An Unsustainable Path

The Massachusetts Health Policy Commission (HPC) recently voted to issue the 2023 Health Care Cost Trends Report and comprehensive policy recommendations.

Notably, the HPC reports that the average expense of employer-based private health insurance in 2021 climbed to $22,163, outpacing growth in wages and salaries. Including co-payments, deductibles, and out-of-pocket spending, healthcare costs for Massachusetts families neared $25,000 annually. The HPC found that 72% of small-business health-insurance plans featured deductibles exceeding $2,800 for families (or $1,400 for individuals) in 2021, with annual family premiums simultaneously surging from $16,000 to $23,000 since 2012.

The report highlights the unequal burden of these trends, finding persistent disparities across income and racial/ethnic groups, with nearly one in five lower-income residents having high out-of-pocket spending, for example, and significantly higher infant-mortality rates and rates of premature deaths from treatable causes among Black and Hispanic residents compared to other residents. To address these complex and interrelated challenges, the HPC calls for urgent action to update the state’s policy framework to more effectively contain cost growth, alleviate the financial burden of healthcare costs on Massachusetts families, and promote equity in access to care and outcomes for all residents.

“Policymakers do not have to choose between high-quality care and affordability. We have tremendous opportunities for transformative action to support patients and employers.”

“The 2023 Health Care Cost Trends report makes clear how we must do more in Massachusetts to provide more affordable and equitable access,” said Deb Devaux, HPC board chair. “Policymakers do not have to choose between high-quality care and affordability. We have tremendous opportunities for transformative action to support patients and employers.”

Among the report’s findings were that, on average from 2019 to 2021, total healthcare spending increased 3.2% per year, higher than the 3.1% healthcare cost growth benchmark. Commercial spending grew by 5.8% per year, far outpacing the national average in a reversal of prior years of relatively slower growth.

Commercial expenditures for prescription drugs and hospital outpatient care grew the fastest; the average price per prescription for branded drugs exceeded $1,000 in 2021, up from $684 in 2017, while the average commercial price for hospital outpatient services grew by 8.4% from 2019 to 2021.

The average price for many common hospital stays also increased, with most growing by 10% or more over the same period. The HPC estimates that, by eliminating excessive spending due to unreasonably high prices, overuse of high-cost sites of care, and overprovision of care, the Commonwealth could see systemwide savings of nearly $3.5 billion annually.

Policy Recommendations

With the report, the HPC announced nine policy recommendations.

“The residents of the Commonwealth deserve a policy framework equal to the novel challenges facing our healthcare system today,” said David Seltz, HPC executive director. “The recommendations in this report provide a roadmap for policymakers to equip the state with the tools it needs to constrain healthcare cost growth equitably and sustainably in a manner that meaningfully addresses existing disparities in access and outcomes.”

The HPC recommends the following reforms to reduce healthcare cost growth, promote affordability, and advance equity, with an emphasis on modernizing the state’s nation-leading benchmark framework.

• Modernize the Commonwealth’s benchmark framework to prioritize healthcare affordability and equity for all. As recommended in past years, the Commonwealth should strengthen the accountability mechanisms of the benchmark, such as by updating the metrics and referral standards used in the performance improvement plan (PIP) process and enhancing transparency and PIP enforcement tools. The state should also modernize its healthcare policy framework to promote affordability and equity, including through the establishment of affordability and equity benchmarks.

David Setz

“The residents of the Commonwealth deserve a policy framework equal to the novel challenges facing our healthcare system today.”

• Constrain excessive provider prices. As found in previous cost-trends reports, prices continue to be the primary driver of healthcare spending growth in Massachusetts. To address the substantial impact of high and variable provider prices, the HPC recommends the Legislature enact limitations on excessively high commercial provider prices, require site-neutral payments for routine ambulatory services, and adopt a default, out-of-network payment rate for ‘surprise billing’ situations.

• Enhance oversight of pharmaceutical spending. The HPC continues to recommend that policymakers take steps to address the rapid increase in retail drug spending in Massachusetts with policy action to enhance oversight and transparency. Specific policy actions include adding pharmaceutical manufacturers and pharmacy benefit managers (PBMs) under the HPC’s oversight, enabling the Center for Health Information and Analysis to collect comprehensive drug-pricing data, requiring licensure of PBMs, expanding the HPC’s drug-pricing review authority, and establishing caps on monthly out-of-pocket costs for high-value prescription drugs.

