For Immediate Release - December 16, 2015

Health Policy Commission Finds Progress and Challenges in Examination of Health Care Trends

Growth in private health care spending stays low, while sharp increases for pharmaceuticals and MassHealth drove overall health care spending above 3.6% benchmark

BOSTON – Wednesday, December 16, 2015 – Today, the Massachusetts Health Policy Commission (HPC) issued select findings from its 2015 Annual Cost Trends Report (Annual Report). The data and analysis presented at today’s Board meeting (available here) provide insight into trends in Massachusetts’ health care system, including an identification of key factors that contributed to the state’s performance relative to the growth benchmark set by the state’s landmark cost containment law (Chapter 224); an assessment of opportunities to increase quality and efficiency; and an update on progress in critical areas of health care reform.

Today’s select findings will be incorporated into a final Annual Report set for consideration by the Board and released on January 20, 2016. The HPC anticipates the final report will include expanded discussion of key areas and recommendations for further policy action by the HPC, other state agencies, and other actors in the health care system.

2015 Health Care Cost Trends Report: PRELIMINARY Findings

Overview of Spending and the Delivery System

The HPC set the 2014 target growth rate in per-capita health care spending at 3.6 percent. Overall growth in 2014 was 4.8 percent; 1.2 percentage points above the 3.6 percent benchmark. The HPC examined reasons behind this higher rate of growth, and found that two main drivers were developments at the national level: (1) the Affordable Care Act, which led to both permanent and temporary increases in MassHealth enrollment, and (2) high drug spending, which resulted from the introduction of new high-cost drugs, large drug price increases, and a relatively small number of drugs going off-patent.

“The findings released today highlight areas for both optimism and concern,” said Dr. Stuart H. Altman, Chair, Health Policy Commission and health economist. “While spending growth has been moderate, there are signs that in the future we could see growth that could exceed the benchmark unless the health care system continues to be conscious about its spending. The HPC will remain focused on making policy recommendations to increase transparency and ensure the system is competitive.”

Continuing positive trends over the past few years, the HPC found private commercial spending continued to grow at a low rate (3.0 percent per member), between 2013 and 2014, with particularly low growth rates for hospital and physician spending (1 percent) during this period. Private spending growth in Massachusetts has been below national averages since 2010, leading to a narrowing of the premium gap with the rest of the U.S. Massachusetts families paid $2,000 more than the national average in health insurance premiums in 2011, but $1,000 more in 2014. 

However, even with this comparative narrowing, the overall cost and rate of growth of health care spending remain a concern. Out-of-pocket spending grew by 4.9 percent between 2013 and 2014 and many Massachusetts residents reported unmet health care needs due to cost. Further, increases in health insurance premiums have outpaced family income gains, consuming over 40 percent of that gain for typical Massachusetts family from 2005 to 2014. Annual health insurance premiums plus copayments and deductibles for an average Massachusetts family reached $19,300 in 2014, more than the full time salary of a worker earning the state’s minimum wage.

Looking forward, the HPC highlighted that while MassHealth spending growth is expected to stabilize, other trends may continue to impact the state’s ability to meet the cost growth benchmark. Among these, pharmaceutical spending is projected to grow at high single-digit rates each year for the next decade in the absence of policy changes. Finally, continued and persistent price variation among providers, combined with increasing concentration of volume in high-cost providers, will likely increase future spending and threaten the viability of lower-cost providers.

Select Opportunities to Improve the Mass. Health Care System and Reduce Costs

The findings released today highlight the significant challenges that the Commonwealth faces to ensure spending growth below the 3.6 percent benchmark over the long term. The HPC identifies select opportunities to decrease spending in the health care system while maintaining or improving quality of care:

