Massachusetts Moves Forward on Activities to Limit Health Care Cost Growth

How fast are health care costs growing in your state? What services or populations seem to be contributing most to those cost increases? Understanding the growth rate is important information for the financial health of states, as they struggle to provide needed services while limiting tax increases. The growth rate also has direct consequences for consumers, as health plan cost sharing has increased.

About a year ago, the Fund published a report that described and analyzed state models for health care cost measurement. Since that time, the states in the report—Maryland, Massachusetts, Oregon, and Vermont—have continued to analyze their health care costs and work on policies to limit cost growth. Already a model for much of the work of the Affordable Care Act, Massachusetts’ cost measurement activities may provide lessons for the rest of the country.

Among the four states, Massachusetts is notable for several reasons—the governance, operations, and policies to measure costs were laid out in great detail through state legislation, and significant resources were invested in the dual roles of policy and technical development for state level cost measures. Here, we describe the Commonwealth’s recent activities in more detail, and we’ll report on other states’ progress in future articles.

The Massachusetts model for measuring health care costs and setting cost growth limits started with the implementation of the Commonwealth’s statute by the two state agencies created for this purpose. The Center for Health Information and Analysis (CHIA) collects and analyzes health care cost and other trend data. These data are reviewed, and additional analyses are conducted by the Health Policy Commission, providing the basis for the Commission’s work on policies related to health care cost growth.

In September 2015, CHIA published its findings—Annual Report on the Performance of the Massachusetts Health Care System, which found that overall health care spending the previous year had exceeded the state’s growth target (fueled largely by significant increases in Medicaid enrollment), but per capita spending growth remained under the target for all payers. CHIA also published additional reports on specific topics including payers’ use of alternative payment models and price variation among Massachusetts’ health care providers by type and region.

In December 2015, the Health Policy Commission published a required report on health care cost trends and identified a range of topics that could have policy implications for Massachusetts. Specific factors driving health care cost increases included rising costs for pharmaceuticals, utilization of higher cost institutions, and persistent variations in prices across health care providers. “These factors affect all health care payers and populations, not just one segment or region,” says Rachel Block, project coordinator at the Fund, “so the Commission is well positioned to make recommendations that would influence these trends on a statewide or state population basis.”

Finally, in March 2016, the commission set the new health care spending growth target for 2017 at 3.6%, which by law is tied to the projected increase in the state’s gross product (SGP). One of the factors driving states to develop these models is that health care cost growth has generally exceeded the rate of state economic growth, which also means that spending for public health care programs commands a proportionally larger share of the state budget. Under this statute, the Health Policy Commission was required to set the health care cost growth rate at the same level as the projected state gross product increase. After 2017, the Commission will have the authority to set the health care growth rate at the same or a lower level than the SGP. This means that costs should not exceed state economic growth as they have in the past, and the Commission can recommend appropriate policies if the growth limits are exceeded.

“With health care expenses continuing to crowd out other state budget items, and growing attention being paid to the cost effectiveness of non-health care expenses for improving population health, efforts such as Massachusetts’ to understand and contain total costs merit the attention of policymakers,” notes Christopher F. Koller, President of the Fund.