Health cost benchmark up in the air right now

Maybe state commission should focus on other issues

FROM A PURELY technical point of view, next week’s legislatively mandated annual cost growth benchmark hearing of the Health Policy Commission is a big waste of time.


Because under the 2012 law, the 3.1 percent benchmark goal for per capita growth in health care spending can only be adjusted right now to be set at a level of anywhere between 3.1 and 3.6 percent – no more and no less.

But the coronavirus has thrown a wrench into health care spending. COVID has depressed spending on health care in 2020 and possibly 2021, so many health care providers are coming to commercial insurers seeking big rate increases for the next few years to make up for some of that lost revenue. And they think they can get away with the increases, even if they exceed benchmarks, because they feel that COVID related revenue losses give them that “right.”

We don’t yet fully know where 2020 total health care spending came out in our state, nor do we understand the full extent of financial flows to providers with all of the government money coming their way.  What we do know is that health care providers are coming to commercial insurers seeking big rate increases, and they think they can get away with it for contract talks happening now for renewals starting in 2022.

A recent national estimate indicates healthcare spending actually declined 2 percent in the US last year, and probably more in Massachusetts because our shutdown of health care services a year ago was aggressive.  Pre-COVID, our total per capita spending was growing at 3.4 percent over a five-year period; with slight population growth, aging, and enhanced severity coding efforts to capture more revenue from treatments, provider patient care revenues probably grew closer to 5 percent.   So as they sit down now at the negotiating table, the thinking of health providers probably goes something like this:

“Last year, we actually had a drop of 3 percent in patent care revenues, when we are used to a 5 percent growth in revenues, making us 8 percent behind.  So to recapture that lost 8 percent, plus our usual 5 percent annual growth, we need near double-digit annual price increase for a few years in our commercial contract renewals in order to get us to back where we would have been, but for COVID.”

That is what we premium payers are up against and why we are witnessing rising premiums even after a year where overall spending likely declined.   So whatever the Health Policy Commission votes to do about what the 2022 target for per capita growth should be—most providers will simply ignore that number.   They likely will find additional comfort in the fact that, to date, the commission has thus far never required a provider to comply with a performance improvement plan to bring its spending in line with the benchmark.

We got a whiff of this higher rate increase phenomenon from Andrew Dreyfus, the head of Blue Cross Blue Shield of Massachusetts, who testified in October before the commission, and Tom Croswell, CEO of the company formed from the merger of Tufts Health Plan and Harvard Pilgrim, who confirmed a similar trend during a “Health or Consequences” podcast last month.  I have been told by health insurance industry officials that in many cases these requests are coming in as double-digit percentage price increases.

Chatter has it that even the Beth Israel Lahey Health system may be citing the impact of COVID to try to get out from under a price increase cap of 0.1 percent less than the benchmark, that it agreed to for gaining Attorney General Maura Healey’s approval for the merger of Beth Israel and Lahey Health a few years ago.

So if it is a waste of time next week to focus much hearing time on the benchmark for 2022, what should the commissioners spend their time talking about? With our state plagued by a continuing hospital-related spending challenge,  perhaps these four important considerations would be timely:

Consider making a legislative recommendation for an absolute price cap for hospitals

The goal here is to really get at the current level of high prices charged by some of our most prestigious, yet overpaid, hospitals.  Focusing on absolute price cap levels, rather than price growth percentage increases, could help to rein in total spending and also allow for providers who are currently paid less to be paid more.

We know from the most recent data available for years 2016-2018 that our largest health care system, Massachusetts General Brigham, was paid for its inpatient and outpatient services by commercial insurers at a price level that was about 280 percent of Medicare prices, as compared to a 227 percent average for all Massachusetts hospitals. So if the Legislature were to consider a cap at even 250 percent of Medicare levels, that would bring us substantial premium savings.

Develop and report on a measure for hospital spending growth

The health status-adjusted total medical expenditures that the state reports each year is for our largest physician groups in the state, and is a measure of all documentable spending for a group of attributed patients back to their primary care providers in a managed group. The key is that this is spending coming from a physician group that gets measured and reported.  But total medical expenditures can be driven by various components, including hospital spending—both inpatient and outpatient and in-network and out of network.

We don’t usually see a hospital-specific total medical expenditures, but we should.

A bill filed this year by Sen. John Keenan of Quincy would require the state to measure how hospital spending contributes to total medical expenditure growth. Importantly, the law would not only allow us to see spending at hospitals most closely aligned with a managed physician group, but also spending at hospitals by those physician groups who are not closely aligned.  The bill also requires the 10 acute care hospitals with the largest contribution to growth of total medical expenditures in the commercial market to be subject to review at a Health Policy Commission hearing.

Develop and report out uniform cost accounting measures for hospital inpatient and outpatient care

When I was a commissioner at the Health Policy Commission, one of my biggest complaints was that we had relative price data on what commercial insurers were paying health care providers, but no uniform data on what it cost providers to supply their services. In order to judge the fairness of what health providers are paid, it only seems right to know what it costs them to deliver their services. Keenan’s bill also takes a step in doing just this.

Take a deeper dive into the enhanced coding problem

Meet the Author

 The Health Policy Commission has done a great job uncovering that health providers are classifying their patients as sicker even though most metrics don’t suggest such a shift is happening. Their obvious conclusionis that health care providers are taking advantage of enhanced “coding” systems which lead to higher rates of payment for presumed greater severity, when in fact, in aggregate, patients are not truly more ill as compared to prior years’ cohorts.  The same pattern is happening nationally. The commission should look deeper into this phenomenon and consider offering up some sort of remedy that would prevent us from having to unjustifiably overpay for care that is delivered.

In sum, even though this year’s discussion to establish the level for the 2022 state cost growth benchmark seems less useful during this COVID era, there are certainly still a lot of other important things for Health Policy Commission to focus on in our state’s continuing struggle for greater health care affordability.   Let’s hope that’s where next Thursday’s conversation goes.