Do No Harm to the Health Policy Commission

With only weeks left in the Massachusetts legislative calendar, there are once again hundreds of proposed bills left for the legislature to deal with.  This means lots of backroom talks and deals will be required for the legislature to complete its work before the July 31 recess.  Many bills will be passed and many more will be sent to the legislative graveyard – all of it shielded from the light of day.

Among this stack of bills is a health care “market oversight reform” measure passed by the House of Representatives and sent to the Senate. In large measure, H.4643 aims to plug the regulatory loopholes that allowed for-profit Steward Health System’s equity partners to pillage eight local hospitals.  Such provisions deserve careful consideration to prevent a similar fiasco.

There is another, not so benign, aspect to H.4643 that may simply slip through under the radar or be lost in the end-of-year stampede. Certain provisions of the bill would weaken the Health Policy Commission (HPC), the state agency charged with controlling the growth of healthcare costs in Massachusetts.  These provisions run counter to more than a decade of steady progress made by the HPC to tamp down the growth of healthcare costs and are contrary to tools the HPC has indicated it needs to support its work.

In 2022, healthcare spending in the state was almost $72 billion, or over $10,000 for every resident.  A large portion of this $72 billion, is accounted for by Massachusetts hospital revenues. The Commonwealth’s healthcare costs are very high; more oversight and transparency, not less, have to be applied.

In 2012, the state took decisive action to tame healthcare cost growth by establishing an annual cap on the growth of healthcare spending, called the “benchmark,” and setting up an independent agency, the HPC, to control the future growth of healthcare spending.

The benchmark was initially set at 3.6 percent from 2013 to 2017.  The actual growth rate for the first five years was 3.4 percent.

From 2018 to 2022, the benchmark was set at 3.1 percent, and actual growth was 4.1 percent in 2018, an annualized rate of 3.2 percent for the Covid years, 2019-2021 and 5.8 percent in 2022[1].

 Prior to the HPC, the rate of growth in health care spending was between 6 and 8 percent and projected to continue along that path to 2020. This projection was created by the former Division of Health Care Finance and Policy (DHCFP,) which was a predecessor agency to the Massachusetts Center for Health Information and Analysis created in 2013 (CHIA)[2].  From the HPC’s creation in 2012 to 2022, there has been a savings of over $330 billion in the growth of healthcare costs.

The tools given to the HPC to constrain healthcare cost growth do not have sharp edges. There is no sledgehammer in its arsenal that can be brought to bear on providers, such as major hospitals, to force cost control measures or to limit price increases. The HPC can and does thoroughly investigate hospitals and other providers that exceed the benchmark and directs them to provide plans for corrective action, called “Performance Improvement Plans”.

The HPC also has fining ability of up to $500,000; and it has used all its powers as a bully pulpit to foster a statewide commitment to constrain health care cost growth[3]. Over the years, HPC leaders have made known their desire for the Massachusetts Legislature to “ramp up” the HPC’s regulatory powers. To date, however, neither the House or the Senate has succeeded in doing so[4].

 While there are some provisions of H. 4643 that strengthen the HPC, such as increasing its fining ability up to $1,000,000, some provisions would weaken the HPC.  Here are a just a few ways that this House bill runs counter to cost control efforts.

First, as originally structured, HPC commissioners could not be drawn from the hospital, insurance or pharmaceutical sectors.  The whole purpose of the HPC is to lower the growth of healthcare costs, and it was deemed that institutions that control and benefit from higher prices should not be the decision makers regarding controlling costs.

H.4643 takes direct aim at the composition of the Commission and seeks to have representatives of hospitals and the pharmaceutical industries appointed to make decisions on both the benchmark itself and corrective actions taken against providers. In addition, H. 4643 eliminates a Commission seat for a purchaser of healthcare services, such as an employer. The means there is no seat on the HPC for those who pay the prices providers and drug providers charge. This would be a result contrary to the HPC’s mission to restrain healthcare price growth.

Another troubling feature of H.4643 is that it would have the unintended consequence of driving up hospital prices.  It provides a rate increase floor for community hospitals whose rates are traditionally lower than the payment levels of larger hospitals.  However, there is no corresponding price ceiling for the highest paid hospitals. It seems clear that a regulatory regime that includes a floor, but no ceiling would result in higher prices that would get passed on to consumers and small employers.

Third, the healthcare benchmark is set once a year by the HPC, per its enabling legislation, and compliance reviews by the HPC are performed on an annual basis.  H.4643 seeks, by statute, to replace the state’s annual benchmark set by the HPC with a benchmark that is the average of three years growth. The HPC would be unable to issue an order for a corrective Performance Improvement Plan (PIP) unless an entity’s average growth in revenues/expenditure exceeds the three-year average benchmark.  And, PIPs would be extended for 3 years from the current period of 18 months.  These changes do little to help constrain the growth of healthcare costs, but they do give providers more flexibility to deviate, perhaps significantly, from cost control scrutiny.  They also take away the power of the HPC to set the annual benchmark according to a statutorily established public process as has been the case for over a decade.

As the legislative session comes to a not very transparent close, the Senate has an opportunity to eliminate the features in the House bill that will drive up healthcare costs.  It is too late in the season for a comprehensive bill to serve as a vehicle for serious cost containment. Unfortunately, that task may simply have to be left for yet another year. But for now, the Senate can see to it that no harm is done to the HPC and work another day to strengthen the HPC’s tools to restrain healthcare cost growth.

[1] CHIA Annual Reports 2014-2024

[2] Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, 2007

[3] www.commonwealthfund.org/publications/case-study/2020/mar/massachusetts-health-policy-commission-spending-growth

[4] SHNS, “Health care costs in Mass. rose sharply again in 2022,” Colin A. Young, March 13, 2024.)