Is the state’s health cost benchmark still relevant?

One of the central duties of the state Health Policy Commission is to set an annual cost growth benchmark, a target that serves as a guide rail of sorts for Massachusetts health care providers and their regulators. 

But COVID has thrown a colossal wrench in the state’s regulatory scheme. In 2020, the initial year of the coronavirus and the lockdown of much of society, health care costs actually declined by 2.4 percent, which has never happened before. Data is not in for 2021 and 2022 yet, but the expectation is that health care spending in those years is going to rebound well beyond the benchmark of 3.1 percent.

“We could see growth rates of 8, 9, or 10 percent,” said Stuart Altman, the chair of the Health Policy Commission, at a meeting on Wednesday.

The benchmark, tied to the state’s long-term economic growth rate, is supposed to be a target for controlling the growth of total public and private health care expenditures across all payers. It’s a goal, not a cap, but it’s used to determine whether individual health care providers are rowing in the right direction. Those that exceed the benchmark can be ordered to come up with a plan for reining their costs in. Mass General Brigham, the state’s largest health care provider, is the first hospital system to receive such an order. Its plan is due in May.

But what happens when the benchmark becomes divorced from reality, which is what appears to be happening now? 

The Health Policy Commission on Wednesday had to decide what the benchmark should be for 2023. The commission unanimously chose the default rate of 3.6 percent that is laid out in statute.  

“We cannot take our foot off the brake,” Altman said, but then quickly acknowledged that the commission needs to be mindful of the extraordinary situation COVID has presented and shouldn’t push so hard on the brake that harm is done to the health care system. 

David Cutler, an economics professor at Harvard who serves on the commission, said the volatility of health care spending is unlikely to settle down any time soon. He said the impact of COVID is one thing, but also inflation is running at a rate of 7 to 8 percent, putting upward pressure on costs and wages. 

“In most of American industry, when costs go up prices go up,” he said.

In an ideal world, Cutler said, the commission should have two benchmarks, one for health care providers that have not raised their prices that much in the past and another for those that have. Since the law doesn’t allow that, he said, it may make sense when evaluating performance relative to the benchmark to give more leeway to some providers and less to others.

“It is not our intent to force organizations to go into bankruptcy because their costs have risen in the pandemic,” he said.



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