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Beyond Obamacare:

Lessons from Massachusetts

A Brief History of Health Care Reform in Massachusetts

Barbara Anthony

September 2017

Nopartofthisarticlemaybereproducedordistributedwithoutwrittenpermissionfromtheauthor1

BEYONDOBAMACARE:LESSONSFROMMASSACHUSETTS

ABriefHistoryofHealthCareReforminMassachusetts

September2017

Preparedby

Barbara Anthony, J.D., former Senior Fellow and Associate, Mossavar-RahmaniCenter for Business and Government, Harvard Kennedy School, assisted by CeliaSegel,MPP,andHallieTosher,MPP,HarvardKennedySchool.ThefacultyadvisorisProfessorJosephNewhouse.

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Foreword

Thisarticleisintendedtobereadbystateandfederalpolicymakers;healthcareadvocatesandresearchers;providersandinsurers;organizedlaborgroups;smallandlargebusinessorganizations;healthcarepolicystudentsandacademics;consumers;andallthosewhoknowhowharditistomakehealthcarepolicychangesintheUnitedStatesbutwhostillbelieve(hope)ourbestdaysareahead.Thegoalofthepaperistoprovideperspective,informationandanalysistothosewhostrivetoimproveaccesstoaffordable,qualityhealthcare.Thearticlecomesatatimeofgreatpotentialupheavalanduncertaintyintermsofnationalhealthcarepolicy.TheevolutionofhealthcarereforminMassachusettsisimportantbecausethereformsenactedin2006providedthemodelfortheAffordableCareAct(ACA),knownas“Obamacare.”In2006,Massachusettswasthefirststateinthecountrytotrytoexpandaccesstohealthcaretoallitscitizenswithinthestructureoftheexistingmarketplace.Thegoalwastogetascloseaspossibletouniversalaccesstohealthcare.ThecurrentresurrectionofanationaldebatearounduniversalaccesstohealthcareisastepbackwardsintimeforMassachusettshealthcarepolicymakerswhoconsideredthisbasicissue–universalaccess-settled.Subsequenttoits2006reforms,Massachusettsturneditsattentiontocostcontainment.In2012,Massachusettsbecamethefirststateinthecountrytotrytolimitthegrowthofbothprivateandpublichealthcarespending.Thateffort,knownas“Chapter224orCh.224”isstillunfolding.Manystatesarecurrentlyworkingonaffordabilityandexpandedaccessfortheircitizensandarelookingfornewpathsforward,inparticular,tocontrolhealthcarecosts.Thisworkisintendedtoserveasonealternativetohelpthosewhoarelookingforideasthatmightbeadaptedormodifiedtotheircircumstances.Thearticledrawslargelyontheauthor’syearsofexperienceinhealthcarepolicymakingpositions,mostrecently,asformerMassachusettsUndersecretaryofConsumerAffairsandBusinessRegulationfrom2009to2015.Inaddition,theworkalsobenefitsfromheryearsofexperienceinprivatehealthcareadvocacy,andotherfederalandstategovernmentrolesthatexposedtheauthortothedynamicsofhealthcarepolicymaking.Overtheseperiods,theauthoreitherparticipatedinorchairedhundredsofmeetingsaroundhealthcarereformissuesinvolvingallmajorstakeholdergroupsandinitiatedorworkedonnumerouspublicpolicydevelopments.Heranalysiscomesfromaperspectivethatradicalchangeinhealthcarepricinganddeliverysystemsisnotgoodmedicineoneitherthestateorfederallevel.Butshealsoappreciatesthatfundamentalchangeinthedistributionofhealthcarespendingdollarsespeciallyamongprivatesectorplayersisapre-requisitetosustainingandimprovingaccessandaffordability.TheChapter224experimentinMassachusettsisstillevolving.Atthisstage,theoutcomeremainsuncertainbuthopeful.

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TableofContentsForeword.......................................................................................................................................................................2

IntroductionandBackground..............................................................................................................................5

TheDevelopmentofHealthcarePolicyinMassachusetts...................................................................6

MeanwhileWhatWasHappeningattheNationalLevelbefore2006?.........................................8

MassachusettsEnactsBroadScaleHealthInsuranceReform...........................................................9

LayingtheGroundworkforBeyondObamacare.....................................................................................9

TheInsuranceWarsof2010.........................................................................................................................11

BeyondObamacare:Ch224..............................................................................................................................15

KeyFeaturesofCh.224...................................................................................................................................18

EstablishedNewAgenciesforOversightandMonitoring.................................................19

Calculatingandenforcingaspendingbenchmark................................................................21

Registeringandmonitoringproviderorganizations...........................................................22

TransitionintoAlternativePaymentContracts.....................................................................23

PriceinformationtransparencyforConsumers....................................................................23

Annualpublichearingstomonitorcostdriversandgrowth...........................................24

HowisitGoingSoFar?.........................................................................................................................................24

MeetingtheBenchmark..................................................................................................................................27

TrackingTrendsinProviderMarkets.......................................................................................................29

WhereisAllThatPriceTransparency?....................................................................................................31

IsTheBenchmarkEnforceableorAspirational?..................................................................................32

DoestheHPCNeedmoreAuthoritytobeEffective?..........................................................................34

Conclusions:AreThereLessonsfromMassachusetts?..........................................................................35

PaymentReform.................................................................................................................................................35

TheEstablishmentofanIndependentHealthCareAgency............................................................37

TheEstablishmentofaCostControlTarget...........................................................................................37

HealthcarePriceTransparency...................................................................................................................38

EndNotes...................................................................................................................................................................41

AbouttheAuthor………………………………………………………………………………………………45

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BEYONDOBAMACARE:LESSONSFROMMASSACHUSETTS

ABriefHistoryofHealthCareReforminMassachusetts

ByBarbaraAnthony,J.D.,formerSeniorFellowandAssociate,Mossavar-RahmaniCenterforBusinessandGovernment,HarvardKennedySchool,assistedbyCeliaSegel,MPP,andHallieTosher,MPP,HarvardKennedySchool.ThefacultyadvisorisProfessorJosephNewhouse.

IntroductionandBackground

In2006,MassachusettspassedCh.58,AnActProvidingAccesstoAffordable,Quality,AccountableHealthCare(Ch.58or“Romneycare”).The2006healthreformlegislationprovidedbroadaccesstohealthinsuranceformanypreviouslyuninsuredresidents.Ch.58primarilyaddressedissuesofaccesstohealthinsuranceinMassachusetts,andwasthemodelfortheACA.ManyofthemostpotentandcontroversialfeaturesoftheACAcamefromthe2006Massachusettslaw:amandatethatindividualsbuyinsuranceorpayapenaltyforfailuretosodo;apenaltyforemployersaboveacertainsizethatdidnotoffercoveragetotheiremployees;anexpansionofMedicaidtocovermorelowincomeindividuals;subsidiesforthosebelowacertainlevelofincome;arequiredhealthbenefitspackagethatcarriershadtooffer;anonlineexchangewhereconsumerscouldshopforinsurance;andmanyotherfeatures.AtthetimeCh.58waspassed,adeliberatedecisionwasmadebystatepolicymakerstoleavetheissueofcostcontroltoanotherday.

MassachusettshasamongthehighesthealthcarecostsinthenationandformanyyearsthegrowthofthosecostsoutpacedthegrowthofhouseholdincomeandtheoverallMassachusettseconomy.Averagefamilypremiumsforemployer-sponsoredhealthinsuranceinthestaterosefrom$11,400in2005tonearly$17,000by2011.1In2015,suchpremiumswere$18,454,whiletheywere$17,322forthenationasawhole.FourstatesandtheDistrictofColumbiahadhigheraveragefamilypremiums.2AccordingtotheMassachusettsHealthPolicyCommission’s2016CosttrendsReport,averagestatewidefamilypremiumandcostsharingwasabout$20,000.3

WhilehealthcarecostscontinuedtoescalateinMassachusettsandelsewhere,thestateandnationaleconomiesplungedintoadeeprecession.Againstthisbackdropofrecessionandcontinuedgrowthbothinhealthcarecostsandenrollmentinhealthinsurance,thestateturneditsattentiontocostcontrol.

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InMassachusetts,thelawthat“officially”addresseshealthcarecostsisChapter224oftheActsof2012,AnActImprovingtheQualityofHealthCareandReducingCostsThroughIncreasedTransparency,EfficiencyandInnovation”(Ch.224).Ch.224becameeffectiveonNovember5,2012,andestablishedaso-called“benchmark”tocontrolthegrowthofhealthcarecostsinMassachusetts.Thebenchmarkwillbedescribedinmoredetaillaterinthisarticle,butgenerally,Ch.224isasetofinterlockingprovisionsdesignedtotietherateofhealthcarecostgrowthtotherateofgrowthinthestate’seconomy.Ch.224establishedanindependentagency,theHealthPolicyCommission(HPC),toimplementandenforcethebenchmarkforhealthcarecostgrowthestablishedinthestatute.Massachusettsisthefirststateinthenationtoestablishalegislativegrowthtargettocontrolhealthcarecosts.Atpresent,thelawisuniquetoMassachusetts,althoughafewstates,suchasRhodeIslandandConnecticut,aretakingalookatsimilarapproachestocontrollinghealthcarecosts.4ThisarticleexaminesanumberofissuesraisedbyCh.224.(1)TheculturedevelopedbyMassachusetts’policymakersandhealthcarestakeholderstopassCh.224;(2)AdescriptionoftheimplementationtoolsinCh.224;(3)TheeffectivenessofthosetoolsandoftheHealthPolicyCommissionincontrollingthegrowthofMassachusetts’healthcarecosts;and(4)Whetherornotthisapproachisgoodpublicpolicy.AnexcitingfeatureofthisMassachusettsexperimentisthatitisstillevolvingandadaptingtochangingmarketconditions;withtime,newtoolsmaybeaddedtoitscostcontrolprovisions.Itsultimatesuccessorfailuremaynotbereadilyapparentforyearstocome.

TheDevelopmentofHealthcarePolicyinMassachusettsCh.58wastheproductofintensebipartisannegotiationsthatinvolvedofficialsacrossthepoliticalspectrumfromconservativeMassachusettsGovernorMittRomney(whowaspreparingtorunfortheUSpresidency)totheliberalicon,MassachusettsSenatorTedKennedy,andeveryoneinbetween.Atthesametimethatthesenegotiationsweretakingplace,therewasthethreatofaballotinitiativethatcontaineda“payorplay”mandateforemployers.TheballotinitiativenevertookplaceandultimatelyCh.58emergedfromthenegotiatingprocess.Importantly,thislawinvolvedkeyorganizedstakeholdergroupssuchasproviders,insurancecarriers,unions,physicians,employers,religiousorganizations,consumeradvocatesandmanyothers,workingwithstateagencies,legislatorsandhighlevelpublicofficials.ThiscoalitionofdiverseandcompetinginterestswasalreadyahallmarkofhealthcaremarketreformeffortsintheBayState.Whetherthereisagreementordisagreement,allstakeholdergroupsandgovernmenthealthcareofficialsexpectaseatatthenegotiatingtable.Ch.58itselfwastheculminationofalmosttwodecadesofreformstotheBayState’shealthcaremarketplacethatbeganasearlyas1988withthenGovernorMichael

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Dukakis’ssignature“HealthCareforAll”legislation,Ch.23oftheActsof1988.5ThesamecoalitionofstakeholdersthatwasinvolvedinCh.58hadpreviouslyworkedtopassoropposetheDukakislegislation.TheDukakislaw,passedamidgreatfanfareinApril1988,wasthefirstinthenationdesignedtoprovidebasichealthinsuranceforallresidentsofastate.“Wehavegoodreasontorejoicetoday,”theformerGovernorsaidfromtheMassachusettsStateHousesteps,“asweonceagainbecomethenation’slaboratory…foraffordable,qualityhealthcare”forall.6Thelawwasaimedatinsuring600,000BayStateresidentswholackedhealthinsurance,10%ofthestate’spopulation,andincludeda“payorplay”mandateforemployersandsubsidiesforlow-incomecitizens.Ch.23wasneverimplementedafterGovernorDukakisleftofficefollowinganunsuccessfulbidforthepresidency.Thestatelegislatureneverfundeditspricetag,whichitpeggedasbetween$900millionand$1.4billion,andeventually,itwasrepealed.7ThecoalitionofstakeholdersthatwasformedaroundtheDukakisinitiativedidnotdissolvebutcontinuedtoadvanceinsurancemarketreforms.In1991,RepublicanGovernorWilliamWeld,signedalawknownasChapter4958deregulatingthestate’shospitalrate-settingsystem.Thislawalsocontainedprovisionsaimedatreformingthestate’shealthinsurancemarket.Itrequiredinsurancecompaniestotreatallbusinessesequallyactuarially,andmadeitillegaltohavedisproportionatevariationsinpremiumincreasesandbenefits.Mostimportantly,thelawrequiredthatinsurancepolicieswererenewableannuallyforsmallbusinesseswithreasonable(andproportionate)premiumincreases,unlessthesebusinessesprovedunworthyofrenewal.Thelawalsodefinedandregulated‘waitingperiods’forgroupplansfornolongerthansixmonths;previously,waitingperiodswerenotregulatedandcouldlastformuchlonger.Inaddition,the1991lawrequiredthat‘emergencyservices’werecoveredduringthewaitingperiod.Chapter495wasaneffortbyGovernorWeldtorepealthemostcontroversialpartsofGovernorDukakis’s1988law,particularlythe“payorplay”provisions,whichpenalizedbusinesseswithover5employeesiftheydidnotprovidehealthinsurancetoemployees.However,italsoreliedonmarketforcestotryandcontrolhealthcarepricesthroughcarriersandprovidersnegotiatingindividualhospitalcontracts.ItcreatedfairnessstandardsforthewayinsurerscouldtreatsmallbusinessesandhelpedtofinancehospitalswithamajorityofMedicaidpatientsbycreatingtheuncompensatedcarepool.Thismechanismplacedanassessmentonprofitablehospitalsinordertohelpfinancethosehospitalsthattreatedthemostdisadvantagedpatients.Inthe1990s,anumberofstatesincludingMassachusetts,beganexperimentingwithwaystoexpandaccesstohealthcareinsuranceforstateresidents.Thetwomostpopularreforms,“guaranteedissue”and“communityrating,”wereaddedtoMassachusetts’healthinsurancelawsin1996.9ThesereformsinMassachusettsgrewinpartoutofa“Non-GroupCommission”formedbyAttorneyGeneralScottHarshbarger’sofficeinthemid-1990’s.ThisgroupincludedtheCEOsofmajor

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carriers,unions,hospitaltradegroups,consumeradvocacyorganizationsandothers.Itsrecommendationswerepartofthereformsof1996.10Underguaranteedissue,insurerscannotdenycoveragetoanindividualbecauseofthatperson’shealthstatus.Thecommunity-ratingrequirementbarredinsurersfromcharginghigherpremiumstoapersonbecauseofthatindividual’shealthstatus.11Inaddition,Chapter297establishedminimalhealthplanrequirementsandcreateda-mini-COBRAforsmallbusinesses.12Unfortunately,thesewell-intentionedlawshadadverse,unintendedconsequences.Becauseinsurerswerenolongerabletoadjusttheirpricesbasedonpre-existingconditions,therewasevidencethatpeoplewaiteduntiltheygotsickbeforebuyingcoverage.11Therewasnoincentivetobuyinsuranceifanindividualwashealthybecausetheindividualcouldalwaysbuyitlaterifshebecameill.Asaresult,thepoolofinsuredsbecomessmallerandsmallerandsickerandsicker,andthecostofinsurancebecomesmoreandmoreexpensiveforthosewhoarebuyingit.Thisphenomenoniscalled“adverseselection”anditleadstoaneconomic“deathspiral.”11Thenumberofpeoplewithoutinsuranceactuallyincreases.Thisiswhatoccurredinthe1990’sintotheearly2000’sinMassachusettsandaroundthecountry.

