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Massachusetts Gov. Deval Patrick
Gov. Deval Patrick, center right, shakes hands with Jack Connors, recently retired board chairman of Partners HealthCare, which may feel the effects of the surcharge assessment.

Austerity program

States keep an eye on Mass. legislation limiting annual healthcare expenditures

By Maureen McKinney
Posted: August 4, 2012 - 12:01 am ET

As Massachusetts launches an aggressive effort to contain healthcare spending, the rest of the country will be watching.

On July 31, lawmakers passed first-in-the-nation legislation pegging healthcare expenditures at or below the state's overall rate of economic growth, a strategy officials estimate could save Massachusetts as much as $200 billion over the next 15 years.

The bill's passage comes six years after the state enacted a landmark law expanding healthcare access, widely seen as the blueprint for the insurance provisions of the Patient Protection and Affordable Care Act.

Gov. Deval Patrick, who pushed hard for legislators to come up with a compromise before the session ended, said in a statement that he planned to sign the bill.

The legislation will require providers to meet spending targets, although the consequences for failure are still murky. To that end, the state plans to collect a wide array of new data on healthcare cost trends and quality. In the meantime, the bill fires every arrow in the cost-control quiver, including new payment methodologies, preventive care and price transparency.

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“I have no doubt this will be influential because this really is the first time any state has attempted to legislate lower cost trends,” Paul Ginsburg, president of the Washington-based Center for Studying Health System Change, said of the bill. “I think other states, particularly in the Northeast, will be looking at this bill very carefully.”

From 2013 through 2017, the legislation sets healthcare cost goals at the gross state product, estimated for 2013 at 3.6%. The goals for 2018 through 2022 are even more aggressive, pushing the state to reduce spending to as low as 0.5% below the gross state product.

Healthcare spending has increased at an annual rate of about 6% or 7% in recent years, Massachusetts lawmakers said.

The Massachusetts Hospital Association called such cost goals “daunting,” particularly given added pressures to address increasing obesity rates and provide care for a rapidly aging population.

Massachusetts healthcare spending was projected to be about $68 billion in 2010, according to figures from RAND Health.

The 349-page bill, approved by a vote of 38-0 in the Senate and 133-20 in the House, represents a compromise from versions introduced this spring. In many ways, the new bill takes a softer, gentler approach to cost containment than did the previous bills, said attorney Stephen Weiner, chair of the health law section of Mintz Levin, Boston.

For instance, the “luxury tax,” a controversial provision that would have taxed pricier hospitals that provide premium services, was left out of the newest version. That was replaced by a one-time surcharge assessment on acute-care hospitals and health systems that have more than $1 billion in total net assets and derive less than 50% of their revenues from public payers.

The funds from hospitals' surcharge assessments, totaling $60 million, along with $165 million in one-time surcharge assessments from payers, will be distributed among three funds. Sixty percent, or $135 million, will go to a trust fund for distressed hospitals, while $60 million will be put toward prevention and wellness efforts. The remaining $30 million will go to a fund that promotes the use of health information technology, according to the bill.

Those are worthwhile targets for improvement, said Tim Gens, the state hospital association's executive vice president, but he argued that adding another cost burden onto certain hospitals is the wrong way to generate needed funds.

“At a time when the government is looking to lower costs, to actually impose additional costs on providers is something that we don't think is sound public policy, particularly at a time of chronic underpayment for services,” Gens said.

Given the parameters of the surcharge assessment, it's likely to apply to only a few large hospitals and health systems, including perhaps 12-hospital Partners HealthCare System; 396-bed Boston Children's Hospital; and 621-bed Beth Israel Deaconess Medical Center, all in Boston, experts say.

In a statement, Partners CEO Dr. Gary Gottlieb did not address the assessment directly, but said reaching the bill's healthcare spending target would present “a tremendous challenge for hospitals and doctors.”

