Perspective
Controlling Health Care Spending — The Massachusetts Experiment
N Engl J Med 2012; 366:1560-1561April 26, 2012DOI: 10.1056/NEJMp1201261
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open through May 2, 2012
- Article
As debate rages on about implementation of the Affordable Care Act (ACA), national attention is once again focused on Massachusetts, which instituted a similar comprehensive health care reform package in 2006. After expanding health insurance coverage to almost 98% of the state population, Massachusetts is now struggling to control increasing health care costs that threaten the continued viability of its reforms. This second phase of health care reform presents entirely new challenges. Whereas expanding coverage has popular appeal, cost control does not. Whereas expanding coverage injects additional dollars into the health care system, cost control does the opposite. Whereas expanding coverage can be relatively simple, cost control is difficult. Yet despite these obstacles, Massachusetts forges ahead, with a combination of public and private efforts at payment reform on an unprecedented scale.
Massachusetts spent more than $61 billion on health care in 2009, a figure that places it among the highest-spending states in the country.1 In the past 5 years, growth in health care spending has consistently exceeded economic growth, resulting in challenges both for lawmakers dealing with a constrained state budget and individuals required to purchase coverage privately. In fiscal year 2012, health care will consume 54% of the state's budget, up from 49% in fiscal year 2009, with the bulk going toward Mass Health (Medicaid) and individual subsidies for purchasing health insurance. For individuals, monthly premiums for a minimal (“bronze”) plan purchased through the Commonwealth Choice connector (the state insurance exchange) increased from about $175 in 2007 to $275 in 2012 (a 57% increase), despite slowed growth in overall health care spending since the start of the recession in 2008.
To address these concerns, Governor Deval Patrick convened the Massachusetts Special Commission on the Health Care Payment System, which voted unanimously in July 2009 to recommend that the state transition from a fee-for-service to a global payment system within 5 years. The commission also encouraged providers to band together into accountable care organizations (ACOs) — organizations of providers held jointly accountable for spending and quality of care for a defined population of patients. Meanwhile, the Health Care Quality and Cost Council, created by the 2006 coverage-expansion law, issued its Roadmap to Cost Containment in 2009; in it the council argued strongly for global payment and systemwide redesign to lower spending.2 Recognizing that price and volume together account for spending, the Office of the Attorney General and the Division of Health Care Finance and Policy embarked on a landmark effort to document the substantial price variations in the state — illustrating, in several influential reports, the role of providers' market power in determining the prices charged to commercial insurers.3
These activities culminated in a comprehensive payment and delivery reform bill released by Governor Patrick in February 2011. The bill proposes migrating into global payment arrangements most state employees and Medicaid enrollees, groups that together include about 25% of Massachusetts residents.4 It also encourages but does not require providers to form ACOs — with the state providing oversight of market power and price transparency — and includes provisions for malpractice reform favored by physicians. The bill also grants the commissioner of insurance the authority to strike down increases in insurance premiums that result from excessive increases in underlying provider-payment rates. The appropriateness of increases in provider-payment rates will depend on how they compare with growth in the Massachusetts gross state product (the state-level equivalent of the national gross domestic product) and the growth of total medical expenses in the providers' particular region. Combined with global payment, this authority to indirectly regulate providers' prices would be among the strongest policy tools available for cost control. Since the bill's release, state legislators have been drafting their own proposals, and both public and closed-door debates have intensified. The legislative outcome remains unclear.
While the state aggressively pursues its agenda, innovations in the private sector have arguably taken the lead. Most notably, Blue Cross Blue Shield of Massachusetts, the largest commercial insurer in Massachusetts, launched the Alternative Quality Contract (AQC) — based on global payment with shared savings and shared risk, as well as pay-for-performance incentives — with seven provider organizations in 2009. Since then, the AQC has been extended to cover more than a dozen provider organizations and more than 600,000 enrollees. Encouraged by provider organizations and the AQC, Harvard Pilgrim Health Care and Tufts Health Plan, the state's other major insurers, have also negotiated global payment contracts with their provider networks, which will probably push the number of enrollees in commercial insurance plans that have global payment arrangements to more than 1 million.
