Now for the Rest of the Story on Massachusetts Cost Control
Posted By Josh Archambault - February 25, 2013 @ 2:02
pm
A bureaucracy-centric governing philosophy is spreading in health care, and
with it comes heavy reliance on “experts” to determine how to curb costs outside
the normal legislative and democratic process. This was embodied at the national
level by the Affordable Care Act (ACA), and most recently at the state level in
a new Massachusetts growth-capping law. (Supporters refer to the law as cost
control and payment reform or Health Reform 2.0; the legal name is Chapter 224 of the Acts of 2012 [1]).
The new Massachusetts law was discussed by Mechanic, Altman and McDonough [2] in a past
Health Affairs issue, and on the blog by Turnbull [3] and Lee [4]. Yet, the unintended consequences of using
this method to reform health care have not been fully explored.
What’s In The Law?
Promising savings of $197 billion over 15 years, Chapter 224 sets a cap on
statewide health care spending growth by tying it to state growth, enforced by a
flat $500,000 civil penalty if health care entities don’t meet reporting
deadlines or take reform efforts seriously enough. The law grants strict
preference to alternative payment methods (capitated or bundled payment
contracts) and accountable care organizations (ACOs).
The law also mandates the use of electronic medical records (EMR), and bulks
up state government oversight and involvement in the health care marketplace
with more than 20 commissions, councils, committees, advisory boards, and task
forces comprised of at least 278 “expert” appointees. (Note: Some groups are
given regulatory authority.) The law reconfigures two existing agencies into the
Health Policy Commission (HPC) and the Center for Healthcare Information and
Analysis (CHIA). (See Table 1, click to enlarge.)
[5]
State government has been given a steroid shot in market oversight and
permission to write regulations freely. For example, the HPC is given only broad
outlines for its responsibilities but is instructed to promulgate hundreds, if
not thousands, of pages of new regulations and rules, and “undertake any other
activities necessary” pursuant to their powers and duties. The only clear thing
about how expansive their authority will be is how vaguely it is defined.
In addition, state government will now track the annual growth rate at most
health care entities, collect reams of new data, add additional levels of
registration for most health care professionals and hospitals, authorize any
change to the health infrastructure, and approve or disapprove any new and
innovative medical technology. A Department of Public Health-led “state health
plan” will count every medical resource in the state and “identify needs of the
commonwealth in health care services, providers, programs and facilities; the
resources available to meet those needs; and the priorities for addressing those
needs.” The state health plan will be linked to a strict certificate of
need process that requires five different state agencies to grant approval and
will determine how to “rationally distribute health care resources across
geographic regions.” (italics added)
The law increases Medicaid payments by $20 million annually and also hikes
payments to critical access reimbursement hospitals, non-acute chronic disease
hospitals, rural sole community providers, and expands or creates numerous
workforce development and loan forgiveness programs. The expense of these new
initiatives is often unclear, since no official estimate has been conducted.
However, we do know that hospitals and insurers are assessed $225 million in the
first year to pay for some of these new state programs, and that money has
already been earmarked for public health spending ($60m), distressed hospitals
($135m), and health IT ($30m). Additional revenue sources remain elusive.
In a major change, state health care programs are authorized to directly
contract with an ACO, cutting out insurance companies and setting up a default
single-payer system for public programs. Businesses of any size are given the
option of an up-to-$10,000 tax credit to start wellness programs. Insurers,
hospitals, and state agencies are required to establish websites and toll-free
phone lines to provide data on cost. And finally, state agencies are given
the authority to assess millions of dollars in new fees and penalties to
both fund their operations, and to ensure compliance with any new regulations
they promulgate.
But Will The Solutions Save Money?
Many of the law’s supporters hold a deep technocratic belief summarized by a
key legislator who told me no one should worry since professionals will “figure
it all out for us” once the bill becomes law. But can a commission or
council determine the right balance between: primary care physicians and
specialists, academic medical centers and rural clinics, the needs of small
versus large employers offering employee insurance, private non-profit insurance
companies and publicly funded Medicaid?
