How One State is Curbing Growth in Health Care Costs

Massachusetts has a long and well-deserved reputation as one of the nation’s most expensive states for health care. Thanks to the presence of advanced, world-renowned medical institutions and high use rates for services, it’s now the third-priciest health care state in the nation, after Alaska and New York, according to David Seltz, executive director of the Massachusetts Health Policy Commission.

But what may go unnoticed if only considering overall cost figures is that Massachusetts is also becoming a national leader in a potentially more important area – controlling the growth of health care expenses. In seven of the last eight years, its health care commission, which was formed by legislation in 2012, has succeeded in bringing the growth rate in health care expenditures below the national average. What’s more, according to an article in Health Affairs, “Massachusetts had the second-lowest rate of growth in standardized per person spending from 2013 to 2019 among all states.”

High health care costs can be a significant burden for American households and state and local governments alike. Medicaid makes up nearly one-fifth of overall state general fund spending in the U.S., making it the second largest category of state spending after education, as the Peter G. Peterson Foundation noted earlier this year. Meanwhile, research from the Peterson Center on Healthcare and Kaiser Family Foundation shows that, in 2019, nearly one in 10 U.S. adults, or about 23 million people, had over $250 in medical debt, with about three million of these individuals owing more than $10,000. People who are poorer, in worse health, or who have disabilities were among those most likely to be saddled with this debt.

Although it has limits, the Massachusetts Health Policy Commission model shows promise for addressing rising medical costs, and other states are taking notice and looking at pursuing similar initiatives.

It's important to understand, of course, that there are a number of potential cost drivers that are outside the reach of any state government. For example, when a new, highly effective and expensive drug for hepatitis C was introduced it was extremely difficult to keep costs for it low. Absent draconian measures to control health care costs by driving down the quality of care, factors like this are bound to interfere with the best efforts to contain expenses.

Among the keys to Massachusetts’ success are its skillful collection and use of data, which give insights into virtually every aspect of health care spending in the commonwealth. Another critical factor has been the commission’s goal of keeping increases in health costs in the state to 3.6% or below annually.

An October 2022 study conducted by Mathematica, and sponsored by the Peterson Center on Healthcare and Gates Ventures, dug deeply into Massachusetts’ approach by conducting a comprehensive review of public documents and gathering insights from about fifty people who were involved in, or affected by, the state’s initiative. The study found that “setting a cost growth benchmark was an important step toward curbing health care spending increases by establishing a shared goal and giving the state and health care entities a concrete target around which they could measure cost growth, make spending patterns more transparent and attach accountability mechanisms.”

But setting a goal is just the first step. As Seltz explains, “We then try to understand the drivers that contribute to higher spending or to lower spending. That’s where the opportunities are.”

One successful Massachusetts strategy was largely based on the depth of its data assets, which helped it compare the performance and costs of various health systems in the state. It’s clear that there are a set of services that physicians and clinicians have agreed do not provide any clinical value – like some lab tests and unnecessary scans. So, Seltz says, “we looked for variation among the different health systems and how often they’re recommending these kinds of tests. They hadn’t seen comparative data, but when they saw our data some said, ‘Oh, we’re not performing as well as we thought we were compared to our peers.’ And that sparked action on their part, which reduced costs.”

With its capacity to disaggregate the health care expenditures from provider to provider, the Health Policy Commission can identify those whose spending exceeds the cost growth benchmark. Then, after a careful evaluation, HPC can require them to submit a performance improvement plan, including a description of key drivers of spending growth and strategies to get it down.

For example, when the state found that its biggest health care system, Mass General Brigham, had spending growth over the benchmark for multiple years, the commission required that they develop a plan to address this. “And they did,” says Seltz, “They developed a plan to bring in $127.8 million in health care savings over 18 months.”

That was clearly a success story, because Mass General Brigham was amenable to working with the state. But if it hadn’t been, the state wouldn’t have had the capacity to do a great deal to force its hand. One of the findings of the October study, according to Debra Lipson, a senior fellow at Mathematica, was that the state had enforcement tools that weren’t strong enough to require its providers to take the steps necessary to control costs.

“People we interviewed were saying that the state needs more teeth to control the health care cost drivers,” she says.

Seltz agrees: “The current law does contain a penalty for non-compliance with our recommendations, but that fine is capped at $500,000, while health systems have billions of dollars in annual revenue. So, we have recommended that the legislature consider escalating financial penalties if provider systems or health plans repeatedly exceed the health costs required for us to meet the 3.6 percent growth benchmark. I know this is an area that other states are exploring as well.”

There are a couple of other areas that Seltz and his staff have targeted for improvement in the near future. As the HPC’s 2022 Health Care Cost Trends Report suggests, Massachusetts should expand “state oversight and transparency of the entire pharmaceutical sector, including how prices are set in relation to value.” It also recommends that the commonwealth “take action to hold health insurance plans accountable for affordability and ensure that any savings that accrue to health plans are passed along to businesses and consumers.”

The fact that the Health Policy Commission acknowledges that there’s room for improvement also provides guidance for the states that want to achieve the same kind of results as those that have taken place under the commission’s leadership. While it’s credit-worthy to be the first state in the nation to create a successful initiative, it’s even more estimable to continue down a path of continuous improvement which can provide lessons – and inspiration – to others.

In fact, a number of other states are attempting to follow Massachusetts’ lead, including Delaware, Rhode Island, Connecticut, New Jersey, Nevada, Oregon, Washington and California by creating their own initiatives aimed at reducing the rate of cost growth. That’s not a surprise, based on Mathematica’s findings.

While the study pointed out some shortcomings with HPC’s program, it argued that “Other states can learn from Massachusetts’ design and use of accountability mechanisms . . . Its experience indicates that state policymakers must continually monitor trends and refine or enact new measures to address emerging drivers of health care cost growth.”