Massachusetts to crack down on highest-cost hospitals, insurers

Massachusetts providers and insurers that have exceeded the state’s cost-growth benchmark will receive more aggressive oversight, the Massachusetts Health Policy Commission said during its board meeting Wednesday.

Hospital executives urged the HPC to adjust the 3.1% cost growth benchmark in light of the COVID-19 pandemic. While the commissioners said they will take those considerations into account, they voted to hold the benchmark at 3.1% and double down on performance improvement plans, particularly for organizations that have repeatedly and egregiously exceeded the benchmark.

“I think market participants are concluding that there is not much of a consequence to going above the benchmark, which the state had not intended,” commissioner David Cutler said during the meeting, adding that the HPC should consider more stringent performance improvement plans. While it’s a last resort, noncompliance could result in a fine up to $500,000.

Massachusetts healthcare costs increased by 3.6% and 4.3% in 2018 and 2019, respectively. Commissioners echoed Cutler’s sentiment that the HPC should “dig deeper” on organization-specific performance improvement plans to curb spending increases. Michael Chernew, health policy professor at Harvard Medical School and the director of its Healthcare Markets and Regulation Lab, proposed capping fee-for-service prices at last month’s meeting.

Other states, including Oregon, have either implemented or are exploring cost-growth benchmarks. They will likely follow Massachusetts’ lead when it comes to oversight.

“If there was ever a time to step back and reflect on the implications of accepting ever-increasing costs, now is the time,” commissioner Chris Kryder said. “We know we can’t keep going at (3%-plus) because if we do, healthcare costs will be well on their way to more than 20% of the Commonwealth GDP.”

The HPC also published an interim report on how COVID-19 impacted the Massachusetts healthcare system.

Median hospital margins, including federal and state COVID-19 relief funds, ranged from 1.4% for community hospitals to 6.4% for teaching hospitals in 2020, according the report. Most hospital types saw their margins drop from 2019 to 2020, excluding academic medical centers and community high public payers, although not all of the CHPPs reported their 2020 financial data.

Overall, fewer health systems had positive margins in 2020 than in 2019, with community hospitals taking the biggest hit.

Part of that stemmed from a 32% drop in inpatient volume from January to April 2020, although patients were sicker, which yielded higher reimbursement. Those that were admitted to the hospital were largely people of color, according to the report.

Emergency department visits, which are often primary referral sources for hospitals, were off 24% over the first nine months of 2020 compared with the prior-year period. Screenings, wellness visits, immunizations and other preventative care was down for both adults and children, which could lead to more acute conditions, physicians worry.

But the silver lining was that potentially avoidable ED visits were down 38% from April to September of 2019 to 2020 and behavioral healthcare largely shifted from the ED to telehealth.

Hospitals aimed to offset their losses with higher prices. Hospital prices increased 4.2% across all payers, with the biggest hikes directed toward commercial insurers.

“What’s happened is that the providers are making up for the reduced utilization by jacking up prices,” HPC Chair Stuart Altman said.

Meanwhile, insurers retained a greater amount of their premium income in 2020 than in the previous two years, although that didn’t factor in medical loss ratio rebates, researchers noted.

Listen to Modern Healthcare’s Beyond the Byline for more analysis on COVID-19’s impact on hospital finances.


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