Business & Tech

State makes headway in limiting health care spending, report shows

Massachusetts State House
David L Ryan/Globe Staff
The Massachusetts State House

Massachusetts made progress in controlling health spending last year, according to a state report issued amid a swirling debate over how best to rein in costs.

Total spending on health care grew an estimated 2.8 percent in 2016, more quickly than inflation and wages but well below the state’s goal, set in law, of holding spending increases below 3.6 percent a year.

Spending moderated compared with 2015, when it increased 4.8 percent, according to an analysis released Wednesday by the Center for Health Information and Analysis, a state agency.

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Overall, Massachusetts spent $59 billion on health care in 2016, or $8,663 per person.

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That included spending through commercial insurance companies as well as Medicare and Medicaid.

Stuart Altman, chairman of the state Health Policy Commission, a watchdog agency that monitors costs, said he was pleased that spending moderated last year, but he stressed the state must remain vigilant.

“We still have high spending rates, we still have populations that really can’t afford their insurance — but we’re headed in the right direction,” said Altman, a health economist at Brandeis University.

Several factors appear to be contributing to lower rates of health spending than in past years. Employers, which pay a large portion of health insurance costs for their workers, are demanding smaller premium increases, Altman said. That has driven insurers to give smaller pay increases to doctors and hospitals.

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Taxpayer-funded health programs, particularly Medicaid, which insures the poor, also are limited in how much they can pay for medical services. So doctors and hospitals are being forced to more aggressively control their costs.

In addition, Massachusetts enacted a 2012 law to push the health care industry to curb costs, in part by setting a target of keeping health spending increases in line with economic growth, projected at 3.6 percent.

The new report shows that over the last four years, state spending on health care has just barely stayed under that threshold, growing at an average of 3.55 percent annually.

The state benchmark is set to tighten to 3.1 percent beginning in 2018.

The 2012 law also established the Health Policy Commission and the Center for Health Information and Analysis, sister agencies that track health care data and study costs and the quality of care.

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Massachusetts is home to many prestigious hospitals, but it is also among the most expensive states in the country for health care — something many politicians have sought to tackle.

Governor Charlie Baker floated several proposals earlier this year to curb health costs, particularly in the state Medicaid program, or MassHealth, which costs some $16 billion annually. Baker wanted to change certain MassHealth eligibility rules and halt new insurance mandates, among other moves.

Legislators have not adopted Baker’s ideas, but Senate leaders are working on their own health care cost bill.

Prescription drugs were the fastest-growing segment of medical spending last year, rising 6.4 percent, according to the state report.

Spending on outpatient hospital services increased 5.5 percent.

Lynn Nicholas, president of the Massachusetts Health & Hospital Association, said this probably reflects the fact that hospitals are shifting more care from inpatient to outpatient facilities.

“If the increase stems from transitions of care from higher cost settings to lower cost settings, it may indeed be a logical trend, but needs to be better understood,” Nicholas said in a statement.

Doctors and hospital services accounted for $30.9 billion, the bulk of all health spending in 2016.

Prescription drugs totaled $9.2 billion.

“Increases in prescription drug spending remain an ongoing challenge,” Lora Pellegrini, president of the Massachusetts Association of Health Plans, said in a statement.

“As [insurance] premiums reflect the cost of care, it is critical to address rising drug prices, along with increases in the cost of hospital outpatient care and other services charged by providers.”

The drug industry has come under fire recently for charging steep prices for many drugs, and some politicians want to limit drug prices. But Robert K. Coughlin, president the Massachusetts Biotechnology Council, noted that spending on prescription drugs in Massachusetts grew more slowly in 2016 than in 2015.

“This significant drop happened without any governmental involvement,” Coughlin said in a statement. “The market based system incentivizing the continued research and development of new, breakthrough medicines is working as intended.”

While overall health spending seems to be moderating, it might not be felt by patients and consumers. The state report said consumers’ share of health care costs grew 4.4 percent, faster than wages.

State health officials cautioned that their 2016 health spending estimates could change, as insurers are still calculating exact expenditures for the year.

For example, the 2015 figure for spending growth was revised upward on Wednesday, to 4.8 percent from 4.1 percent.

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.