Mass. Panic: Did State Wait Too Long To Try Cost Control?

by Dan Diamond, California Healthline Contributing Editor

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Coverage now. Cost control later.

That was the maxim behind the mandate — and a whole slew of other health reform provisions — in both Boston in 2006 and Washington, D.C., in 2010.

But six years after implementing a landmark health reform law, Massachusetts is still trying to figure out how to rein in health spending. The third cost-control bill passed by the state Legislature since 2008 was signed into law on Monday, containing new efforts to slow rising health costs and implement more payment reforms.

Is the state’s law too lax, too strict or just right? Experts are applauding the endeavor as a necessary effort, but many are withholding judgment.

“It may fail spectacularly,” writes Harvard professor John McDonough, “and it may even achieve real success.”

Here’s a breakdown of what the law means for the Bay State — and ultimately, for the Golden State, too.

Law’s Unique Reforms

Like the Affordable Care Act’s own reforms, the new Massachusetts law attempts to shift health care providers toward accountable payment models. It includes provisions to transition the state’s Medicaid reimbursement toward value-based purchasing and establish a certification program for state accountable care organizations and patient-centered medical homes.

“For the first time on a statewide scale, we will move away from the current fee-for-service system, which pays for every procedure, test, and office visit,” Amy Whitcomb Slemmer, executive director of Health Care for All, writes in The Atlantic.

But what makes the latest Massachusetts reforms so important, experts say, is their unprecedented effort to tie state health costs to the growth of the state’s economy.

That’s easier said than done, of course. Although the Bay State’s health care costs have recently grown by about 7% per year — nearly double the state’s 4% annual growth in gross domestic product — the law seeks to somehow hold the two constant through 2017 and ultimately have health care costs grow at an even slower rate than GDP. A new Health Policy Commission will monitor the growth in health costs and enforce the state’s spending targets.

The law could serve as a national blueprint, its defenders say.

“No other state has tried to tie health costs to the state’s economy,” according to Lora Pellegrini, president of the Massachusetts Association of Health Plans.

“This is going to be really revolutionary and very important and I’m sure the nation’s watching.”

Critics on Both Sides

Pellegrini’s right — the nation is watching, and many have hailed the state’s ambition. But some observers don’t like what they’re seeing.

A much-discussed Wall Street Journal editorial blasts the new reforms as government-led central planning that fails to account for individual provider variation. According to the Journal‘s editorial board, the Massachusetts law also “takes 360-degree surveillance and converts it into a panopticon prison,” with hospitals facing potentially unreasonable penalties, given that some costs may be beyond their control.

Meanwhile, some liberal-leaning groups and consumer advocates are taking the opposite tack: The law still does not do enough to rein in costs, and it lacks clear penalties if costs miss targets. Nancy Turnbull, an associate dean at the Harvard School of Public Health, told the New York Times that the bill was “not nearly what we need to deal with market power and the unjustified price differences that result.”

The law also left out a proposed — and controversial — hospital “luxury tax,” which legislators proposed in the House version of the bill. The provision would have required hospitals that charged more than 20% above the state’s median price for a certain service to pay a 10% surcharge to a state fund for low-income patients.

From the Bay State to the Bay Area: Can We Draw Any Lessons?

Because both Massachusetts and California have pursued transformative health reforms, they often get compared and contrasted with each other — including in California Healthline — but they’re incredibly different states with very different health care challenges.

Californians are four times more likely to be uninsured than Bay Staters, and there are many, many more of them; the Golden State’s population is six times the size of Massachusetts. (For perspective on that size difference, consider this: about 550,000 more people live in the Bay Area than in the entire Bay State.) Massachusetts also is less diverse — 10% of the state’s residents are Hispanics, versus nearly 40% of Californians — which means it also has fewer problems with health care disparities and language barriers

But both states want to be leaders on health reform. And both have yet to solve their rising health costs. In the three years after Massachusetts’ law took effect, state health spending rose by 18% — the exact same growth rate as in California, which saw its efforts at health reform fall apart.

Considering that the Golden State is grappling with an out-of-control budget, it may need to make harder choices than the Bay State when it comes to state health spending. Yet Massachusetts’ choice to delay cost control may ultimately not pay.

“When it comes to controlling health care costs,” a New York Times editorial warns, “Massachusetts has no advantage, and in fact is starting behind most other states.”

Here’s what else is happening across the nation.

On the Hill

Rolling Out Reform

  • As lawmakers debate overhauling the U.S. tax code next year, lobbyists for health insurers are hoping to convince lawmakers to repeal a provision in the federal health reform law that will raise taxes on insurance policies. The tax increase — which will be used to fund the reform law — will take effect in 2014 (DoBias, Politico, 7/30).

Studying Its Effects

  • The U.S. Supreme Court‘s decision to allow states to opt out of the Affordable Care Act’s Medicaid expansion puts in jeopardy another tenet of the law that aims to reduce uncompensated care costs for hospitals. In 2010, hospitals’ uncompensated care costs totaled $39.3 billion, which includes charity care and unpaid bills, and accounted for approximately 5.8% of hospitals’ expenses for the year. Further, recent industry data indicate that uncompensated care increased by 82% between 2000 and 2010 (Wayne, Bloomberg/San Francisco Chronicle, 8/2).

In the States

  • Texas Gov. Rick Perry’s (R) plan to end the Medicaid Women’s Health Program as a way to prevent funding from going to Planned Parenthood conflicts with his decision to opt out of the Affordable Care Act’s Medicaid expansion. The state will continue with the current program through the end of October before launching an entirely state-funded program. Perry has said the new program will not require much funding because “all clients will be eligible for Medicaid following the expansion of the Medicaid program” under the ACA (Baker, “Healthwatch,” The Hill, 8/6).
  • Massachusetts hospitals experienced a significant decrease in productivity after the state’s individual mandate was implemented in 2007, according to a study published recently in Health Care Management Review. The finding could have broad implications for hospitals nationwide as they prepare for the individual mandate in the Affordable Care Act, which takes effect in 2014 (Oh, Becker’s Hospital Review, 7/30).

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