HPC Releases Two Reports Examining Key Drivers of Rising Health Care Spending

New Research Finds Unwarranted Variation in Prices Paid to Providers Contributes to Higher Costs and is Unlikely to Diminish without Policy Action

BOSTON — The Massachusetts Health Policy Commission (HPC) today released its 2015 Cost Trends Report and a Special Report (opens in a new tab) examining unwarranted variation in prices among health care providers. The Report examines health care spending in Massachusetts, the state’s performance against the cost growth benchmark, and makes strong policy recommendations to the Legislature, other state agencies, the health policy community, and the HPC itself.

“While affordability remains a concern, this year’s Report highlights some progress made in important areas, including the continued low growth in commercial insurance spending. The Report’s recommendations identify critical opportunities to achieve the state’s cost containment and quality improvement goals,” said Dr. Stuart H. Altman, HPC Board Chair and health economist.

The HPC set the 2014 target growth rate (or “benchmark”) in per-capita health care spending at 3.6 percent. Overall growth in 2014 was 4.8 percent; 1.2 percentage points above the 3.6 percent benchmark. In the Report, the HPC examines reasons behind this higher rate of growth, and finds that two main drivers were developments at the national level: (1) the Affordable Care Act, which led to both permanent and temporary increases in MassHealth enrollment, and (2) high drug spending, which resulted from the introduction of new high-cost drugs, large drug price increases, and a relatively small number of drugs going off-patent.

Both reports released today make action-based legislative and policy recommendations building upon the HPC’s analytic and policy work throughout the year, as well as previous work by the Attorney General’s Office (AGO) and the Center for Health Information and Analysis (CHIA).

“The recommendations made by the HPC show the power of transparency and data in reducing costs and improving the quality of care for residents of the Commonwealth,” said David Seltz, HPC Executive Director. “The HPC will continue to serve as a convener for the state’s health policy community, and looks forward to working with our partners to implement these recommendations.”

2015 Health Care Cost Trends Report: POLICY recommendations

The HPC makes thirteen recommendations and commitments to advance Massachusetts’ health care reforms and improve health care in the Commonwealth. These recommendations require action by health insurers, providers, employers, policymakers, and other state agencies, and lay the foundation for continued development of an integrated, patient-centered health care system that promotes value.

HPC Recommendations to Foster a Value-Based Market

A transparent and competitive health care market is one in which payers and providers openly compete to provide services and high-value providers are rewarded. Arming consumers with comparative information on cost and quality is vital to containing health care costs and meeting the benchmark. The HPC recommends:

1. Payers and employers should continue to enhance strategies that enable consumers to make high-value choices, including increasing transparency of comparative prices and quality.
2. The Commonwealth should enhance transparency of drug prices and spending, and payers should consider opportunities to maximize value.
3. The Commonwealth should take action to implement safeguards for consumers and improve market function related to out-of-network billing practices.
4. The Commonwealth should take action to equalize payments for the same services between hospital outpatient departments and physician offices.
5. The Commonwealth should act to reduce unwarranted variation in provider prices. The HPC will convene a public dialogue on specific policy recommendations.

HPC Recommendations to Promote an Efficient, High-Quality Care Delivery System

In each annual cost trends report, the HPC has highlighted the high level of spending and high use of hospital and post-acute care, along with the variation among providers and communities in spending and practice patterns. To help create a more efficient and high-quality care delivery system, the HPC recommends:

6. The Commonwealth should continue to focus on enhancing community-based, integrated care and reducing the unnecessary utilization of costly acute settings.
7. The Legislature should remove scope of practice restrictions for Advanced Practice Registered Nurses (APRNs).
8. The Commonwealth should be a national leader in use of enabling technologies to advance care delivery transformation through expansion of health information exchange and telehealth.

HPC Recommendations to Advance Alternative Payment Methods

Payers and providers in Massachusetts are increasingly transitioning from traditional “fee-for-service” payment models to new, alternative payment models (APMs) such as global budgets. APMs are intended to encourage providers to reduce unnecessary services and compensate providers for activities that promote coordinated care. To further expand adoption of APMs, the HPC recommends:

9. Payers and providers should continue to focus on increasing the adoption of APMs and on increasing the effectiveness of APMs in promoting high quality, efficient care.
10. The Commonwealth should develop APMs to catalyze delivery system reform in MassHealth.
11. Payers and providers should seek to align technical aspects of their global budget contracts, including quality measures, risk adjustment methods, and reports to providers. The HPC will convene providers to continue this important work.

HPC Recommendations to Enhance Transparency and Data Availability

Data availability and transparency are essential to all aspects of system change, including empowering consumer choice, strengthening care delivery, designing new payment models, and monitoring progress. The HPC recommends the following to further those goals:

12. The Commonwealth should develop a coordinated quality strategy that is aligned across public agencies and market participants.
13. CHIA should continue to improve and document its data resources and develop key spending measures. In the coming year, the HPC will pursue the activities noted above and work collaboratively with the Baker-Polito Administration, the Legislature, the Massachusetts health care industry, employers, consumers, and other stakeholders to advance the goals of a more affordable, effective, and transparent health care system in Massachusetts.

2015 Cost Trends Report: Special Report on Provider Price Variation

The HPC also released a Special Report (opens in a new tab) today on Provider Price Variation, which examines significant and persistent variation in provider prices for the same sets of services. While some variation in prices may be warranted to support activities that are beneficial to the Commonwealth, the Report finds that a substantial portion of hospital price variation does not reflect differences in quality or other common measures of value.

This unwarranted variation in provider prices, in addition to the large share of patient volume at higher priced providers, contributes to higher health care spending and perpetuates inequities in the distribution of health care resources.

In the Special Report, the HPC builds off of its past research, in addition to work done by the Massachusetts Attorney General’s Office (AGO) and CHIA to demonstrate that provider prices vary extensively for the same sets of services, that this variation has not diminished over time, and that the combination of price variation and large share of patient volume at higher-priced providers drives higher health care spending. The report also details a rigorous analysis of the factors associated with inpatient hospital prices, finding that a substantial amount of price variation reflects market structure and other factors that allow certain providers to negotiate higher prices with insurers, rather than value-based factors that provide benefit to the Commonwealth, such as higher quality of care.

As a result of the findings in the Report, including that the market has not shown evidence that it is rectifying the issue on its own, the HPC concludes that policy action is required to address unwarranted price variation. The Report outlines potential policies that can be implemented to reduce unwarranted price variation and its consequences. The HPC will undertake additional research and analyses and promptly convene stakeholders (including the HPC Advisory Council) to present and discuss these and other data-driven policy options to reduce unwarranted price variation in support of a more sustainable and equitable health care system.