1. The Importance of State
Involvement In Controlling
Health Spending
Stuart H. Altman
Sol Chaikin Professor of Health Policy
The Heller School for Social Policy and Management
Brandeis University

2. Involvement Need Not Mean
REGULATION
But It Might!!!

3. States Being Pushed to Be
Concerned About TOTAL (Not
Just Medicaid) Health Care
Spending--Why--- Problem of Rising
Private Insurance Premiums

4. The Cost-Shift Issue---

5. 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.

6. State Regulation of Health Care
Spending Not New
All But Maryland Dropped All-Payer
Rate Regulation Because of PushBack By Hospitals and More Liberal
Medicare Payments

7. While Past Efforts Failed--We Cannot Give Up---Failure
Has Serious Consequences

8. High Premiums Limiting Worker
Compensation and
Employment!

9. Cumulative Increases in Health Insurance
Premiums, Workers’ Contributions to Premiums,
Inflation, and Workers’ Earnings,
2000-2010
16 0%
147%
14 0%
12 0%
103%
114%
10 0%
88%
80 %
60 %
36%
40 %
24%
20 %
0%
27%
21%
20 00
20 01
20 02
20 03
20 04
20 05
Notes: Health insurance premiums and worker contributions are for family premiums
based on a family of four.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011.
Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual
Inflation (April to April), 1999-2011. Bureau of Labor Statistics, Seasonally Adjusted
Data from the Current Employment Statistics Survey, 1999-2011 (April to April).
20 06
20 07
20 08
20 09
20 10
Healt h I nsur an ce Pr em i um s
Workers' Con t rib ut i on t o Pr emi um s
Workers' Earn in gs
Ov er all I nf lat i on

10. The Primary Issue--Should States Promote More Effective
Market Activities or Develop
“All Payer” Regulatory System

11. If Markets Are to Work!
Need to Foster a “Value-Based”
Delivery System

12. “Value-Based” Services Link
Together Services That Improve
Quality (Including Positive
Outcomes) With Commensurate
Costs

13. Concerns About Current System
• Care Often Delivered in an Uncoordinated and
Fragmented Way
–
–
–
–
Lack of Information Sharing
Duplicative Testing
Poor Care Coordination
Mismanaged Care Transitions
• Limited Use of “Cost Effectiveness” in How
We Use and Pay for Services
• Few Constraints on Prices for New Drugs
and Devices

14. Accountable Care Organizations
(ACO’s) and Bundled Payment
System Being Promoted to Change
Current System

15. ACO’s and Bundled Payments Offer
Some Real Opportunities --• They Encourage Integration of Care
• Where Possible Substitute Less Expensive for More
Expensive Care
• Reduce the Use of Marginal and Ineffective Care
• Limit the Stockpiling of Substitutable types of
Services
– They Facilitate the Working Together of Hospitals,
Physicians , Post Acute Care and Other Health
Professionals
– They Lower the Cost of Expensive Treatments
– Bundled Payments Can Be an Interim Step To a
Global Payment System

16. Why ACO’s and Bundled
Payments
• They Allow Providers to Decide What is
Appropropriate 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

17. But To Succeed We Need
to Avoid The Errors of
The Past?

18. 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

19. 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

20. 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 ”

21. 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

22. Key To Success of ACO’s
An Effective Primary Care System
(Many Specialty Groups Wary of a
Return to the 1990’s)
1990’s

23. The Key To Making Bundled
Payment Work
Control Post-Acute
Care Spending!!!

24. Avg. 2008 Medicare Payment for In-Hospital Care
for Select DRGs
Source: RTI Inc, Post-Acute Care Episodes: Expanded Analytic File, June 2011
24

25. 2008 Medicare Acute and Post-Acute Payments
for Inpatient-Initiated 90-Day Episodes
Source: RTI Inc, Post-Acute Care Episodes: Expanded Analytic File, June 2011
25

26. Major Concerns of Current
Environment
• ACO’s and Bundled Payments Use “Shared
• Savings” Approach and Not “Fixed Budgets”
• Both Approaches are Voluntary
• Patients Have The Right to Opt Out of ACO’s
• Many Important Systems Not Participating

27. Nevertheless States Need To Be
Active Participant In Promoting
These New Delivery System
Options
Limit Regulatory Hurdles and Provide
Financial Assistance to Financially
Stressed Systems (Because of
Unfavorable Payer Mix)

28. But States Need to Guard Against
Big Integrated System Using Market
Power To Extract Higher Private
Payments

29. Letting Private Market
(Commercial Insurers and
Individual Providers) Set Rates
Can Lead to Significant
Differences in Payment
Amounts
Are They Justified?
29

30. The Massachusetts
Story
Brandeis University
30

31. Relative 2008 Massachusetts Blue
Cross Hospital Payment Rates
Source: BCBSMA data submitted to the attorney general. Red = teaching hospitals.
31

32. Massachusetts First State To Pass
Universal Coverage Legislation
Commonwealth Has Long History of
Expanding Coverage and Regulating
Health Spending
Brandeis University
32

33. Private Sector (Insurers
and Providers) Join
Government Efforts to
Reform Health System
33

34. Expanded Activity In Private
Insurance Market
• After State Set Limits on Premium
Increase (Could Be Below Underlying Health
Service Trend)
– Insurers Restructure and Toughen
Payment Models
– Introduce Limited and Tiered Network
Plans
– Increase in High Deductible Plans
34

35. Major Healthcare
Providers Promote
Reform Delivery
System Changes
35

36. Massachusetts Enrollment in Global Payment
About 22 Percent of State Residents
Pioneer ACO*
Medicaid & Commonwealth Care
Medicare Advantage
Other
Tufts
HPHC
Commercial
Members
Blue Cross
Source: The Boston Globe, February 13, 2012. Figures for Pioneer ACO are estimated.

