Reducing The Growth In Healthcare
Spending: Can Massachusetts Be A
Model for The Nation
Stuart H. Altman Ph.D.
Chaikin Professor of Health Policy
Heller School for Social Policy and Management
Brandeis University
Even Without Reform Healthcare
Spending By Government Will Be A
Major Force
Demographics and The Growing
Number of Low Income Are Key
Reasons
Even With No Change In Coverage
Government Will Dominate Institutional
Payments
But This Will Only Put More
Pressure On Private Insurance To
Make Up Shortfalls In
Government Payments
Private Insurance Payments Used To Pay For Lower
Government Payments
180%
Hospital Payment-to-Cost Ratios
157.4%
160%
140%
130.0%
138.0%
120%
100%
92.0%
80%
85.0%
Medicare
Medicaid(1)
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
60%
Private Payer
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals.
(1) Includes Medicaid Disproportionate Share payments.
But Large Growth of Private
Premiums Could Be Nearing It’s
End
Employers Are Requiring Workers To
Absorb More of The Increases In
Premiums---AND
Growth In Health Insurance Premiums and Workers
Contribution Far Exceed Earnings and Inflation
1999-2013
Options for Change
1. Let System Move Along It’s Current Course
– Heading for 20% of GDP and $3.0 Trillion Spending Amount
2. Restructure Market-Based Payment System To Reward Lower
Costs and/or Higher Value
– Supply Side--- Pay Providers Global or Bundled Payments With
Quality and Out Outcome Incentives
– Demand Side--- Incent Consumers To Be Better Shoppers for
Value Based Care
• More Price and Value Transparency
• High Deductible Plans
• Limited Provider Networks
3. Introduce Government Price or Spending Regulation at
Federal or State Level
– All-Payer State Systems (Maryland, Vermont)
– Oversight System (Massachusetts)
– Restructure Delivery System (Oregon)
Although Current Spending Growth
Is Low Most Reject Option 1
The U.S. Health System Seems To Be
Approaching a “Brown Out”---Less
Money Available for Healthcare
Services
If Markets Are to Work!
Need to Foster a “ValueBased” Delivery System
“Value-Based” Services Link
Together Services That Improve
Quality (Including Positive
Outcomes) With Commensurate
Costs
Major Efforts Directed
Toward Option2
But Still Unclear Whether Supply or
Demand Side Approaches Will
Prevail
The Federal Reform Law and
Some Private Plans Are Pushing
The Supply Side Option
Give Providers a Limited Budget
and Let Them Decide How It
Should Be Spent
Support Accountable Care
Organizations and Bundled Payments
• They Allow Providers to Decide What is
Appropriate Care
• They Reward Care That is Less Fragmented
and Minimizes Duplicative and Wasteful
Services
• They Permit Care Providers To Pay for Services
Not Traditionally Considered as Health Care
Services
But Concerns About Supply Side
Approach
• Most ACO’s and Bundled Payments Use “Shared
Savings” Approach and Not “Fixed Budgets”
• Patients Have The Right to Opt Out of ACO’s
• Both ACO’s and Bundled Payments are Voluntary
• First Generation “Pioneer” ACO’s Have Thus Far Had
Only Limited Success
• The Need for Big Systems Which Have Used Their
Market Power to Extract Higher Prices That Could
Outweigh Efficiency Benefits
Reform of The System Must
Avoid The Errors of The Past---
The Errors of The Past
• Providers (Physicians and Hospitals) Were
Required To Take More Financial Risk Than
They Could Afford or Understand--
• Individuals Were FORCED Into Plans They
Didn’t Chose and Didn’t Like-• Quality of Care Measures Were Limited So
Choice of Plan (By Employers) Was Based
Primarily on Costs
The Errors of The Past
• For Bundled Payments
– The Medicare DRG Payment System Only
Included Hospital Services
– The Medicare DRG Bundled Payment
System Only Covered Medicare
Beneficiaries
ACO’s and Bundled Payments Designed
To Avoid Problems of The 1990’s
• Providers Required To Assume Limited Risk
– ACO’s is a “Shared Savings System”. Each Groups
Starts From Their Current Spending Levels and
Downsides Risk Limited
• Patients Will Not Be Locked Into a Delivery System They
Don’t Trust
– Patients Need to Sign Up With PCP But Can Change
PCP or Network With No Penalty
• Attaining or Exceeding “Quality Standards Provider
Eligibility for Payment Depends on ”
– Debate on What Quality Standards to Use Is Ongoing
ACO’s and Bundled Payments
Designed To Avoid Problems of The
1990’s
• The Medicare Bundle Will Include
Physicians Services and Post Hospital Care
In Addition to Hospital Services (It does
Not Include Pre-Hospital Care)
• Medicare is Encouraging (But Not
Requiring) Non-Medicare Patients to Be
Included in Future Bundled Payment
Systems
Many Employers and Private
Health Plans Supporting
Demand Side Approaches
Fastest Growing Private Insurance Are
High Deductible and Preferred Provider
(PPO) Plans That Use Fee-for-Service
Payments
Distribution of Health Plan Enrollment for Covered Workers, by Plan
Type, 1988-2012
Conventional
1988
HMO
PPO
POS
HDHP/SO
73%
1993
16%
46%
1996
27%
1999
10%
2000
8%
2001
7%
21%
31%
11%
26%
7%
28%
28%
14%
39%
29%
24%
42%
24%
21%
46%
23%
2002
4%
27%
52%
18%
2003
5%
24%
54%
17%
2004
5%
25%
2005
3%
21%
2006
3%
20%
2007
3%
2008
2%
2009
1%
20%
2010
1%
19%
2011
1%
2012
<1%
55%
61%
8%
12%
60%
8%
10%
58%
56%
5%
13%
58%
55%
4%
13%
57%
20%
16%
15%
60%
21%
17%
15%
8%
10%
9%
13%
17%
19%
NOTE: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local
government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer-Sponsored Health Benefits for additional information.
SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2012; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.
Demand Side Approach Push
Consumers and Payers To Find
Lower Cost Providers
Penalize Providers That Voluntarily
Cut Use of Expensive Services
But Confusion About The
Different Incentives Could Lead
to Total Shutdown By Providers
To Lower Costs
Need to Develop a Common
Approach
Although Many Use PPO Insurance and
Fee-for-Service Payment--- Offer Bonuses
For Providers That Spend Less Than Target
States Can Help Private
Insurance Expand The Use of
The “PPO Attribution Global
Payment System”
The Massachusetts
Story
Healthcare In Massachusetts
Highest In U.S.
Quality of Care and Access Also
Better In Massachusetts But Systems
Need To Become More Efficient
Massachusetts Continues To Spend a Greater Proportion of State Income on
Healthcare In Comparison To U.S.
Personal health care expenditures* relative to size of economy
Percent of respective economy†
MA (CMS NHE)
20.0%
US
19.0%
MA (estimated)‡
18.0%
16.8%
17.0%
15.8%
16.0%
15.0%
15.2%
15.1%
14.0%
13.0%
12.2%
12.0%
11.0%
11.7%
10.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
* Personal health care expenditures (PHC) are a subset of national health expenditures. PHC excludes administration and the net cost of private insurance, public health
activity, and investment in research, structures and equipment.
† Measured as gross domestic product (GDP) for the US and gross state product (GSP) for Massachusetts
‡ CMS state-level personal health care expenditure data have only been published through 2009. 2010-2012 MA figures were estimated based on 2009-2012 growth
rates provided by CMS for Medicare, ANF budget information statements for MassHealth, CHIA, and pre-filed testimony from commercial payers.
Source: Centers for Medicare and Medicaid Services; ANF; CHIA; pre-filed testimony from commercial payers for 2013 annual cost
trends hearing; HPC analysis
Massachusetts Legislature Passes
Compromise Cost Containment
Legislation
(August of 2012)
Stops Short of
Regulating Payments
29
Chapter 224: Cost Control & Payment Reform
Alternative
Payment
Models
Medicaid
Payment
Reform
Annual
Spending
Targets
Health
Workforce
Support
Review Provider
Price Variation
New State
Oversight
Bodies
Health IT
Requirements
Administrative
Simplification
Brandeis University
ACO
Certification
& Oversight
Health
Planning
Transparency
& Reporting
Requirements
Infrastructure
Support
30
Spending & Delivery Reform Oversight
Health Policy Commission*
(11-member board)
Community
Hospital
Improvement
Fund
Executive
Director and
Staff
Payment
Reform Fund
Center for Healthcare Information and Analysis
* In EOHS but not subject to EOHS control. Exempt from state civil service requirements and pay scales.
The Role of The Health Policy
Commission
• Help Providers of Care Find Ways to Lower
Costs Through Efficiencies
• Help Payers Change The Way They Pay To
Promote Value-Based Care
• Help Consumers and Patients Know What The
Need and What Insurance and Care Costs
• Assure That Any Restructuring or
Consolidation of Healthcare Market Helps The
Public
Commission Is Committed To
Working With Health Plans and
Providers To Develop Payment
Systems That Reward Value
But---Commission Is Not a
Regulatory Body---
Ultimate Responsibility
Still Within Private Sector!
Brandeis University
34
Reaching The Goal of The
Law--- Keep Future Growth In Line
With State Growth In Income
Massachusetts Statewide Heath Care
Spending Targets (All Payer)
Billions
5.9%/yr
3.1%/yr
6.2%/yr
3.6%/yr
Source: Author’s calculation based on historical state spending estimates and projected national health spending growth from
the CMS Office of the Actuary and targets set forth in Chapter
224.University
Brandeis
HPC is Like The Health Systems
Mother---
We Keep Reminding The System to
Eat It’s Vegetables
If System Doesn’t Listen To It’s
Mother---?
What Could Be Next!!!
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