Deadline to Assess Massachusetts Health Care Cost Benchmark Approaches

February 27, 2017

Massachusetts is one of several states addressing total health care cost measures.  Since 2013, the state’s Health Policy Commission (HPC) has set an annual health care spending target based on state economic growth. A lower benchmark rate is set to take effect in 2018. The HPC will hold a hearing on the new benchmark on March 8, 2017.

Helping state officials measure their state’s health care costs is a program area of the Fund. As such, the Fund keeps abreast of state work in this area, including recent developments and progress, such as Massachusetts’ benchmark rate.

The HPC was one of two state agencies created to implement the Commonwealth of Massachusetts’ health care cost containment law. The HPC is an independent policy leadership group appointed by executive branch and legislative leaders. It conducts policy and data analysis to flesh out factors driving health care cost trends, regulates key activities that may affect costs (such as approval of health care system mergers or acquisitions) and sets the target for health care cost growth tied to economic growth.

The target for cost growth—the annual health care cost growth benchmark—is one of the Commonwealth’s key policy tools.  As prescribed by law, the benchmark for 2013 to 2017 is equal to the increase in projected gross state product (PGSP) as set by the HPC; for this five-year period, the PGSP growth rate was set at 3.6%. The statute further provides that, for the period 2018 to 2022, the benchmark will be set at PGSP minus 0.5% unless the HPC decides to modify that figure. The Commission is required to hold a public hearing and conduct a thorough analysis to determine if any modification is needed and the impact of maintaining or modifying the benchmark, based on input from a wide variety of stakeholder perspectives.  Any modification is limited to the 0.5% corridor; in other words, the HPC could only consider a revised benchmark between 3.1% and 3.6%.

The Massachusetts model to constrain health care cost growth and achieve more efficient and effective care combines robust data, analysis, and reporting with targeted regulatory powers in areas such as provider merger activities and individual provider improvement plans to guide payers, providers, and consumers toward specific actions to control costs and promote more appropriate and effective health care resource use. It also supports extensive use of alternative payment methodologies for Medicaid and commercial payers to advance value-based health care purchasing.

Even with these policy tools in place, health care cost growth trends for 2014 (+4.20%) and 2015 (+4.10%) exceeded the annual 3.6% benchmark.  As a result, the HPC will need to weigh the consequences of either (1) modifying the growth rate to allow some flexibility above the new benchmark level (with corresponding cost implications for payers and consumers) or (2) maintaining the statutory reduction in the benchmark amount that will in all likelihood result in more extensive use of performance improvement plans (with corresponding administrative burdens for the HPC) unless the governor and legislature decide to take a different approach.

The HPC has identified numerous factors that will be considered in their deliberation on March 8, including health care cost performance to date by various sectors; enrollment and demographic changes; the financial impact of modifying the benchmark; and the likely effect of performance improvement plans and cost and market impact reviews.

“Perhaps the most unpredictable factor relates to potential significant changes in the federal health policy landscape that could have wide-ranging implications for the entire health care system and create a disruptive force in the otherwise measured evolution of the state’s health care policy framework,” said Rachel Block, project coordinator for the Fund. “Changes in Medicare provider payment methods, federal payments for Medicaid, and individual market subsidies could all effect underlying cost trends. Until the federal policy landscape is further defined, the extent of Massachusetts’ control over its health care destiny remains to be determined.”

Read the March 2016 article—Massachusetts Moves Forward on Activities to Limit Health Care Cost Growth

Read the Fund’s 2015 report on State Models for Health Care Cost Measurement: A Policy and Operational Framework