DATE : November 01, 2022
State policy makers have long searched for effective strategies to control health care costs. Since the 1970s, health spending growth has consistently exceeded growth in the gross domestic product. The rising costs of health care impose an increasing burden on consumers, employers, and federal and state budgets, and crowd out other critical public investments, such as education and housing.
In 2012, Massachusetts became the first state to enact a health care cost-growth benchmark, which set a target for annual rates of increase for all health spending, including by private insurers, tied to growth in the state’s economy. It also established several mechanisms to hold payers and providers accountable for keeping health spending growth below the benchmark. Some evidence suggests the initiative has reduced health care cost-growth rates in Massachusetts. For example:
Encouraged by Massachusetts’ progress, eight other states, most recently California, have adopted similar initiatives intended to reduce the rate of cost growth. The Golden State joins Delaware, Rhode Island, and Connecticut, which all adopted new statutory and funding support for their existing cost-growth target programs during their 2022 legislative sessions, and four other states—New Jersey, Nevada, Oregon, and Washington—that are implementing health care cost-growth targets. Many of these states participate in the Peterson-Milbank Program for Sustainable Health Care Costs, which provides technical assistance for cost-growth target-setting.
State health care cost-growth targets establish a shared goal among state policy makers and health care stakeholders by which to judge collective performance. States complement these targets with in-depth assessments of what’s driving health care cost growth. Together, analyses of statewide cost growth, individual entities’ performance relative to the target, and underlying cost drivers can inform policy and market-based actions to help make health care more affordable.
However, the effectiveness of such targets depends on the policies for holding payers and providers accountable for meeting them. All states implementing these initiatives leverage the power of public reporting on health care spending to persuade voluntary compliance with the cost-growth targets to avoid “naming and shaming.” Some states have also enacted stronger enforcement tools, such as the imposition of performance improvement plans (a feature of the Massachusetts initiative) and financial penalties for failing to meet the target.
Policy makers have had little evidence to understand how the design and use of different accountability measures affect the success of state health cost-growth target initiatives. As evaluators and backers of these state initiatives, we sought to fill the gap in current evidence.
Here, we briefly summarize the findings from a new study that examined Massachusetts’ approach to accountability and drew lessons for other states. We then describe the evolution of cost-growth target initiatives and accountability methods in other states. We note the importance of laying a foundation to enable comparison of the effects of different approaches to accountability as states’ programs roll out in the next few years. We conclude by discussing what state decision makers can do now to maximize the impact of state cost-growth targets.
The Peterson Center on Healthcare and Gates Ventures commissioned Mathematica to conduct a study of stakeholders’ experiences with, and views of, the Massachusetts Health Policy Commission’s (HPC) accountability mechanisms, and to draw lessons for other states. Mathematica conducted a comprehensive review of public documents and interviewed nearly 50 key stakeholders involved in, or affected by, the Massachusetts cost-growth benchmark initiative.
The study found that the HPC deployed its accountability tools effectively during its initial years of operation. Respondents said that the benchmark influenced contract negotiations between payers and providers and increased providers’ willingness to participate in accountable care organizations, both of which helped to constrain spending growth. The HPC’s annual cost trends hearings and cost trend reports drew wide media coverage and shone a spotlight on key cost-growth drivers. Its in-depth investigations and public reports of the cost impact of selected proposed mergers and acquisitions influenced provider decisions about how to structure such transactions and with whom to partner.
The HPC also conducted dozens of confidential reviews of the performance of individual entities with excessive cost growth, reserving the right to impose a performance improvement plan (PIP) on any such entity if warranted. However, after six years of conducting these reviews without requiring any entity to prepare a PIP, many respondents were skeptical of the effectiveness of the PIP process. In 2022, the HPC at last required the first public PIP from Mass General Brigham because of repeated non-adherence to the target.
After nearly 10 years, most stakeholders still support the goal of cost containment and commended the HPC’s efforts. But the benchmark’s influence on payer and provider behavior has diminished over time, and the sentinel effect of the HPC’s accountability mechanisms has weakened as the limits of HPC’s authority to enforce compliance became clear. For example, the HPC does not have the ability to restrain provider price growth or reduce unwarranted variation in provider prices, both of which are major drivers of overall spending growth. The HPC’s annual cost trends reports called attention to the role of provider prices in driving cost growth numerous times, and in both 2021 and 2022 recommended policies to constrain excessive provider prices. The HPC recommendations to the legislature included caps on prices or price growth for high-price providers and limits on hospital facility fees; at the time of this article, the legislature had yet to adopt them.
Building on Massachusetts’ program, a growing number of states have committed to setting and tracking an annual health care cost-growth target through executive orders or legislation. A distinguishing feature of these newer initiatives is greater authority for governing agencies to levy financial penalties and to enforce compliance with the cost-growth target. However, all states continue to emphasize public reporting as the primary means of accountability.
Last year, Oregon was the first state to add authority to levy financial penalties on plans or provider organizations whose cost growth exceeds the target “with statistical certainty and without good reason” in three out of five years. This represents the strongest enforcement mechanism to date among states now implementing these programs. The imposition of financial penalties, along with the ability to require entities to submit performance improvement plans, will be phased in over multiple years to give plans and providers ample time to control spending growth voluntarily. Currently, the Oregon Health Authority is drafting regulations to establish specific criteria to administer the PIP and financial penalty provisions.
California’s model also provides authority for financial penalties and corrective action plans. Beginning in 2025, the state’s new Health Care Affordability Board will set an overall statewide cost-growth target and specific targets tailored to geographic regions and different types of health care entities. If an entity exceeds the targets, the Office of Health Care Affordability will start by providing technical assistance and requesting testimony at public meetings. If there is ongoing non-compliance, the office can consider progressively enforcing compliance through corrective action plans and escalating financial penalties.
The Mathematica study elucidated the pathways through which cost-growth targets and accountability tools induce payers and providers to change behavior in the short term, which may produce lower rates of spending growth in the long term. Left unanswered is whether stronger or different accountability mechanisms would have resulted in even more restrained cost growth in Massachusetts. Research cannot answer this question until other states’ cost-growth target initiatives gain more experience and the effects of different types of enforcement tools on cost-growth trends can be compared over several years. In the meantime, researchers can set the stage for systematic cross-state comparisons by creating a typology of accountability mechanisms based on a common set of definitions, documenting their use over time, and developing methods to measure their relative influence on payer and provider behavior.
Given current fiscal pressures exacerbated by uncertainty around a looming recession and the likely expiration of federal COVID-19 public health emergency funding, state policy makers cannot wait for comparative effectiveness studies on cost benchmarking accountability measures to inform their path forward. To succeed in lowering cost growth, states now implementing these programs need to put in place incentives and processes to hold payers and providers accountable as soon as possible.
Massachusetts’ experience provides valuable lessons about the design and use of accountability tools that can help policy makers in other states devise these policies. We recommend that policy makers should:
Decades of federal and state policies designed to restrain cost growth have been stymied by payer and provider strategies designed to circumvent them. While continuing to rely on transparency and voluntary compliance, states implementing cost-growth target initiatives may need to strengthen their accountability tools if payers and providers fail to keep spending in line.
by Debra J. Lipson, Sarah Berk, Keanan Lane, Rachel Block