Lessons from a Pioneer on Containing the Costs of State Health Care

The rising costs of health care impose an increasing burden on consumers, employers, and federal and state budgets. Over the years, states have struggled to control these costs, often with limited success. In a new article on Health Affairs Forefront, Mathematica Senior Fellow Debra Lipson and her coauthors discuss how Massachusetts is holding payers and providers accountable for growing health care costs and what decision makers in other states can do to maximize the impact of similar efforts.

These insights come from a Mathematica study, with support from the Peterson Center on Healthcare and Gates Ventures, that examined the evolution of Massachusetts’s pioneering initiative to set benchmarks for cost growth as well as the influence of the mechanisms used to hold payers and providers accountable for meeting the benchmark.

During the first five years of the initiative, the average rate of cost growth in Massachusetts fell below the benchmark of 3.6 percent, but the rate of growth exceeded the updated benchmark of 3.1 percent in 2018 and 2019, growing to 3.6 percent and 4.3 percent respectively.

Most of those interviewed now recommend giving the Health Policy Commission greater enforcement authority or authorizing state agencies to use stronger regulatory approaches.

Based on Massachusetts’ experience and the study findings, the authors highlight several recommendations to state policymakers about the design and use of accountability tools:

• Ensure there is a transparent, trusted source of data on trends in health care costs
• Decide which entities to hold accountable for keeping spending growth below the target based on which ones are major contributors to cost growth
• Establish clear criteria for applying sanctions
• Devise incentives to motivate compliance

In 2012, Massachusetts was the first state in the nation to try to contain growing health care costs by setting an annual growth benchmark and measuring and publicizing statewide payer and provider health cost trends relative to that benchmark. It established a set of four accountability mechanisms, described in detail in fact sheets linked below, that rely on public oversight and transparency of health spending to promote voluntary compliance with the benchmark by payers and providers.

• Annual Health Care Cost Trends Reports, which assess statewide cost growth trends and make policy recommendations to address the key drivers of cost growth
• Annual Health Care Cost Trends Hearings, which bring together all stakeholders to assess state progress in holding down cost growth
• Cost and Market Impact Reviews, which investigate the effects of proposed mergers and acquisitions on the state’s ability to achieve the cost growth benchmark
• Performance Improvement Plans, which examine the performance of individual payers and providers against the benchmark for growth in health care costs and might require entities whose spending growth exceeds the benchmark to develop and implement a plan to improve performance

To assess the influence of these accountability mechanisms, the study team reviewed public documents and interviewed nearly 50 people involved in or affected by the Massachusetts initiative. The study found strengths and limitations to Massachusetts’s approach to accountability. Most respondents believed the benchmark and accountability mechanisms had an important influence on the actions payers and providers took to control costs. The benchmark influenced contract negotiations between payers and providers and increased providers’ willingness to participate in accountable care organizations, both of which helped to constrain spending growth during its initial years of operation. But they thought that influence had waned over time as payers and providers realized the limits of Massachusetts’ Health Policy Commission’s statutory authority to hold them accountable for excessive spending.

The study evaluated each accountability mechanism and provided lessons for other states, particularly for eight states that have followed Massachusetts’s example and are developing similar cost growth targets. Many of these states participate in the Peterson-Milbank Program for Sustainable Health Care Costs, which seeks to advance state-based efforts to make health care more affordable.

Read the issue brief and full report to learn more about findings from this study.