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May 15, 2025
Toolkit
January Angeles
Erin Taylor
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May 21, 2025
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Setting a target, in and of itself, is not sufficient to slow cost growth. States and their partnering stakeholders need to take individual or collective action to implement strategies to slow cost growth and enable the state to meet the target.
However, having a target in place fosters stakeholder engagement, data and information transparency, and a commitment to affordability that better positions states to develop and implement meaningful cost containment strategies.
This section describes accountability mechanisms that states can apply to motivate payers and providers to meet the target, strategies and considerations for holding entities accountable to the cost growth, and cost containment strategies that states have pursued.
The goal of measuring entities’ cost growth is to ultimately hold them accountable for meeting the target. States have three primary accountability mechanisms: (1) public reporting of performance, (2) performance improvement plans, and (3) application of positive and/or negative incentives for meeting or not meeting the target.
Most states rely on public reporting, but four states — Delaware, Massachusetts, Oregon, and California — go beyond public reporting to motivate payers and providers to meet the target. These states can require performance improvement plans or impose financial penalties; the approaches are considered a last resort after transparency and collaborative efforts to contain spending have failed.
Public reporting has long been used to stimulate improvements in other domains of health care, such as quality. Public reporting of performance against the target draws attention to how health plans and providers contribute to health care cost growth and gives states the chance to engage all stakeholders in the conversation on cost growth drivers and strategies to address them. The assumption is that health plans and providers will undertake efforts to constrain costs when information about their performance is compared against the target and made available to their peers, regulators, legislators, and the public at large.
States typically wait years before public reporting to ensure that the entire process works successfully over time. States publicly report performance at the state, market, payer, and provider organization levels, sharing the findings in multiple venues and formats to garner attention.
Massachusetts’ recent experience, however, points to the limits of public reporting in sustaining voluntary cost containment efforts. Stakeholders in the state reported that the target, and the potential for scrutiny of payers or providers that exceeded it, had a sentinel effect that helped restrain cost growth. However, this influence waned as the program matured and health care entities exceeded the target without consequences.10 While the HPC had the ability to impose a performance improvement plan on entities that exceed the target, it didn’t exercise this authority until 2022. Consequently, states may wish to consider greater accountability and enforcement measures to ensure all stakeholders involved work towards meeting the cost growth target.
Leveraging the Cost Growth Target to Spur Action: Delaware’s Hospital Cost Review Board
In June 2024, following years of failing to meet the state’s cost growth benchmark, Delaware passed a bill establishing the Diamond State Hospital Cost Review Board. The Board is charged with conducting annual reviews of hospital budgets and related financial information and ensuring that growth in hospital costs align with the state’s established benchmark. Hospitals whose cost growth exceeds the benchmark must engage with the Board and submit a performance improvement plan detailing strategies and concrete action steps to bring down costs. As part of the hospital budget review, the Board may also recommend and enforce changes to a hospital’s budget to bring cost growth in line with the benchmark.
If an entity exceeds the target, a state can require it to develop and implement a performance improvement plan (PIP). A PIP is a formal document that identifies the entity’s specific cost growth drivers, contains concrete action steps the entity will undertake to address the cost drivers, sets a clear timeline for implementing action steps, and outlines measurable expected outcomes.
Oregon, which can require PIPs, provides guidance to entities on the PIP process in the form of templates and examples of acceptable plans and provide technical assistance and feedback to support entities to develop their PIPs. The Oregon Health Authority (OHA) will accept draft PIPs and provide feedback to entities to support final plans before they are submitted for approval.
To date, the first and only application of a PIP for failing to meet the target has been in Massachusetts. After several years of exceeding the state’s cost growth benchmark, the HPC required Mass General Brigham, the largest health system in the state, to submit a PIP in 2022. The HPC found that from 2014 to 2019, Mass General Brigham had more cumulative spending in excess of the state’s cost growth benchmark than any other provider. Mass General Brigham’s PIP, which was approved by the HPC, included 10 interventions that were estimated to save $176.3 million over 18 months.11
Mitigating cost growth takes time, so states need to closely monitor PIP performance and results for multiple years to measure impact. To evaluate Mass General Brigham’s PIP implementation efforts, the HPC looked at the following factors:
In its In December 2024, the HPC announced that Mass General Brigham’s implementation of the PIP meaningfully reduced health care spending growth.
