October 31, 2022

Issue Brief

The Massachusetts Health Care Cost Growth Benchmark and Accountability Mechanisms: Implications for State Policymakers

Focus Area:
Sustainable Health Care Costs
Topic:
Health Care Costs Accountability Peterson-Milbank Program for Sustainable Health Care Costs

Authors:

Debra Lipson, Cara Orfield, Rachel Machta, Olivia Kenney, Kelsey Ruane, Marian Wrobel, and Sule Gerovich, Mathematics

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See the The Massachusetts Health Care Cost Growth Benchmark and Accountability Mechanisms landing page to review all related publications.

Background

In 2012, Massachusetts became the first state in the country to adopt legislation establishing a statewide benchmark for health care cost growth. This benchmark sets a target for the annual rate of increase in health care spending and ties it to expected growth in the state’s overall economy. Known as Chapter 224, the law applies the benchmark to public and private expenditures and most types of health spending. The law also established the Health Policy Commission (HPC) and gave it the authority to monitor and promote payers’ and providers’ compliance with the benchmark through a set of accountability mechanisms described below.

Following Massachusetts’ lead, policymakers in eight other states have adopted similar initiatives to establish benchmarks for cost growth. To support these states, the Peterson Center on Healthcare and Gates Ventures commissioned Mathematica to conduct a study of Massachusetts’ stakeholders’ experiences with, and perceptions of, the HPC’s accountability mechanisms and to identify lessons and considerations for other states that are setting cost growth benchmarks. This issue brief summarizes key study findings and raises lessons and considerations for state policymakers about the design and use of accountability mechanisms to meet a health care cost growth benchmark. (See the full report.)

The first Performance Improvement Plan 

In 2016, the Health Policy Commission began reviewing the performance of entities whose annual spending growth exceeded the benchmark. 

Although the HPC reviewed dozens of entities over the next six years, the HPC did not require any of them to prepare a PIP, leading many payers and providers to believe that a PIP referral did not have serious consequences. 

After the HPC Board voted to require Mass General Brigham to prepare a PIP in January 2022—the first one in its history—the prospect of preparing a PIP might regain its influence on payer and provider spending. 

All stakeholders are watching closely to see how the Mass General Brigham PIP process plays out to shed light on the strength of this accountability mechanism. 

For more details, check the Interactive Tracker on the HPC’s website to learn about the PIP’s progress.

Implications for policymakers on the design and implementation of accountability mechanisms for cost growth benchmark initiatives

As of 2022, eight states have followed Massachusetts’ lead and adopted programs setting targets for health care cost growth; several other states adopted elements of the initiative. Massachusetts’ experience highlighted important lessons and raises considerations for policymakers in other states about the design and use of mechanisms to hold payers and providers accountable for keeping health care spending growth below the benchmark (Table 2). Policymakers must decide which options are best suited to their state, based on the health care market structure, the capacity and resources of state agencies to implement benchmarking initiatives, and political consensus. For more discussion of these lessons and considerations, read the full report.

Table 2. Lessons and considerations for state policymakers 

Accountability for meeting the benchmark

MassachusettsConsiderations for other states
Massachusetts' law allows the HPC to hold some payers and certain types of providers accountable for excessive spending growth, but it excludes some entities and types of spending that contribute to spending growth, such as pharmacy spending and hospital spending not attributable to affiliated physicians.State policymakers should consider which entities to hold accountable for keeping spending growth below the benchmark based on the major drivers of cost growth in the state.
Massachusetts’ cost growth benchmark holds entities accountable for annual spending growth; it does not account for the baseline level of spending per member or patient—a product of price and utilization. By limiting accountability to cost growth alone, Massachusetts could not address the variation in prices across providers or the high prices some of them charged, which are among the primary drivers of cost growth.
State policymakers should consider whether to hold entities accountable for level of spending as well as annual spending growth.
Although the definition of health insurers’ total medical expenses includes member cost sharing for deductibles, copayments, and co-insurance, Massachusetts’ cost growth benchmark does not consider how consumers’ out-of-pocket health spending, including premiums and cost sharing, affects households with varying income levels.State policymakers should consider whether to establish separate standards for consumer affordability that take into account growing out-of-pocket costs to accompany the total statewide growth benchmark.
Massachusetts’ law lists the criteria that can be considered in deciding whether to require an entity that exceeded the cos
growth benchmark to prepare a PIP. The HPC has the flexibility to decide which factors to consider, whether an entity has made a good faith effort to control spending growth, and whether all factors taken as a whole “raise significant concerns.”		State policymakers should consider how much flexibility state agencies should have to determine whether spending growth above the benchmark is justified and whether to define the circumstances under which a PIP is required.

