Health-care reform: Massachusetts tries to crack the code on rising costs

Massachusetts was first in the US to pass health-care reform that included an individual mandate to buy insurance. Now it aims to be the first to control costs. Will its plan, approved Tuesday, work?

Massachusetts returned to the vanguard of the health-care debate six years after its landmark law, with the state legislature on Tuesday backing a first-in-the-nation plan that aims to slow spiraling health costs.

The plan is the next chapter in the Bay State’s reform efforts, following the 2006 landmark law pushed by then-Gov. Mitt Romney that served as the basis for President Obama’s Affordable Care Act. Among other things, the Massachusetts law introduced the individual mandate – the requirement that all residents get insurance or face tax penalties. The US Supreme Court upheld the federal law in June.

While the Massachusetts law expanded insurance coverage, it did little to solve the problem of rising costs, which have climbed markedly in recent years, rising on average 6.4 percent a year in the state. Per capita health spending in Massachusetts is about 15 percent higher than the rest of the nation. By comparison, national health costs have risen about 6.5 percent on average since 1991.

The bill that passed both the House and the Senate Tuesday, and that is likely to be signed Gov. Deval Patrick (D), tries to change that.

“It’s an interesting bill for the assumptions [the lawmakers] make. But they’re making a lot of assumptions about how fast can we get to these points,” says William Fields, a private health-care consultant. “What path are we really starting to lead ourselves are down? At the end of the day, where are we going to go with this? Are we going to be cutting-edge, or are the costs going to go so low that we lose all innovative aspects of our system?”

The 349-page plan, dubbed Health Reform 2.0 in some circles, is forecast to save $200 billion over 15 years, by tying the growth in health-care costs to the growth in the state economy.

“The truth is there are some pretty lofty, ambitious goals in the legislation. The real efforts will come with the implementation,” says Amy Whitcomb Slemmer, executive director of the advocacy group Health Care For All. “Savings will come because there will be fewer redundant [medical] tests and fewer unnecessary [patient] visits.”

Negotiators from the House and Senate, who had struggled for months to reconcile the chambers’ separate bills, opted to strip out the more controversial measures, such as a luxury tax on hospitals that provide premium services.

In the end, they decided to create a new state commission with the power to audit health-care providers that exceed state targets for cost growth and to refer them to the state attorney general for investigation. In a state that is home to world-renowned hospitals like Massachusetts General, Brigham and Women’s, and Beth Israel Deaconness, this was one of the most controversial provisions. State Attorney General Martha Coakley said in a 2010 report that insurers end up paying some hospitals and doctors twice as much money as others for similar care, in large part because they dominate the market.

The legislature’s plan also levies a surcharge on insurers, and that money, combined with future appropriations, will fund preventative-care programs and help support smaller community hospitals that typically have lower costs than the larger institutions but that also have lower revenues. Some funds will bolster reimbursements for Medicaid, the federal-state health program for the poor. The plan also promotes the creation of “accountable care organizations,” which aim to replace the current piecemeal fee-for-service approach for medical procedures with “global” or “bundled” systems of payments for providers.

The Massachusetts Hospital Association appeared to give a lukewarm response to the bill, welcoming the effort but also warning that “the aging population and obesity epidemic” will stress hospital budgets. It also says the state must do more to ensure adequate reimbursement for patients in state-funded programs.

Critics, including the Pioneer Institute, a Boston think tank, say the plan creates more bureaucracy and higher administrative costs. Joshua Archimbault, a health-care analyst at the institute, also says the ambiguity in some of bill means that state regulators would have sizable discretion. 

“My concern is that whenever you have government officials, or a commission or a panel or whatever, making arbitrary determinations, you run the risk of picking winners and losers, and you open the door for increased lobbying, which is very problematic,” Mr. Archimbault says.

The Greater Boston Interfaith Organization, an alliance of religious organizations in the region, says the growth targets have the potential to reduce costs and eliminate waste.

“However, to accomplish these aims an enhanced enforcement mechanism will likely be necessary,” the group says. That echoes fears that the lack of specific targets and specific penalties in the legislature’s plan gives providers like big hospitals too much wiggle room.

The wider impact of the Massachusetts plan, however, remains an open question, since the Bay State’s circumstances – a high percentage of insured individuals; an economy dominated by the health-care industry – is unusual in the US.

“We are very optimistic we will have a model for the rest of the country to look at,” Ms. Whitcomb Slemmer says.