Applied appropriately, a PIP can be a powerful accountability tool for states. However, as seen in the Massachusetts experience, it can be time and resource-intensive to implement. The HPC’s monitoring and review of the PIP entailed quarterly meetings, analyzing spending trends, validating savings methodologies and calculations, and reviewing contracts with health plans to determine whether Mass General Brigham’s cost reduction initiatives achieved target outcomes, reduced spending and pricing during the period of the PIP, and could be sustained into the future. Massachusetts has significantly invested in the infrastructure for its cost growth target program; however, states with smaller programs and less resources may not have the capacity to undertake such an effort.
Oregon and California can impose financial penalties on entities that exceed the target. Financial incentives can be an effective motivator to improve performance, but a key consideration is how to determine the penalty. A flat penalty amount could overly burden smaller organizations but not be meaningful enough to spur change in large organizations. Alternatively, a penalty that is set too high could pose financial burdens that impede entities’ ability to deliver services. In Oregon the penalty amount is based on the degree to which the entity exceeds the target and the entity’s size. Oregon’s financial penalties apply to entities that exceed the cost growth target with statistical confidence and without reasonable cause in a market for at least three out of five years.12 To ensure that the program improves affordability, the state requires plans and providers to direct payment of the financial penalty to consumers or to programs designed to directly benefit them.
States could also consider positive incentives, which are not currently in use. For example, states could give special recognition to entities that meet the target.
Whether using public reporting, PIPs, financial penalties, or positive incentives, states need to have a well-established process for holding entities accountable to the target and enforcing compliance.
Massachusetts takes several steps before it requires a PIP (Exhibit 8). First, its data collection agency, the Center for Health Information and Analysis (CHIA), confidentially shares findings with the HPC about any payer or primary care provider whose spending exceeded the target. The HPC then conducts a confidential review of public and private information about the payer’s or provider’s spending. If the HPC determines the performance was within the organization’s control and the organization could take reasonable action to institute meaningful cost reforms, the HPC Board can vote to require a PIP. If the Board votes for a PIP, the organization must develop an action plan to reduce costs. The HPC then evaluates the PIP to assess whether the action steps are likely to successfully address the underlying cause(s) of the entity’s cost growth and whether the entity has the capability to successfully implement the PIP.13
Exhibit 8. Massachusetts’ Accountability Process
Source: Adapted from David Seltz, presentation on the benchmark modification process, March 25, 2021, available at https://www.mass.gov/doc/presentation-benchmark-hearing-march-25-2021/download.
Determining when to impose a PIP or financial penalty is a key consideration for states. More specifically, how should states determine whether an entity had a reasonable or justifiable basis for exceeding the target? An evaluation of Massachusetts’ program found that the level of discretion the HPC had in determining whether to issue a PIP weakened this accountability mechanism. The evaluation suggested that using more prescriptive and objective criteria to trigger a PIP would have made it more effective.14 States should consider parameters to guide this assessment — such as the entity’s spending level, the extent to which its cost growth exceeded the target, the entity’s market share, and how much its excess cost growth contributed to the state’s overall cost growth.
Typically, states subject large provider entities that can be reasonably expected to influence total health care costs to the health care cost growth target. Those entities may include medical groups, health systems, federally qualified health centers, and independent practice associations that may or may not have value-based contract arrangements with payers. A significant limitation of this primary care–based approach to assessing TME is that many provider entities that contribute significantly to cost growth, such as hospitals and pharmaceutical manufacturers, do not have their spending growth assessed. This has led states to explore ways to extend accountability to such entities.
Cost driver analyses have consistently pointed the role of hospital pricing in driving up spending growth. Consequently, several states are exploring ways to hold hospitals accountable and mitigate growth in hospital prices. For example, California’s Office of Health Care Affordability (OHCA) is developing a methodology to measure hospital spending and assess performance relative to the state’s health care cost growth target. OHCA convened a stakeholder workgroup with hospital and health system representatives, health plans, a consumer advocacy organization, and public purchasers to develop recommendations for OHCA consideration. OHCA also intends to develop a methodology for assessing performance of and extend accountability to specialty providers.15 In Massachusetts, the HPC recommended that the legislature strengthen the state’s health care cost growth target framework by authorizing the use of metrics beyond TME to assess performance of hospitals and specialists.16
Determining the Reasonableness of an Entity’s Excess Cost Growth
Oregon developed a list of potential factors that may cause a payer or provider entity to reasonably exceed the cost growth target, including:
Following several years of obtaining stakeholder input, OHA has also set forth a process for how it will determine whether excess cost growth is reasonable, with intensive review to understand the factors contributing to an entity’s excess cost growth. Oregon launched this process with its assessment of health care entities’ 2022 performance against the state’s target. OHA determined that 28 entities that exceeded the target had acceptable reasons for doing so, while three entities did not. Starting with the 2023 performance year, entities that exceed the target without an acceptable reason, as determined by this new process, will be required to submit and implement PIPs.
