Business & Tech

Mass. sets tougher target for health spending

DORCHESTER, MA - APRIL 11: Dr. Elizabeth Maziarka reads a blood pressure gauge during an examination of patient June Mendez at the Codman Square Health Center April 11, 2006 in Dorchester, Massachusetts. Massachusetts Governor Mitt Romney is scheduled to sign a health care reform bill April 12 that would make it the first state in the nation to require all its citizens have some form of health insurance. (Photo by Joe Raedle/Getty Images)

Joe Raedle/Getty Images

In 2015, the state spent more than $57 billion on health care, or $8,441 per person. That includes spending on doctors, hospitals, and medicines.

It’s a test the Massachusetts health care system has failed two years in a row: restraining growth in medical spending to 3.6 percent. But undeterred, the state’s health care watchdog agency on Wednesday approved a more aggressive target, saying doctors and hospitals must do more to slash unnecessary costs.

The Health Policy Commission reset the limit to 3.1 percent a year, starting in 2018.

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The decision by the 11-member group was somewhat symbolic. Under state law, the benchmark would have dropped to 3.1 percent unless the commission voted to raise it. The agency’s primary role is to study and shine a spotlight on health care costs. It can also require organizations that exceed the spending target to submit detailed improvement plans.

But the group’s decision is still significant because hospitals and insurers use the spending target as a guide for negotiating contracts. The lower threshold sends a signal that the state remains focused on controlling health costs, despite changes that continue to roil the industry.

Massachusetts was first in the country to pass a law promoting universal health coverage more than a decade ago, which served as a model for President Obama’s Affordable Care Act. And the state is known around the world for its top teaching hospitals.

But medical costs here are among the highest in the nation and continue to rise, which prompted the passage of another state law in 2012; that law established the Health Policy Commission to monitor costs and set an annual target for containing spending. The commission includes health economists, physicians, and state administration officials. Employers and labor unions are also represented.

“Massachusetts has an obligation to the citizens of the Commonwealth to continue to curtail spending growth in order to have spending for other important things,” said Marylou Sudders, Governor Charlie Baker’s secretary of health and human services and a member of the Health Policy Commission.

Pat Greenhouse/Globe Staff

Commissioner Marylou Sudders, the state secretary of health and human services.

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Health care costs, particularly for the state’s Medicaid program for low-income residents, are a huge chunk of the state budget, and curbing spending is one of Baker’s top priorities.

In 2015 and 2014, the state failed to meet even the current spending target. And some health care providers, including doctors at the Massachusetts Medical Society, have balked at the lower number, saying it will reduce flexibility they need to navigate changes in the health care industry. The state has yet to release spending figures for 2016.

But commissioners unanimously agreed that a more aggressive cost control target is due. Their decision came after they heard testimony earlier this month from employers, insurers, consumer advocates, and other groups that advocated for a lower spending target.

“Some people would say it’s too ambitious. I would say in Massachusetts we’ve always been ambitious when it comes to health care,” said commissioner Richard C. Lord, president of the business group Associated Industries of Massachusetts.

The Massachusetts Medical Society said in a statement that it recognizes the importance of cost containment and will work with the commission to identify policies that help health care providers meet the target.

The hospital industry supports the new benchmark, said Lynn Nicholas, president of the Massachusetts Health and Hospital Association. “It’s aspirational, but we have to try,” she said.

But while commissioners said hospitals should not seek to lower spending by cutting staff, Nicholas said some job cuts are likely as hospitals work to streamline programs to provide better care. “If you simplify the process of health care, you will need less hands,” she said.

Massachusetts has struggled to control medical spending, according to the most recent state data. Spending rose 4.2 percent in 2014 and 4.1 percent in 2015.

The state spent more than $57 billion on health care that year, or $8,441 per person. That includes spending on doctors, hospitals, and medicines. Prescription drug costs are a growing piece of spending, but the state has little purview over pharmaceutical companies.

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The commission noted that the population is aging and older people tend to need more medical care, a trend that is likely to drive up spending. But it said the state still could save hundreds of millions of dollars if it improved care by reducing hospital admissions and taking other steps.

“We can have less [spending] without harming care if we’re really smart,” said commissioner Donald M. Berwick, a physician. “This involves change.”

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