MeanwhileWhatWasHappeningattheNationalLevelbefore2006?DuringtheperiodthatMassachusettsandsomeotherstateswerepassingthereformsdescribedabove,thenationwitnessedthefailedeffortsoftheClintonadministrationforbroadscalereformofthehealthcaremarket.ThiseffortleadbythenFirstLadyHillaryClintonwasknownofficiallyastheHealthSecurityAct.Thebillitselfwasacomplexproposalrunningmorethan1,000pagesandhadanenforcedmandateforemployerstoprovidehealthinsurancecoveragetotheiremployees.Criticismfromconservatives,libertarians,thehealthinsuranceindustryandevenfellowDemocratsdoomedtheClintonplananditwasneverenactedintolaw.By1994,therewasnochanceitwouldberevived.13,14Whiletheeffortatnationalreformwasdefeated,subsequentlyin1996,theHealthInsurancePortabilityandAccountabilityAct(HIPPA),15knownasthe“Kennedy-Kassenbaum”billwasenactedbyCongressandsignedintolawbyPresidentClinton.HIPPAimprovedportabilityofhealthinsurancecoverageforworkerswhentheychangedorlosttheirjobsbyrestrictingthetimeperiodthataninsurercoulddenycarebasedona‘pre-existingcondition’givenpreviouscreditablecoverage.HIPPAisbestknownforestablishingnationalstandardsforprivacyaroundelectronichealthcaretransactions.Indeed,atthetime,amajorlessonderivedfromthefailedattemptsbytheClintonandDukakisAdministrationstotacklebroadscalehealthreformwasthatincrementalchangeheldmorepromiseofsuccessthanmajorreform.However,a

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strongtake-awayfromtheincrementalinsurancereformeffortsofthe1990swasthattherewereunintendedconsequencestowell-intentionedlawsaimedatloweringcostsforonegrouportryingtoguaranteethatsickpeoplewouldnotendupuninsured.Thus,overtimetheshortcomingsofcertainincrementalreformsprovidedempiricalevidenceformorebroadscalereform.Itappearsthatthesmallstepsmayhavebeenanecessarypreludetogatheringconsensusformorefundamentalchange.

WithnoFederalPlaninSight,MassachusettsEnactsBroadScaleHealthInsuranceReformMeanwhilebackinMassachusetts,notwithstandingsomesuccessatreforms,andsomeloweringoftheuninsuredrate,in2004,theuninsuredrateinMassachusettswasstillfairlyhighat7.4%.16Inaddition,Massachusettsstillhad(andhas)amongthehighestpercapitahealthcarecostsintheUnitedStates.In2004,healthcarecostspercapitaintheCommonwealthreached$6683andwereprojectedtogrowfasterthanthatoftheUnitedStatesorotherindustrializedcountries.16So,in2006,RomneycarewaspassedandthestatewentaboutthebusinessofimplementingCh.58andtheseriesofinsurancemarketreformsdescribedabove.Theresultwasthatoverthenextfewyearstherewasadropintheuninsuredratefrom7.4%in2004to2.6%in2008.16(However,sincethen,therateofuninsuredhascreptupandin2015wasbetween3-4%.17).Ch.58alsosawtheestablishmentoftheConnectorAuthorityandthecreationofthefirstinthecountrymarketexchangeforthesaleofhealthinsurancetoindividualsandsmallbusinesses.WhiletheConnectorhasnotdevelopedintoarobustmarketforthesmallbusinesssector,itservesapproximately182,000(non-Medicaid)low-incomepeoplewhoreceivesomekindofpremiumsubsidy,andabout30,000individualswhoarenotsubsidized.18And,whiletheConnectordidsufferserioussetbacksafterthepassageoftheACA,itseemstobebackontracknow.19

LayingtheGroundworkforBeyondObamacareIngovernmentregulation,aselsewhere,thedevilisinthedetailsandonedetailinCh.58provedtobeanextremelyimportantprecursortocurrentevents.Ch.58establishedtheHealthCareQualityandCostCouncil(HCQCC),whichultimatelyleadtotheestablishmentofthecurrentHealthPolicyCommission(HPC).TheHCQCCwaschargedwithcollectingalltypesofdataonthecosts,qualityandpaymentdeliverysystemsofhealthcareinMassachusetts.TheHCQCCwasmadeupofhigh-levelstatehealthcare,insuranceandwatchdogofficialstogetherwithhealthbenefitsspecialistsfromtheprivatesector.Thisagencycollectedandanalyzeddata,issuedreportsandgenerallyexposedthegrowthofhealthcarecoststopublicscrutinythroughpublichearings.ItsfinalreportissuedonOctober21,2009,“RoadmaptoCostContainment,”stronglyrecommendedtheneedtomovethehealthcarepaymentsystemawayfromfeeforserviceandtowardpaymentreform

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strategieswherequalityratherthanvolumewouldberewarded.ThisrecommendationwasaimedsquarelyattheissueofcostcontainmentthathadbeenlefttoanotherdaybyCh.58.Inaddition,in2008,theLegislatureestablishedaSpecialCommissiononHealthCarePaymentReform(Section44ofCh.305oftheActsof2008).Itsfinalreport,issuedinJuly2009,alsostronglycalledforhealthcarepaymentreform.20By2009,forovertwodecades,variousanddiversestakeholdersaroundtheCommonwealthhadworkedtogether.Theyheldhearings,testified,andlobbied;everyonefromgovernmentofficialstocarriers,employers,providers,businesses,consumergroups,labororganizations,andmorebecameinvolved-theCommonwealthwasavirtualhotbedofhealthcarepolicyactivists.Muchofthisactivityfocusedontheproblemsofeverescalatinghealthcarecostsandthepromotionofalternativepaymentmethodologiestoreplacefeeforservicepaymentsasaprimarycostcontainmentstrategy.TheHCQCCandtheSpecialCommissiononPaymentReformfocusedlaser-likeattentiononfeeforservicepaymentmodels,whichwereregardedaslargelyresponsibleforeverescalatinghealthcarecosts.Itisawidelyheldbeliefamongmanyhealthcarestakeholdersthatfeeforservicemedicine–whichgenerallymeanschargingafeeforeveryhealthcareserviceorprocedurerendered-providesthewrongeconomicincentivestohealthcareprovidersandreplacingfeeforservicewithalternativepaymentmethodologies,suchas,globalorbundledpayments,orpayforperformancecontracts,orotherrisk-bearingarrangementsisthekeytoslowingdownthegrowthinhealthcarecosts.Generally,alternativepaymentmethodologiesseektorewardprovidersforgoodqualityoutcomeswiththeproviderassumingsomedownsideriskiftheleveloftreatmentexceedssomeoralloftheoverallpayment.Specifically,theSpecialCommissiononPaymentReformrecommended,amongothers,thefollowingmajoractions:

1. ThedevelopmentofAccountableCareOrganizations(ACOs)2. Costandqualityreporting3. Risk-sharingbetweenACOsandpayers4. Creationofanindependententitytooverseeimplementationandtransition

strategyWiththefourthrecommendation,thegroundworkwaslaidfortheideaofaseparateagencytooverseehealthcarecostsandtoimplementpaymentreformstrategies.ButtherewerestillsomeunforeseeneventsthatwouldtakeplacebeforeallthestarswereinalignmentforthepassageofCh.224andtheestablishmentoftheHealthPolicyCommission.

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TheInsuranceWarsof2010Theyearwas2010,fouryearsafterCh.58,andhealthcarecostsinMassachusettscontinuedtoescalateespeciallyforsmallemployersandindividualsatadouble-digitannualpace.TheMassachusettseconomywassufferingfromalmost10%unemployment,thousandsofresidentialforeclosuresweretakingplace,and,while,generally,neitherwagesorprofitswereincreasingbymuch,ifatall,healthcarepricescontinuedtoriseandprovidersandcarriersoverallenjoyedsoundeconomichealth.Theemployercommunity,inparticular,wasgrowingmoreandmorevocalaboutdouble-digitincreasesininsurancepremiums.VariousemployertradegroupsvisitedtheadministrationofthenGovernorDevalPatrick.Somegroupsbroughttheircomplaintstothestate’sExecutiveOfficeofHousingandEconomicDevelopmentanditsOfficeofConsumerAffairsandBusinessRegulation.ThislatterofficeoversawthestateDivisionofInsurancewhichregulatesallinsurancecompanies,includinghealthinsurers.ThePatrickadministrationheldmeetingswithvariousinsurancecarriersconcerninghealthinsurancepremiums.Carrieraftercarriertoldthesamestory:eachwaslockedintomulti-yearcontractswithprovidersthatcalledforautomaticcostescalationclausesregardlessofwhetherornotcostswereactuallyincreasing.Onecompanytoldthestate’sOfficeofConsumerAffairsandBusinessRegulationthatitwaslockedintoa3year,10%peryearincreasewithoneofthestate’smostpowerfulprovidersystems.WhentheOfficeofConsumerAffairsandBusinessRegulationencouragedcarrierstotryandre-openthosecontractswithproviders,itwastoldthattheycouldnotbere-opened.21,22Eventhoughbothcarriersandprovidersacknowledgedthatcostswereaproblem,therewereavarietyofreasonsprofferedastowhyvoluntaryrestraintbycarriersorproviderswasnotgoingtomaterialize.Carrierswerestuckinmulti-yearcontracts,andcouldnotcutpremiumswithoutendangeringtheirownfinancialhealth.Generally,providerscouldnotreducepricesbecauseofvariouscross-subsidiesintheirsystemsandtheeffectonindustryemployment.Whileindustryofficialscommiseratedaboutthehighcostofhealthcare,theyclaimedtherewasnothingthattheycoulddoaboutit.Indeed,GovernorDevalPatrickoftenexpressedexasperationthatcarrierswouldpointfingersatprovidersandproviderswouldpointfingersatcarriersandthestructureofthesystem.23Heexpressedthisinmeetingsaswellasinpublicspeeches.Nooneseemedwillingtohelpcomeupwithasolution.ThesefruitlessattemptstogarnersupportforindustrysolutionsforcostcontrolledthePatrickAdministrationtosearchforwaystounilaterallytakeaction.Massachusettshasapeculiarcalendarforrenewinghealthinsurancecontractsandthefilingofhealthinsuranceratesintheso-called“mergedmarket.”ThemergedmarketinMassachusettsismadeupofindividuals(non-Medicaid)andsmall