Developing a Methodology to Assess Hospitals’ Spending
The primary care–based approach that states currently use to assess TME is not suitable for measuring individual hospital spending. States can attribute spending to hospitals that employ primary care clinicians or are contractually affiliated with them, but the many hospitals without such primary care relationships do not have their spending growth assessed. Yet hospital spending is a major health care cost driver at the state and national levels and is expected to continue to outpace spending growth of other types of health care services over the next decade.
Cost growth target program analyses have provided states with greater insight into the role that hospital spending — and specifically hospital prices — plays in driving health care spending growth, particularly in the commercial market. This underscores the need for states to address hospital spending to advance their affordability goals. To hold hospitals accountable to cost growth targets, states are exploring methodologies for measuring spending and spending growth at the individual hospital level. This involves consideration of key design issues, including:
Real change can only come about when states and their stakeholder partners engage in and implement cost growth mitigation strategies. States can pursue broad-based strategies that can affect overall cost growth without focusing on particular contributors, or specific strategies that address cost growth drivers identified through analyses.
The Commonwealth Fund identified 10 cost containment strategies, one of which is setting a cost growth target, and developed profiles of each strategy including design and implementation considerations, evidence of the strategy’s potential to reduce cost growth, the strategy’s potential impact on health equity, contextual features that influence the feasibility of implementing the strategy, and potential limitations. This section describes some of the strategies that states with target programs have pursued.
By using financial incentives that reward providers for meeting certain quality or cost-saving benchmarks, VBPs aim to change the delivery system to focus on improving outcomes and providing care more efficiently.
Oregon’s governing body developed a set of principles to increase the use of VBPs in the state. Oregon established a VBP compact with 47 organizational signatories that set targets for the percentage of provider payments to be made through an advanced VBP model. To support implementation, the state set up a VBP workgroup that is charged with identifying ways to accelerate all-payer VBP adoption, recommending policies to address barriers to adopting VBPs, coordinating VBP efforts across the state, and monitoring progress on VBPs.
Similarly, Rhode Island’s governing body identified VBPs as the primary strategy for meeting the target. Health care leaders in the state signed a compact to accelerate adoption of advanced VBP models, and the state convened a workgroup of healthcare stakeholders to develop recommendations on key parameters of an all-payer hospital global budget model.
Most recently, Rhode Island and Connecticut were accepted into the Center for Medicare and Medicaid Innovation’s States Advancing All-Payer Health Equity Approaches and Development (AHEAD) Model. This initiative, focused on curbing health care cost growth, improving population health and advancing health equity, involves implementation of an all-payer hospital global budget model.
States can place upper limits on how much an insurer can annually increase the price paid for a service. These caps allow for increased spending, but within certain limits. In Rhode Island, the Office of the Health Insurance Commissioner established affordability standards that commercial insurers must follow to have their premium rates approved. These standards include a comprehensive payment reform provision that requires insurers to limit price increases for hospital services to the Medicare price index plus one percentage point. In 2021, Delaware implemented similar affordability standards for commercial insurers.
States can also consider incremental approaches to implementing price caps. For example, Oregon passed legislation in 2017 that prohibits its state employee plan from paying more than 200% of Medicare prices for in-network hospital facility services, and more than 185% of Medicare prices for services delivered out-of-network. Research shows that initiative successfully reduced hospital prices for the state employee health plan, and resulted in an estimated $107.5 million in savings to the state during the first two years of implementation. Washington introduced similar legislation in 2025 to cap prices that health plans in the state’s Public Employee Benefits Board and School Employees Benefits Board pay for hospital services.
