Incentives, transparency are key to health cost containment law

All eyes are on Massachusetts because the state is trying to do something that no state has done: control health care costs.

The state’s health care cost-control law, signed by Gov. Deval Patrick on Aug. 6, uses both sticks and carrots, as well as enhanced transparency, in order to control costs.

Sticks
Each year, a new state board, the Health Policy Commission, will set a target for health care cost increases based on the growth of the Massachusetts economy. In 2013, the target is expected to be around 3.7 percent. This target may pose a challenge for clinics, hospitals, ambulatory care centers and large physician organizations because health care costs have been increasing at roughly twice this rate.

Beginning in 2015, health care organizations that exceed the target will need to implement a performance improvement plan, which will be monitored by the new Health Policy Commission. If a health care organization does not act in good faith to implement the performance improvement plan, it will be subject to fines of up to $500,000.

The new legislation also boosts the authority of the attorney general’s office to investigate the actions of health care organizations regarding cost increases.

Carrots
The law includes several provisions to encourage innovation and reduce costs:

• Medicaid and the state’s Group Insurance Commission must adopt new payment methodologies for buying health care coverage that provide incentives to lower costs and improve quality.

• A fund will help hospitals that primarily serve Medicaid recipients to develop their capability to more efficiently deliver patient care and improve the quality of that care.

• A “Healthcare Payment Reform Fund” will finance innovation in health care delivery and payment. The legislation encourages, among other things, greater engagement among employees in exploring health care coverage options.

• A “Prevention and Wellness Trust Fund,” directed by the state public health commissioner, will support initiatives that reduce preventable health conditions and health care costs within municipalities. Cities and towns, as well as organizations that work with municipalities, may apply for funding, some of which will be earmarked to support increased adoption of workplace-based wellness or health management programs.

Transparency
The Center for Health Information and Analysis, a second new state agency, will be collecting information from payers and providers, including cost data and information about each provider’s organizational structure. The center will use the information to analyze cost trends, identify what factors are driving cost increases, whether providers are staying within the cost-increase targets, and whether the new law is reducing the overall rate of health cost increases.

The Health Policy Commission will share this information during annual public hearings.

The new law will make public insurer information available, including the following:

• Utilization management review criteria (why certain services are approved for coverage and others are not)

• Medical necessity criteria (how insurance payers determine which services are medically necessary)

• Medical loss ratio (how much of the premium dollar is spent on medical costs)

• Quality information (for example, the percentage of enrollees who are getting recommended preventive services and recommended care for their chronic conditions)

A website will be created where people may view cost and quality information.

The health care reform law will be funded through assessments on insurance companies, large provider organizations and nursing homes.

Potential impact
If the law works as intended and the rate of increase in health care costs slows, municipalities will have more money to spend on services and education. For cost increases to slow, however, health care providers will have to cut spending growth in half. This may result in fewer jobs in the health care sector.

On the other hand, providers may also move more quickly to organize themselves into large, multi-disciplinary groups of providers (including hospital, primary care and specialty providers, nursing homes, and home health agencies) in order to better coordinate and manage patient care, reduce waste and lower overall costs.

On the health insurance side, the law is likely to spur products that control costs by offering significant financial incentives and support services related to improving personal health. There will also be an incentive to work with providers that have a record of providing high-quality service at lower costs.

For the law to work as intended, both providers and payers will need to take steps to reduce costs.

The MMA and MIIA will be providing periodic updates on the new law’s effects on the cost and delivery of health care.

Marge Houy is a Senior Consultant with Bailit Health Purchasing.