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businessemployees,amountingtoabout700,000coveredlives.Thesearetheindividualsandemployeesofemployerswhohavetobuyinsurancefromaninsurancecompanyasopposedtolargercompaniesthatself-fundtheirownhealthinsuranceandhirethirdpartyadministrators,usuallyinsurancecompanies,toadministertheirplans.Inthemergedmarket,carriersandcustomersenterintoyearlycontractsbutnewratesandcontractsareavailableatthestartofeachcalendarquarterforthefollowing12months.(Forindividualsinthemergedmarkets,annualenrollmentisnowjustonceayearinJanuary,whilesmallgroupsinthismarketcontinueannualrenewalsonaquarterlybasis.)AcontractcanbeginonJanuary1forthenext12months;April1untilMarch31ofthefollowingyear;July1forthenext12months;andOctober1toSeptember30ofthefollowingyear.TheApril1toMarch31-contractyearisthelargestrenewalperiod.Beforeacarriercancollectitsnewannualpremiums,itmustfirstfilethoserateswiththestateDivisionofInsurance.Underthelaw,theInsuranceCommissionerhasthirtydaystodisapprovethenewproposedrates.Ifhetakesnoaction,theratescangointoeffect.24Generally,mergedmarkethealthinsurancepremiumsarehigherthanlargegrouppricesforavarietyofreasons.Smallbusinessgroupsclaimtheylackmarketcloutinnegotiatingrateswithindividualcarriers,buttherearesomehighercostsinthesmallgroupmarketdistributionsystem,suchasbrokers’commissions.Additionally,thereissomeevidenceshowingthathealthrisksinthemergedmarketarehigherthanlargegrouprisks.25Regardlessofthereasons,smallbusinessesinthemergedmarketvoicedstrongconcernforanumberofyearsleadingupto2010thattheywereunfairlypayinghigherpremiumprices,especiallyatatimewhentheeconomicrecessionwascausingseriousfinancialharmtothatsector.InJanuary2010,approximately10differentcarriersfiled285proposedratesforcontractrenewalsonApril1inthemergedmarket.Ofthe285ratesthatwerefiled,235wereforincreasesof10percentormoreovertheprevious12months’rates.26AlthoughthefilingsaretechnicallyconfidentialuntilreviewedandplacedonfilepertheCommissioner’sauthority,newshadleakedoutthatanotherroundofdouble-digitincreaseswasintheoffing.ThiscreatedadditionalpressureonthePatrickAdministrationtotakeactiontoalleviateincreasesinhealthcarecosts.Therearedifferentlegalopinionsastowhethertheinsurancelaws,Ch.176J,givetheCommissionerthepowertodisapproverates.Thelanguageofthestatutestatesthat“theCommissionershalldisapprove”theratesifhefindstheyare“excessive,inadequateorunreasonableinrelationtothebenefitsconferred….“And,thereislanguagestatingthattheCommissionercandisapproveiftheratesarenot“actuariallysound.”Someinsurancelawexpertsbelievethatthelanguageitselfismoreconsistentwithtraditional“fileanduse”insurancestatutes.Thismeansthatafterwaitingarequisiteperiodoftime,insurancecompanyratesautomaticallygointoeffect.OthersholdtheviewthatthelanguageisveryclearandtheCommissionerhasthelegalauthoritytodisapproveaproposedrateononeofthe

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enumeratedgrounds.ThisviewholdsthatalthoughtheCommissionerisnotempoweredtoestablishhealthinsurancepremiums,hehasthepowertodisapproveaproposedratechange,althoughthathadneverbeendoneinthehistoryofthe-20year-oldstatute.Ultimately,theAdministrationdecidedthatunderthestatute,iftheCommissionerfoundratestobeunreasonable,hedidhavethepowertodisapprove.OnApril1,2010,theCommissionerdisapproved235proposedrates,includingeveryratethatinvolvedahikeof10%ormore.Thedisapprovedratesranthegamutfrom10%toincreasesbyonecarrierof34%.27Theresultofhisdisapprovalwasfairlyexplosivewithinthecarrierandprovidercommunities.Asapracticalmatter,whentheCommissionerdisapprovesarate,thecarriercannotchargethenewratebutmustcontinuechargingtheexistingratesthathavebeenineffectforthepreceding12months.Still,thenewcontractsbetweenacarrierandprovidercontainingincreasesinpricesforthecoming12monthsremainedlegallybinding.BecausetheCommissionerdisapprovedtheproposedratehikesacarriercouldnotpassontoconsumersandsmallemployerstherateincreasesithadtopaytheproviders.Thosefewcarrierswithratehikesbelow10%couldgoforwardandmarkettheirplansforthecoming12monthstothedisadvantageofcompetitors.ThoseratesscheduledtogointoeffectonApril1werenowthrownintouncertainterritory.CarrierscouldnotmarketpoliciesthatweretobeginonApril1becausetheydidnotknowthepricetheywouldbeabletochargeforsuchpolicies.Underthelaw,whentheCommissionerdisapprovedarate,carriershave10daystoappealtheCommissioner’sdecisiontotheindependenthearingofficerswithintheDivisionofInsurance.28Everycarrierappealeditsdenialandahearingscheduleforeachcarrierwassetupthatwouldtakeplaceovermanyweeks.TheAttorneyGeneral’sofficebecameinvolvedasanintervenerineachhearing.Everyhearingislikeaminitrial.Thecarrier,theAttorneyGeneralrepresentingconsumers,andcounselrepresentingtheCommissionerdefendinghisdecisionareallinvolved.Thehearingsareopentothepublicandthemedia.Inaddition,priortothestartoftheseadministrativehearings,thecarriersasagroupbroughtthePatrickAdministrationtothestateSuperiorCourttofighttheCommissioner’sdirectivethatcarrierscouldnotchargetheirnewproposedratesbutinsteadhadtochargetheoldratespendingappeal.ThecarrierslostthatlegalbattleandthesuperiorcourtupheldtheCommissioner’sposition,thenewratescouldnotbechargedduringtheappealsprocess.Theresultwasthatprecioustimewaspassing,itwasnowwellbeyondApril1,andtheaggrievedcarrierswerestuckwithchargingtheprioryear’srates.Theproceedingswereplayedoutinpublicviewwithlotsofmediacoveragethatwasunfavorabletotheinsuranceindustry.Thentheunpredictableoccurred.TheDOI’sindependenthearingofficersfoundthatwhiletheCommissionerhadthepowertodisapproverates,hedidnotprove

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“unreasonableness.”Asaresult,theCommissioner’sactionsdisapprovingrateswerenotupheld.Thehearingofficersfoundthattherateswere“actuariallysound”andtherefore,theCommissioner’sdisapprovalwasoverturnedinthefirstdecisionthatcamedown.Notwithstandingthislegalwin,theclockwasstilltickingfortheremainingcarrierswhoclaimedthattheywerelosingmoneyeverydaytheadministrativehearingprocessdraggedon.Anddespitethewin,allcarriers,includingthecarrierthatwon,werewillingtonegotiatewiththePatrickAdministrationforasetofratesthatcouldbeagreedupon.Also,thepublicspotlightthathadbeenturnedontheselargeraterequests,createdanatmosphereinwhichcarriersmayhavebelievedittobeintheirbestintereststosettlewiththeAdministration,notchargetheirmembersretroactively,andmoveon.Ultimately,overaperiodoftwotothreemonths,allbutoneofthecarriersreachedasettlementwiththestateandagreedonrateincreasesthatweregenerallyunder10%.And,nosettlementcontainedanyretroactiverateprovisions.Eventheonecarrier,withwhichthestatedidnotsettle,didnotchargeitsmembersretroactively.Itisalsonoteworthythatcarrierswereabletopersuadesomeproviderstore-opentheircontractsandrenegotiateforlowerpricesintheircontracts.Indeed,itcametolightthatthecontractsthemselveshadprovisionsthatpermittedre-openingnegotiationsiftherewasasignificantchangeintheregulatoryenvironment.ThisverypublicbattleoverinsuranceratessetaprecedentforfuturedealingsbetweenthePatrickAdministrationandinsurancecarriers.Therewasatacitunderstandinggoingforwardthattheeraofdouble-digitrateincreaseswasoverandtherewasalsoarealizationthattheDivisionofInsurancewouldcontinuetotakealongandseriouslookintoproposedratesthatseemedtobebasedonprojectionsforcostorutilizationcomponentsthatwerenotfirmlysupportedbypastexperience.EventhoughtherewasdiminishedappetiteonthepartoftheAdministrationforanotherroundofratedisapprovalsandpublicwarfare,stateregulatorsstillhadtheauthoritytorequestadditionaldataandinformationfromcarriersforanyproposedratehike.Suchrequestswereoftentime-consumingforcarrierstofulfill,andratescouldnotbemarketeduntiltheCommissionersignaledhewouldnotdisapprove.Thistimeconsumingprocesscouldresultincompetitorsgettingtomarketwithapprovedrateswhilethecarrierfromwhichadditionaldatawasrequestedwasstillbeingreviewed.This“quieter”ratereviewprocessresultedinasteadydeclineinthelevelofrateincreasesforthemergedmarketandby2012,rateincreasesweregenerallyinthe5to6percentrange.For2013,2014and2015,annualaveragerateincreasesrangedfrom1.8%toabout4.8%.29,30(Thistrendsomewhatmirrorednationaltrendsinthathealthcarespendingwaslowernationallyduringthesameperiod.)(Subsequently,in2015,afterthePatrickAdministrationleftoffice,theDivisionofInsurancereportedrateincreasesforpremiumsinthemergedmarketofbetween5.4and8.3%fromtheendof2015

15

throughthefirstquarterof2017.Thisisafter12quartersofgrowthbelow4percent.31).Followingthisperiodofintenseactivityaroundinsurancepremiumsinthemergedmarket,theMassachusettslegislaturepassedCh.288oftheActsof2010knownastheSmallBusinessReliefAct.Thislawwaspassedtogivesomeimmediateandlong-termrelieftothesmallbusinesscommunityinthehealthinsurancemarket.Ch.288establishedstandardsformedicallossratios(MLRs),administrativeexpensesandsurplusearningsforinsurancecompanies.ThestandardsforMLRssettheamountofeachdollarthataninsurerhadtospendonhealthclaims.Forexample,aMLRof90%meantthatinsurershadtospend90centsofeverydollaronpayinghealthclaims.Iftheyspentless,attheendoftheyear,theircustomerswereentitledtorebates.TheMLRsestablishedinCh.288aretougherthanthoseestablishedintheACA(80%fortheindividualandsmallgroupmarkets,and85%forthelargegroupmarketcomprisedoffirmswithmorethan50employees)andarecurrentlyat88%.32In2014,2015,and2016,rebatesoftensofmillionsofdollarswerereturnedtosmallbusinesscustomersforMLRsthatwerenotmetbyinsurers.

BEYONDOBAMACARE:CH224

TheinsuranceimbrogliosandCh.288tookplacewithinayearorsoaftertheHCQCCandSpecialCommissionrecommendationscallingforbothpaymentreformandtheestablishmentofanindependentauthoritytocontrolthegrowthofMassachusettshealthcarecosts.TherewereseriousandintensedeliberationstakingplacewithinthePatrickAdministrationandtheLegislaturewithallthevariousstakeholdergroupsoveranewbillthatwouldembodytherecommendationsoftheHCQCC.In2011and2012,thecountrywasfocusedontheimplementationoftheACA.ItsopponentswerewagingbattlesandseveralcourtsuitswerefiledtorepealpartsoralloftheACA.WhileMassachusettssetabouttoimplementtheACA,thePatrickAdministrationandtheMassachusettsHouseandtheSenatewerealsoconsideringpaymentreformbills.InMassachusetts,whileaccesstohealthcarecontinuedtogainground,theseneweffortswereaimedatlegislativelyenshriningcostcontrolmeasures.Thereweresimilaritiesamongthebills.Forexample,theyallencouragedtheformationofAccountableCareOrganizations(ACOs)intheprivatesectorandtheGroupInsuranceCommission,andrequiredtheirestablishmentforMassHealth(Medicaid)members.Generally,ACOsarenetworksofdoctors,hospitals,andotherhealthcareprovidersthatshareresponsibilityforcoordinatingcareandmeetinghealthcarequalityandcostmetricsforadefinedpatientpopulation.Thebillsalsopromotedalternativepaymentmethodologies(APMs)intheprivatesectorandrequiredtheminthepublicsector.APMscanbedefinedbroadlyaspaymentstoprovidersbasedonimprovedoutcomes,withproviderssharinginsomedownside

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financialrisk,ratherthanpaymentbasedsolelyonvolume.However,therewerealsosomeearlydifferencesamongthebills.Themostnotabledifferencesinvolvedissuesofoversight,implementationandenforcementandsomewaytomeasuresavingsinhealthcarecosts.Acontentiousissueinthedebatewaswhattodoabouthospitalsthatusemarketclouttoextracthigherpricesintheircontractnegotiationswithcarriers.TherewasaproposedsurchargeonhospitalsthatcouldnotjustifytheirhigherpricesthatdidnotultimatelymakeitintothefinalversionofCh.224.Therewasalsoafailedplantorequireseparatecontractingforsubsidiaryhospitalsofsystemswithmarketpower.Thisissue,separatecontracting,wasalsocontentiousamongcertainhospitalsandcarriers.Payersclaimedtheywereforcedtopayso-called“downtownrates”tothecommunityhospitalsthatwerepartoflargesystems,becauselargesystemsnegotiatedassingleentitiesforalltheirhospitals.Payersarguedthattheyshouldbeabletonegotiateseparatecontractrateswithsuchcommunityhospitalsandtherebypayratesmoreinlinewithlowercostcommunityhospitals.Infact,thereismixedevidencefromantitrustcasesthatseparateor“component”contractingactuallyleadstolowerratesinthelongrun.33WhilethePatrickAdministrationdidnotinitiallyfavorthecreationofaseparateagencytooverseecostcontrolimplementation,itdidsupporttheneedforacoordinatingbodymadeupofgovernmentandstakeholderorganizations.Someinthelegislature,however,favoredthecreationofaseparateandindependentagencytocarryoutimplementationandenforcement.CertainlegislativeleaderswantedtoensurethatcostcontroleffortswouldsurvivethePatrickAdministrationanditspro-cost-controlorientation.Manyinthelegislaturebelievedthatonlyanindependentagency,notdependentonbudgetaryappropriations,andnotsubjecttothecontroloftheexecutivebranchwouldbeaneffectivevehicleforlongtermprogress.34Inaddition,therewastheissueofhowtomeasureprogressinrestraininghealthcarecosts.Inthisregardthelegislatureandconsumeradvocatesfeltstronglythatnumericalgoalsshouldbepartoftheefforttocontrolcosts.TherehadbeenmuchevidencecollectedthatthegrowthofMassachusetts’healthcarecostssignificantlyoutpacedthegrowthofthestate’seconomy.Goingforward,therewasoneestimatethatshowedthatunrestrained,healthcarecostswouldgrowfromabout$72billionin2012toover$140billionby2022.Ifsuchcostswereconstrainedtotherateofgrowthinthestate’seconomy,theincreasewasprojectedtogrowfrom$72billionin2012toalmost$99billionby2022.Overtime,between2012and2022,thisestimatepeggedthesavingsatalmost$200billion.35It’sunclearwhofirstcameupwiththeideatotiethegrowthofhealthcarecoststogrowthinthestate’seconomybuttherelationshipbetweenthetwohadbeendiscussedformanyyearsandwasbroadlyknown.ItappearsthatthebenchmarkfeatureitselfwasfirstpresentedinaHousebill.36AccordingtoProfessorDavidCutlerofHarvard,whoiscurrentlyamemberoftheHPC,thereweretwogoodreasonsforultimatelyincludingatargetgrowth

