State model hints at national change


Massachusetts adds cost containment goals, something PPACA lacks

Cost containment was not initially addressed when Massachusetts’ health reform was enacted in 2006. Early reforms basically served to increase coverage, and Chapter 224, a separate cost-containment law, passed in August 2012.

The law became effective January 1 and is projected to save nearly $200 billion over the next 15 years, according to officials. Industry observers believe the Patient Protection and Affordable Care Act (PPACA) was modeled in part after Massachusetts’ reform, and PPACA cost-containment provisions remain questionable.


Chapter 224 calls for overall growth of healthcare expenditures within the state of Massachusetts to be limited to the potential gross state product (PGSP), or a lesser percentage of it. Each year, the health policy commission-a new state agency created to implement and monitor Chapter 224-will estimate a PGSP figure in advance of the year in which it will be applied.

“You can’t have healthcare dominating everything and have it take away from the state’s ability to provide other benefits and services,” says Matt Fisher, attorney and chair of the Health Law Group at Mirick, O’Connell, DeMallie & Lougee, LLP. “The law is trying to make sure that we’re all still able to access good-quality healthcare that’s sustainable and not going to undermine everybody financially.”

Plans and providers will have to report their costs and reimbursement amounts to the state on an annual basis. Fisher says it’s somewhat unclear whether or not individual healthcare entities must operate within the cost benchmark, or if the measurement will aggregate the state expenditures overall.

He says the details of Chapter 224 suggest more of a case-by-case basis where the health policy commission might approach an individual organization to ask for a demonstration of compliance with the cost benchmark. If the commission were to decide that an entity is beyond the designated growth benchmark, it would most likely suggest or impose a performance improvement plan prior to issuing a penalty. 

$200 bilion: Savings estimated over 15 years from Massachusetts' Chapter 224


Increasing transparency and making cost and payment information available to patients will hopefully drive actions and enable advocacy for change, Fisher says. However, it might be problematic for health plans.

 “Part of the challenge for insurers will be struggling with how much information needs to be provided, how to present it and how to make sure that inaccuracies aren’t released because once the information is out in the public sphere, it’s impossible to pull it back,” says Fisher.

Currently, PPACA does not have a similar spending growth target, and Fisher does not foresee any movement towards national cost control-for now.

 “That’s not to say it couldn’t happen,” Fisher says. “Medicare is certainly experimenting with alternative payment methodologies and encouraging coordination of care and more efficient, high-quality care. But that’s only for those participating in Medicare and engaging in particular projects created by PPACA.”

Similar to Massachusetts health reform, the a key provision of PPACA is expanding coverage. While there are cost offsets in the national law, it’s possible that more aggressive national cost containment could be pursued down the road.

Additionally, Fisher says it’s noticeable that national supporters of PPACA are not actively engaging in the promotion of exchanges and the benefits of health reform yet. When compared to the lead-up in Massachusetts, there is a definite difference.

 “As the state was rolling out universal coverage for the first time, so many different pieces of the community helped with getting the message out,” Fisher says.

He adds that health reform is a lot more manageable within one level of government and one state, especially one as small as Massachusetts.

 “It’s going to be a much bigger challenge,” he says. “Larger states like California or Texas have so many more residents and their populations and landmasses are just a lot bigger.”


It’s too early to determine whether the cost containment law is having an effect in Massachusetts. Fisher says, measurements won’t likely occur until 2014 and enforcement of performance improvement will be even further down the road.

However, one of the primary changes so far has been a shift in payment methodologies, he says. Insurers are moving away from fee-for-service towards global risk and bundled payments to providers.

He says that if the law needs additional tweaking, more legislation will be proposed and considered by state legislators.

 “It’s not going to be walked away from,” Fisher says. “There’s a desire to see this succeed and figure out how we can tackle unsustainable growth.”

Fisher says that Chapter 224 is not trying to purpose a one-size-fits all solution to Massachusetts healthcare, but rather encourage new methods of delivering care, containing costs and working together to solve the expansion of healthcare costs.

 “At the end of the day, it’s trying to benefit everybody, whether it’s providers, insurance companies or individuals,” he says.


Cost containment will also affect hospitals and provider organizations. Many will have the same accountability and disclosure obligations as health plans.

 “If they’re getting less money but their administrative burden is going up, how will they reconcile all of that? What impact is that going to have on operations?” Fisher says. “They’re going to have to save or generate more money somehow and it’s uncertain as to how they’re going to be able to do that at this point.”

Additionally, the law requires provider organizations taking on risk to register with the state as risk-bearing organizations. The goal is to ensure that providers can handle the risk from a financial perspective; however, unpredictability may pose a problem. Although the state can certify a provider, it’s uncertain whether the provider will be allowed to fail should something unforeseen occur.

 “Is the state going to allow what could arguably be a large provider in the Massachusetts community to be put out of business because they took on too much risk?” he says. “If it’s a big enough provider, I can’t see how because, in the long run, it would hurt more people than it would help.”


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