The legislative process would also seem to reinforce a technocratic belief,
as the 349-page law passed 14 hours after the final language was released, and
most lawmakers had little idea what they were voting on. A full summary was
never compiled before the vote, and no cost estimate was ever conducted. As a
result, supporters are able to claim the bill will save $200 billion without
providing any justification for such a claim. They point to the following list
of policy solutions as possible silver-bullets to contain costs. But do the
solutions match the problems in Massachusetts?
Linking Healthcare Growth and State Economic Growth
Chapter 224 hopes that by linking these two growth rates, the health care
rate will slow when compared to past experience. But why link these two rates?
Is there a tight relationship that explains this linkage? No one seems to know,
and history offers a few warnings.
When examining historical data from Massachusetts, it becomes clear there is
little correlation between the two growth rates. In fact, since 1998 the two
growth rates have moved in opposite directions almost half the time. Healthcare
growth often lags a few years before “catching up” with the state’s economic
trend, and the magnitude of movement in either direction rarely tracks together.
(See Chart 1, click to enlarge.)
As a result, it is an open question what health care entities will do in the
short run (18 months as allowed in the law) to match the state economic growth
if they are exceeding it. Since hospital budgets carry significant staff costs;
won’t the biggest target be layoffs? Won’t this only deepen an economic
downturn?
Chart 1
[6]
Source: U.S. Department
of Commerce, Bureau of Economic Analysis, Gross Domestic Product by State
1997-2011. Annual growth calculated by author.
Strict Preference for ACOs and Codifying Market Power
Work [7] by
Attorney General Martha Coakley has made it undeniably clear that dominant
provider market share is the strongest driver of health care costs in the
Commonwealth. Since the growth rate has been capped in Chapter 224 without
regard to current size or market share, or even in relation to a system’s
reimbursement rates compared to the median, marketplace dominance has been
cemented for at least the next decade. Every health care entity may grow at the
same rate going forward, but not all are beginning from the same starting
point.
More concerning is the preference Chapter 224 gives to ACOs, with the
explicit goal of further market consolidation. These factors will accelerate the
trend of consolidation as Partners HealthCare [8], Steward Health Care System, [9] and Vanguard Health Systems [10] have already been
buying or merging with smaller operations. This gives even more control to a
small number of providers and destroys any hope of meaningful competition. Many
hospital stakeholders privately express a belief that in five years, there will
only be five or six large health systems in the entire state.
Yet for the sake of argument, let’s assume the Attorney General is wrong
about the status quo in Massachusetts. Will the bigger is better philosophy in
the form of ACOs save money? Unfortunately, there is no consistent evidence that
ACOs save money for the general population. In the 2005-2010 Medicare
Physicians’ Group Practice (PGP) ACO pilot, only two of ten ACOs achieved
first-year savings of 2 percent, and only half managed to achieved savings after
three years.
Scholars on the right
[11] and left
[12] agree that the pilot produced disappointing results, and a
recent study put an even sharper point on the PGP results. A deeper dive into
the data found that the bulk of the limited savings [13] came from the dual-eligible
population. Yet, Chapter 224 aggressively pushes all public programs and
commercial plans for the individual and small group market into ACOs. While ACOs
are not inherently bad, they do share some of the same perverse incentives that
resulted in HMO backlash. Consequently, relying on them for savings when their
track record is mixed should raise some serious questions.
Strict Preference for Alternative Payment Contracts
The Attorney General has also documented
[7] that alternative payment contracts in Massachusetts often
cost more than fee-for-service, with no indication that they
provide higher-quality care. Yet as with ACOs, Chapter 224 gives preferential
treatment to such contacts that incorporate capitated and bundled payments.
Again, these contracts are not inherently bad, but prior experience in
Massachusetts should raise questions about promised savings.
Mandating Health IT and Participation in a Health Information
Exchange
A recent Wall Street Journal op-ed [14] called into question the cost savings
estimates of the EHR industry by highlighting work done at McMaster University
and their review of 36,000 studies on EHR. The authors found that “the
most rigorous studies to date contradict the widely broadcast claims that the
national investment in health IT—some $1 trillion…will pay off in reducing
medical costs.” Health IT is not inherently bad, but the research, once
again, casts doubt on the promised savings.
Hundreds of Millions of New Spending, Assessments, Fees, and
Penalties
No cost estimate has ever been conducted for the law, and authors have
admitted having little idea what the cost of compliance will be for the
government, hospitals, doctors, and insurers. In other words, how much will
patients or taxpayers be asked to pay for this new spending?
