The landmark Massachusetts health reform of 2006 was so successful it served as the model for Obamacare. Then, state leaders vowed to “bend the curve” of ever-rising health costs.
That hasn’t gone as well.
So now calls are rising for a new reform, one in which Massachusetts would join a small, but growing number of states, from California to Rhode Island, that have begun to impose caps on certain health-care prices.
“The free market plus careful oversight hasn’t gotten us to the outcomes that we feel we ought to deliver to our population,” said Harvard economist Leemore Dafny. “I’m a business school professor who is saying, ‘Hey, the prices are wrong. They aren’t being fixed. This is when you come in and help the market.’”
Hospitals argue that costs are especially hard to contain at a time of inflation, labor shortages and heightened patient needs.
“We don’t have full control over all those expenses,” said Scott Sperling, chairman of the Mass General Brigham health system, the state’s largest. “There are factors that are driving them up,” he said, such as necessary wage increases.
Those same pressures, however, are intensifying concerns about health costs that have soared nationally to over $4 trillion per year and nearly one-fifth of gross domestic product. Americans spend roughly double their counterparts in other industrialized countries on health care. Premiums keep rising as well; some health insurers expect them to jump by a median of 10% next year, a recent Peterson Center on Healthcare-Kaiser Family foundation analysis finds.
Early in the pandemic, national health-care spending stopped growing because fewer patients were seeking care, but prices didn’t stop rising, said Aditi Sen, director of research and policy at the nonprofit Health Care Cost Institute. High prices are the crux of the American health cost problem, and “that is why places like Massachusetts are thinking about these more targeted approaches to just directly address prices,” she said.
Cost watchdog
The state’s 2012 cost-containment reform created state agencies that track health spending and set annual targets for its growth. One agency gathers data and the other, the Health Policy Commission, serves as more of a cost watchdog — though it lacks the regulatory power to set prices.
Pre-pandemic, Massachusetts health costs grew at 4.1% a year, a full percentage point above the target. Last year, national medical spending also grew more than 4%, according to federal data. And that was before the current inflation hit.
As prices rise, “there will be a lot more discussion about whether government should be doing something to limit them,” said Paul Ginsburg from the University of Southern California’s Schaeffer Center for Health Policy and Economics. The consensus among academics, he said, “is that we can’t depend on competition. We need some regulatory assistance, and rather than focusing on all providers, it should really focus on the most expensive ones.”
That’s what Massachusetts’s Health Policy Commission is proposing. Among its latest recommendations to lawmakers: “Establish price caps for the highest-priced providers.” It suggests capping specific top prices of services paid for by commercial insurers — which generally pay far more than Medicare, as much as triple — as well as capping price growth. According to the state’s latest data on hospital price variation, the same procedure at a higher-priced hospital can run nearly double the cost of a lower-priced hospital.
Longtime health economist Stuart Altman, who headed the Health Policy Commission for its 10 years of existence until stepping down in July, said it remains to be seen whether the idea of price caps will fly.
“It’s still a question,” he said. “Is the system ready for more aggressive authority by government to rein in the growth of health care?”
Political leverage
Seven states have already shown some signs of that readiness. Harvard’s Dafny counts five that cap prices in certain insurance plans — Montana, Oregon, Colorado, Washington and Nevada. Two more — Rhode Island and Delaware — have capped the growth rate for prices in contracts between hospitals and insurers.
But Ge Bai, a health-care accounting professor at Johns Hopkins University, cautions that hospitals never voluntarily take hits to their revenue. “If a door is closed, they will find a new window,” she said. And hospitals have tremendous political leverage that can be used against regulation they oppose.
“It’s basically the hospitals versus the government,” she said.
Drug company prices are actually easier to tackle politically than hospital prices, she said. “They do not employ many people,” while if a major hospital has thousands of employees, “nobody can touch them,” she said.
The sweeping climate and health bill Congress passed in August included groundbreaking measures to lower some drug prices, but it didn’t address U.S. hospital prices, which are also global outliers.
In Massachusetts, efforts at cost control pit the Health Policy Commission — an independent state agency with 62 staffers — against the Mass General Brigham hospital network, the state’s largest private employer, with a workforce of about 74,000.
In recent months, the commission has documented Mass General Brigham’s higher prices and challenged an attempted expansion, projecting that because the system is higher-priced, expanding would raise health costs statewide. In January, it asked Mass General Brigham for the first time to file a “performance improvement plan” for lowering costs.
Hospital response
Mass General Brigham filed a plan in April to cut $70 million in annual costs. It initially challenged the commission’s findings, but in an interview in June, Sperling said, “We’re committed to being as responsive to reducing total medical expense as we can. We work really hard at that.”
Academic medical centers incur higher costs because they perform special functions and often treat the sickest patients, he said, and Mass General Brigham needs to expand in response to heightened patient demand and a capacity crisis so dire that hospitals have had patients in the hallways. Many patients simply want to get their care there, he added.
When told of Sperling’s comment, Altman responded: “It’s not a question of them coming to you; it’s why do you charge so much? And that’s a big difference.”
With the improvement plan, Altman said, “We’ve now held Mass General Brigham accountable for the fact that their spending is growing faster than the benchmark,” the state’s target rate of just over 3% per year.
It remains to be seen, though, whether state lawmakers will back the commission’s broader calls for price caps and other measures to better contain costs.
“It’s no politician’s idea of a winning platform to say ‘I’m opposing the expansion of local nonprofit enterprises that save lives for a living,’” said Jon Kingsdale, who specializes in health-care reform at the Boston University School of Public Health. “As a country, we’ve been wrestling with this problem for 50 years.”
Still, Kingsdale, an early leader in state health reform, is among those who have been calling for “a third round” of reform to tame prices. And health economist Robert Berenson, a fellow at the Urban Institute, points out that the Health Policy Commission has had a decade to gather data and gain credibility, and could help bring that new chapter about.
Big hospitals are so powerful “that a legislature can’t just say, ‘Oh, by the way we’re going to put a cap on your rates next year.’ It doesn’t work that way,” Berenson said. “You have to go through a long effort to collect the data and propose voluntary approaches before any state will have the political will.”
