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After Expanding Coverage, Massachusetts Focuses On Taming Costs

Apr 09, 2013

This story comes from our partner Stateline, the daily news service of the Pew Charitable Trusts.

BOSTON—As other states continue to debate the merits of the Affordable Care Act or race to implement it, Massachusetts is moving on to the next big challenge: curbing health care costs.

Under a law signed by Democratic Gov. Deval Patrick last August, Massachusetts is putting its health care industry on an annual budget and requiring all of the state’s insurers and medical providers to make public the prices of the services they offer. Beginning on Oct. 1, consumers will be able to view price comparisons online.

Seven years after its groundbreaking health reforms, which became the model for the Affordable Care Act, Massachusetts boasts an uninsured rate of less than 2 percent, compared to a national average of 16 percent. But the cost of health care in the state, the highest in the country before the reform law was passed, remains so. Nationwide, health care costs per person are higher in the U.S. than in any other country in the world.

Without change, people in the Massachusetts health care industry say rising costs will unravel the state’s nearly universal health care coverage, bankrupt businesses and crush the state budget. Chapter 224, as the law is known, is projected to save $200 billion over the next 15 years.

There is no single cure for the nation’s health care cost problem, but most economists agree it is essential to arm consumers with detailed price lists and quality reports from hospitals, doctors and other health care providers so they can make informed choices about their care.

According to standard economic theories, health care providers would then respond to consumer pressure by offering cheaper, more competitive services. To do that, they would have to become more efficient at delivering care without jeopardizing quality.

“You cannot tell me that better care and lower costs don’t go together,” said Dr. Donald Berwick, former director of the Centers for Medicare and Medicaid Services. ”Better care costs less than worse care.”

The Massachusetts law also funnels money to community hospitals, wellness programs and health information systems, and calls on insurers to move away from traditional “fee-for-service” payment methods and instead reward providers for the health outcomes of their patients.

“I’m confident that just as we showed the nation how to deliver universal care, Massachusetts will be the place that cracks the code on cost containment,” Patrick told a conference of health care journalists in Boston last month.

Price Transparency

Although no other state has required the health care industry to publish its prices, 11 states have taken preliminary steps to shed light on the real cost of medical care.  Colorado, Kansas, Maine, Maryland, Minnesota, New Hampshire, Oregon, Tennessee, Utah, Virginia and Vermont are in various stages of developing so-called “all payer claims databases” that collect and analyze the widely varying prices health care providers charge private insurers, Medicare, Medicaid, uninsured individuals and other payers. In all other states, these transactions are considered confidential business information and kept under wraps.

For some time, state officials have been using the state claims data, but it has only given them a retrospective look at the market. The Massachusetts data that will be available in October will give consumers a current view of the prices their carriers pay for services. That information, both price lists and quality reports, will come directly from insurance companies and providers.

Len Nichols, an economist at George Mason University, said the health care industry will never become a functioning market without this kind of detailed pricing information. In the meantime, though, “the industry is focused like a laser beam on the cost issue,” he said.

Some critics say the federal health law does not do enough to lower costs, but it includes provisions designed to limit the growth of Medicare payments to hospitals. For example, it financially penalizes hospitals for excessive readmissions of previously released patients, and ties providers’ price increases to the growth rate of the overall economy. Under those restrictions alone, Nichols predicted, “the richest hospital in the country will hit bone in five years unless it makes major changes.”

Medicare, the $555 billion federal health care program that serves more than 50 million elderly and disabled people, pays for 28 percent of all hospital charges and 24 percent of physician charges, according to the Kaiser Family Foundation.  The federal health law includes $716 billion in Medicare payment reductions over the next 10 years.

Despite Medicare’s clout, some expect states to play the primary role in reducing health care costs. Raymond Scheppach, former director of the National Governors Association, heads the State Health Care Cost Containment Commission at the University of Virginia. He believes states will assume responsibility for the cost of health care. “The reason,” he says, “is that about one third of all Americans are going to get their coverage through Medicaid or the [health insurance] exchange.”

An Experiment

Critics cite one major problem with the Massachusetts law: It is unenforceable. If the industry exceeds the 3.6 percent annual growth limit this year, the state can levy penalties on providers, but they are widely considered too small to force health care companies to change.

Supporters of the law acknowledge it has no teeth, but insist it has concentrated attention on the problem. “The target is having a big impact on the health care industry here,” said David Cutler, a Harvard economist who advises the state. “It’s making people think about contracts that are being written and their expectations about the future.”

Insurers, so far, appear to be taking the target seriously, if for no other reason than to avoid a more punishing law in the future. Blue Cross of Massachusetts CEO Andrew Dreyfus said his organization is doing everything it can to slow cost growth so that an enforceable law – one that actually sets prices for the health care industry – won’t be needed.

One such Blue Cross initiative is a so-called “tiered” insurance policy that offers consumers a network of low-cost, high quality hospitals, but allows access to higher priced hospitals for a higher co-pay. “It’s our fastest growing product,” Dreyfus said.

Experts differ on whether Massachusetts is taking the right approach, but no other state has launched such a broad-based attack on rising health care costs, and the rest of the country is eagerly anticipating the results.

“Just as with our 2006 access law, other states will be watching and seeing how this experiment moves forward,” said David Seltz, health policy commissioner. “I feel certain we’ll have some positive results to show.”

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