What About The Consumer?
Unfortunately, Chapter 224 missteps on one of the most promising [15] solutions to cost control — an
engaged consumer. Real health care reform results in patients rewarding
low-cost, high-quality providers by giving those providers their business. While
Chapter 224 does make progress on consumer education by continuing to collect
cost and quality data, the incentives are still not aligned properly for
patients and may increase costs as a result.
For example, even with hospitals and insurers mandated to provide consumers
the contracted amount for a procedure within two working days (eventually on a
real-time basis), many in Massachusetts pay the same co-pay or co-insurance
whether they go to hospital A or B. In 2011, 57 percent of private sector
employers in Massachusetts were enrolled in a plan with no deductible,
compared to 26.2 percent nationally.
Consequently, with a low penetration of consumer tools like health savings
accounts (roughly 3 percent), patients are likely to pick a more expensive
provider, falsely equating higher price with higher quality or simply because of
brand name strength. The new law may have unintentionally exacerbated this
problem. Our own Governor made this choice when he recently had hip surgery [16] at an expensive academic medical
center in Boston when at least 4 other high-quality lower-cost community
hospitals are closer to his house.
Conclusion
Healthcare accounts for 18 percent of the Commonwealth’s economy. The heart
of the critique of the Massachusetts law is not new: Does one believe
technocrats have the sophistication, capacity and judgment to distribute health
care resources? Or with greater consumer engagement, can an empowered patient
apply downward pressure on health care prices?
The shortsighted approach of Chapter 224 is its heavy focus on the
supply-side of health care (delivery and payment changes) without much thought
to the demand-side (consumer incentives). The law promotes the establishment of
ACOs and alternative payment contracts as an end goal, not a means to an end to
reward value-adding care. Now that the law’s major regulatory body, Health Policy Commission [17], is up and running,
one can hope that these experts will recognize this disconnect and work with our
elected officials to engage patients in a transformative manner, instead of
attempting to be the transformation themselves.
Article printed from Health Affairs Blog: http://healthaffairs.org/blog
URL to article: http://healthaffairs.org/blog/2013/02/25/now-for-the-rest-of-the-story-on-massachusetts-cost-control/
URLs in this post:
[1] Chapter 224 of the Acts of 2012: http://www.malegislature.gov/Laws/SessionLaws/Acts/2012/Chapter224
[2] Mechanic, Altman and McDonough: http://content.healthaffairs.org/content/early/2012/09/17/hlthaff.2012.0338
[3] Turnbull: http://healthaffairs.org/blog/2012/08/13/the-release-of-massachusetts-health-reform-2-0/
[4] Lee: http://healthaffairs.org/blog/2012/08/13/massachusetts-health-care-reform-an-academic-providers-perspective/
[5] Image: http://healthaffairs.org/blog/wp-content/uploads/Table-1-Mass.jpg
[6] Image: http://healthaffairs.org/blog/wp-content/uploads/Chart-1-Mass.jpg
[7] Work: http://1.usa.gov/M0HE8d
[8] Partners HealthCare: http://www.patriotledger.com/topstories/x1225003550/South-Shore-Hospital-in-Weymouth-Partners-detail-merger-plan
[9] Steward Health Care System,: http://www.boston.com/businessupdates/2012/08/20/steward-health-care-system-moves-buy-mercy-hospital-portland-maine/oucj4WoYp40
[10] Vanguard Health Systems: http://www.boston.com/businessupdates/2012/09/18/tufts-medical-center-talks-with-vanguard-health-systems-about-teaming-buy-hosp
[11] right: http://bit.ly/M0ErFK
[12] left: http://bit.ly/L8TwJD
[13] savings: http://jama.jamanetwork.com/article.aspx?articleid=1357260
[14] op-ed: http://www.pioneerinstitute.org/blog/healthcare/does-health-it-guarantee-better-care-save-money/
[15] most promising: http://content.healthaffairs.org/content/31/5/1009.abstract
[16] hip surgery: http://www.youtube.com/watch?v=AUZ0Y5AdoIg
[17] Health Policy Commission: http://www.mass.gov/governor/agenda/healthcare/cost-containment/