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benchmarkintheformationofCh.224.First,thereis“virtue”inhavinganumbertoestablishclarityintermsofachievingaspecificgoal.Second,havingabenchmarkfigurewasawayofstabilizinghealthcarecostsforthepublicsector.37Inaddition,therewasaneedatthetimetoassurethepublicthatthisreformwouldsavemoneyfortheCommonwealthintermsofreducingthegrowthofhealthcarecosts.Therefore,thebenchmarkwasawayofmeasuringthesavingsoftheproposedlegislation.TherewereinternaldiscussionsabouttheinclusionofthebenchmarkinthePatrickAdministration.Somebelievedthatabenchmarkwouldbecomeaguaranteedrateofreturnforanindustrythatwasnotapublicutilitywhererateofreturnwasneededtopreservethemeansofproduction.Thiswouldbethefirsttimethatastategovernmentwasstipulatingthegrowthrateofanyprivatesector.Also,bytyingsuchgrowthtotheeconomy,thebenchmarkwasassuringupwardgrowthregardlessofwhetherornotitwaswarranted.Attheendoftheday,however,theAdministrationandtheLegislatureagreedtothebenchmarkconceptasapracticalsolutiontocontrollinghealthcarecosts.Keepingcostsinlinewitheconomicgrowthwouldbeasignificantimprovementoverthethencurrentsituation.Theonlyotheralternativewouldhavebeenareturntorateregulation,whichwasnotaseriousoptioninthePatrickAdministrationortheLegislature.Interestingly,thebenchmarkconceptthoughnotembracedwithgreatfervorbycarriersandproviderswasnotfoughtasvociferouslyasmighthavebeenexpected.Althoughthesestakeholdersopposedtheconcept,oncetheconceptbecameavirtualcertainty,theissuewasoverwhatitshouldberatherthaneffortstoremoveitfromthelegislation.Onereasonpowerfulprovidersmayhavebeenwillingtogoalongwiththebenchmarkisbecausetheconcept“bakedin”existingwidevariationsinhealthcarepricing.Thebenchmarkdidnotcallforarollbackinprices;ratheritwasconcernedwithfutureincreases.InMassachusetts,thereexistwidevariationsinhealthcareprices,whichmanyattributetotheexerciseofmarketpowerbysomeofthelargesthealthcaresystems.Theestablishmentofgrowthtargetsorceilingsgoingforwarddidnotdisturbthepricingdisparitiesthatexistbetweenmorepowerfulandlesspowerfulproviders.Payerswouldstillbepayingproviderswithso-calledmarketcloutmuchmoremoneyrelativetotheircompetitors.Andsoitcametopassthat6yearsafterthepassageofRomneycareand2yearsafterthepassageoftheACA,GovernorPatricksignedCh.224intolaw.OnAugust4,2012,therewasatriumphantsigningceremonyintheGreatHalloftheMassachusettsStateHousejammedpackwithstakeholdersandmedia.

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KeyFeaturesofCh.224Therearemanyimportant,progressiveprovisionsinthe350pagesofCh.224.Althoughthisarticlefocusesonjustafewofthoseprovisions,itishelpfultoplacesuchfeatures–thebenchmarkanditsenforcementbytheHPC--inthecontextofsomeothermajorcomponentsofthelegislation.InordertoappreciatetheoverallframeworkofCh.224oneneedstounderstandthebeliefsystemwithinwhichitwasdeveloped.TheoverridingprinciplebehindCh.224wasthebeliefthatwidescaleadoptionofpaymentreformiskeytoreducingthegrowthofhealthcarecosts.36Tosomeinthestatelegislature,paymentreformwasapanaceatotheintractableproblemofhighhealthcarecosts36TherewasgoodevidenceproducedthroughtheHCQCChearingsandSpecialCommissionthatnotonlywastheresignificantgrowthinfeeforservicehealthcarecosts,butalsotherewassignificantwaste,estimatedat25%to50%ofhealthcarespending.20Inaddition,in2010,undertherequirementsofCh.30538theAttorneyGeneralstartedissuingannualreportsoncosttrends.Herreportsdocumentedthattherewasnocorrelationbetweenhighpricesandqualityinthehealthcaremarketplace.Therelationshipcouldnotbeexplainedbyvariables,suchas,underlyingcosts,teachingstatusorpatientacuity.39Thesefindingsgavemoresupportforthenotionthatpricesratherthanutilizationdroveincreasesinspendingandfeeforservicepaymentsystemswereproducinghighhealthcare

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priceswithoutconcomitantquality.Thisbolsteredtheviewthatpaymentreformwasanimperative.ThedevelopmentofCh.224wasalsotakingplaceagainstthebackdropoftheimplementationoftheACA.Although,asapracticalmatter,theACAdidlittleinitsinitialyearsinthepaymentreformarena,therewasagreatdealofconversationaroundtheconceptandtheprospectiveformationofAccountableCareOrganizationsorACOs.Asamatterofstructure,anACO,madeupofagroupofproviders,physiciansandhospitals,whoarecoordinatingcareforagroupofpatients,underafinancialarrangementthatincludespartialrisk-sharing,istheposterchildforpaymentreform.SotheconversationsaroundCh.224weretakingplacewithinanationalconversationaboutthepromiseofACOstocontrolcostsandtheoreticallytoprovidebetterqualitycare.TheissuefortheframersofCh.224washowtopromotepaymentreformthroughalegislativevehicle.Decisionsweremaderelativelyearlyonthatamandatoryorcompulsoryapproachthatrequiredtheadoptionofalternativepaymentmethodologieswasnotthemostdesirableroutetotravel.Thiswasprobablybecauseforcingpaymentreformonprovidersandcarrierswouldlikelymeetwithstiffresistancefromtheindustryaswellasriskingconsumerandperhapslaborbacklash.Upuntilthistime,healthcarereformlegislationinMassachusettshadbeendevelopedwithinputfromabroadarrayofsavvystakeholders.Andeventhoughproviders,carriers,businesses,advocatesorotherswereoftentimesnotsatisfiedwithalegislativeoutcome,theynevergaveuptheirseatatthenegotiatingtableandtheirinterestswerenotsteamrolledorignored.DiscussionswithinthePatrickAdministrationlookedcarefullyatwhetherpaymentreformshouldbeamandatoryfeatureofCh.224.Thefinaldecisionfromtheexecutivebranchwastofollowanon-prescriptiveapproach.Oneofthereasonswasthegreatuncertaintysuchmeasureswouldinjectintothehealthcaremarketplace.Noonecouldpredicthowglobalorbundledpaymentswouldaffectaccesstohealthcarebyconsumers.Anumberofofficialsrememberedthefailedexperiencewithcapitatedpaymentsinthelate1980’sandearly1990’sandwerenotsurehowthisnewerawoulddifferfromthatperiod.Theearlierperiodwascharacterizednationallybyconsumerbacklashandlitigationoverwhatwasregardedasdenialsofcarebyinsuranceexecutives,althoughMassachusettswassparedtheworstofsuchpracticesanditssubsequentdiscord.Soifamandatorydirectivetowardpaymentreformwasnotintheoffing,whatwasthebestalternative?TheframersofCh.224sawthestatute’smissiontocontrolcostsasalong-termundertaking.Successwouldtakeplaceoveraperiodofyears.Therewasnoonesilverbullettospeedadoptionofpaymentreformandslowdownthegrowthofhealthcarecosts.Onehigh-levellegislativeaidetalkedaboutCh.224astryingtocreateaperfect“goodstorm,”thatwould“push”ratherthan“shove”theindustrytowardslowingcostgrowth.36

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OnemajorindustrystakeholdersuccinctlydescribesCh.224asfollows: Chapter224hastheambitiousgoalofbringinghealthcarespendinggrowth inlinewithgrowthinthestate’soveralleconomy.Itaimstodosothrougha numberofmechanisms,includingthecreatingofcommissionsandfunds,the adoptionofalternativepaymentmethodologies,increasedtransparencyfor consumers,afocusonwellnessandprevention,anexpansionoftheprimary careworkforce,healthinformationtechnologyimprovements,andhealth resourceplanning,amongotherinitiatives.40TherearemanycomponentsinCh.224thatareintendedtointersectwithoneanotherto“push”theindustryalongovertimetoachieveatransformationinthewayhealthcareisdeliveredandpaidfortowardoutcomesoflowercostsandbetterquality.Theprimaryprovisionsaredescribedbelow.

(1) Newoversightagenciessetstatewidespendinggoalsandmonitorproviderorganizations.

TheHealthPolicyCommissionCh.224createdtheHealthPolicyCommission(HPC)asanindependentagencyresidinginbutnotunderthecontrolofthestate’sExecutiveOfficeofAdministrationandFinance(A&F).TheHPCisgovernedbyadiverse11-memberboardappointedbyvariousstateofficialsasspecifiedinthelaw.HPCBoardmembersarenotcompensatedandmaynothaveanyfinancialstakeinoraffiliationwithahealthcareentity.41Thisisintendedtocreateaboardfreeofrealorpotentialconflictsofinterests.Italsomeansthatnoonecurrentlyworkingforaninsurancecompanyorhospitaloranyothertypeofprovidersitsontheboard.ThecurrentboardchairistheesteemedProfessorStuartAltman,theSolC.ChaikinProfessorofnationalHealthPolicyatBrandeisUniversity,whohasservedashealthpolicyadvisortofivePresidents,authoredcountlessarticlesandservedonnumerousstateandfederalhealthpolicytaskforcesandcommissions.InDecember2012,theBoardnamedDavidSeltzasitsfirstExecutiveDirector.Mr.SeltzwasinstrumentalindraftingCh.224whenheservedaspolicyadvisortothethenMassachusettsSenatePresidentThereseMurray.

TheHPCwasfundedthrough2016byaone-timeassessmentonhospitalsandinsurersthatraised$11.25millionfortheHPCoverfouryears.BeginningJulyof2016,theHPCisfundedthroughfurtherassessmentsonthehealthcareindustry.42Itsmostimportantresponsibilitiesincludeestablishingtheannualcostgrowthbenchmark,monitoringprogresstowardsandenforcingthebenchmark.

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TheCenterforHealthInformationandAnalysisCh.224alsocreatedasisteragencytotheHPC,theCenterforHealthInformationandAnalysis(CHIA).CHIAisanindependentstateagencyledbyanExecutiveDirectorwhoisappointedbytheAttorneyGeneral,theAuditor,andtheGovernorforatermoffiveyears.In2012,AronBoroswasappointedthefirstExecutiveDirectorofCHIA,whichisfundedbyanassessmentonhospitals,ambulatorysurgicalcenters(ASCs)andcertainpurchasersofASCservicessuchascommercialhealthplans.In2016,RayCampbell,theactingExecutiveDirectoroftheMassachusettsGroupInsuranceCommission,wasappointedbyMassachusettsGovernorCharlieBakertoheadupCHIA.CHIA’sresponsibilitiesincludemeasuringtheannualchangeinthestate’stotalhealthcareexpenditures(THCE),whichisthebasisformeasuringthestate’sperformanceagainsttheHPC’sannualcostgrowthbenchmark.Veryimportantly,CHIAisalsoresponsibleforidentifyingpayersorproviderswhoseperformancefallsoutsidethebenchmarkparametersandprovidingthatinformationconfidentiallytotheHPCforfurtheraction.43UnderCh.224,CHIAcalculatesTHCEsastheannualtotalofallhealthcareexpendituresfrompublicandprivatesources,includingallmedicalexpenditures,publicandprivate,paidtoproviders,allpatientcost-sharingamounts,suchasdeductiblesandco-payments,andthenetcostofprivatehealthinsurance.44IfCHIAidentifiesahealthcareentitywhosespendingisexcessiveandwhichthreatenstheabilityoftheCommonwealthtomeetthebenchmark,theHPCcanrequiretheentitytosubmitaPerformanceImprovementPlan.

(2) TheHealthPolicyCommissioncalculatesandenforcesaspendingbenchmark

Thebenchmarkisestablishedbyaformulatiedtothegrowthinthestate’slong-termpotentialgrossstateproduct(PGSP),anestimatethatispreparedbythestate’sExecutiveOfficeofAdministrationandFinance.UnderCh.224,thebenchmarkforcalendaryears(CY)2013-2017wasequaltothePGSPwhichis3.6%.ForCY2018to2022,thebenchmarkisequaltoPGSPminus0.5%,andiscurrently3.1%.ForCY2023andbeyond,thebenchmarkissettoPGSPbutunderthelegislation,canbemodifiedbytheHPCtoanyfigure.45[Bywayofcomparison,overallUnitedStateshealthcarespendingisprojectedbytheCentersforMedicareandMedicaidServices(CMS)togrowatarateof5.8%peryearfrom2015to2025.31]Asstatedabove,underCh.224,theHPCcanrequireanentitytosubmitaPerformanceImprovementPlan(PIP).PIPsmustidentifythefactorsthatledto

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costgrowthandincludespecificcostsavingsmeasuresfortheentitytoundertakewithin18months.

TheHPCisempoweredtoapproveaPIPthathasareasonableexpectationofsuccessfulimplementation.However,iftheHPCdeterminesthataPIPisnotacceptable,theentitymayberequestedtoresubmitanotherPIPforapproval.IftheHPCdeterminesthatahealthcareentityhaswillfullyneglectedtofilearequiredplan,orfailedtofileaPIPingoodfaith,orfailedtoimplementaPIPingoodfaith,orknowinglyfailedtoprovideorfalsifyinformationrequiredbytheHPC,theHPCmayassessacivilpenaltyonthehealthcareentityofnotmorethan$500,000.TheHPCwebsiteissupposedtoincludethenamesofentitiesrequiredtofileaPIP.Recently,theHPChasissuedregulationsgoverningthePIPprocess.AlltheinformationprovidedtotheHPCunderaPIPprocessisconfidentialandcannotbedisclosedwithoutconsentexceptinsummaryformorwhentheHPCbelievessuchdisclosureisinthepublicinterest.TheHPCregulationsstatethatsuchinformationisnotapublicrecord.46Todate,noentityhasbeenpubliclynamedtofileaPIP.

