High prices fuel Massachusetts healthcare spending growth

While more care is shifting from inpatient to outpatient facilities across Massachusetts, that transition isn’t yielding the expected cost savings, new data show.

Massachusetts hospital outpatient spending grew by 7.3% per Medicare beneficiary from 2018 to 2019, which was twice the rate of the national average, according to data from the Massachusetts Health Policy Commission and the Massachusetts Center for Health Information and Analysis. More than 70% of the increase in hospital outpatient visits occurred among academic medical centers, which typically have the highest costs and prices.

Industry observers have hoped that healthcare costs would decrease as more procedures moved from hospitals to outpatient settings, which don’t have the same staffing and administrative requirements, equipment or hours as hospitals. But that isn’t the case in Massachusetts, said David Auerbach, senior director of research and cost trends at the Health Policy Commission.

“Care was shifting from lower cost inpatient hospitals to higher priced hospital outpatient departments and we weren’t saving any money,” he said during the HPC’s board meeting Thursday, adding that the percentage of care taking place at community hospitals and outpatient facilities continued to fall in 2019.

Rising volumes only accounted for about 30% of the recent growth in healthcare spending in Massachusetts. About 70% was attributable to higher prices, Auerbach said.

That’s in part why the HPC should target excessive prices, said Michael Chernew, health policy professor at Harvard Medical School and the director of its Healthcare Markets and Regulation Lab. That can be done either by capping fee-for-services prices or price growth via performance improvement plans or more rigid legislative solutions, he said. Chernew typically

“Capping fee-for-service prices would basically cut off the very top of the mountain of high prices—the top 5% to 10% of the highest prices,” Chernew said.

Caps could be adjusted. Massachusetts, for instance, could allow faster price growth for some of the lowest price providers, he said.

Massachusetts Attorney General Maura Healey implemented a seven-year cap on price growth as a condition of the merger between Beth Israel Deaconess Medical Center and Lahey Health. But the political will is often absent, said Dr. Donald Berwick, a HPC commissioner and former administrator of CMS.

“We have a lot of pain, a lot of opportunity and just marginal gains,” he said. “It strikes me that we ought to be able to do a much bigger fix than we’re talking about. I think there is a lack of will. I think we talk about reducing prices and costs, we know that we can do that without impairing quality. But we don’t act.”

Massachusetts annual spending growth averaged 3.59% between 2012 and 2019, exceeding the state’s 3.1% cost growth benchmark in 2018 and 2019. The HPC is set to vote next month on whether they should adjust the benchmark.

“We have preliminary evidence that by the end of 2020 price increases were beginning to grow very rapidly,” HPC Chair Stuart Altman said, adding that those trends threaten to erode the state’s gains and further challenge Massachusetts families and employers who already struggle to afford healthcare.

Hospital executives urged the commission to increase the benchmark given COVID-19’s strain on their organizations. Lawrence General Hospital predominately cares for Medicaid beneficiaries, the care of which garners lower reimbursement rates, CEO Deborah Wilson said. Their community was disproportionally impact by COVID-19, she said.

“While we understand the importance of the cost growth benchmark, there is no sustainable plan forward for our hospital without a higher growth rate in the cost growth benchmark,” Wilson said.

Health plan executives supported the 3.1% benchmark, noting that their organizations had to bear the cost COVID-19 tests and expanded coverage of telehealth services and reimbursement rate hike.

The reports offered several other notable metrics:

  • Commercial spending per resident grew 4.1% in 2019, driven by growth in hospital outpatient spending (7.6% per person) and spending on physician and other professional services (6.1%).
  • Cost-sharing and premiums for commercially insured Massachusetts residents increased at a faster rate (9% and 8%) than wages and inflation (6% and 5%) between 2017 and 2019.
  • Commercial premiums for a Massachusetts family in 2019 averaged $21,800 overall, topping out at nearly $25,000 for employers with fewer than 10 employees.
  • Including out of pocket spending on copays, deductibles, premiums and other services, an average Massachusetts family and their employers paid $2,242 per month for healthcare in 2020.
  • Those with high deductible plans are twice as likely to have gone without needed physician or mental healthcare or prescriptions due to cost. One-third of people of color who have income less than four times the poverty level and high deductible plans have gone without such needed care.
  • Commercial payment rates for hospital outpatient services varied threefold across Massachusetts providers, some of which were double the Medicare payment rate.
  • Nationally, commercial hospital price growth jumped from 2% to 3% from 2018 through late 2020 to 6.2% as of February.

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