Massachusetts ties healthcare cost increases to the state's Gross State Product (GSP)

August 15, 2012

Legislators expect the bill to save $200 billion over the next 15 years.

Massachusetts has passed legislation that ties healthcare cost increases to the state’s Gross State Product (GSP), sets budgets for hospitals and doctors, supports coordinated care, and increases cost transparency for consumers. Legislators expect the bill to save $200 billion over the next 15 years.

"The law I have signed makes the link between better health and lower costs, that we need a real healthcare system in place of the sick care system we have today,” said Governor Deval Patrick in prepared remarks upon signing the bill into law. “What we're really doing is moving towards a focus on health outcomes, and a system to reward that. We are ushering in the end of fee-for-service care in Massachusetts in favor of better care at lower cost."

The new law sets a target for controlling the growth of healthcare costs by holding the annual increase in total healthcare spending to the rate of growth of the state’s GSP for the first five years, through 2017, and then to half a percentage point below the economy’s growth rate for the next five years, and then back to GSP.

“We are excited to see ambitious goals like these,” says Christina Severin, president of Network Health, an insurer based in Medford, Mass. “The question will be what happens should costs not meet those goals?”

The law also requires government agencies like MassHealth, the Group Insurance Commission and the Connector (the independent authority that acts as an insurance broker to offer private insurance plans to state residents) to use global and other alternative payments to achieve savings for taxpayers. It also encourages alternative delivery systems across healthcare fields.

“The bill recognizes the value of alternative payment models and transformation of the delivery of care as mechanisms for reducing costs,” says Severin. “Today in Massachusetts, one in four residents with private insurance are already under an alternative payment model that rewards providers for higher quality and lower costs through global budgets per patient. The bill would expand this through a variety of mechanisms. While this move to alternative payment models and Accountable Care Organizations will not in itself necessarily lead to reduced medical expenses, we would expect to see a positive impact when coupled with the other reform mechanisms of the bill, including the oversight of the new Health Policy Commission and greater transparency provisions.”

Those transparency provisions require health insurers to provide a toll-free number and website that enables consumers to request and obtain price information, though detractors point to research showing consumers don’t choose healthcare services based solely on cost.

In an attempt to curb provider cost increases, the law allows a Health Policy Commission to conduct a cost and market impact review of any provider organization to ensure that they can justify price variations. The law identifies triggers beyond a certain target for when a provider or provider organization will be referred to the attorney general for investigation. An independent Center for Health Information and Analysis will conduct data collection and reporting functions.

“Having a target is important and forces the healthcare community to be both transparent about the drivers of cost and to engage in opportunities for performance improvements,” says Severin. “Should there not be a valid reason for cost increases, the commission can require the healthcare entity to submit a corrective action plan to achieve the target savings. Ultimately, the healthcare entity can face material fines if the Commission determines that the healthcare entity has not made a good-faith effort to contain costs.”

Other aspects of the law include a $60 million Wellness Fund for competitive grants to community-based organizations, healthcare providers and regional planning organizations; a cooling-off period for malpractice suits; and advancement of several health information technology programs, including the Executive Office of Health and Human Services' work with the Obama Administration to build and operate the statewide health information exchange.

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