(3) TheHealthPolicyCommissionregistersandmonitorsproviderorganizations

Ch.224alsorequiresthecentralregistrationofproviderorganizations,especiallyRiskBearingProviderOrganizations(RBPOs)whichareorganizationsthatengageinriskbearingcontractswithcarriers.Unlessexemptduetosmallsize,providerorganizationsarerequiredtogivedetailedinformationabouttheirorganizationalstructure,financesandoperationstotheHPCandtoregisterwiththeHPCfortwoyearterms.ThisinformationanddatawillbeusedbytheHPCwhendeterminingtheneedforanentitytofileaperformanceplan.

Inaddition,RBPOsmustprovidetheHPCwithanannualriskcertificatefromthestateDivisionofInsurance(DOI).InordertoobtainariskcertificatefromtheDOI,RBPOsmustdemonstratethattheyarenotassumingfinancialriskthatcouldthreatentheirfinancialsolvencywhenenteringintodownsideriskcontractswithinsurancecompanies.47The“muscle”inthisprovisionisthatinsurancecarriersareprohibitedfromenteringintodownsideriskcontractswithRBPOsunlesstheRBPOhasobtainedariskcertificateorariskcertificatewaiver.48Thepurpose,ofcourse,istoinsurethatprovidersdonottakeonsignificantperformanceriskthattheymaynotbeabletofulfill.49

UnderCh.224,providerorganizationsofalltypesarerequiredtoinformtheHPC,CHIAandtheAGbeforemakingmaterialchanges(MaterialChangeNoticesorMCN)totheirgovernancestructureoroperations.Suchchangesincludemergers,acquisitions,andcorporateaffiliations.47Providersmustgive60daysnoticetotheseregulatoryauthoritiesbeforemakinganysuchchanges.

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Iftheproposedchangesarelikelytosignificantlyimpactthecompetitivemarketorthestate’sabilitytomeetthecostgrowthbenchmark,theHPCcanconductaCostandMarketImpactReview(CMIR).Inaddition,shouldactualhealthcarecostgrowthexceedthebenchmarkinagivenyear,theHPCcanalsoconductaCMIRonanyorganizationidentifiedbyCHIAashavingexcessivespending.

IftheHPCembarksonaCMIRofanyproposedtransaction,itmustissueapreliminaryreportandidentifyanyproviderentitythathasadominantmarketsharefortheservicesitprovides;chargespricesforservicesthataremateriallyhigherthanthemedianpriceschargedbyotherproviders;andhasahealth-status-adjustedTotalMedicalExpenditures(TME)thatismateriallyhigherthanthemedianforotherproviders.47Asofmid-2017,theHPChadreceivedapproximately82NoticesofMaterialChangeandithasconductedCMIRsonfiveofthosenotices.50Theapplicationsoftheentitiesfilingsuchnotices,thetypeoftransactionandtheHPC’sCMIRreportsareallpublicinformation.

Inaddition,theHPCmustrefertotheAttorneyGeneralanyentitythatmeetsthelastthreecriteria.Similarly,underCh.224,theAttorneyGeneralcaninvestigatesuspectedunfaircompetitiveconductoranti-competitivebehaviorandissueareportaboutsuchconductsuchtotheHPC.Ofcourse,noneofthisaffectstheAttorneyGeneral’spowersunderexitingstateorfederalantitrustorconsumerprotectionlawstobringactionsdirectlyonbehalfoftheCommonwealthwithoutanyinvolvementorreferralbeingmadebyortotheHPC.

(4) StatewidehealthcareentitiesmusttransitionintoAlternativePaymentContracts

Ch.224requirestheHealthConnector,theGroupInsuranceCommission(GIC),andthestateOfficeofMedicaidtoimplementAPMstothemaximumextentpossible.SpecificenrollmentgoalsweresetfortheOfficeofMedicaid.By2015,80%ofMedicaidmembersweretobeenrolledinAPMs.51ConsistentwithCh.224,theGICwhichmanageshealthandotherbenefitsformorethan430,000publicemployees,retirees,andtheirfamilies,hasbeenmovingforwardwithaprojecttorequireitsplanstomeetspecificnumericaltargetsforthepercentageofmemberscoveredbyrisk-basedcontracts.ByFY2016,roughly50%ofitsmemberswerecoveredbysuchcontracts.52

(5) RequirescarriersandproviderstomakepriceinformationtransparentforConsumers

AnotherimportantfeatureofCh.224concernspricetransparency.Ch.224requirescarriersandproviderstomakepricesavailabletoconsumers.TheissuehereisthatevenwiththegrowthofHighDeductibleHealthPlansandsignificantincreasesinout-of-pocketspending,consumersarestillinthedark

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whenitcomestothepriceofhealthcare.Asageneralpropositionthereisalsovirtueinmakinghealthcarepricestransparentbasedonthebeliefthatmarketsfunctionbetterwhenpricesareknownandnotsecretorhardtoobtain.Ch.224requiresthatcarriersmakeonlinecostestimatortoolsavailabletotheirmemberssothatmemberscanshopforcommonproceduresandseetheamountofmoneysuchprocedureswillcosttheconsumerandhowmuchoftheirdeductibleswillremain.Providers,includinghospitals,physicians,anddentistsarealsorequired,uponrequest,toprovideinformationabouttheirchargesorifapatientisinsuredontheamountofmoneythepatient’sinsurerispayingfortheprocedure

(6) TheHealthPolicyCommissionholdsannualpublichearingstomonitorcostdriversandgrowth

TherearenumerouspublicreportingrequirementsprescribedbyCh.224.PerhapsthemostimportantaretheAnnualCostTrendsHearingsandReport.UnderCh.224,theHPCisrequiredtoholdpublichearingsbasedonCHIA’sannualreportontheMassachusettshealthcaremarket.ThehearingswhichareheldinOctoberexaminehealthcareproviderandprivateandpublichealthcarepayercosts,prices,andtrendswithparticularattentiontofactorsthatcontributetocostgrowth.Pursuanttothelaw,eachyearacomprehensivesetofwitnessestestifyandpresentinformationunderoath.HPCmustthenpublishanannualreportbyDecember31thatisbasedonthehearingsandtestimonyandwhichdescribesspendingtrends,underlyingfactorsandrecommendationsforstrategiestoincreasehealthsystemefficiency.30

HowisitGoingSoFar?

WhileCh.224isstillinitsearlyyearsofimplementation,thereissomeevidencethatitisproducingresultsthataregoinginthedirectionintendedbyitsframers.Thestatuteimposesspecificannualceilingsonhealthcarecostgrowthandreliesprimarilyonmarketplayerstoadoptpaymentreformstrategiestostaywithinthespecificcostgrowthgoal.Thelawdoesnotrequirethateachproviderorpayerreachaspecificgoalintermsofcostcontrol,rather,itsetsageneralgoalfortheindustryandthenseekstomeasuretheperformanceofindividualplayerswhomaybeimpedingtheattainmentoftheindustrygoal.Indoingso,thereareanumberofwaysthatCh.224reliesonabullypulpitor“nameandshame”paradigmtoaccomplishresults.InthereportsofCHIAandtheHPCthereissomeamountofentityspecificdataavailabletothepublicandtoindustrywatchdogsandthereisthepotentialunderthelawformoresuch

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transparency,suchasthepublicpostingofentitieswhoareunderaPIPortheentitiesthathavefiledMaterialChangeNotices.AsofOctober2015,CHIAhadsuppliedtheHPCwithaconfidentiallistofentitiesthatexperiencedexcessivecostgrowth,including20providersandfiveinsurersfor2012and2013.Whilethelistisconfidentialbylaw,accordingtoSeltz,thenameofanyentityselectedforaPIPwouldbemadepublic.53AsnoPIPswererequiredin2016,2017willbethefirstyearthatindustryoutlierscouldberequiredtodevelopPIPsandthatlistshouldbemadepublicundertheHPCrecentlyadoptedregulations.Second,in2015,theproposedmergersofPartnersHealthcareSystems(Partners)andSouthShoreHospitalSystemandPartnersandHallmarkHealthSystem(onMassachusettsnorthshore)presentedanunexpectedopportunityfortheHPCtoperformahighlyvisibleandinfluentialCMIR.Asofmid-2017,theHPChadreceivedover80MaterialChangeNotices,seesupra,pages23,butthePartnersproposalswerebyfarthemostimportantfromamarketconductstandpoint.ThehighqualityworkproducedbytheHPConthelikelyeffectsonhealthcarecostsoftheproposedmergersprovidedthecourtwithanobjectiveanalysisthatwasrelieduponinitsdecisionnottoapproveaproposedsettlementinthatcase.54Moreover,itgavethepublicatransparentandeasytounderstandviewofthelikelyimpactsoftheproposal:higherpricesandhighercosts.Perhapsmostimportantly,itsanalysisinthePartnerscaseestablishedtheHPCasanobjectiveandcompetentwatchdoginthepursuitofitsstatutorymandatetomonitorandcontrolthegrowthofhealthcarecostsinMassachusetts.Third,thedecisiontonotmandateAPMsintheprivatesector,butrathertoencouragegoalsforAPMadoption,mayhavebeentherightcall,althoughtheadoptionofAPMsbybothgovernmentandthecommercialsectorshasnotbeenatarapidpace.AlthoughtherearenopenaltiesforfailuretomeetAPMgoals,ifanentityendsupwithcostgrowththatisanoutliercomparedwiththebenchmark,the“encouragement”ofAPMgoalscouldbecomemoreprescriptiveinasubsequentPIP.DavidSeltz,HPCExecutiveDirectorrecentlysaid,somewhattongueincheek,thatentitiescalledtopreparePIPsshouldnotregardsuchasbeingcalledtotheprincipal’sofficeasmuchasbeingcalledintoseetheguidancecounselor.55But,earlierinanarticleintheBostonBusinessJournal,HPCmemberProfessorDavidCutlersaidtheopposite:“….it’simportantthatwebeclearaboutwhatitisthatwillgetyousenttotheprincipal’soffice.”53Eitherway,itseemstheHPCcanusethePIPprovisionasawaytomovethemarkettowardAPMadoptionatafasterpace.ThestateMedicaidOfficeandtheGICaremovingforwardtowardmeetingtheirAPMsgoalsandobjectives.56APMcoverageamongMassHealthmanagedcareorganizations(MCOs)andprimarycareclinicianplans(PCC)isnowabout32and23percent,respectively.57Inaddition,MassHealthhassomeambitiousACOpilotprojectsinvolvingsharedsavings/riskarrangementswithqualityincentivestopromotetheadoptionofAPMsinthispublicprogram.57Itshouldbenoted,

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however,thatMassachusettsanticipatesthatinvestmentsinthesenewprogramswillcontinuetobesupportedbyawaiverworth$52.4billionthathadbeennegotiatedwiththeObamaadministration.AmongcommercialHMOs,therateofAPMcoverageincreased8percentagepointsbetween2012and2014andthethreemajorcommercialpayersmettheHPC’s2016targetofatleast60%ofeachpayer’sHMOlivescoveredbyAPMs.However,in2016,theHPCnotedthattheexpansionofAPMcoveragehadstalledinthecommercialsectoranditrecommendedtwospecificgoals:(1)allcommercialpayersshouldincreasetheuseofglobalAPMstopayforatleast80percentoftheirhealthmaintenanceorganization(HMO)–coveredlivesin2017;and(2)payersandprovidersshouldbeginintroducingAPMsforpreferredproviderorganizations(PPO)productswithagoalofreaching33percentoftheirPPOlovesin2017.57,58Overall,therateofMassachusettsresidentscoveredbyAPMsdeclinedin2015to36%from38%.EvenAPMcoverageacrosscommercialplansfellto58%from60%.AccordingtotheHPC,thisdropinAPMcoveragewithinHMOsisduelargelytoadropinHMOmembersamongthelargesthealthplansinthestate.57NotwithstandingtheHPC’sgoalof80%HMOcoverageby2017,thatobjectivedoesnotseemattainable.WithrespecttoPPOAPMmembersonthecommercialside,theresultsaredisappointing.In2015,thecommercialPPOmarket’sAPMcoverageoverallratewas1percent,althoughsomepayersreportAPMcoverageinPPOplansrangingfrom11%percentto26%.57ItisonlyrecentlythathealthplanshavebeguntotryandexpandAPMstoPPOproducts.AmajorchallengeintheapplicationofAPMstoPPOmarketsistryingtolinkpatientstoagivenprimarycareprovider(PCP)sincePPOmembersarenotrequiredtoselectaPCP.57TheevidencetodateontheuseofAPMstoreducecostsisstillinconclusive.SomebelievethatwhenprovidersarepresentedwithlowerpaymentsintheformofAPMs,providersmayforgocostlyinvestmentsinanewbuildingorresearchbutdonotzeroinonreducingtheunitcostsofhealthcare.Insteadproviderslookatpotentialcostlyinputsandmakedecisionsonwhichinputstoforgo.Nonetheless,theseobserversalsobelievethatAPMscanhaveamodesteffectoncostcontrol.Forexample,mosthospitalsarenowinvestingheavilyinpatientdischargeplanningtoavoidcostlyre-admissions(althoughthislikelyreflectsMedicarepenaltiesratherthanCh.224).Theyarealsolookingatbetterwaystomanagehighcostchronicallyillpatientsaswellasfocusingonbettermanagementoftheseverelymentallyimpaired.37Onbalance,itappearsthatnotmandatingAPMsfortheprivatesectorwastherightdecisionasthemarketisexperimentingalbeitslowlywithAPMadoption.Sincetheprospectofunintendedconsequencesisalwaysaprobleminhealthcaremarketchanges,strategiesthatavoidabruptchangescanbeasaferroutetotravel.

