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October 31, 2022
Sustainable Health Care Costs Peterson-Milbank Program for Sustainable Health Care Costs
Debra Lipson, Cara Orfield, Rachel Machta, Olivia Kenney, Kelsey Ruane, Marian Wrobel, and Sule Gerovich, Mathematica
Apr 10, 2023
Mar 13, 2023
Jan 10, 2023
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This project was supported by the Peterson Center on Healthcare and Gates Ventures.
Background. In 2012, Massachusetts became the first state in the country to adopt legislation establishing a statewide benchmark for health care cost growth. This benchmark sets a target for the annual rate of increase in health care spending and ties it to expected growth in the state’s overall economy. Known as Chapter 224, the law applies the benchmark to public and private expenditures and most types of health spending.
The law also established the Health Policy Commission (HPC) and gave it the authority to monitor and promote payers’ and providers’ compliance with the benchmark through a set of accountability mechanisms. These mechanisms include annual Cost Trends Reports and annual Cost Trends Hearings, which increase transparency of health care costs and spending; Cost and Market Impact Reviews (CMIRs), which monitor the impact of proposed mergers and acquisitions of health care entities on cost growth; and Performance Improvement Plans (PIPs), which require individual health care entities whose spending growth exceeds the cost growth benchmark to develop strategies to address excessive spending. While the term accountability is often understood to mean enforcement, Chapter 224 gave the HPC limited authority to enforce payer and provider compliance with the benchmark.
Several years after the Massachusetts benchmark initiative began, it was heralded as a success. From 2012 to 2017, state spending growth was lower than both the benchmark and the national rate of growth. Although the rate of spending growth exceeded the benchmark in 2018 and 2019, the state’s achievement spurred policymakers in other states to adopt similar initiatives.
Study purpose and methods. Supported by the Peterson Center on Healthcare and Gates Ventures, this study (1) examined the influence of the benchmark and the HPC’s accountability mechanisms on the motivation and actions by state agencies, payers, and providers to control health care cost growth, and (2) identified lessons and considerations about the design and use of accountability tools for other states implementing similar initiatives. From November 2021 to March 2022, we interviewed nearly 50 key stakeholders involved in, or affected by, Massachusetts’ cost growth benchmark initiative. We also collected extensive documentation about the HPC’s use of each accountability mechanism through a systematic search of publicly available documents.
As of 2022, eight states have followed Massachusetts’ lead and adopted programs setting health care cost growth benchmarks; several other states adopted elements of the initiative. The findings from this study highlight important lessons and raise considerations (Exhibit ES.1) for policymakers in other states about designing and using mechanisms to hold payers and providers accountable for keeping health care spending growth below the benchmark.
Exhibit ES.1. Lessons and considerations for other states
Massachusetts’ experience illustrates the strengths and limitations of a cost control framework that relies on public oversight and transparency of health care spending, and on voluntary cooperation by payers and provider health care entities to keep annual cost growth below the target, but that grants the HPC few enforcement tools. Other states can learn many things from Massachusetts’ use of accountability mechanisms, but the most important might be that constraining cost growth is not a “one and done” exercise. State policymakers must continually monitor market trends and refine or enact new measures to address emerging drivers of health care cost growth and respond to changes in the health care market. States that establish cost growth benchmark programs should also develop mechanisms to solicit feedback from key stakeholders—for example, by establishing advisory boards on the effectiveness of accountability mechanisms and potential improvements to them to ensure the state achieves its cost growth targets.
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