Rapidly rising costs for medical care remains a top concern of voters, but it has been difficult for national leaders to find consensus on how to address the problem. In 2022, Congress approved changes to Medicare that will allow the government to negotiate and impose lower prices for some prescription drugs, but there is no clear national strategy for injecting more cost and pricing discipline into the provision of all medical services. In general terms, there is disagreement over whether to give the government more regulatory authority or strengthen competition and market incentives.
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With no comprehensive federal plan on the immediate horizon, some officials are pursuing their own approaches. In particular, several are now in the early stages of implementing, or considering, reforms that resemble—to varying degrees—the cost-control framework adopted by the state of Massachusetts in 2012. The following is an overview of the key design features of that framework, along with views on its overall performance. (This information has been pulled from various summaries of the Massachusetts experience, including a recent evaluation conducted by Mathematica).
• The 2012 Legislation. Massachusetts is known as one of the states that adopts health reforms that others later emulate. In 2006, it created a new subsidy system for private coverage that became one of the models for the Affordable Care Act (ACA). That legislation, however, while expanding insurance enrollment, did not directly address rising costs. Consequently, state leaders pushed forward a second major reform bill in 2012 aimed specifically at slowing the rate of growth in statewide medical care expenses.
• Transparency and Public Pressure. The Massachusetts cost-control plan relies on transparency and public pressure, not stronger regulatory authority. The hope has been that health entities would limit how much they charge for their services to avoid being named as contributors to the state’s cost problem.
• The Cost Growth Benchmark. The centerpiece of the 2012 law is a cost escalation target tied to the expected potential growth rate of the Massachusetts economy—estimated at 3.6% annually. Keeping overall costs in line with economic growth will prevent Massachusetts households from devoting an ever-greater share of their incomes to medical care expenses. Trends which signal cost escalation above the target become the focus of efforts to implement cost-reduction strategies.
• The Center for Health Information and Analysis. Data collection and analysis is central to the Massachusetts strategy, and the state created a new agency—the Center for Health Information and Analysis (CHIA)—to take ownership of building a usable database of relevant cost information. CHIA has largely succeeded in this mission based on the required participation of the state’s health entities in the agency’s data collection efforts. Few states have agencies displaying comparable levels of sophistication.
• The Health Policy Commission. Enforcement of the cost escalation benchmark falls on the eleven-member Health Policy Commission (HPC), which was also created in the 2012 statute. The HPC holds public hearings on cost trends and has the authority to work directly with health entities found to be in violation of the state’s cost trend objectives.
• Performance Improvement Plans. The CHIA has the authority to refer health entities to the HPC for initiation of performance improvement plans (PIPs) if those entities are found—based on their “health status adjusted total medical expenses,” or HSA TME—to be contributing to excessive spending growth. The HPC can then work with the entities to come into compliance or require them to submit a PIP. Over the past decade, the HPC has required only one health system—Mass General Brigham in 2022—to submit a PIP.
Overall, the Massachusetts framework is seen by those who have examined it closely to have had modest success early on but less so more recently.
When the strategy was first implemented, the push for transparency likely contributed to pricing restraint by the state’s major health systems because they were uncertain about the public’s reaction to revelations of rapid cost growth. As the years have gone by and the novelty of state-initiated cost trend reporting has waned, fears of a public backlash seem to have faded, and costs are again rising as major hospitals and physician practices pursue the usual assortment of revenue-increasing strategies. Like other states, Massachusetts suffers from an overly concentrated market, and recent trends are in the wrong direction. Further, the push over the past decade for adoption of alternative models of paying for services, including those which share some of the risk of higher costs with providers, has also stalled in the commercial insurance market. In 2019, the state’s health costs rose 4.3%, which was well above the benchmark targeted by the HPC.
The HPC itself stated in its 2022 annual report that it believes changes are required in state law to bring costs under better control. In particular, the HPC would like the state legislature to establish upper limits on the prices that can be charged for certain services, strengthen accountability under the PIP process, and restrict administrative expenses in private insurance plans.
Massachusetts’ early success with its benchmarking strategy also is less impressive than it first appears because of the state’s relatively high per capita costs. A recent analysis placed Massachusetts seventh on a list of the most expensive state health systems. Higher-cost states have more room to cut expenses than do those that already spend less on a per capita basis.
Even so, the state’s decade-long strategy of using stronger public oversight and transparency to rein in excessive cost growth has become a model for others looking to implement a coherent overall plan. To date, eight states have put in place variations on the same themes found in Massachusetts, including the use of cost growth benchmarks, data collection requirements, and public disclosure. In the absence of other viable alternatives, it is likely that the list of interested states will grow further over time.
James C. Capretta is a columnist for State of Reform and a senior fellow at the American Enterprise Institute.