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Fourth,thenotionofestablishinganindependentagencywithitsownfundingsourceandwhoseleadershipisnotdependentonwhooccupiestheGovernor’sofficeappearstohavebeenasounddecision.InJanuary2016,thegovernorshipofMassachusettschangedfromDemocratDevalPatricktothemoderateRepublicanCharlieBaker.ThenewadministrationhasnotpursuedmajorlegislativeoradministrativepolicychangestotheHPCorCHIA,althoughthenewadministrationappearsnottobecontinuingthepreviousadministration’shandlingofinsurancerateincreases.[TheAdministrationdidproposegovernancechangestoCHIAandwhile,ultimately,CHIAremainedindependent,itnowhasanOversightCouncil.]Asnotedpreviously,supraat15-16,thestatereportedpremiumincreasesinthemergedmarketofbetween5.4%and8.3%fromtheendof2015throughthefirstquarterof2017andtherearestrongindicationsthatpayersarepreparingforareturntodouble-digitincreasesinthemergedmarketwhichtheyareblaminginpartondrugprices.59Thatsaid,recently,inanefforttomoredirectlyattackhighhealthcarecosts,GovernorBakerissuedaseriesofproposalsincludingonethatwouldlimitthepercentincreasethatinsurerscouldagreetopaytoprovidersbasedonthesizeoftheprovider.Thelargestproviderswouldbeunabletoobtainanyincreaseunderhis“conversationstarter”proposal.60Fifth,theoverallideaofabenchmarkitselfisthoughtbysometoprovideleveragetocarriersinprovider–carriercontractnegotiations.61Indeed,thepresenceofthe3.6%benchmarkwasarticulatedbysomecarrierrepresentativestothePatrickAdministrationasahelpfulceilingduringcontractnegotiationswithprovidersfollowingtheinsurancewarsof2010.61Othercarriers,however,seetheimplementationofthebenchmarkasfallingunfairlyoncarriersatleastintheimmediatetermbecausecarriersaresubjecttoratereviewwhileprovidersarenotsubjecttosuchscrutiny.62Ofcourse,thisbegsthequestionthattheceilingbecomesthegoalveryquicklyandeffortstocontrolcostsmaybedrivenbythedesireamongcarrierstofall,firstandforemost,inthesafe-harborzone.Amorenegativeviewofthebenchmark’seffectivenesswasexpressedbyahighlevelinsuranceindustryrepresentativewhoopinedthatallthecostcontrolsinCh.224nibblearoundtheedgesbecausenoonewantstotakeonthehighpricedproviders.62

MeetingtheBenchmarkSince2012,CHIAhascollectedhealthcaredatatogaugecompliancewiththestate’sbenchmarkof3.6%.TheHPChasreportedthatthefinalnumbersforgrowthofTHCEsin2013was2.4%,63in2014,4.2%,andin2015,4.1%.64InitsJanuary20,2016release,theHPCidentifiedtwoprimaryreasonsforgrowthoverthebenchmarkof3.6%:first,theeffectoftheACAwhichledtobothpermanentandtemporaryincreasesinMassHealth(Medicaid)enrollment,and,second,highdrugspending,whichresultedfromtheintroductionofnewhigh–costdrugs,largeincreasesforexistingdrugs,andarelativelysmallnumberofdrugsgoingoff-patent.

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Itshouldbenoted,however,thatineachoftheseyears,healthcarespendinggrewintheUnitedStatesaswellasinMassachusetts.AnalystsattributednationalgrowthtotheexpansionofACAcoverage,increasedprescriptiondrugspendingandeconomicgrowth.Interestingly,inits2016report,theHPCalsohighlightedthecontinuedlowgrowthincommercialinsurancespending.TheHPCreportedthatin2015,thelargestinsurers,BlueCrossBlueShield,HarvardPilgrimHealthCareandTuftsHealthPlanallkeptspendingbelowthebenchmark,butthathealthcareprovidershadmoremixedresults.Allmajorinsurershavebeenbelowthebenchmarkfrom2012through2015.29,30,65Itisalsothecasethatduring2013and2014,thePatrickAdministrationcontinuedtovigorouslyscrutinizeproposedrateincreasesfrominsurancecompanies.Thefinalaveragepremiumincreasefor2013waslessthan3%andfor2014,itwasunder4%.29,30Itcouldbethattheleverageof3.6%incarriernegotiationsalsoplayedapartinthisgrowthratebelowthebenchmark.Anotherfactorinfluencingtheslowgrowthonthecommercialsideforistheexplosionofhighdeductiblehealthplans(HDHPs).In2014,inMassachusetts,1outof5familieshaddeductiblesof$3,000ormoreandthenumberisgrowing.Theuseofhighdeductibleplansisparticularlycommoninthemergedmarketofindividualandsmallbusinessemployers,with45%oftheindividualand38%ofsmall-groupmembershipinsuchplans.66AmajorrationalebehindHDHPsisthebeliefthatmakingconsumerssensitivetothepriceofhealthcareserviceswillincentivizeconsumerstoseekless-expensivecareandreduceunnecessaryutilization.ThegrowthofHDHPsisanationalphenomenonandpresentssometroublingissues.ItcanresultinlessfinancialprotectionwhenpeopleneedtousecareandsomeresearchshowsthatconsumerswithHDHPsaremakingdecisionsnottospendtheirdeductiblesanddeferorforgoneededcare.67Whilewedonotknowforsureifthecarethatisdeferredisnecessaryorunnecessary,studiessuggestthatthisphenomenonisinpartresponsiblefortheslowdownnationallyincommercialhealthcarecostgrowth.68,69Itcouldbethatonthecommercialsideofthemarket,MassachusettsisnotexceedingthebenchmarkminusdrugpricesandMassHealthhikes,butthereasonmayormaynotbeattributabletoCh.224.Itistooearlytoknowwithanycertainty.The2014datapresentsaninterestingproblem.Medicaidtotalmedicalexpenditureshaveblownthroughthebenchmark,andweknowthereasonswhythishasoccurred:abadlymanagedMassHealthsystemthatpermittedmanypeoplenototherwiseeligibleforMassHealthtoenrollandreceivetaxpayerfundedbenefits,andanescalationofdrugprices,especiallyfornewbreakthroughcuressuchasSovaldiandHarvoniforHepatitisC.Thestatehassincere-determinedeligibilityforMassHealthrecipientsandassumingthattheMassHealthproblemswillnotberepeated,thatwouldleavethestatetograpplewiththehighcostofdrugs,clearlya

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nationalproblem.TheHPCcouldplayaleadershiproleintermsofexploringstateornationalpolicyoptionsregardingdrugprices.Withrespecttothespendingofpublicdollarsforprescriptiondrugs,thereare1.8millionpeopleinMassHealthand430,000membersintheGroupInsuranceCommission.Wedon’tknowifthestateismaximizingitspurchasingcloutinthismarket.Similarly,wedon’tknowtherangeofoptionsthatmaybeavailabletocommercialcarriersorproviderstomaximizetheirpurchasingpowerwithdrugcompanies,althoughtheycertainlyhaveanincentivetominimizecosts.Wedoknowthatsomepayershavebeenabletonegotiatebetterdealswithdrugcompaniesthansomeoftheircompetitors.70Initsrecent2016report,theHPCmadeaseriesofrecommendationsthatfocusedoncostissuesunderthecontroloflocalprovidersandpayers.TheHPCfocusedonhospitalpricevariationthatdoesnotreflectdifferencesinqualityorothercommonmeasuresofvalueandconcludesthatpolicyactionisrequiredtoaddresspricevariation.TheHPCdoesnotstatewhatspecificpolicyactionsitrecommendsbutreportsthatitwillundertakeadditionalresearchandanalysistodiscussfurtherpolicyoptions.71

TrackingTrendsinProviderMarketsAsdescribedabove,Ch.224directstheHPCtotrackandreportonmaterialchangestotheoperationsorgovernmentstructuresofproviderorganizations.TheHPCisdirectedtoengageinamorecomprehensivereviewoftransactionsanticipatedtohaveasignificantimpactonhealthcarecostsormarketfunctioning.SpecificregulationsgoverningthisprocesswereissuedinDecember2014,andallprovidersareonnoticeabouttheprocessandwhatitentails.46AfterreceivingaMaterialChangeNotice(MCN),theHPChasthirtydaystoconductapreliminary,quantitativeanalysisoftheproposedchangeandtoissueapreliminaryreportwithfindings.Thereisaperiodoffeedbackfromthepartiesandothermarketparticipantsandafinalreportisissuedwithin185daysfromthedatethenoticeisfiled.TheHPCcannotstopatransactionorrequirecertainconditions.However,theHPCcanreferitsreportonthetransactiontotheAGortoanyotherpublicagencyforfurtheractionaswarranted.Whiletheinformationgatheredinitsreviewsisexemptedfromthepublicrecordslaw,theHPCisgiventhelatitudeunderCh.224toengageinabalancingtestanddiscloseinformationinitsCMIRreport.ThispossibilityofdisclosureisanotheraspectofthetransparencypowersoftheHPC.Asnotedabove,from2013toMay2017,theHPCreceivedandreviewed82MCNs.50Nearlyhalfoftheproposedtransactionsinvolvedmergersofhospitals,physiciangroupsorotherprovidersorpayers.50TheHPCalsoreviewsclinicalaffiliationsthatdonotresultinownershipchanges,suchas,contractingarrangementsamongprovidersthatmayfacilitatecoordinationofcareandinvolverisk-sharingarrangements,suchasACOs.

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PerhapsthemostimportantofthosetransactionstodatearethoseinvolvingthreecommunityhospitalsandalargephysicianpracticebyPartners.TheHPCCMIRsfoundthat:1.Theproposedtransactionswereanticipatedtoincreasetotalmedicalspendingbymorethan$38.5millionto$49millionperyearasaresultofunitpriceincreasesandshiftsincaretohigher-pricedPartnersfacilities;2.Theresultingsystemwouldincreasetheabilityandincentivestoleveragehigherpricesandotherfavorabletermsincontractnegotiationswithpayers.Thiseffectwasnotincludedintheprojectedcostsincreases;and3.Thepartiesintheproposedtransactiondidnotprovideadequateevidencetosupportclaimedimprovementsorefficienciesincaredeliverysystemspost-merger.TheHPC’sCMIRwasfiledwiththeSuperiorCourt,whichdidnotapprovetheproposedtransactions;ultimately,thetransactionswereabandoned.Regardlessoftheform,theHPCischargedwithexamininganypotentialmaterialchangesinmarketstructure.AmajorundertakingisHPC’smonitoringofthegrowingnumbersofacquisitionsofphysiciangroupsbyhospitalsandthetransitionfromindependentoraffiliatedpracticestoemploymentmodels.Formanyyears,therehasbeengrowingevidencethathospitalacquisitionofphysicianpracticesleadstohigherpricesforbothtypesofproviders.72Marketgrowthandpowerisdependentonreferralpatternsfromphysicianstohospitalsandkeepingpatientswithinthehospital-doctornetwork.ThePartnerstransactionsincludedtheproposedacquisitionofthephysiciangroup,HarborMedicalAssociates(HMA).WhiletheHPCanalysisincludedthiscomponent,thecourtdidnotblockPartnersfromacquiringHMA.Asapracticalmatter,muchoftheHPC’sanalysisofmarketimpactissimilartowhatfederalorstateantitrustauthoritiesmayundertakeinreviewingmergersorclinicalorfinancialcollaborationsamongproviders.TheHPCthresholdforreviewissomewhatdifferentthanthatrequiredbyfederalauthorities.Itsreviewconsidersimpactsoncost,qualityandaccess,althoughtheHPCdoesnothavethepowertodisapprovetheseaffiliations.Afederalantitrustreviewhastobeguided,underlaw,bywhetherthetransactionmayposeariskofasubstantiallesseningofcompetitioninarelevantmarketorwhetherintheabsenceofclinicalorfinancialintegration,restraintsoftrademaytakeplace.73TheHPC,underCh.224,castsabroadernettoexposetransactionsthatwhilenotlegallyanti-competitivemaynonethelessbeabletoexerciseanegativeimpactonthestate’sabilitytostaywithinthecostbenchmark.ThisispotentiallyaverysignificantpowerandisconsistentwiththeoverallCh.224frameworkoftransparencyintransactionsandusingtheHPC’sbullypulpitto“nameandshame”outlierentities.