Connecticut and Massachusetts have tried to control drug costs by introducing legislative proposals to fine drug manufacturers whose price increases were considered excessive. In Rhode Island, the steering committee recommended that the governor pursue similar legislation. Such efforts, however, have met stiff resistance and several legal challenges from the pharmaceutical industry. Despite these setbacks, states remain resolute in addressing prescription drug prices given it is a significant driver of high and rising health care costs.
For example, in January 2025, Massachusetts enacted legislation expanding the scope of the Health Policy Commission and establishing a new Office of Pharmaceutical Policy and Analysis to collect and analyze pharmaceutical spending data, publish reports on access to and affordability of prescription drugs, and make recommendations on prescription drug policy. The legislation also expanded state oversight of the industry, giving the state’s Department of Insurance authority to license and regulate Pharmacy Benefit Managers operating in the state.
Washington and Oregon have established Prescription Drug Affordability Boards (PDABs) to monitor and mitigate prescription drug price increases. Washington’s PDAB can set an upper payment limit for drugs that it finds to be unaffordable.
Market consolidation occurs when two or more health care entities combine. These transactions can involve entities that supply different services, such as a hospital acquiring a physician practice, or entities that provide similar services, such as two hospitals. Studies show that consolidation in health care leads to higher costs without improving quality or patient outcomes.17
In 2021, Oregon passed a bill directing the OHA, which administers the state’s target program, to also oversee “material change transactions,” which include mergers, affiliations, and acquisitions of a certain size. The framework for OHA’s review includes the impact of such transactions on the state’s ability to achieve its target. Massachusetts’ 2025 law that expanded state oversight of pharmaceuticals also expanded the Health Policy Commission’s authority to review mergers, acquisitions and other material transactions. This includes the ability to scrutinize the role of private equity investments in health care the state. In addition, it directs the Department of Public Health to consider the Commonwealth’s cost containment goals, impacts on patients, and comments and relevant data from the Center for Health Information and Analysis and the Health Policy Commission in its reviews of Determination of Need applications.
Tips for Prioritizing Cost Mitigation Strategies to Pursue
Having a framework for systematically evaluating what strategies to pursue ensures states focus on the most important cost mitigation efforts. It also helps with stakeholder buy-in, particularly if the process incorporates the best available evidence and reflects the realities of the stakeholders that will need to implement the strategies. The decision-making process should also consider whether there could be unintended consequences such as diminished quality, equity, or access. Criteria that states can use to prioritize cost mitigation strategies include:
10. Lipson D, Orfield C, Machta R, Kenney O, Ruane K, Wrobel M, Gerovich S. The Massachusetts Health Care Cost Growth Benchmark and Accountability Mechanism: Stakeholder Perspectives. Mathematica, October 2022. https://www.milbank.org/wp content/uploads/2022/10/MassCostGrowthBenchmarkEvaluation_Mathematica_Oct2022.pdf.
11. Massachusetts Health Policy Commission. HPC December 12, 2024 Board Meeting. https://www.mass.gov/doc/presentation-board-meeting-january-25-2022/download.
12. Oregon exempts Federally Qualified Health Centers (FQHCs), pediatric clinics, and Oregon Health Plan – Open Card (fee for service program) from financial penalties.
13. Massachusetts Health Policy Commission. Performance Improvement Plan Process Overview. January 2022. https://www.mass.gov/doc/performance-improvement-plan-process-overview/download.
14. Lipson D, Orfield C, Machta R, Kenney O, Ruane K, Wrobel M, Gerovich S. The Massachusetts Health Care Cost Growth Benchmark and Accountability Mechanism: Stakeholder Perspectives. Mathematica, October 2022. https://www.milbank.org/wp-content/uploads/2022/10/MassCostGrowthBenchmarkEvaluation_Mathematica_Oct2022.pdf.
15. California Department of Health Care Access and Information (HCAI). Health Care Affordability Board Meeting Presentation. January 24. 2024. Accessed October 4, 2024. Available at: https://hcai.ca.go v/public-meetings/january-health-care-affordability-board-meeting.
16. Massachusetts Health Policy Commission. Annual Health Care Cost Trends Report and Policy Recommendations. September 2023. Accessed October 4, 2023. Available at: https://masshpc.gov/publications/annual.
17. Gaynor M, Town R. The Impact of Hospital Consolidation – Update. Robert Wood Johnson Foundation, Update to Research Synthesis Report No. 9, June 2012. https://www.researchgate.net/publication/283910115_The_Impact_of_Hospital_Consolidation_-_Update.
