More states will adopt state healthcare cost growth benchmarking, researchers say

States that benchmark their healthcare cost growth improve transparency, strengthen primary care and boost alternative payment models, according to a new report.

Eight states have implemented or are developing the regulatory and data gathering infrastructure to track annual healthcare cost growth, and more are expected to follow suit. Standardizing how those benchmarks are created and measured could lower the barrier of entry for other states and lift efforts to curb healthcare cost inflation, a new report from Manatt Health found.

"Benchmarking provides regulators and policymakers the tools to do their jobs effectively and has been increasingly used to advance local priorities like primary care and behavioral health," said Kevin McAvey, a director at Manatt and co-author of the report.

Some states like Oregon, which emulated Massachusetts' program, have bundled their cost growth benchmark with alternative payment models. Forty of the state's healthcare organizations, including some of Oregon's biggest providers and payers, committed to tying 70% of their payments to capitation and other alternative payment models by 2024.

Benchmarking has also helped states address patients' rising cost-sharing burden, said Joel Ario, a managing director at Manatt and lead author of the report.

"Today, Massachusetts is the leader in this field and Oregon has the second most robust program. But we have a lot of leading states coming along with Connecticut, New Jersey, Nevada and Washington," he said, adding that California is consider benchmarking. "There is clearly an emerging pattern to look at this benchmarking program."

States, sometimes through legislation or an executive order, collect data from stakeholders to set an annual cost growth target. Some healthcare organizations will fall below or above the target, depending on their market and system. States typically lower the benchmark over time.

Organizations that consistently exceed the benchmark may receive performance improvement plans and could be fined. In Massachusetts, providers urged to the Health Policy Commission to increase the benchmark in light of the COVID-19 pandemic. But the commissioners voted to hold it at 3.1% and indicated that they would crack down on those that consistently exceed the benchmark.

The early 2021 data also showed that hospitals have tried to offset their COVID-19-related losses by increasing prices, which can have a cascading effect. Employers and employees have to pay more into the healthcare system, which can limit healthcare benefit packages, wage increases and promotions.

That's in part why the average inflation-adjusted wage had about the same purchasing power in 2018 as it did in 1964, research shows.

Average annual healthcare expense growth has doubled the rate of average annual wage increases from 2000 to 2019, 5.6% and 2.8%, respectively, according to Modern Healthcare's analysis of CMS and Social Security data. Notably, median wages only increased by 2.6% over that span since the average is skewed by high earners.

"Unless we see something more aggressive in Washington D.C., solutions in cost containment will have to come from the sates," Ario said.

Manatt researchers recommended standardizing benchmarking programs to lower costs, facilitate cross-state comparisons and improve data collection. There should be a common framework for related legislation, a step-by-step implementation guide, standard methodology for benchmark data collection, protocol to ensure data accuracy and interstate working groups, they said.

"You can see the model evolving—states are not just talking about how costs are growing and what is driving that growth, but analyzing where those dollars are coming from and where they are going to," McAvey said. "There is increasing conversation around developing consumer cost benchmarks to advance preventative care, long-term health and other state priorities."