Addressing Cost Head On

The Massachusetts reformers were clear when they built the Connector model.  Their work was focused on access.  They specifically set aside cost as a target of their efforts.  Now, they are back and addressing it head on saying legislation stands to save $160 billion from the system over ten years.

In one of the most important stories that few are watching on the west coast, the Commonwealth of Massachusetts is working some serious cost-focused legislation through the sausage making process.  The governor, House and Senate all have competing versions so it’s still unclear which bill will ultimately become law.

The work is also building on the landmark study by the Massachusetts Attorney General highlighting the role of market leverage on health care pricing.

However, elements of the House bill have quite a few folks paying attention.  Here are some highlights.

–  Provider contract oversight:  The bill creates a new quasi-public agency that will collect and post for review all of the contracts between providers and plans.  The idea is to distribute widely the relative differences in rates paid for what may be very similar procedures.

–  Quality proof points:  For those hospitals or other providers which charge a fee well above the state average for a given procedure, those providers will be required to demonstrate annually why, how, and where the quality of the procedure is worth the rate premium.  In other words, if you’re worth the mark up, show the quality benefit.

–  Cost containment:  Now that the state can see all of the rates paid to providers, the House bill hopes to set a fixed rate of growth for health spending statewide.  The rates will be fixed to growth in the Gross State Product (read: state economy) plus 0.5%.  An ambitious goal, but one I’m still unclear on how will work in the private sector – or how access doesn’t suffer among public plans.

–  “Luxury Tax”:  For those hospitals who cannot demonstrate the quality benefit of a rate premium in excess of 20% of the state average, a tax will be placed on levied on them.  Collections will be approximately $40m and will be placed in a fund that will support struggling hospitals.

Again, there are competing bills – the Senate version is much lighter, for instance on some of these points mentioned here.  But, the effort to control costs is ambitious and if the world was watching Massachusetts when it came to access, I have no doubt other states will be watching now that they are engaging costs.

Stay tuned.