Finally, and perhaps most important, the Center for Medicare and Medicaid Innovation launched its Pioneer ACO program in January 2012 with 32 advanced provider organizations around the country. Among them are 5 large organizations in eastern Massachusetts (Atrius Health, Beth Israel Deaconess Physician Organization, Mount Auburn Cambridge Independent Practice Association, Partners Healthcare, and Steward Health Care System), which will together care for approximately 150,000 Medicare beneficiaries (roughly 75% of Medicare beneficiaries in the Boston area) under their Pioneer contracts. Additional provider organizations in the state will probably join the Medicare Shared Savings ACO Program later this year.
These synergistic efforts by public and private payers have resulted in a watershed moment in Massachusetts health care. By our estimates, if the Group Insurance Commission, which purchases insurance for state employees, and Medicaid follow Medicare and commercial payers into global payment, substantially more than half of residents of eastern Massachusetts would be cared for by providers working under risk-based contracts. Primary care physicians will have the opportunity and responsibility to steer resource utilization for their organizations, and providers in all specialties will have strong incentives to better coordinate care, improve quality, and intensify their focus on patient-centered care. Referral patterns and the movements of patients from one provider system to another will probably change considerably. Similarly, with strong incentives to reduce spending, provider organizations will probably take an active role in identifying and discouraging the use of low-value services. Opportunities will be ripe for designing incentives within organizations directed at individual physicians as well as teams of providers.5
Yet immense challenges loom. Because enrollees in preferred-provider organizations and most employees of self-insured firms remain largely outside of global payment arrangements, the fee-for-service system retains a substantial role. With global payment expected to constrain spending for a growing proportion of patients, undesirable spillover effects, such as cost shifting onto the fee-for-service population, may occur. At a macro level, Massachusetts relies heavily on specialty-driven tertiary care delivery systems not only for its health care but also for jobs and the education of thousands of physicians-in-training each year. Indeed, health care is an engine of the Massachusetts economy. A crucial question is whether lawmakers will gain the stakeholder support needed to embrace cost control and tackle the roots and drivers of Massachusetts health care spending, given that unintended consequences for the labor market and the broader economy may lie downstream.
No matter the outcome, this wholesale Massachusetts experiment should offer invaluable lessons for other state and federal cost-control efforts, particularly as the ACA is implemented. One lesson is already resoundingly clear: the growth of health care spending threatens the sustainability of every other public service, from education, to public health, to infrastructure, to defense. Indeed, health care spending is the most important determinant of our growing national debt. In a society of limited resources, the imperative for cost control now comes from outside health care. Payment reform may well be a reasonable beginning, but fundamental reform of the delivery system is needed if we are to truly succeed.
Disclosure forms provided by the authors are available with the full text of this article at NEJM.org.
This article (10.1056/NEJMp1201261) was published on April 11, 2012, at NEJM.org.
Source Information
From the Department of Health Care Policy, Harvard Medical School (Z.S., B.E.L.); and the Division of General Medicine and Primary Care, Beth Israel Deaconess Medical Center (B.E.L.) — both in Boston; and the National Bureau of Economic Research, Cambridge, MA (Z.S.).
- References
References
1
Centers for Medicare and Medicaid Services. National health expenditure accounts (https://www.cms.gov/NationalHealthExpendData).
2
Massachusetts Health Care Quality and Cost Council. Roadmap to cost containment. October 21, 2009 (http://www.mass.gov/hqcc).
3
Examination of health care cost trends and cost drivers: report for annual public hearing, June 22, 2011. Boston: Office of Attorney General Martha Coakley (http://www.mass.gov/ago/docs/healthcare/2011-hcctd.pdf).