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WhereisAllThatPriceTransparency?TheissueofpricetransparencywasthesubjectofscrutinyattheHPC’s2015CostTrendHearings.Althoughallmajorpayershaveestablishedtheironlinetools,theuseofthesesitesbymembersthusfarhasbeenlimited.TheHPCreportedinits2015Reportthatitisnotclearwhetherlowusagehasbeenduetopoorusabilityorlowconsumerawarenessofthesites,buttheratesareconsistentfornationalrates.Itshouldbenoted,however,thatAetna,aninsurerthatbeganbuildingitsonlinetoolinthemid-2000’s,reportedinanopenHPChearingthatithadoveronemillionhitsnation-widein2014.74Aetnacurrentlyhasover700proceduresonitssitewhilemostMassachusettsbasedcarriershavefarfewer.TheHPCalsoreportedoneffortsbypublicinterestgroupstogaugecompliancewiththelawbycarriersandproviders.In2015bothHealthCareforAll(HCFA)andthePioneerInstitute(PI)(anorganizationtheauthoriscurrentlyaffiliatedwith)conductedsurveystogaugeconsumerfriendlinessandeffectivenessofcarriertoolsandproviderprotocolsforpricetransparency.Ingeneral,HCFAreportedthatpriceinformationwasdifficulttofind,costdatawasnotpresentedinconjunctionwitheasilyunderstoodqualityinformation,andhigh-valuechoiceoptionswerenothighlightedforconsumerstosee.Overall,HCFAgradedthecarrierswitha“C”grade.75ThePioneerInstitutelookedat22outof66Massachusettshospitalsin2015andagainin2017andtriedtoobtainthepriceofanMRIoftheleftkneewithoutcontrast.PIinvestigatorsfoundthatlotsof“persistenceanddiligence”wasrequiredtoobtainpriceinformationandmanyhospitalsappearednottohavesystemsinplacetoanswerquestionsaboutprice.Inaddition,whileCh.224requiresproviderstogiveoutpriceinformationwithintwodaysofrequest,PIfoundtheaveragetimetookbetween2and4businessdays.Asubsequentsurveyamongalmost100MassachusettsphysicianspecialistsanddentistsbyPIyieldedsimilarresults,exceptthatdentalofficesweremuchmoreforthcomingwithpriceinformationtoprospectivepatients.76Inallitsannualreports,HPCadvocatesforthecontinueduseofdemandsideincentivessuchaspriceandqualityinformationtofosterthechoiceofmoreefficientprovidersbyconsumers.Atpresent,itappearsthattheCommonwealthhasalongwaytogo.Thereisverylittleadvertisingorinformationdirectedatconsumersthatinformsthemoftheirrighttopriceinformation.WhiletherewasasmallcampaignaroundcarriertransparencytoolsledbytheCommonwealthinthefallof2014,therehasbeennostatewidecampaignorindeedmuchindividualadvertisingbycarriersthemselves.Providersarewoefullybehindintermsofdevelopingconsumerfriendlyprotocolsforpatientstoobtainpriceinformation.Thesurveyofhospitalsalsolookedattheirwebsites,thefirstplaceaconsumermaygotofindinformation.PIfoundthatonlyafewhospitalshadanyinformationontheirwebsitesaboutaconsumer’srighttopriceinformation.76-78ItisalsoworthnotingthattheACArequireshospitalstopostchargesorelseinformconsumersastohowtheycanbeobtained.Thefederalgovernmenthasissuedguidelinesto

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hospitalsabouttransparencyinpricingsothatconsumersmayhavetheabilitytocomparepricesacrossproviders.79NotablyabsentinCh.224areanyenforcementmechanismsaroundthetransparencyprovisionsinthelaw.WhiletheBakerAdministrationisanadvocatefortransparency,therehavebeenfeweffortstodatetomovethisissueforwardandtocreateacultureofpricetransparencyinhealthcare.Similarly,theAttorneyGeneral’sOfficehasnotuseditslegalpowersunderthestate’sConsumerProtectionLawtoenforceexistingtransparencylaws.TheHPCitselfmerelyrecommendsthattheCommonwealth,payersandprovidersshouldenhancestrategiesthatwouldincreasepriceandqualitytransparency.Thislackofstateleadershipmaynotbeaccidental.Therearecrediblereportsthatinorderforthelegislaturetoobtainconsensusonthesetransparencyprovisions,therewasanunderstandingthattherewouldbenoexplicitenforcementprovisions,transparencywouldtaketime,anditwouldberegardedasanaspirationalachievement.

IsTheBenchmarkEnforceableorAspirational?WhiletheHPC’senforcementtoolsregardingthebenchmarkarenotverystrong,itispossiblethattheconstantflowofpublicactionsandhearingsfromtheHPCmayhavesomesalutatoryeffectonpricingbehaviorofproviders.WhilethereisnocauseandeffectevidencethattheHPChashadadirectimpactonproviderbehavior,withtheexceptionofthefailedPartner’smergerin2015,theremaybeenoughHPCactivityandscrutinytosuspectsomeimpactonpricingdecisions.AclosereadingoftheHPC’s2016AnnualHealthCareCostTrendsReportshowsthebreadthandanalyticaldetailthatboththeHPCanditssisteragency,CHIA,havebecomefamousfordoing.Thismeansthattheperformanceofvarioussectors-payers,hospitals,physiciangroups,thecommercialmarket,pharmaceuticals,MassHealthandMedicare-aremeasuredandhelduptopublicscrutiny.Iseachsectoraddingtohigherhealthcarecostsorisitengaginginefficiencyenhancingcaredeliverysystemsthatleadtolowercosts?Forthepastcoupleofyears,priceincreasesinthepharmaceuticalindustryhavebeencalledoutforattention.Thatsaid,someHPCcommissionmembersthemselveshavebeenaggressiveinquestioningprovidersaboutcosttrendsapartfrompharmaceuticals.TheannualHPChearingshavebecomequitearitualwithhealthcareexecutivesgirdingthemselvesforsometimestoughpublicgrillingbyHPCcommissionmembers.Mostrecently,thispastwinter,commissionmemberProfessorDavidCutlerrelentlesslyaskedagroupofprovidersiftheirorganizationshadseenanyefficienciesfromyearsofconsolations.Cutleraskedthequestionoverandoverbuttherespondentswereunabletoanswer.80Further,Cutlerpointedoutthatevenifpharmaceuticalpricesweretakenoutofthecostequation,providercostsarestillrising.Heaskedproviderswhytherehavenotbeenmorecostreductionsresultingfromintegratedsystems.80

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AquestioniswhetherpublicscrutinyfromCommissionmembersiseffectiveinsendingthefollowingmessage:consolidationsandgrowththatdonotproducesavingsforthesystemthatcanultimatelybepassedontoconsumersarenotheadingusintherightdirection.Thepublicshamingofprovidersorpayersthatarespendingabovethebenchmarkhasyettomaterialize,assumingitwouldyieldresultsanyway.Ostensibly,undertheHPC’snewregulations,ifafirmisaskedtoprepareaPIP,thatentity’snamewillbemadepublic.ButtheHPChasjustrecentlyputitsrulesfordoingsointoplaceandtheywillnotbeemployedretroactively.Itisworthnoting,however,thatinits2015CostTrendsReport,theHPCreportedonthecostofvaginalandC-sectiondeliveriesatallhospitalsinthestateprovidingsuchservices.ThedatanamedspecifichospitalsandtheaveragespendingamountsineachcategoryaswellastheC-sectionrateforeachhospital.81Althoughthedatawerebasedontheyears2011-2012,theyprovidedararepublicglimpseintothewidedisparitiesinpriceschargedbyMassachusettshospitalsforthesameprocedure.So-called“unwarrantedpricevariations”havelongbeenatopicofdiscussioninMassachusetts,andtheHPChasrepeatedlystatedthatunwarrantedpricevariationsinproviderpricesareunlikelytodecreaseabsentdirectpolicyaction.71Althoughthereisnoprecisedefinitionof“unwarrantedpricevariation,”itcangenerallybedefinedbydifferencesinpricethatcannotbeexplainedbyinpatientacuity,high-costoutliercases,orquality.82TheHPCdoesnothaveanystatutoryauthorityoverpriceschargedbyproviders.Itssisteragency,CHIA,similarly,hasnosuchauthority.CHIA,however,istherepositoryofthestate’sallpayerclaimsdatabase(APCD)andalthougharecentUnitedStatesSupremeCourtdecision,Gobeillev.LibertyMutualInsurance(March1,2016)hascastdoubtonself-fundedplans’obligationtoprovidethestatewiththispriceinformation,datafromfully-insuredplansmuststillbeprovided.83,84CHIAhastheauthoritytosharethesedatabyprovidername,butde-identifiedastopatient,withthepublic.Todate,however,suchsharinghasbeenlimitedtoresearchorganizationswhicharechargedaheftyfeeforsuchde-identifieddata.ForawhilediscountswereavailabletoresearchersseekingAPCDdatafromCHIAbutthatnolongerappearstobethepractice.Thisisanunfortunatepolicyasgreater,notless,transparencyinhealthcarepricesisveryneeded.So,ifenforcementtools,includingthe$500,000fine,forafirmthatdoesnotfulfillitsPIP,arenotenough,andiftheHPChasnoauthorityoverproviderprices,isthewholebenchmarkconceptandregulatorystructuremerelyanaspirationalexercise?Aspirationalgoalsaremerelythat–adesiredoutcomewithoutstrongenforcementincentives.OneoutcomeofaspirationalgoalsisthatwhentheyarenotachievedandinMassachusettswhenpricevariationdoesnotdiminish,newlegislativeproposalsarisetofillthevoid.

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Therearelegislativeproposalsthattriedtogofurtherthanthebenchmarkandtakedirectaimathighprices.Asdiscussed,supra,atpage35,in2017,MassachusettsGovernorCharlieBakerproposedthatinsurancecompaniesbelimitedtothepercentincreasetheycanpayprovidersbasedonproviderrevenuesize.Insurerswouldhavebeenprohibitedfromgivinganyincreasetothelargestthirdofproviders.Althoughthisproposalwasseenasa“conversationstarter,”theproposalappearstonolongerbeunderconsideration.Butthefactthatiswasfloatedatall,couldbeaportendofthingstocome.Thatsaid,thefactremainsthatthebenchmark,nowat3.1%forcalendaryear2018,isafixedpartoftheregulatorylandscaperegardlessoftheefficacyofitsenforcementtools.ItisabackdroptoC-suitedecision-makingandacudgelthathangsovertheindustry’shead.Althoughdifficulttomeasureintermsofeffectiveness,thebenchmarkandtheHPChavebecomepartoftheinter-stakeholderculturallandscapeinMassachusettshealthcare.

DoestheHPCNeedmoreAuthoritytobeEffective?OneoftheHPC’smostresourceconsumingfunctionsinvolvesCostandMarketImpactReviews(CMIR)discussedsupraatpages22-23.Ingeneral,thesestudieslookatentitiesthatholdadominantshareintheirrespectivemarketandchargepricesthataremateriallyhigherthanthemedianpricesofotherprovidersorhavehealth-status-adjustedTotalMedicalExpenditures(TME)thataremateriallyhigheraswell.So,whatcantheHPCdowithaCMIRthatuncoverssuchsituations?Itcanissueapublicreportonsuchprovidersand,itcanreferitsreportandtheproviderstotheAttorneyGeneral’sOffice(AGO).TheAGO,underChapter224,caninvestigateunfairmethodsofcompetitionoranti-competitiveconductandtheAGOcanissueareportbacktotheHPC.Inthemidstofthiscircularreportwriting,oneshouldnotlosesightofthefactthattheAGO,underexistingconsumerandantitrustlaws,canalreadybringlegalactionsforunfairmethodsofcompetitionunderthestateConsumerProtectionLaw,Chapter93A,orforviolationsofthestateantitrustlaws,Chapter93.Undercertainconditions,thestateAGOcanalsobringactionsunderfederalantitrustlawaswell.TheAGOdoesnotneedChapter224forpermissiontoenforceexistingconsumerorantitrustlawsandCh.224doesnotgivetheAGOanynewauthoritytoenforceincipientanti-competitiveconductthanitalreadyhasunderexistinglaw.So,whatiswrongwiththisstatutoryframeworkaimedatlimitingthegrowthorexerciseofmarketpower?First,theHPChasnolegalauthorityatalltodoanythingaboutsuchconduct.And,theAGOalreadyhaslegalauthoritytotakeactioniftheconductamountstoaviolationofexistingconsumerorantitrustlaws.Inshort,Chapter224doesnothingtolimitthegrowthofmarketpower(whichundertraditionalantitrustmergeranalysisistheabilityofthecombinedentitytoraisepricemorethan5%foranon-transitoryperiodoftime).

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ThelegislaturecouldgivetheHPCorotherregulatoryagenciesmoreauthorityovercertaintransactionstofurtherlimitthegrowthofmarketpowerbyparticularentities.Forexample,thelegislaturecoulddirecttheAGOtopromulgateregulationsproscribingasunfairmethodsofcompetitionevensmallincreasesinmarketshareifanentityalreadyhasacertainshareofmarketormarkets.Or,theHPCcouldbegivenauthoritytodenytransactionsthatmaynotrisetothelevelofanantitrustviolationbutnonethelesswouldhaveanadverseimpactoncostcontainment.Inatimewhen“determinationofneed”or“DON”regulatoryregimesareunderscrutinyforimpedingnewcompetitionintohealthcaremarkets,anysuchnewpowersgiventotheHPCwouldhavetobecarefullytailored.TherearemanycoursesthatthelegislaturecouldtaketomaketheHPCmoreeffectiveatkeepingthefocusoncostcontainmentandmoretargetedatthebenchmarklimits.Infairness,however,therearesomecoststhatmaybeyondthestate’sjurisdiction,suchaspharmaceuticalprices,whichtheHPCcandolittleabout.Thatsaid,theoverwhelmingmajorityofhealthcarecostsarewithinthecontrolofprovidersandpayersandthus,wouldbewithinthejurisdictionoftheHPCorotherstateentitiestocontrol.

Conclusions:AreThereLessonsfromMassachusetts?

Forthepast11years,Massachusettshasengagedinanefforttoachievenearuniversalaccesstohealthcare,andmostrecently,totryandcontainthecostofthathealthcare.Inthecourseofitspursuittowardhealthcareforallitsresidents,MassachusettshastakenfulladvantageoffederaldollarsthatareavailableforitsMedicaidpopulationandlow-incomeresidentswhoqualifyforsubsidiesunderObamacare.RecentnationaleventsthreatensomeoftheprogressthatMassachusettshasmade.IffederalMedicaiddollarsaredramaticallycut,Massachusettswillhavehardchoicestomakeintermsofmaintainingcoverageforitslowincomeandnon-workingpoor.Thestatecurrentlyspends40%ofitsbudgetonMedicaidincludingfederaldollars.Whileananalysisofthatproblemisbeyondthescopeofthispaper,itisusefultounderstandthatsomeofwhathappensinhealthcaremaybebeyondthestatelegislature’sauthorityortheoversightoftheHPC.However,whilesomeeventsarebeyondthestate’scontrol,theywillnonethelessaffectnon-Medicaidproviderandpayermarketsaswell,andthatwillimplicateagenciessuchastheHPCanditscostcontrolefforts.

