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States Look to Benchmarking Programs to Contain Healthcare Costs

Analysis  |  By Jack O'Brien  
   December 05, 2019

This year, Oregon became the fourth state to implement a healthcare cost benchmarking program.

More states are considering policies to address healthcare cost control issues through benchmarking programs, according to a Manatt Health report prepared for the Robert Wood Johnson Foundation that was released Thursday morning.

The report states that, in general, healthcare benchmarking programs establish a statewide cost benchmark, collect data to measure cost growth against the benchmark, publish public reports to identify cost drivers, and utilize governmental tools to boost transparency and contain spending.

Still, benchmarking programs can "vary significantly," Manatt found, as states pursue different policy goals with a variety of approaches. This year, Oregon became the fourth state to implement a healthcare cost benchmarking program, joining Massachusetts, Delaware, and Rhode Island.

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Joel Ario, managing director at Manatt and former Director of the Office of Insurance Exchanges, told HealthLeaders that states have realized a need to address issues around affordability in order to continue expanding coverage options. 

"Among the different cost control strategies. benchmarking seems to have a favored status among the states these days, it's a trendsetter," Ario said.

He added that Oregon's decision to establish a benchmarking program is a "significant development" because the state brings "transparency on steroids," due to previously passed laws dealing with hospital transparency. He also said that the state has already implemented benchmarking for its public health programs. 

"Benchmarking is a big deal for a lot of states [that are] looking at ways to control costs and Oregon is poised to build on the Massachusetts model," Ario said. 

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In the Beaver State, officials have consolidated healthcare programs into one agency, the Oregon Health Authority (OHA). This gives its benchmarking program a foundation to build on, according to Jeremy Vandehey, director of Health Policy and Analytics at the OHA.

He told HealthLeaders that the state first considered implementing a benchmarking program years ago after having conversations about mirroring hospital rate setting policies from Maryland.

While Oregon opted not to follow the same approach, the benchmarking program grew out of a desire to contain healthcare prices with a total cost of care approach, he said. 

"Both insurers and hospital leaders in Oregon are supportive of this approach because the idea [is that] everybody has to be all in on containing costs and not just focusing on one part of the healthcare system," Vandehey said. "Frankly, the hope is that this brings insurers and providers together to develop new value-based payment arrangements in a way that ultimately improves outcomes, value, and lowers costs in the system."

Vandehey said the state has set a cost growth target for its healthcare programs that's below the expected healthcare cost growth rate, adding that the benchmarking program is "on the lighter side" of regulatory actions that were considered.

He added that the goals associated with benchmarking have resonated with hospital leaders who are seeking to avoid the influx of patients returning to the emergency room without adequate insurance coverage. 

Vandehey said one challenge the state has run in to revolves around the commercial market, which has seen premiums rise faster than wages alongside deductibles. 

As costs have grown at an "unsustainable rate," Vandehey said the state is focusing on using its benchmarking program to ensure sure that people stay enrolled in health coverage gained through the Affordable Care Act.

"We see this as sort of the next phase of transformation in the state and it's taking a concept that we've [used] to tighten our belts and apply that statewide," Vandehey said. "[Benchmarking] is the concept of setting a budget target [with] an expectation that insurers and providers work together to meet that target and move away from a system that's largely based on just generating revenue to one that's focused on containing costs and living within a sustainable budget target that the state, families, and businesses can afford."

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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