37. Massachusetts Legislature Passes
Compromise Cost Containment
Legislation
(August of 2012)
Includes Many Pieces
37

38. 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
38

39. Spending & Delivery Reform Oversight
Health Policy Commission*
(11-member board)
Distressed
Hospital Fund
$135M
Executive
Director and
Staff
Payment
Reform Fund
$11.5M
Center for Healthcare Information and Analysis
* In EOHS but not subject to EOHS control. Exempt from state civil service requirements and pay scales.

40. How Is The
Commission
Organized

41. Sub-Committees of Commission
Cost Trends and Market Performance
–
Quality Improvement and Patient Protection
Establish the annual health care cost
▪
Conduct annual cost trends
hearings and issue a final report on
health care trends.
Examine the impact of health system changes
on the quality of health care in the
Commonwealth, including the impact on
patient access to care, and on the providers
of health care, including front-line
practitioners and health care workers.
▪
Establish the role and responsibilities of the
Office of Patient Protection.
▪
Track the progress of efforts regarding
mental health coverage parity and ensure the
integration of mental health, substance
abuse disorder and behavioral health services
with physical care in the development of new
care delivery and payment models.
▪
Develop guidance relative to the prohibition
of mandatory overtime for hospital nurses.
growth benchmark for total health
care expenditures in the
Commonwealth.
–
–
–
41
Conduct cost and market impact
reviews of health providers and
health plans proposing significant
market changes to the health care
industry, considering the impact of
these changes on cost, access,
quality, and market
competitiveness.
Oversee the development and
implementation of performance
improvement plans for certain
providers and plans.

42. Sub-Committees of Commission
Care Delivery and Payment System Reform
–
–
–
Establish a provider organization
registration program.
▪ Develop and administer a competitive grant
program to enhance the ability of certain
distressed community hospitals to implement
system transformation.
Develop and implement standards for a
certification program of PatientCentered Medical Homes (PCMH) and
Accountable Care Organizations (ACOs)
and develop model payment standards
to support PCMHs.
▪ Develop strategies for engaging with various
Administer a competitive grant program
to foster the development and
evaluation of innovative health care
delivery, payment models, and quality
of care measures.
▪ Develop strategies for helping consumers
–
Coordinate the advancement, adoption,
and measurement of alternative
payment methodologies.
–
Coordinate with the DOI regarding the
development of regulations relative to
the certification of risk-bearing
provider organizations.
42
Community Health Care Investment and
Consumer Involvement
constituencies and a communications plan for
educating providers, businesses, consumers,
and the general public regarding the
implementation of Chapter 224.
navigate health care cost and quality.
▪ Conduct an investigation relative to increased
adoption of flexible spending accounts, health
reimbursement arrangements, and health
savings accounts.
▪ Work with other state agencies to minimize
duplicative requirements.

43. Reaching The Goal of
The Law---

44. 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.
Brandeis University

45. States Must Also Be Mindful of
What Is Happening in National
Market

46. Average Annual Percent Change in National
Health Expenditures, 1960-2011
Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary,
National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type
of service and source of funds, CY 1960-2010; file nhe2010.zip).

47. Slow Down May Be Permanent
• David Cutler (Harvard) Believes Many Small
Positive Changes In Market
– Providers Becoming More Efficient
•
•
•
•
Less Hospital Acquired Infections
Reduced Re-Hospitalization
More Patient Cost Sharing
Greater Use of Limited and Tiered Insurance Networks
• States Becoming More Active In Slowing
Total Spending

48. The Recession is Only About One-Third of the
Slowdown
Real, per capita medical spending
In 2005 dollars
Actuary Forecast
Gap
Actual +
Recession
Actual
Source: Authors’ calculations based on data from the Bureau of Economic Analysis and the Centers for Medicare and Medicaid Services

49. Past Efforts To Control Spending
---Regulation in 1970’s
---Managed Care in 1990’s
Strong Negative
Reactions To Both

50. Current Improvements Likely To
Be More Positively Received

51. But---Most Policy Analysts Still
Very Skeptical !!!
What Happens If Strong Inflationary
Pressures Return?

52. Health Policy Commission
Not a Regulatory Body---
Ultimate Responsibility
Still Within Private Sector!
Brandeis University
52

53. HPC is Like The Health Systems
Mother---
We Keep Reminding The System to
Eat It’s Vegetables

54. BUT--- If Rates Shoot Up Again
What Could Happen?

55. What Could Be Next?
55

56. Which Would You Prefer?