(1) PaymentReformTheunderlyingthrustofCh.224waspaymentreformandthebeliefthatthepracticeoffee-for-service(FFS)medicinewasamajorfactorinraisingthelevelofhealthcarespending.Theprospectofvariousalternativepaymentmethodologies(APM),suchasglobalpayments,bundledpayments,oranyformofpaymentthat

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placedsomeriskonproviders’performancewasthoughttobeabetteralternative.Indeed,MedicarehasalreadyembarkedonanambitiousprogramtochangethewayitreimbursesproviderstomoveproviderstowardmoreAPMoptions.Ch.224setAPMgoalsforpublichealthcareprogramssuchasMedicaidandthestate’sGroupInsuranceCommission.Itset“aspirational”goalsforthecommercialmarketaswell.ThehealthcaremarketplaceisadynamicplaceandtherearepayersandproviderswhoareexperimentingwithvariouspaymentformsapartfromFFS.Thecontinuedemergenceoflargehealthcaresystemsthatcancommandtopprice,inturn,incentothersystemstoadoptpaymentreformmechanismsasawaytostaycompetitive.Whetheritisbylaworbynecessity,therehasbeenashifttowardpaymentreformoverthesepastseveralyears.Asdiscussedearlier,ithasnotbeenasdramaticashiftassomeproponentsanticipated.Thebottomline,however,isthatpaymentreforminitsvariousincarnationsseemstobeapermanentandevolvingfeatureinMassachusettsandfederalhealthcaremarkets.Mostrecently,MassHealthhasembarkedonanambitiousprogramtooverhaulthewayMedicaidprovidersarereimbursed.AsreportedintheBostonBusinessJournalonJune8,2017,MassHealthisrestructuringMedicaidinto18selectedhealthcareorganizationswhereproviderswillbegivenasetamountofmoneyperpatient.The18networkswillcover900,000ofthestate’s1.9millionMassHealthenrollees.Theconceptisbasedonanaccountablecareorganizationmodelwhereeachofthe18groupswillmanagepatientsoveraperiodoftimeforafixedamountofreimbursement,includingfederalfundsforinformationtechnologyinvestments.HaspaymentreformproducedthecostsavingsthatCh.224framersanticipated?Generally,acrossthecountry,paymentreformhasamixedrecordintermsofcostsavingsandqualityoutcomes.85Indeed,insomecases,implementingpaymentreformandenhancingthecoordinationofcarecauseincreasingcostsasnewtechnologiesmustbeadoptedtoultimatelyfacilitatesuchsystems.Insomecases,lawrequiresnewelectronicmedicalrecordstechnologiesaswasthecaseinMassachusetts.AlthoughpaymentreformisrequiredinthepublicsectorunderCh.224,itisaspirationalinthecommercialmarket.Thedecisionnottorequirepaymentreforminthecommercialmarketappearstohavebeenacorrectdecisionifonlybecausethealternative,mandatorypaymentreforminprivatemarkets,wasfraughtwithunintendedconsequences.Currently,FFSmedicineandAPMsexistsimultaneouslyintheMassachusettscommercialhealthcaremarketplace,withFFSstilldominatingthemarket.And,wecannotconcludethat,whereadopted,APMshavegenerallyyieldedlowerhealthcarecostgrowthorgreaterqualityoutcomes.Consolidationinhealthcaremarketsmayultimatelyprovetobeaprimarydriveroftheadoptionofpaymentreformascompetitorsseektolowercoststoremainviable.Inaddition,itseemscriticalthatthestateactbyexampleintermsofembracingAPMsinitsvariousprogramsthatspendpublicdollarsforhealthcare.

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(2) TheEstablishmentofanIndependentHealthCareAgencyItwasnotalwayscertainthatCh.224wouldresultintheestablishmentofanewhealthcareagency–theHealthPolicyCommission,withbroadpowersovertheindustry.Therewerethosewhobelievedthatestablishingnewhealthcarebureaucracieswasunnecessaryandthatnewpowersshouldinsteadbegiventoexistingagencies,suchastheDepartmentofPublicHealth,theDivisionofInsurance,andvariousotherregulatoryagencies,mostofwhichareintheExecutiveBranchofstategovernment.However,therewasaviewintheLegislaturethatinordertocreatechangethatwouldnotbedependentonthepoliciesofCommonwealth’sGovernors,itwasnecessarytocreateanindependentagencythatwasnotsubjecttothecontrolofthechiefexecutive.Thus,theHPCwascreatedandfundedthroughassessmentsonthehealthcareindustry.(See,supra,p.20,foradescriptionoftheCommissionitself.)Itappearsthatanindependentagencywaslikelythecorrectdecision,especiallyoncetheconceptofabenchmarkbecameembeddedinthelaw.Thebenchmarkneedsanenforcementagencyandmechanisms.Itwouldbedifficultthoughnotimpossibletoentrustbenchmarkenforcementtoagencieswithinthecontrolofthegovernor.Thatsaid,althoughthelegislaturechosetheindependentagencyroute,itdidnotgrantthetoughestenforcementpowerstothisagency.Thus,weseeenforcementpowersthatareslowmoving,involvinglotsofreportsandanalyses,ampletimeforcomplianceandsomewouldarguearatherweakultimatepenaltyof$500,000.Itwouldnotbeafairassessment,however,tojudgetheefficacyoftheHPCsolelyonitsfiningabilities.ThemarketimpactanalysiswhichtheHPCperformedandprovidedtothecourtinthepreviouslymentionedproposedmergersamongPartnersHealthcareandhospitalsonboththenorthandsouthshoresofMassachusettswasextremelyimportantinthecourt’sfinaldecisioninthosecases.Inaddition,theHPCwasviewedpubliclyasanindependentvoiceintheseproceedingswithaprofessionalandsoundeconomicanalysis.TheseproposedmergerscreatedanunexpectedopportunityfortheHPCtoestablishitselfasanhonestwatchdogonbehalfofcostcontainment.

(3) TheEstablishmentofaCostControlTargetCh.224establishedagrowthlevelforTotalHealthCareExpenditures(THCE)thatwastiedtotheoveralllong-termeconomicperformanceoftheCommonwealth.Itincludesallhealthcareexpendituresincludingpublic(Medicaid,Medicare,theGroupInsuranceCommission)andprivatespending.Whilethebenchmarkmayhavebeenproposedasawaytodemonstratesavingsforpublicconsumption,tyinggrowthinhealthcarecoststoeconomicgrowthisnotirrational.However,the

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underlyingprincipleisthatMassachusettsdoesnotexpectanactualdeclineinhealthcarecosts,justaslowinginthegrowthofsuchcosts.Asstatedearlier,thebenchmark“bakedin”thehighpricesthatalreadyexisted.Thisfeaturemayaccountforthelackofvociferousoppositiontothebenchmarkbythestate’smostpowerfulhealthcareindustryentities.Itmayhavebeenthepricethathadtobepaidforenactment.Itisalsointerestingtonotethatnoothernon-publicutilityindustryinthestateissubjecttothisformofregulation.Probablythemostimportantfeatureofanybenchmarkisthatitsetsexpectationsandestablishesthenormaroundwhichtheindustrywillbemeasured.ASeptember7,2016headlineintheBostonGlobereadasfollows:“Mass.Makesprogressincontaininghealthcarespending.”Thefirstsentenceclaimedthat“thegrowthofhealthcarespendingmoderatedlastyear….asignthatitsground-breakingexperimenttoreininmedicalcostsismakingtentativeprogress.”ThisstorywhichwaswrittenbeforethefinalTHCEfigurefor2015wasadjustedupwardto4.1%fromapreliminary3.9%,paintedanoptimisticviewthathealthcareexpendituresweremoderating.86Inthearticle,StuartAltman,ChairoftheHPC,saysthatMassachusettsistheonlystatetotryanddosomethingabouttotalhealthcarespending.Infact,stateshavelimitedoptionswhenitcomestocostcontrolofhealthcareexpenditures.Massachusettsusedtoregulatehospitalpricesbutrepealedthatlawinthemid-nineties.Marylandisastatethatcontinuestoregulatehospitalunitpricesandpercapitahospitalspending.AstatecaneitherregulatepricesdirectlyasMarylanddoesortryforbroadersystemicreformsthatmayultimatelyleadtolowercosts.InCh.224,Massachusettschosethelatterroute.Itisamorecircuitousroutethandirectregulationandmuchdependsoncooperationandthebullypulpit.Thesearetoughpublicpolicycallstomakeasnoonecanpredictiftheoutcomewillbepositive.Oneissueforanystateconsideringthisdirectionshouldbethedegreeofauthorityneededtoregulateconductthatenablesthegrowthorexerciseofmarketpower.Suchconductmaynotimplicateantitrustconcernsbutnonethelessmayresultinnon-transitorypricingbehavior.Remediessuchasheavyfinesandceaseanddesistorders,aswellashavingasmuchaspossibleamatterofpublicrecordwouldseemappropriategiventheMassachusettsexperiencefromCh.224

(4) HealthcarePriceTransparencyWhenCh.224wasfirstpassed,someofitsmostpromisingfeaturesweretheprovisionsrequiringtransparencyinhealthcareprices.Nationally,Massachusettswasapplaudedforhavingenactedamongthebesttransparencylawsinthenations.Transparencywouldbegoodforconsumersandforthemarketasawhole.Atlonglast,theusualsecrecyandobfuscationsurroundinghealthcarepriceswouldbe

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strippedaway.Unfortunately,thestatehasnotliveduptothepromiseofthoseprovisions.Atthetime,therewasawidelyheldviewthathighhealthcarecostswarrantedscrutinyandtransparency.Theideawasasimpleone,givenhighdeductiblehealthplansand/orthedevelopmentoffinancialincentives,consumerswouldchoosehighquality–lowercostprovidersfornon-emergentcare.Somethoughttherewasanaturalalliancebetweenconsumersandtheirinsurancecompanieswherebothwouldbenefitfromtransparentpricing.Competitorproviderswouldseektolowercostssoastoremaincompetitive.Themarketwouldworkbetter.So,whatcouldgowrong?First,therewasalackofunderstandingthatteachingconsumersthathealthcarepricetransparencymattersisaculturalrevolutionthatrequiresongoingeducation,highvisibilityandmaterialrewards.Employersareanimportantpartofthelearningcurveaswell,andtheyrequiretimeandattentionandfinancialincentivesfrompayersandproviders.Itisnotenoughtobuildmediocrecostestimatortoolsandexpecttheiradoptionandusesimplybecausetheyareavailable.Buildingconsumerfriendlytools,employinghelpfulstafftoteachandfacilitatevaluechoices–thesearejustfirststeps.Employeesandemployersmustbeapproachedaspartnersinanongoingendeavorthatcanbenefiteveryone.Oneexampleisarecentprojectadoptedbytheindemnityplanofthestate’sGroupInsuranceCommissionmanagedbyUnicare.Thisprojectpaysemployees–allwithverylowdeductibleplans-anywherefrom$15to$500forchoosingvalueprovidersfromamong40commonprocedures.Thereisongoingeducationandtargetedmarketingtoreinforcethetransparencymessage.Otheremployersinthestateareexperimentingwiththeirownprogramstoincentemployeestosaveonoverallhealthcarecosts.Second,therewerenoexplicitcomplianceorenforcementmechanismsinthelawsthatwerepassed.Thisallowsprovidersespeciallytoflauntthelawwithimpunity.Theyarenotrequiredtopostpricesormakethemavailableonline.Onlyrecently,hastheMassachusettsHealthandHospitalAssociationevenprovidedlipservicetotheideathattransparencyforconsumersisworthwhile.87Third,therehasbeenanabsenceofleadershipatthestatelevelintermsofpromotingtheselawsandencouragingconsumerstolearnabouthealthcareprices.Fourth,therehasbeensignificantresistanceamongprovidersandtheirtradeassociationsandfrompayersaswellintermsofinvestinginsystemsandprogramstopromotetransparency.TheseareasetofnegativelessonsthatcanbetakenfromCh.224’stransparencyprovisions.Noneoftheseproblems,however,isinsurmountable.Theingredientsofasuccessfultransparencyinitiativearesimplythereverseofwhatwearedoing

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wronginMassachusetts.First,stateleadershipshouldunderstandthatinstitutionalizingtransparencymeanschangingattitudesandthiswilltaketime.Wehaveseeneducationandtargetedmarketingchangeattitudesonanynumberofpublicpolicyissuesfromdrunkdrivingtotobaccousetolittering.Thestateisinauniquepositiontobringstakeholderstogetherandtochallengethemtodevelopconsumerfriendly,effectivepricetransparencytoolsandprograms.Second,enforcementmechanismsareneededtochallengepayersandproviderstoworkwiththebusinesscommunitytodevelopinnovativeprogramstopromoteconsumers’choosinghighvalueprovidersoverhigh-pricedproviders.Alltherhetoricabout“patient-centered”careisfairlymeaninglessifasamatterofpublicpolicywechoosetokeepconsumersinthedarkabouthealthcareprices.

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AbouttheAuthor

BarbaraAnthony,lawyer,economist,andpublicpolicyexpert,isaformerSeniorFellowandAssociateattheHarvardKennedySchool’sCenterforBusinessandGovernmentwheresheconcentratedinresearchingMassachusetts'healthcarecostcontainmentefforts(2015-2017).Sheis,currently,aSeniorFellowinHealthcarePolicyatthePioneerInstitute(2015-present).Previously,sheservedasMassachusettsUndersecretaryofConsumerAffairsandBusinessRegulation(2009-2015)andworkedattheintersectionofstateandfederalcommercialregulationandthebusinesscommunityformanyyears.Amongotherpositions,AnthonyservedasExecutiveDirectorofHealthLawAdvocates;DirectoroftheNortheastRegionalOfficeoftheFederalTradeCommission;ChiefofthePublicProtectionBureauintheOfficeoftheMassachusettsAttorneyGeneral;andSeniorTrialAttorneyintheAntitrustDivisionoftheUSDepartmentofJustice.Anthonyisawell–knownconsumeradvocateandappearsasamediacommentatoronhealthcare,consumerprotectionandbusinessregulationissues.

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