Editor’s note: For more on the new Massachusetts law designed to curb health care cost increases, see Thomas Lee’s post.

After a two-year gestation period for its payment reform and cost control bill, the Massachusetts legislature finally delivered…an exoskeleton. Time will tell whether the law will be transformed through the magic of implementation genetic engineering into an effective cost control creature with strong and vital organ systems. Some of the essential DNA is there but the challenges ahead are formidable. However, regardless of whether Massachusetts is ultimately successful at “cracking the code” on cost control, as Governor Deval Patrick and others hope, the state is going to learn a lot over the next few years, much of which will no doubt be useful to other states.

Taking on health care spending, a third rail of US health policy, is daunting, and perhaps nowhere more so than in Massachusetts. As advantaged as the state was when it sought to expand health coverage six years ago — with a relatively high rate of coverage, broad Medicaid program, and generous amounts of federal financing — Massachusetts is equally disadvantaged to take on costs, with health spending that is among the highest in the country, a culture of expensive medical practice, and very politically powerful hospitals and doctors. Health care is one of the state’s largest employers, and one of the few to weather the recession relatively unscathed.

The employer community is conflicted in discussions about controlling costs, dominated as it is by companies in the health care sector, and, as a result, there are few employer voices willing to call for strong actions. Instead, admonitions by providers and employers alike not to “kill the state’s golden goose” of health care are sounded loudly and persistently and generally quite successfully.

Given this environment, it’s a testament to the perseverance of the state’s political leaders that any substantial law passed at all. Two factors tipped the scales toward action: the broadly shared desire to sustain the coverage gains that Massachusetts has made, which will not be possible without controlling spending growth, and the belief by an increasing number of politicians and policymakers that cost control is essential for the long-term economic health of the state.

What’s In The Law?

The law is long and complex with provisions that affect many parts of the health care system, from expanding the primary care workforce to reforming the medical malpractice system to simplifying health plan administrative processes to accelerating the adoption of electronic health records.  Most exciting to those of us in public health is the creation of a new $60 million Prevention and Wellness Trust that will invest in community-based public health programs across the state.  Although the state can and should make even larger investments in public health (and the state’s health plans and many hospitals have plenty of financial resources that should be tapped to help), the initial funding of the Trust is a good start. At a time when public health funding continues to be decimated in most states, this is one approach in the law that other states should examine and emulate, since improving the health of the people of every state is the best long-term path to controlling what we spend on medical care.

The provisions in the law that will attempt to slow health spending growth are receiving the most interest and attention. The law seeks to moderate spending in four basic ways:

  • Setting targets for statewide health care spending growth.  The target allows annual health care spending in the state to grow no faster than the state economy overall through 2017, and a half of a percentage point below the state’s overall economy for the following five years. The state’s current growth rate is about 3.7 percent and annual medical spending growth has been about 6-7 percent annually.
  • Promoting the development of new payment models. Medicaid, the state employee health plan and all other state-funded health programs will be required to transition away from fee-for service to other forms of provider payment.
  • Encouraging the development of Accountable Care Organizations. The law contains provisions for the certification by the state of ACOs; ACOs that receive state certification will receive preferential treatment in dealing with state-funded health programs.
  • Establishing a Health Policy Commission. The Commission will set and enforce the spending targets, certify new payment methods and care delivery models, and conduct “cost and market” impact studies, with the authority to refer providers to the state’s Attorney General for unfair business practices or anti-competitive behavior.

Although the law has been characterized by some as “marking a new Soviet era” in Massachusetts health care, its cost control provisions are not as strong as many had hoped for and that were recommended along the way.  For example, a state payment reform commission, which included the state’s hospital association and medical society, recommended unanimously three years ago that Massachusetts move away from fee-for-service to an all-payer global payment system by 2015.

The law takes little action to address the large unwarranted disparities in prices paid to providers, which have been well documented in the past two years, other than creating a special commission to study the issue further. The enforcement mechanisms for the spending targets are weak (a $500,000 fine on any provider whose cost trends are outside the allowable growth rates and that fails to implement an acceptable performance improvement plan). And the law has a misguided emphasis on tiered networks and giving more comparative cost and quality information to consumers as a means of moderating spending growth.

A significant factor in weakening many provisions of the law was the fortuitous recession-induced slowdown of health insurance premium trends during the long period of crafting the bill. This changed the prevailing narrative from one of “we have a crisis” to “look, the market is working” and took much of the wind out of the sails of those who advocated tougher measures — particularly to deal with price disparities and market power and to enforce spending growth targets.

Looking Forward

History suggests that the law will be revised, perhaps many times, in the next few years. But for now, attention shifts to the important implementation decisions that lie immediately ahead. In particular, the appointments of the 9 public members to the new 11-member Health Policy Commission will be critical, as will the selection of its chairperson and executive director. Unless the Commission becomes a strong and independent entity, the promise of the law cannot be realized.

Finding new ways to deal with the problems created by dominant providers will be especially challenging and vexing for the state. It’s clear that traditional anti-trust laws are not sufficient to the task. A more promising approach, which is taken in the cost and market impact section of the law, may be to articulate new standards for defining the existence of potentially problematic market power and directing the attorney general to consider taking action under the state’s statutes governing unfair methods of competition and anti-competitive behavior.

We won’t know for several years how well the Massachusetts law will work, and whether it could be a model for other states or the nation. What is a model is that Massachusetts is again taking on, as it did with coverage in 2006, one of the most challenging and important health care issues in the country.  While it’s very likely that the new cost control law will turn out to be less than is needed to solve the problem, it’s much more than is happening in almost any other state. And that’s a cause for celebration, and some hope.