Enforcement is another area softened in the compromise version of the bill. The bill establishes a health policy commission—led by an 11-member board—that will set cost goals, gather data, track prices and determine whether providers are meeting benchmarks. And that commission can require providers that don't hit those targets to develop and submit performance improvement plans. The bill does say that providers that willfully neglect to file or implement such improvement plans could be subject to a last-resort fine of up to $500,000, but lawmakers did not go into much detail about that or any other potential penalties.

“Earlier versions had some pretty severe regulatory interventions, including one that would have required providers to renegotiate their payer contracts,” Weiner said. “This bill does put in place pretty robust monitoring and reputational pressure, but it does not say to hospitals: 'If you don't meet this goal, we will do this.' ”

And that's a good thing, he said. The bill institutionalizes the pressure to control costs and sends a clear message to providers without complicated regulatory interventions upfront, Weiner said. “There may need to be more regulations down the road, but I don't think it's smart now,” he said.

Dr. Paul Hattis, assistant professor and associate director of the Master of Public Health Program at Tufts University, predicted more enforcement will be necessary.

The bill is “an important first stake in the ground,” said Hattis, who also co-chairs the healthcare task force of the Greater Boston Interfaith Organization, a community organization that lobbied aggressively for tight spending targets aligned below the growth rate of the gross state product.

“The legislation has laid down the challenge to all Massachusetts providers and insurers to demonstrate there is value in what they do and to use the market to correct the failures that have led to uncontrolled costs for many years,” Hattis said. “It gives them the opportunity, of their own accord, to get things under control without significant government involvement. Over time, if the market can't self-correct, there will likely be a need for greater oversight.”

Ginsberg, of the Center for Studying Health System Change, declined to even call the bill's targets “caps” because consequences for not meeting them were as yet undefined. “I would just call them aspirational,” he said.

Experts did agree, however, that Massachusetts is right to try as many cost-cutting strategies as possible. The bill, sweeping in scope, tackles spiraling healthcare costs from a wide range of angles. The provisions include a call for parity for mental health services, increased use of health IT and the adoption of new payment delivery models, such as accountable care organizations. Other provisions establish a 182-day cooling-off period in malpractice litigation.

“This is a broad bill that uses a lot of different levers to make progress on healthcare affordability,” said Sarah Iselin, president of the Boston-based Blue Cross and Blue Shield of Massachusetts Foundation. “It's a complex challenge, and if there were one silver-bullet solution, we'd all be doing it.”

As comprehensive as the bill may be, it's just a first step, Iselin said. It remains to be seen, she says, whether providers will meet the targets and whether additional regulations related to enforcement and accountability will become necessary.

“We have a great history of passing legislation and then making corrections when we need to,” Iselin said. “This is a good compromise and a big step forward, but we still have a lot of work ahead of us.”

Just as the state's 2006 healthcare reform law foreshadowed the Affordable Care Act, the state's attempt to control healthcare costs may offer a preview of efforts in other states and at the national level.

The Washington-based Center for American Progress, a think tank with close ties to the Obama administration, recently convened a group of 23 health policy experts who published an article Aug. 1 on the New England Journal of Medicine website.

The authors—including Dr. Donald Berwick, former head of the CMS; Michael Chernew, health policy professor at Harvard Medical School, Boston; and bioethicist Dr. Ezekiel Emanuel, a former Obama adviser—suggested a similar multipronged approach to curbing runaway health spending at the national level. Emanuel and Berwick are senior fellows at the Center for American Progress.

The authors emphasized the need for a variety of containment strategies, including administrative simplification, increased price transparency, alternatives to fee-for-service payment and expanded use of nonphysician providers, all of which are addressed in the Massachusetts bill.

The stakes are high, with national healthcare spending projected to reach $2.8 trillion this year, the authors wrote, citing figures from the Congressional Budget Office. “These are the types of large-scale solutions that are necessary to contain costs,” they said.

TAKEAWAY: Aggressive moves to control healthcare spending in Massachusetts may give providers across the country a glimpse of things to come.

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