Massachusetts Health Care Costs Rose Sharply Again In 2022

DATE : March 13, 2024

Consumers, Hospitals Lose Ground As Total Spending Increased 5.8 Percent

Colin A. Young, State House News Service, Wednesday, March 13, 2024

MARCH 13, 2024.....As policymakers this week examine a law meant to keep health care cost growth within sustainable bounds, a new report makes clear that the health care sector has a double-sided problem -- the cost of care is pushing it out of reach for many Massachusetts residents and draining the wallets of others, but profitability is down at hospitals across the state.

The Center for Health Information and Analysis, created under a 2012 cost containment law, released its annual report Wednesday examining health care spending trends in 2022. The detailed report covers a year that saw record-high COVID-19 case counts in the first quarter, followed by a decline in the number of cases and their severity through the rest of the year.

"Health care providers faced negative margins and system-wide capacity strains. At the same time, Massachusetts residents and employers faced growing health care affordability concerns due to rising premiums and cost-sharing. Adding to financial pressures, inflation peaked in 2022, rising to the highest rate in decades," the agency wrote.

Four years after the pandemic pushed hospitals to the brink and forced the state to open field hospitals at places like Worcester's DCU Center, the industry is grappling with another capacity crunch. Not only is there a shortage of nurses, but facilities are also contending with a backlog created when patients can't promptly be moved from a hospital to a nursing home or other post-acute care setting. And the financial woes of Steward Health Care, which threaten access to care for hundreds of thousands of residents, have deteriorated to near crisis levels and attracted new attention to the sector's financial health.

CHIA's annual report estimated total health care spending in Massachusetts at $71.7 billion in 2022, and a per capita health care expenditure of $10,264 per resident. Total health care spending was up $3.9 billion (up 5.8 percent on a per capita basis) over 2021's level -- well in excess of the state's 3.1 percent benchmark for health care cost growth.

CHIA said the 5.8 percent growth rate in 2022 represents the largest one-year jump since measurement began in 2012, aside from the "anomalous spending growth in 2021 driven by the pronounced effects of the pandemic." Health care spending shot up 9 percent in 2021 after posting a 2.3 percent decline in 2020.

The 2022 growth in health care spending was below both the rate of growth in the Massachusetts economy broadly (7.2 percent) and regional inflation (7.1 percent), CHIA said, but outpaced growth in both national wages and salaries (5.1 percent) and national health care spending measured by the Centers for Medicare & Medicaid Services (4.1 percent).

The largest contributors to the 2022 expenditure increases were pharmacy spending and non-claims payments, CHIA said.

"Pharmacy spending has continued to increase consistently, and on both a gross (+8.8%) and net-of-rebates (+8.3%) basis, was the largest contributor to the overall THCE increase in 2022," CHIA said, referring by acronym to total health care expenditure. "Non-claims payments were the second largest contributor to the THCE increase in 2022, growing 23.3%, driven by $621.5 million in one-time COVID-19 supplemental payments made by MassHealth to support the financial stability of hospitals pursuant to federal (American Rescue Plan Act, 'ARPA') and state legislation."

Hospital services accounted for the greatest share of 2022's total health care spending, with outpatient spending increasing 5 percent from 2021 and inpatient spending declining 1.4 percent.

Spending for physician services was essentially flat (down 0.1 percent) between 2021 and 2022, CHIA said, and spending on other medical services like skilled nursing or home- and community-based services was up 4.4 percent. Spending for other professional services, including care provided by a licensed practitioners other than physicians, grew 6.9 percent.

The CHIA report found that overall acute hospital profitability, measured by the median total margin, decreased by 9.2 percentage points and went into the red, from 5 percent in hospital fiscal year 2021 to -4.2 percent in HFY 2022. The statewide median operating margin was -1.3 percent in 2022, a drop of 2.1 percentage points from 2021, while the median non-operating margin was -0.4 percent and down 3.4 percentage points from 2021.

Acute hospital aggregate total operating revenue increased by 5.5 percent, but could not keep up with aggregate expenses that increased 8.9 percent and ultimately exceeded total operating revenues by $460 million, CHIA said.

Massachusetts considers itself a model for health care reform, and since a 2006 law signed by Gov. Mitt Romney, the state has required most residents to obtain at least a minimum level of insurance coverage or pay a tax penalty. But despite "near universal" health insurance coverage here, Bay Staters regularly report challenges affording necessary health care services.

"Massachusetts residents face growing health care affordability concerns due to rising health care costs, increased demand for health care services, and growing enrollment in high deductible health plans," CHIA wrote in a new section of its annual report that combines data from various streams to "present a more complete picture" of costs and consumer challenges. "As policymakers and other stakeholders chart the path forward amid a changed health care landscape, health care affordability remains a critical consideration in examining the performance of the Massachusetts health care system."

Forty-one percent of Massachusetts residents reported experiencing health care affordability issues in the last 12 months, including more than half of Hispanic residents (54.9 percent) and Black residents (50.8 percent), CHIA said.  Premiums, a key health care expense shouldered by members and employers, climbed 5.8 percent from 2021 to 2022, settling at a market average of $595 per member per month. That increase follows a 6.4 percent increase in premiums from 2020 to 2021.

CHIA also flagged the continuing popularity of high deductible health plans, those with a deductible of $1,400 or greater. More than 1.7 million people in Massachusetts were enrolled in such plans in 2022, representing 42.4 percent of the commercial market, CHIA said. The report said those plans have seen enrollment more than double since 2014, when only 19 percent of members were enrolled in high deductible plans.

CHIA said the growing popularity of high deductible plans "has raised concerns about the affordability of these plans and their impact on members’ access to care." In 2021, members enrolled in such plans reported higher rates of health care affordability issues in their families compared to those in other private commercial plans (41.9 percent versus 33.6 percent).

CHIA Executive Director Lauren Peters said that while this year's report has to be viewed in the context of the waning impacts of the pandemic, it "reveals unsustainable growth trends, and reinforces the need to address the persistent cost drivers in the system."

Many of the policymakers who shape the state's health care decisions will be together Thursday, when the Joint Committee on Health Care Financing joins the Health Policy Commission for the annual public hearing on the potential modification of the health care cost growth benchmark for 2025.

HPC leaders have been vocal about their desire to see lawmakers ramp up the HPC's regulatory might to rein in some of the problems they see, but House and Senate Democrats have left specific recommendations untouched or been unable to get on the same page.

The Senate last year approved a prescription drug pricing bill for the third session in a row, but the House has not shown an interest in doing the same. And House Speaker Ron Mariano has long pined for action to expand oversight of larger hospital expansions into territories covered by community hospitals, an idea that has not picked up momentum in the Senate. Mariano and Spilka have both in recent months suggested there would be more to come this session on health care issues.

"The entire health care system is still reeling from the effects of the pandemic: hospital emergency departments are still overflowing, providers ranging from primary care offices to entire acute care hospitals are facing closure, bankruptcy or consolidation, and health insurance is becoming increasingly unaffordable for the average Massachusetts family," Mariano said in January.

And Health and Human Services Secretary Kate Walsh on Wednesday is expected to share the administration's view of the various trouble spots in the health care landscape in a private conversation with members of the Massachusetts Taxpayers Foundation.