Health cost benchmark called unfair, impractical

Hospital association chief says measure doesn't account for inflation


STATE GOVERNMENT’S central method of benchmarking health care spending trends is not a fair or appropriate way to evaluate changes in one of the economy’s biggest cost centers, according to one of the lawmakers who helped craft the measure that is supposed to help keep cost growth roughly in line with economic growth.

Steve Walsh, the former Health Care Financing Committee co-chair and current president of the Massachusetts Health and Hospital Association (MHA), says the benchmarking method is “impractical” in large part because it fails to capture the present conditions in the health care market.

Cost information compiled by the Center for Health Information and Analysis is already two years old by the time it is published, and the MHA says that dynamic means the latest available data doesn’t account for labor cost increases and “substantial inflation.” The association views the past two years as “the most transformational for the healthcare system in generations” and says it is further concerned that commercial health insurers, in a deregulated market, may use the benchmark as a reason to cap any rate increases.

“When we made that historic move to set a benchmark, it was carefully based on the assumption of smooth growth, inflation, and overall economics,” Walsh said. “Of course, the current financial realities facing our healthcare providers – and our commonwealth as a whole – are anything but smooth.”

He continued: “The original idea for this benchmark was that it would be set at roughly a point-and-a-half greater than inflation, which was averaged at 2%. Of course, that would be incredibly unrealistic at this extraordinary moment for the healthcare system; inflation is now at 7%, which would mean that the benchmark needs to be 8.5% or higher simply to be consistent with the way it was created and envisioned. So this leads us to one of the inherent flaws of 224 by its very nature: it has you assess the past in order to regulate the future, while all the time never focusing on the present.”

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The MHA has proposed that the Health Policy Commission and Legislature pause the benchmark for fiscal 2023 and investigate “a meaningful, modernized approach that incorporates real-time circumstances and pressures on the healthcare system.” The association says it strongly supports a health care cost growth benchmark, with changes.

Under the 10-year-old law known as Chapter 224, the HPC starting with the 2023 benchmark has the flexibility to set it at any rate it chooses, subject to legislative approval. If the HPC board opts to stick with the 3.6 percent benchmark that mirrors projected economic growth, the annual process is complete. But if the board decides to modify the benchmark, it must submit notice to the Joint Committee on Health Care Financing. That panel would then be required to hold a hearing on the HPC’s chosen benchmark within 30 days and then would have to submit findings and recommendations to the Legislature within 30 days of its hearing. If the Legislature as a whole does not act on the committee’s findings within 45 of the committee’s hearing, the HPC’s modified benchmark would automatically go into effect. The HPC faces a statutory deadline of April 15 to set the benchmark and plans to vote on the benchmark at a meeting planned for April 13.