital not being open.”

Another expense reduction some health systems have embraced is dropping low-enrollment health plans that operate at a loss. Providence St. Joseph Health is exploring the sale of its insurance division to improve its finances after the division reported more than $100 million in losses in 2025.

“The real risk here is that we get into a savings-and-loan kind of scenario where well-run institutions with strong balance sheets and strong managements end up absorbing enough unmanageable risk by taking on a lot of pieces of the health system that are failing, so that they can’t do their core job well,” Goldsmith said.

Other cost -reduction moves by health systems include:

• Dropping venture capital arms
• Leaving the home healthcare segment
• Reducing physician employment
• Using tougher terms in physician contract negotiations

“There’s a lot of opportunities for people to narrow the program profile of what they’re offering in ways where they can concentrate their energy and firepower on the stuff they really do well,” he said.