Lessons From Massachusetts’ Failed Healthcare Cost Experiment

Massachusetts passed a massive medical cost control bill in 2012, a “Hail Mary” effort to make health-care more affordable in the nation’s most expensive medical market. The problems of the Massachusetts’ law offer invaluable lessons for the nation’s health-care struggles.

Driven in part by a Boston Globe investigation that exposed the likely collusion of the Partners Healthcare hospital system (including several Harvard Medical School teaching hospitals) with Blue Cross/Blue Shield, the largest healthcare insurer in the state, the law marked the biggest health reform since Romneycare in 2006. While most agree Massachusetts needed cost controls, there’s no evidence that the 2012 law has accomplished its goal—and these same failed policies have been folded into the national Affordable Care Act.

Romneycare, Massachusetts’ universal health-care law, already lacked effective rules to control the rapid growth of state medical costs. That, paired with the Boston Globe’s exposure of the likely collusion between Partners Healthcare, the largest hospital system in New England, and Blue Cross Blue Shield to raise health care payments to hospitals and doctors by as much as 75 percent, led to passage of a hefty, 349-page cost-control law in 2012. The legislation included a dizzying number of committees, an uncoordinated “cost containment” process, and dubious quality-of-care policies, like “pay-for-performance,” a program that pays doctors bonuses for meeting certain quality standards, like measuring blood pressure. These incentives might make sense in economic theory, but have failed repeatedly in well controlled studies. They’ve even created perverse enticements, such as some doctors avoiding sicker patients. The cost control law also encouraged widespread use of expensive electronic health records, even though there’s no evidence that they save any money.

Additional policies in the law are “accountable care organizations” (ACOs) and “alternative quality contracts,” programs that pay doctors for staying under an arbitrary budget and penalize them for going over it. But the best studies show, again, that these policies actually increase costs if you count the expense of implementing them. In fact, most of the hospitals in the federal government’s “Pioneer ACO” program have dropped out, including Dartmouth Hitchcock, the famous medical center, associated with Dartmouth College, that initially coined the term “ACO.”

Given the MA cost control law’s outcomes so far, we should be very skeptical about its projected savings. Suffice to say, the law is too complex, unwieldy, contrary to evidence and, worse, doesn’t have the teeth (e.g., regulating price) to enforce cost reductions among the most powerful medical providers. Nancy Turnbull, one of the architects of Massachusetts’ health reform and a member of the board of its insurance exchange, told the New York Times in 2012 that the law “was not nearly what we need to deal with the market power and the unjust price differences that result.”

So how has the law’s repeated disappointments been described to the public? Recently, a front-page, above the fold story in the Globe suggested the law resulted in a “slower rise in health spending” in 2015—which amounted to a decrease of 0.3 percent from the previous year. Researchers often doubt such tiny effect sizes and for good reason. They usually aren’t real. But even worse, the Globe’s “analysis” relies on just two data points, both from years after the 2012 law passed. Had the Globe’s story begun with data from before the law’s enactment, (see graph below) it would have shown that per-capita health-care spending growth actually increased by more than two percentage points since the policy began. This month, the Globe again wrongly reported that new data in 2016 shows the state has helped reduce health-care spending. The data from the last few years contrasts with the previous decade, when health-care cost growth had been declining steadily. Thus it’s unlikely that the tiny changes in costs from 2014-2016 had anything to do with the new cost control effort. And the average annual cost growth over the last three years is still about twice the level at the time the law passed.

This figure, with more complete data, shows that between 2002 and 2011, the year before the law, there was a much greater decline in Massachusetts healthcare cost growth—from 9 percent annual per capita growth to under 4 percent. The tiny changes in the growth rate from 2014 to 2016 (years after the law) is not evidence that the 2012 state law reduced costs, because cost growth in those years was still twice as high as it had been in 2012 and 2013.  In addition, the reporting did not even mention the start of Obamacare regulations less than two years before the MA cost control law, so it is impossible to know whether these policies caused the increase in health care costs observed in the graph. This untrustworthy analysis could fool Massachusetts policymakers and citizens into thinking that its policies were working, or convince other states to follow Massachusetts’ model.

The Massachusetts cost control law has not fulfilled its promise to “bend the cost curve.” If anything costs have gotten higher. The commission set up by the law “may encourage, cajole, and, if needed, shame [providers] into doing their part to control costs. “But this is insufficient to fundamentally change the behavior of the systems with the most market power. Charges for a single aspirin pill in a hospital can be higher than $25, but only pennies at the local drug store. It is already clear that the health care cost crisis is threatening the viability of essential government services from education to defense. To make matters worse, the state’s largest newspaper acts as the law’s cheerleader without even considering the history of health care costs that clearly shows the law’s shortcomings.

So what should be done now? In the near term, the legislature should consider much stronger cost controls that do not rely on the voluntary cooperation of hospitals or on market-based incentives and penalties. The state (and nation) must abandon ineffective, wasteful “alternative payment arrangements” that save miniscule dollars while costing delivery systems billions. Massachusetts and the nation need effective, negotiated price controls that fairly compensate hospitals but do not allow a few elite institutions to receive excessive reimbursement. But the current Republican health plan would retain all the failed aspects of Obamacare, while dropping the parts of the law that gave millions of poor Americans access to health-care.

There are better solutions: Our political system thus far has rejected government-run, single-payer systems, like the British National Health Service and Canada, but there are plenty of private, market-based models in Europe that provide better care to their citizens at half the cost. They rely on straightforward price controls, negotiated between the private and public sectors—not more failed market incentives. Germany’s system, for example, relies on hundreds of competing health insurers. The key difference is the use of medical fee schedules (price controls) that are negotiated between provider associations and insurance programs that prevent the kind of price fixing uncovered by the Globe. Switzerland has similar arrangements. The companies compete on quality of service and efficiency. Germany and Switzerland have managed to avoid most of the costly deductibles and copayments that keep health-care out of reach for ordinary Americans: no prohibitively expensive $10,000 deductibles (which is more than most Americans have in savings), as allowed under the ACA. The US could choose the best aspects of these successful plans that fit our culture and our health care environment.

Ten years ago, Massachusetts built the model for the nation’s health reform law, which then expanded health care to more than 22 million Americans and offered needed protections to America’s population, e.g., removal of pre-existing condition restrictions, free mammograms, and the ability to insure adult children. But we remain the only developed country in the world that fails to provide care to all its citizens. And we allow costs to grow at unsustainable rates. Rather than wait for the implosion of our medical system, Massachusetts must again lead by example in the nation’s polarized health reform debate—this time, by establishing affordable health-care as a right for all its residents.

Stephen Soumerai is Professor of Population Medicine and teaches research methods at Harvard Medical School.

Professor Ross Koppel teaches research methods and statistics in the Sociology department at the University of Pennsylvania and is a Senior Fellow at the Leonard Davis Institute (Wharton) of Healthcare Economics.

Marina Bolotnikova is an associate editor at Harvard Magazine.

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