4
An act improving the quality of health care and controlling costs by reforming health systems and payments. Boston: Commonwealth of Massachusetts, 2011 (http://www.mass.gov/governor/docs/legislation/paymentreformlegislation.pdf).
5
Landon BE . Keeping score under a global payment system. N Engl J Med 2012;366:393-395
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11 Reader's Comments
JEFFREY MENDENHALL | Other | Disclosure: NoneSALT LAKE CITY UTApril 26, 2012Capitation and Accountability
I have devoted my career to hospice and palliative care in both So. California and Connecticut, two relatively high cost regions. The Medicare, and in California the Medicaid, hospice benefit operate under pure, simple capitated payment plans. In every case, regardless of its complexity or costly palliative treatments, hospice programs must truly act as stewards of their resources (primarily licensed clinician members of an interdisciplinary team) while providing high quality EOL care. As a manager and executive director of hospice programs I testify that it can work in spite of the increasing tendency toward "brink of death" referrals.
Discussions and plans for cost reductions which ignore palliative care are doomed to failure. Even as the Institute of Medicine's landmark report on pain management last year advocated a radical re-thinking of how we approach and treat chronic pain, we need a similarly radical re-thinking of how we treat the millions of patients who suffer from incurable conditions, from CHF and COPD, to end stage renal and liver disease, and the real "elephant in the room," end stage dementias. This is NOT rationing; this is compassionate care.DONALD GREEN, MD | Physician - UNSPECIFIED | Disclosure: NoneREADING MAApril 26, 2012Begging the question
It is time to realize that reducing health care services does not have enough oomph to lower costs. It will only force unit costs up to cover professional income. What is needed is a universal risk pool with uniform pricing for the exact same services or products. Removing bureaucracy is the main budget reducer used by every other developed country. It is past time we realized this. It is also past time to understand that these nations do not shortchange their populations and actually perform better in controlling disease. We can not prevent our way of this problem since it adds costs but happily increases the chances of patients reaching old age. Remember this is also the most costly time medically in people's lives. Any reduction in this state recently has been from the recession or shifting payment to people's pockets. We really don't need more complicated set ups like ACOs that produce more expensive surveillance with little improvement in care.
BERNARD OMALLEY, MD | Physician - DIAGNOSTIC RADIOLOGY | Disclosure: NonePRINCETON NJApril 25, 2012Apathy
What is scary is the scarcity of comments on this pivotal experiment in this widely read journal.
I think that most physicians will take their lumps and then simply bail out when the reimbursement drops beyond insulting. How many of us have put in at least 10 years post college educaiton/training? I'm not sure who's going to take our place. Maybe an army of physician extenders? Good luck USA.ANN CARROLL, MD | Physician - ADDICTION MEDICINE | Disclosure: NoneFREEDOM CAApril 25, 2012Crucial data are missing
(1) NEJM published (mid-2011) that Mass -Romney-care's cost rise was primarily due to administration than the rest of the country.
(2) Exactly where does Mass. place in amount of $ spent per patient, re: other individual states?
(3) What is the ratio of clinical practicing MD's population in Mass, re: other states? Has Mass. gained/lost MD ratio in synch with other individual states?
(4) How elastic is the MD population? When pay drops, and administrative burden rises, how free are Mass. MD's to leave (e.g. for North Dakota)... (How trapped are they by university affiliation and tenure-tracking, un-vested pension amounts, university promised perks, (e.g., cheap college costs for children, lifetime university med-center health care, spousal job with the same employer )....
....ie, how "sticky" is the employment situation of MD's?
(5) In order to tease out the real cost of training new MD's, just assign a salary the hospital would have to pay for that person - if she had to be hired on the open market. That includes premium pay for each hour above 35/wk, holidays, pension etc -- identical to the nurses' labor contracts.EVAN PROVISOR, MD | Physician - GENERAL SURGERY | Disclosure: NoneFISKDALE MAApril 25, 2012The Elephant in the Room
While I agree that fee for service medicine has its own perverse incentives, the ACO concept is simply capitation warmed over. Why does anyone reasonably believe that this will be any more successful than it was in the 1990's? The argument that today's advanced information systems will provide real-time data to drive patient care is completely unproven, and the ACO demonstration projects to date have uniformly failed to show the expected savings.
