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This is of particular concern to states. Unlike the federal government, states must balance their budgets. The more dollars that get spent on health care, the less there is for other priorities such as education and transportation. Additionally, there is growing concern from constituents, who are facing greater premiums and out-of-pocket costs as spending increases.

To this end, many states have expressed interest in reducing the rate of growth in health care spending. To do so, states, by definition, must change the behavior of health care providers and payers. This presents two core challenges. The first is to identify the components of spending that should change. For example, one strategy may be to lower, or constrain the growth of, health care prices. Another may be to reduce the utilization of low-value care. The second challenge is designing a system that encourages, or forces, those changes. States have a wide variety of legislative and regulatory tools at their disposal, such as sharing data analytics, regulating prices, or preventing mergers and consolidation, which often lead to an increase in prices.

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Health policy commissions also can play an important part in helping states achieve their health spending goals. Massachusetts and Maryland, for example, rely on a state commission to support their policy goals. In some cases, commissions may support strategies implemented through existing state agencies. In other cases, they may have the authority to directly implement strategies to constrain health care spending.

Health care spending is determined by prices and utilization and both of those, in turn, reflect a wide range of market features, such as the extent of provider and insurer competition and local practice patterns. Premiums reflect that spending and any insurer markup, which also reflects insurer competition (Exhibit 1). For this reason, one strategy to control spending focuses on improving either provider or insurer competition. More proximate, yet narrow strategies target high prices or utilization of health care services. The broadest direct strategies focus on spending itself. In each case, policy tools may range from soft encouragement to incentives and regulations with varying degrees of enforcement.

Of these strategies, promoting price transparency is particularly popular. Existing evidence suggests that price transparency offered to employees has minimal effect.6 There may be some potential value to state-sponsored transparency initiatives that work through broader mechanisms, but that literature is nascent, and it seems unlikely that price transparency as currently practiced will significantly slow spending growth.7 Its weak impact may be because only certain services are shoppable. Moreover, even for shoppable services, insurance shields patients from the true price of their care, reducing the incentive to use transparency tools and shop for providers. Some patients also prefer to follow physician recommendations, while others are simply unable to shop for low-cost and high-quality care because of the limits on consumer choice in consolidated markets.

State commissions can be useful in supporting procompetitive policies. While existing agencies can support competition through policy and antitrust regulation, state commissions can serve as a venue for hearings on anticompetitive practices, such as all-or-nothing contracting, where a health care organization requires an insurer to keep all its facilities in-network instead of only those that are considered high-value.8 Commissions can then suggest remedies to such anticompetitive behavior. They also can be a hub for information and strategies to promote the diffusion of insurance plans that encourage consumer shopping and competition.

Alternative approaches involve more direct forms of regulation. One approach is to set prices. Maryland used this approach for decades in conjunction with other strategies; more recently, the state has moved toward more of a global budget model (see box). Price setting can be difficult, because incentivizing the optimal allocation of services requires setting thousands of prices relative to one another. By setting prices as a function of an external benchmark, such as Medicare prices, the process can be simplified; this approach also can help deal with the introduction of new services.

Later, in 1977, Maryland received a waiver from the Centers for Medicare and Medicaid Services that allows the state to pay HSCRC-approved rates, which were set prospectively, to both Medicare and Medicaid. This waiver gave the state significant regulatory authority over health care spending.

When global budgets were launched, Maryland also started monitoring, but not regulating, nonhospital cost growth. Then, in 2019, the state began piloting the Maryland Total Cost of Care Model to hold the state at risk for total Medicare costs. It includes three parts:

Through legislative mandate, all acute-care hospitals in Maryland are required to submit confidential patient-level administrative data on discharges and visits to HSCRC. This includes demographic, financial, and clinical information. These data are then managed by the Chesapeake Regional Information System.

From a state perspective, the advantages of using Medicare rates likely outweigh the disadvantages. However, from a federal perspective, Medicare policy would be more complicated if all rates were based on Medicare fees. That is because the stakes associated with changes in Medicare prices would be higher, placing more pressure on Congress any time prices change.

Typically, the price caps that have been discussed by states have been tied to a relatively low percentage of Medicare rates.13 However, higher, or more generous, caps have been proposed that would minimize hospital closures, potential job losses, and other market disruptions and could be lowered gradually as outcomes are monitored.14 Another option is a limited price cap. In 2016, Montana capped hospital prices for state employees. The State of Montana Benefit Plan limited both inpatient and outpatient hospital prices to, on average, 234 percent of Medicare.15 The policy has reduced disparities between the least and most expensive hospitals in prices charged to state employees by 28 percentage points.16 Because the caps were limited to state employees, its impact on providers is less than an analogous cap for all commercial coverage.

Addressing high prices is a narrower charge than addressing overall health care spending because prices reflect a single transaction that policymakers could directly regulate. In practice, however, price regulation raises a number of practical problems that commissions may help address. For one, the commissions could develop and implement soft strategies to control prices, such as holding hearings to shed light on high prices or requiring providers to publicly justify their prices.

State commissions also can play an important role if regulatory strategies are used. For example, if states decide to set, as opposed to cap, prices, commissions (like the one in Maryland) could help determine the appropriate price. While this may not be needed if prices are based on a multiple of Medicare or Medicaid rates, in many cases some variation across facilities may be important because of variation in markets or quality. Commissions can perform or support the related analysis and even be granted authority to set the prices.

Commissions also may play a similar role if caps are placed on prices or price growth, particularly given the logistical challenges associated with any price regulation (setting or capping). Specifically, health care services are paid for in a variety of ways. For example, hospitals may be reimbursed on a per diem or DRG basis. States focused on price regulation must be able handle the various payment structures used (or require uniformity in pricing systems, which may lock in existing, suboptimal models). States also must recognize the ways providers and insurers can circumvent price regulations. For example, quality-based payment models could be altered in ways that are designed not to promote quality but rather to circumvent price regulations, for example, by lowering the performance needed to meet quality targets.

Discussions surrounding health care spending often focus on reducing the use of low-value care. These are services that offer patients with certain clinical presentations no benefit, or benefit less than cost, leading to unnecessary spending and potentially even patient harm. This is important given that overtreatment is estimated to cost between $158 billion and $226 billion each year.20 Eliminating even a fraction of that spending has the potential to yield substantial savings without significantly impacting quality or outcomes.

Identifying low-value care is difficult. The utility of a clinical service ultimately depends on the context in which it is provided. For example, imaging is often unnecessary for headaches and is, therefore, of low value in many cases. Yet for a patient who has risk factors or symptoms that may signal a more serious underlying etiology, imaging is of much greater value. This distinction is often difficult to make with administrative data, which can lack clinical detail and nuance.

Despite these measurement challenges, initiatives such as Choosing Wisely, implemented by the American Board of Internal Medicine Foundation, have created lists of typically low-value care and private vendors sell software to measure how often these services are provided. These lists have been used to analyze Medicare claims and develop measures of low-value services across a variety of categories, such as imaging and surgical procedures.21 In one study, the most sensitive versions of these measures found that 42 percent of patients received low-value care, totaling 2.7 percent of overall annual spending. More specific versions of these measures, however, found that 25 percent of patients received low-value care, totaling 0.6 percent of overall spending.22 That difference suggests that the impact of any policy targeting low-value care will depend significantly on the measures being used. e24fc04721