  • Outpatient Spending: The HPC’s annual report contains a new focus on outpatient spending: hospital outpatient spending is the fastest-growing category of spending in Medicare (6 percent average growth per year from 2010 to 2014) and the second-fastest in the commercial sector (3 percent average growth per year). These results reflect both shifts from the inpatient to the hospital outpatient setting and shifts from non-hospital settings (primarily physician offices) to the hospital outpatient setting. One driver of the shift from physician office to outpatient may be the increasing share of physicians affiliated with large systems and the licensing of physician offices as hospital outpatient departments. In 2014, at least 74 percent of primary care physicians were affiliated with one of the 8 largest provider systems, up from 65 percent in 2010.
  • Emergency Department (ED) Use: Massachusetts saw a 6 percent reduction in avoidable ED visits per resident from 2010-2014, with avoidable visits defined as visits that could have been treated in another setting, but a 20 percent increase in visits with a primary diagnosis of behavioral health. Fall River stands out as the area with the highest growth in behavioral health-related ED visits (53 percent per capita over four years).
  • Post-Acute Care: Statewide, the rate of use of institutional post-acute care was roughly constant from 2010-2014. But, for total joint replacement, which has been an area of focus for quality improvement efforts, 49 out of 57 hospitals reduced the rate at which they discharged patients to institutional post-acute care between 2010 and 2014.
  • Alternative Payment Methods:  In the 2014 Cost Trends Report, the HPC set two goals for APM coverage: all payers should use APMs for at least 60 percent of HMO lives by 2016, and the market should use APMs for one-third of PPO lives by 2016.  The state’s three major payers met the former goal in 2014, but coverage in PPOs remains low. In a promising development, BCBS has announced that contracts with four major providers will use global APMs for members covered by PPO products.
  • Pharmaceutical Spending: Increases in drug spending across all payers accounted for one third of the 2013-2014 spending growth (1.6 percentage points). Massachusetts saw growth of approximately 13 percent in drug spending per capita in 2014.
  • MassHealth: Baseline trends, the extension of MassHealth eligibility under the Affordable Care Act, and a temporary program for 2014 Connector applicants all contributed to significant MassHealth enrollment growth between 2013 and 2014. MassHealth spending accounted for two-thirds (3.2 percentage points) of statewide spending growth between 2013 and 2014 or one-half (2.5 percentage points) if drugs are excluded. MassHealth enrollment has stabilized in 2015 and the Connector website is functioning well.
  • Price Variation: The HPC, the AGO, and CHIA have all documented differences among providers in prices and spending not based on quality.  In new research, the HPC found that episode spending for low-risk pregnancies varied considerably among hospitals, with a $6,300 difference in spending between Mass General and Mount Auburn and that such maternity volume is concentrated in higher-cost hospitals.

Process Background

Through the process established in Chapter 224, the 2012 omnibus health care cost containment law, the HPC’s Annual Report on Health Care Cost Trends seeks to analyze and understand the Commonwealth’s performance against the health care cost growth benchmark, first reported by the Center for Health Information and Analysis (CHIA) in the fall. CHIA found that Total Health Care Expenditures (THCE) increased by 4.8 percent per resident, 1.2 percent above the 2014 benchmark of 3.6 percent. The Health Policy Commission aims to interpret these data through its Annual Cost Trends Hearing and Health Care Cost Trends Report to create an evidence base for health care reform in the Commonwealth, supported by actionable policy recommendations. Through public transparency, accountability, and consumer engagement, the HPC seeks to inform the public and policymakers by providing recommendations on how best to meet the goals of Chapter 224.

TWO NEW COST AND MARKET IMPACT REVIEWS (CMIRs) UNDERWAY

Also today, the HPC Board voted to authorize the continuation of two CMIRs initiated earlier this month: Beth Israel Deaconess Care Organization’s (BIDCO) planned contracting affiliation with New England Baptist Hospital (NEBH) and its affiliated physicians, as well as BIDCO’s planned contracting affiliation with MetroWest Medical Center (MetroWest).

In both transactions, the HPC identified the potential to impact health care costs and the competitive market to a degree significant enough to warrant further review through a CMIR. Over the past 2.5 years, the HPC has received seven contracting affiliation notices involving BIDCO, and the system now contracts on behalf of seven hospitals and 2,400 physicians. The further additions of NEBH, the state’s only orthopedic specialty hospital, as well as MetroWest, a significant provider of general acute care and orthopedic services to areas west of Boston that overlap with the service areas of other BIDCO hospitals, raise the potential for impacts to costs and market functioning that warrant examination and public consideration. However, the parties have also described plans to enhance care delivery that they indicate will improve quality and lower costs.

The HPC will objectively examine all aspects of the proposed transaction in order to better understand any potential negative impacts as well as any potential care delivery and quality improvements. The findings from this review will be detailed in a public report later in 2016.

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The Massachusetts Health Policy Commission (HPC) an independent state agency that develops policy to reduce health care cost growth and improve the quality of patient care. Among other initiatives, the HPC is responsible for monitoring the performance of the health care system, analyzing the impact of health care market transactions on cost, quality, and access, setting the health care cost growth benchmark, and investing in community health care delivery system transformation . The HPC’s Board governs the activities of the agency. To learn more, please visit mass.gov/HPC or follow us on Twitter @Mass_HPC