But the elephant in the room is the persistence of unrealistic expectations on the part of the public. Medicine has reached the sorry state where we are able to prolong the dying process for months to years on end, at ever increasing cost. I can't begin to tell you the number of feeding tubes I have been asked to place in barely responsive patients with advanced dementia. Yet their families insist that "everything has to bed done." These demands are only going to become more strident as providers become financially liable for the costs of care. Once capitation becomes widespread, how long do you think it will take before accusations start flying that care is being withheld in order to save money?ANTON BROMS, MD | Physician - OBSTETRICS & GYNECOLOGY | Disclosure: NoneTUALATIN ORApril 14, 2012Correct Math
The number of $61 billion fo 2009 seemed a bit high. I think the State of Mass. total budget is around $30 billion for FY 2012. $61 billion works out to about $10,000 expenditure for each resident. Please check this stat.
Bruce Bodner | Physician - Surgery, General | Disclosure: NoneApril 13, 2012Defense !
It is not surprising that in a state whose government is controlled by the Democratic party, which in turn is controlled by the contributions of the trial lawyers, that health care reform has not included significant liability reform. What will be interesting is observing how the ACO incentive to hold costs down will collide with the approximately 1/3 of current medical costs attributed to defensive medicine. Will the ACO's be able to trim this without excessive malpractice expense? Time will tell.
ABRAHAM LEVY, MD | Physician - INTERNAL MEDICINE | Disclosure: NoneMOUNT KISCO NYApril 12, 2012Controlling Healthcare Spending
There will be no success in controlling healthcare spending until tort reform is accompliished and patient expectations conform to evidence-based medicine, especially at the end of life.
Both are very unlikely.Anthony Perry | Physician - Internal Medicine | Disclosure: NoneApril 12, 2012The Massachusetts "Experiment"
This is how federalism is supposed to work. Massachusetts is trying the "command and control" approach to medical care payments. It is important that the results will be compared with what is happening in the rest of the country. A major problem with the ACA is its experimental nature without a comparable "placebo" control.
TIM TURNER | Other | Disclosure: NoneApril 11, 2012Relative cost of health insurance in MA
Not enough has been said or written about the benefits of the Massachusetts collective "Health Connector" marketplace for individuals like myself who must purchase insurance outside of a large employer. I currently have COBRA coverage that costs $643/month, but that is much less expensive than comparable coverage for my colleagues who reside in CA and NJ. In those states, individual polices are ~$1200 per month for "high deductable, low benefits" coverage. By contrast, premiums for "Bronze" policies are as low as $349 per month, and "Silver" coverage comparable to my COBRA coverage is in the $600/mo. range. I don't believe that proper attention has been given to the reality that the Health Connector marketplace works to deliver affordable premiums for small businesses like ours.
Socialism Doesn't Work
Premiums rise because they are manditory. Just like manditory car insurance, prices will rise because they must be bought and paid for. If I said that everyone had to own tomatoes, the price of tomatoes would rise as well. The price will rise until eventually the majority of individuals are priced out of the market.
The subsidizing of premiums to those that eventually become priced out of the market will lead to rationing of medical services in the form of blanket payments, and cuts in benefits with the result being a collapse of the system.
The only proven way to control costs is the free and open market. The physician's monopoly (cartels by license) on the practice of medicine will have to end. If I can only (manditory) get prescriptions from a physician, then the cost of medical services goes up. Physicians must compete against other professionals for dollars spent on healthcare. Competition will bring down prices.
Insurance must go back to what it was orginally intended to be i.e. protection for the individual in case of catastrophic events. It was not and can't continue to be the payor of first resort.