“For the benchmark to be effective, it needs to connect with what consumers pay for and how their costs are rising.” — Interview respondent

Oversight Authorities and Resources

Massachusetts' experienceConsiderations for other states
Massachusetts’ law granted power to the HPC, an independent agency that operates with support from a data collection agency (Center for Health Information and Analysis), to monitor and assess performance relative to the benchmark. It also separated the HPC’s authority from other agencies with established regulatory authority, such as the Division of Insurance, which regulates insurance companies; the Department of Public Health, which regulates health providers and facilities; and the Attorney General’s Office, which enforces anti-trust law. Separating powers across agencies according to their existing authority takes advantage of their expertise, but this approach can leave gaps in authority to hold certain types of health care entities accountable.State policymakers should consider which agencies will have the power to enforce compliance with the benchmark by leveraging existing agencies’ regulatory authority, or if needed, granting new authority to an existing or new agency which can hold specific entities accountable for excessive spending growth.
Massachusetts’ law did not grant authority to the HPC or other state agencies to adopt new policies or regulations if their accountability tools were insufficient to address changes in the health care market that led to high cost growth. But if annual statewide spending trends did not fall below the cost growth benchmark, the law treated a framework for stronger enforcement tools by directing the HPC to recommend new legislation.State policymakers should consider the circumstances and criteria that warrant the use of greater enforcement powers or regulatory levers by state agencies without having to pass new legislation. Such criteria could include several years of excessive spending increases, the degree to which spending growth exceeds the benchmark, the number of entities exceeding the cost growth benchmark, or other factors indicating that transparency and current accountability tools are insufficient to control cost growth.
The Massachusetts agencies charged with implementing the cost growth benchmark initiative—the HPC and Center for Health Information and Analysis—employ staff with expertise in a range of areas, including data collection, policy analysis and law, and they have relatively ample budgets. As a result, they have earned respect from all parties, and their analyses are regarded as objective and
rigorous.		State policymakers should ensure that the agencies entrusted to monitor and enforce compliance with the cost growth benchmark have sufficient funding and resources to effectively monitor cost growth, identify key cost drivers, and implement their accountability tools.

“I think that what really makes [the cost growth benchmark] so powerful is the credibility that the Health Policy Commission and Center for Health Information and Analysis bring to the table. We know that very thoughtful and thorough data analysis underlies their work. They are highly respected, both the staff and the commission. They command a place that they’ve been given by the statute, and I think that is really what has made them as successful as they have been.” — Interview respondent

Incentives for compliance

Massachusetts' experienceConsiderations for other states
Massachusetts' law authorizes the Health Policy Commission to levy a maximum financial penalty of $500,000 on entities that fail to meet the cost growth benchmark, but only in very limited circumstances, such as when an entity willfully fails to submit a Performance Improvement Plan. In 2021, the HPC recommended increasing financial penalties for above-benchmark spending or non-compliance.State policymakers should consider the types and amounts of financial penalties needed to motivate payers and providers to meet the cost growth benchmark.
Because of the importance of high quality data to the success of the cost growth target initiative, the Center for Health Information and Analysis has taken steps to continually improve the completeness and accuracy of spending data submitted by payers, providers, and other reporting entities.State policymakers should consider the types and amounts of financial penalties needed to motivate payers and providers to meet the cost growth benchmark.

“One of the things we’ve learned is you need to give [the HPC] more enforcement authority, more teeth. In certain situations, they should be required to apply penalties for lack of compliance as opposed to letting them decide.” Interview respondent

Methodology

This study used qualitative research methods to examine how the HPC implemented the four accountability mechanisms. From November 2021 to March 2022, we interviewed nearly 50 key stakeholders involved in or affected by the Massachusetts cost growth benchmark initiative. These included state officials (including the HPC and other state agencies), payers, providers, and consumer representatives and other stakeholders. We also collected and catalogued extensive documentation about the HPC’s use of each accountability mechanism through a systematic search of publicly available documents.

The authors thank colleagues at the Peterson Center on Healthcare, the Massachusetts Health Policy Commission staff, and the nearly 50 people in Massachusetts who participated in interviews. This project was supported by the Peterson Center on Healthcare and Gates Ventures. The statements contained in this issue brief are solely those of the authors and do not necessarily reflect the views or policies of the Peterson Center on Healthcare or Gates Ventures.

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