By David Cutler, PhD, and Steven Walsh, JD
Like bad generals who are “always fighting the last war,” the federal government is always fighting the last health care battle. More than 4 years after the Affordable Care Act was passed, partisan factions of Congress are acting as if they have little better to do than hold endless repeal votes and rehash old fights.
In contrast, state governments do not have the luxury of inaction. Unlike the federal government, state and local governments cannot run deficits, and businesses facing high health costs in one jurisdiction can flee to another. Thus, state and local governments are forced to confront the issue of health care costs. The passion for reining in spending encompasses states as diverse as Arkansas, Maryland, Massachusetts, and Oregon.
Befitting the different situation across states, these state actions are quite heterogeneous. Still, whether they are successful or not, these attempts will have a major effect on health care across the country. Thus, it is worthwhile for all physicians to learn about these local efforts. We both live in Massachusetts and are involved in that state’s health reform efforts in that state—what locals call “Chapter 224,” passed in 2012—so we focus on how events are unfolding there.
The Driving Force
Money was one driver in Massachusetts. With health costs at more than 40% of the Massachusetts state budget and squeezing out every other important public program, the time had come for bold and innovative cost containment. Health spending had been increasing at a rate faster than both the national average and the state economy. The state’s 2006 reforms, the famous “Romneycare” that was the basis for the Affordable Care Act, had helped to expand health insurance coverage, but had done nothing to address rising costs.
In addition, health care consumers have been totally in the dark regarding the cost, quality, and risks of any medical procedure they underwent, and patients also seemed perplexed at the increased difficulty in accessing their medical records and health care information. As payers, clinicians, and hospitals and other health care facilities continued to shift costs to patients, it seemed only logical that consumers be afforded the appropriate information to make educated health care decisions.
On the political side there was an unparalleled level of cooperation between the state’s powerful leaders, Governor Deval Patrick, Speaker of the House Bob DeLeo, and Senate President Therese Murray in pushing for medical spending reform in 2012. The 3 had pledged that the time had come to reform a system that was rapidly approaching 20% of the gross state product for Massachusetts. These merging political and economic interests created a historic opportunity to finally change a broken system.
Targets and Tools
The centerpiece of the current Massachusetts reform effort is a target for the growth of medical spending in the state. Spending on medical care should not increase more rapidly than the long-run growth of the state economy, a value forecast to be 3.6% annually. The target was set for the state as a whole, not for any specific clinician or health care facility. People change providers regularly, so costs for any individual provider will naturally increase, with some increasing more this target and some less than this target. The link to economic growth ensures that medical care does not outpace the growth of state and local tax revenues, business receipts, or family incomes. Historically, the growth of health care spending has been 1 to 2 percentage points higher on an annual basis.
There were a range of opinions about the target, ranging from the view that it was impossible to predict cost growth and so a target was not appropriate, to the view that medical costs were so high that the target ought to be set at no annual growth or even below. In this sense, the target is meant to be challenging, yet not crippling.
If the target is breached, the entities—for example, clinicians and hospitals—found to be most responsible for the high rate increases are required to develop and implement a performance improvement plan. The plan can be negotiated over, but state government regulation of rates is prohibited under the law. The power of the target lies not in its enforcement backstop, but in the collective sense that the public and private leaders of Massachusetts have committed to it. Consistent with this, contracts between payers and those who offer health care services are being rewritten to ensure that cost increases do not exceed that goal.
Setting targets always raise fears of rationing, in Massachusetts. That fear was mitigated by the universal sense is that there is sufficient waste in the system to support simultaneous cost reduction and quality improvement. There are a variety of studies—from the Institute of Medicine to private groups (see here, here, here, and here) to the state’s nascent Health Policy Commission—that document this possibility.
Of course, having a target is not enough. The federal sustainable growth rate, a mechanism intended to keep total Medicare spending for outpatient services below a target (and which Congress has routinely voted to override), shows the disaster that occurs when a target comes without underlying reform. In Washington, people fight endlessly about whether the right way to fix health care is by reforming the demand side of the market, via better informed and incentivized consumers, or by addressing the supply side, through improved payment systems to those who offer health care services. The answer in Massachusetts was to reform both.
On the demand side, Massachusetts is encouraging insurers to continue offering tiered and limited network products, which require enrollees to pay more to access care at more expensive institutions. It also requires insurers to be able to tell consumers the amount of their cost sharing for any medical service at any institution, in real time. On the supply side, the Massachusetts legislation supports the transition away from fee-for-service reimbursement and towards alternative payment systems that reward quality more than quantity. This transition is required for public payers in the first 5 years, and private payers are expected to follow.
There are a number of other cost control mechanisms in place to support these larger initiatives. Medical malpractice was reformed to encourage greater use of disclosure-and-offer systems. Simplified referral processes were enacted to reduce administrative costs. Prevention and wellness and primary care initiatives motivate clinicians and medical institutions to invest in the long-term health of a patient. Data gathering and sharing is strongly supported, for both clinical and monitoring purposes. And sunshine is brought into the murky world of provider and insurer consolidation.
Is Massachusetts a Model, Again?
This summer, the release of cost data for 2013 will provide the first signs of whether cost growth is slowing in the Commonwealth. Preliminary indications are that the target will have been met. Indeed, the largest health system in the state just recently agreed to limit its rate of cost increases to no more than the rate of inflation—far below the projected rate of economic growth. Complaints by insurers and health systemsan important measure of success, are minimal, and there is no effort to repeal the law. Perhaps Massachusetts is less confrontational than the nation—or perhaps Massachusetts displays a style of health reform that the nation might emulate.
All of which raises a key question: in 5 years, will the nation once again follow the lead of Massachusetts? We do not know the answer to this. Optimistic starts can turn sour, just as poor starts can be reversed.
But in the broader scheme, the nation will have much to learn in the next few years. Between experiments in Massachusetts and those in virtually every other state, we should have a much better sense about how to tame the health care tiger. Maybe it is not so bad if the federal government is stuck in neutral for a while.
About the authors:
David M. Cutler, PhD, is the Otto Eckstein Professor of Applied Economics in the Department of Economics and Kennedy School of Government at Harvard University and a member of the Institute of Medicine. He served on the Council of Economic Advisers and the National Economic Council during the Clinton Administration and was senior health care advisor to Barack Obama’s presidential campaign. He also was involved in the debate over the Massachusetts health reform legislation discussed here and is a Commissioner on the state’s Health Policy Commission. Heis the author of the recently published The Quality Cure, and Your Money or Your Life (2004). He tweets at @cutler_econ.
Steven M. Walsh, JD, is the Executive Director of the Massachusetts Council of Community Hospitals and a former Massachusetts State Representative. He served as Chairman of the House Committee on Health Care Financing from 2011 to 2014 and was the primary House author of Chapter 224 of the Acts of 2012, the Commonwealth’s landmark health care payment reform law.
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