Massachusetts healthcare spending growth drops in 2017

Massachusetts' total healthcare spending grew by 1.6% in 2017, falling well below the state benchmark and the national average, according to a new report.

The latest figures show Massachusetts' healthcare spending grew at nearly half the rate it did in 2015 and 2016 and well below the state's 3.6% cost growth benchmark, according to the Massachusetts Health Policy Commission's 2018 Cost Trends Report. The national average was close to 4% in 2017.

Total spending hikes in Massachusetts averaged 3.2% between 2012 and 2017, helping the state avoid $5.5 billion in projected additional spending, according to the report.

Hospital outpatient and pharmacy spending were the fastest-growing categories in 2016 and 2017, increasing 4.9% and 4.1%, respectively. Overall Massachusetts' inpatient hospital use was unchanged since 2014 and continues to exceed the U.S. average.

The state is among the highest users of teaching hospitals in the country, contributing to some of the highest average Medicare prices in the U.S. Spending remains roughly 20% higher in provider organizations anchored by an academic medical center compared to those in physician-led organizations, according to the Health Policy Commission.

Patients in academic medical center-anchored groups had more emergency-department visits and office visits to non-primary-care providers. Quality was no better in academic medical center-led organizations despite higher spending, data show.

This is partially why Massachusetts is the fourth-highest state for average outpatient Medicare prices, 12% above the U.S. average. It ranks sixth for average inpatient Medicare prices, 20% above the national average.

Commercial prices have risen roughly 12% between 2014 and 2016 for ED visits. This trend has limited overall spending reduction, commission researchers said.

Like the rest of the country, healthcare costs are eating up a significant portion of employers' budgets and individuals' income.

Insurance premiums for large Massachusetts employers are the 10th-highest in the U.S., down from second-highest in 2013. But premiums for small employers are now the second-highest in the country.

Nearly a third of total income for lower-income commercial insured residents is consumed by healthcare costs, leading to higher rates of medical debt. About 29% of that demographic has outstanding medical debt.

Commercially insured residents reported a 23% increase in out-of-pocket spending from 2015 to 2017. And 1 in 5 reported annual out-of-pocket costs in excess of $3,000.

Around a quarter of Massachusetts residents said they have deferred care because of the cost; two-thirds of those had insurance, the commission found.

The industrywide slow uptake of alternative payment models with downside risk has limited widespread cost reductions. In Massachusetts, the adoption of alternative payment models by commercial and Medicare plans remained relatively stagnant over the past three years.

"Providers are continuing to live in the fee-for-service and the risk world and it is very hard to justify reducing unnecessary utilization when it is just putting them in the red," David Auerbach, director of research at the commission, said during the commission board meeting Thursday. "It is an uphill battle."

Massachusetts showed no improvement in 30-day readmission rates in 2016 and continue to significantly exceed the national average. But commission Chair Stuart Altman pointed out that the readmission rates don't factor in socio-economic issues, which ultimately weakens the metric.

"The unwillingness of the federal government to readjust them is not helpful," Altman said.

The key findings of the report also touched on the recent approval of the merger between Beth Israel Deaconess Medical Center and Lahey Health System, which would create the second-largest system in the state. The Massachusetts attorney general gave a conditional green light on the deal last month, as long as price growths are capped at the Massachusetts benchmark over a seven-year period, among other requirements.

After the expected formation of Beth Israel Lahey Health in the first quarter, the top five health systems will account for 70% for all commercial inpatient stays statewide.

The Health Policy Commission, which has produced critical reports of the merger citing a potential to increase healthcare costs by up to $251 million per year, said it commends the conditions the attorney general placed on the deal that would help mitigate its concerns. Beth Israel executives say scale is the only way to check Partners HealthCare.

The annual report also looked at low-value services. Nearly 21% of commercially insured Massachusetts residents received at least one low value service in a two-year time period. All 19 low-value procedures outlined by the American Board of Internal Medicine accounted for $80 million in healthcare spending in Massachusetts between 2013 and 2015, $12.2 million of which was out of pocket.

The likelihood of a patient receiving "low-value" services varied nearly 2 to 1 by the medical group affiliation of their primary-care provider, with the highest rates (nearly 33%) among patients of Lahey Health and the lowest (approximately 15%) among patients of Atrius Health and Baystate Health.

"So many more of our residents are on high deductible health plans, which means you may be on the full freight for some of these screens and tests when you went in seeking an annual visit. Suddenly, what would've been a $20 general visit is now something much more than that," said David Seltz, executive director of the commission. "I think these out-of-pocket costs understate what is probably the reality today."

The full report is set to release in February.