How Massachusetts’ Benchmark Impacted Healthcare Cost Growth

Massachusetts’ statewide benchmark for healthcare cost growth has generally helped curb increases in healthcare spending, but its influence has dwindled over time due to poor accountability mechanisms, according to a study from the Peterson Center on Healthcare and Gates Ventures.

Massachusetts was the first state to pass legislation establishing a statewide benchmark for healthcare cost growth in 2012. The benchmark aims to set a target for the annual rate of increase in healthcare spending, tying it to the expected growth in the state’s overall economy.

The law also established the Health Policy Commission (HPC), which monitors payer and provider compliance with the benchmark through accountability mechanisms. Mechanisms include annual Cost Trends Reports and Cost Trends Hearings, Cost and Market Impact Reviews (CMIRs), and Performance Improvement Plans (PIPs).

Researchers interviewed 50 stakeholders involved in Massachusetts’ cost growth benchmark initiative between November 2021 and March 2022 to determine the benchmark and HPC’s influence on controlling healthcare cost growth. The report also identified considerations for other states implementing similar initiatives.

Based on stakeholder feedback, the benchmark helped curb healthcare cost growth across the state. It influenced contract negotiations between payers and providers and increased providers’ willingness to join accountable care organizations (ACOs).

However, respondents said that the benchmark’s ability to constrain spending growth has waned over time because HPC’s accountability mechanisms do not adequately address major drivers of cost increases. For example, when providers were not penalized for exceeding the benchmark with their charges, they may have been less inclined to keep cost growth below the target.

The Annual Cost Trends Hearings, which aim to gather leading stakeholders to examine cost growth trends, is a critical mechanism to increase transparency around healthcare costs. However, respondents reported that public attention to the hearings has faded, and stakeholders’ responses to questions have become vaguer.

The annual Cost Trends Reports have helped generate policy recommendations that influence legislation, such as laws that limit surprise billing.

But respondents noted that few HPC recommendations have been incorporated into legislation. In addition, they said that policy recommendations should be more aligned with cost-containment strategies that payers and providers could implement.

CMIRs analyze the impact of proposed mergers and acquisitions and are considered HPC’s strongest mechanisms for preventing consolidation in the healthcare industry. But most study respondents did not think CMIRs slowed the consolidation trend.

On the other hand, there have been fewer acquisitions of general acute care hospitals and hospital system mergers over time, indicating the potential success of CMIRs. Providers also noted that knowing a CMIR might be required influences their decision on proposing a merger.

PIPs are required when HPC identifies excessive spending growth from a healthcare entity. PIPs include the main drivers of spending growth and strategies to address them. However, HPC did not require any entity to submit a PIP until 2022, leading respondents to believe the process was ineffective.

While Massachusetts’ benchmark has helped constrain cost growth, respondents agreed that HPC’s accountability mechanisms have become less influential over time.

“The findings from this study highlight important lessons and raise considerations for policymakers in other states about designing and using mechanisms to hold payers and providers accountable for keeping health care spending growth below the benchmark,” researchers wrote.

For example, state policymakers should consider which entities can hold stakeholders accountable and if benchmark laws should consider healthcare spending levels as well as growth. Additionally, policymakers must decide the resources needed to implement accountability mechanisms and establish penalties and incentives for compliance.