Rhode Island Reports That Health Care Spending Exceeded the State’s Health Care Cost Growth Target in Its First Year

Rhode Island recently reported the state’s first year performance against its 3.2% health care cost growth target, which was established in 2018 to make health care spending more transparent and inform strategies to make health care more affordable for Rhode Islanders.

Overall results. Rhode Island analyzed spending and spending growth at the state level and reported that per capita health care spending grew 4.1% between 2018 and 2019, exceeding the state’s 3.2% health care cost growth target. This resulted in $65.8 million in total excess cost growth.

Results by market category. The analysis showed variation in growth rates across the three insurance markets, as shown in Table 1.

Table 1. Per Capita Total Medical Expense (TME) Trend by Market, 2018–2019

Major cost growth factors. The top three contributors to per capita health care spending growth across all markets were:

• Hospital outpatient services, which contributed to 33.3% of statewide spending growth
• Retail pharmacy (net of manufacturer rebates), which contributed to 25.4% of statewide spending growth
• Professional physician services, which contributed to 14.9% of statewide spending growth

Next steps. Based on the findings from the first year of performance, the Rhode Island Cost Trends Steering Committee will seek to better understand the specific factors driving spending growth and recommend interventions aimed at curbing cost growth.

Lessons Learned

Reporting on the first year of performance relative to the cost growth target yielded some important lessons, which will be instructive for other states that have implemented or are considering implementing a health care cost growth target.

Data validation. The process of validating data submitted by insurers and provider organizations (e.g., accountable care organizations or ACOs) is time-consuming and can stretch across several months. In addition, reporting data for the cost growth target is just one of many data submission requests that insurers and providers are asked to fulfill. The quality of data submissions for the cost target may be less of a priority for insurers and providers than that of other data submissions, particularly if there are no consequences for failing to report.

Rhode Island reviewed and validated data with payers first and then did the same with providers. Some validation problems did not surface until the provider-level review.  State should look to speed the payer data validation process by better training data submitters, for example, so that they can review data with providers well before the planned publication date of the performance reports.

Spending target methodologies. Rhode Island’s experience revealed that high-cost outliers and changes in risk scores can have a substantial impact on cost trends when assessed at the insurer and provider entity levels. States need to decide how to address these considerations in their measurement methodologies, especially if the state seeks to hold insurers and provider entities accountable for cost growth target attainment in some fashion.

Multi-year analyses. Multi-year analysis is required to understand patterns in spending and spending growth over time. It can also mitigate the impact of year-to-year variation in cost drivers, which may be idiosyncratic. States should therefore report both one-year and multiple-year trends once this is possible.

Rigorous analysis of cost drivers. Rhode Island’s cost growth target strategy includes parallel action to analyze cost growth and cost growth drivers using the state’s all-payer claims database. Such analyses of drivers of cost growth enable the state to better understand the impact of price, service mix, and/or utilization on cost growth, and inform interventions that aim to target underlying causes of growth more precisely. These interventions will be necessary for states to meet their cost growth targets. (See Rhode Island Cost Trends Project Data Use Strategy for more information.)

For more information about Rhode Island’s approach to implementing a cost growth target, see Rhode Island’s Cost Trends Project: A Case Study on State Cost Growth Targets.