• Make health plans accountable for affordability. The Division of Insurance (DOI) should closely monitor premium growth factors and utilize affordability targets for evaluating health-plan rate filings. Policymakers should promote enrollment through the Massachusetts Connector and the expansion of alternative payment methods (APMs). Lower-income employees should be supported by reducing premium contributions through tax credits or wage-adjusted contributions.

• Advance health equity for all. To address enduring health inequities in Massachusetts, the state must invest in affordable housing, improved food and transportation systems, and solutions to mitigate the impact of climate change. Payer-provider contracts should promote health equity via performance-data stratification and link payments to meeting equity targets. Payers should commit to the adoption of the data standards recommended by the Health Equity Data Standards Technical Advisory Group, and efforts should be made to ensure that the healthcare workforce reflects the diversity of the state’s population.

• Reduce administrative complexity. The Legislature should require standardization in payer claims administration and processing, build upon the momentum from recent federal initiatives to require automation of prior authorization processes, and mandate the adoption of a standardized measure set to reduce reporting burdens and ensure consistency.

• Strengthen tools to monitor the provider market and align the supply and distribution of services with community need. The HPC recommends enhanced regulatory measures including focused, data-driven assessments of service supply and distribution based on identified needs and updates to the state’s existing regulatory tools, such as the Essential Services Closures process, the Determination of Need (DoN) program, and the HPC’s material change notice oversight authority.

• Support and invest in the Commonwealth’s healthcare workforce. The state and healthcare organizations should build on recent state investments to stabilize and strengthen the healthcare workforce. The Commonwealth should offer initial financial assistance to ease the costs of education and training, minimize entry barriers, explore policy adjustments for improved wages in underserved areas, and adopt the Nurse Licensure Compact to simplify hiring from other states. Healthcare delivery organizations should invest in their workforces, improve working conditions, provide opportunities for advancement, improve compensation for non-clinical staff (e.g., community health workers, community navigators, and peer recovery coaches), and take collaborative steps to enhance workforce diversity.

• Strengthen primary and behavioral healthcare. Payers and providers should increase investment in primary care and behavioral health while adhering to cost growth benchmarks. Addressing the need for behavioral-health services involves measures such as enhancing access to appropriate care, expanding inpatient beds, investing in community-based alternatives, aligning the behavioral-health workforce to current needs, employing telehealth, and improving access to treatment for opioid-use disorder, particularly in places where existing inequities present barriers.

Key Findings

Prices continue to be the primary driver of healthcare spending growth in Massachusetts. In the report, the HPC identifies price, rather than utilization, as the primary driver of the increase in spending. Commercial prices grew substantially from 2018 to 2021, with an 8.8% increase for office-based services, a 12.1% rise for hospital outpatient services, and a 10.2% uptick for inpatient care. Total payment per hospital discharge for commercially insured patients grew by 23% between 2017 and 2021, primarily driven by a 34% price increase for non-labor-and-delivery discharges.

HPC’s analyses of excess spending found that private insurers paid providers more than twice what Medicare would have paid for nearly 40% of all lab tests and imaging procedures in 2021. Taken together, commercial spending on lab tests, imaging procedures, inpatient hospital stays, clinician-administered drugs, endoscopies, prescription drugs, and certain specialty services accounted for 45% of commercial spending. Among this spending, 27% was in excess of double what Medicare would have paid (or 120% of international drug prices), equivalent to approximately $3,000 annually for a family with private insurance.

Other findings include:

• Unnecessary utilization of care, such as procedures that could be performed in more cost-effective ambulatory surgery centers, care that provides no clinical benefit to patients, and low-risk births in academic medical centers that are reimbursed at higher rates than those in community hospitals, contribute to excessive spending.

• Administrative spending of both hospitals and insurers has increased substantially, with hospital administrative costs nearly doubling from 2011 to 2021 and insurers experiencing growth in administrative spending for both small- and large-group coverage.

• Escalating price trends are evident from 2018 to 2021, with commercial prices increasing for various services, including office services, hospital outpatient care, and inpatient services. Payments for inpatient hospital care grew by 23%, driven primarily by non-labor-and-delivery discharges.

• Variation in provider organization performance continues, with medical spending differing widely between major provider groups and the rate of avoidable visits and imaging utilization varying significantly.

• Massachusetts maintains the highest hospital-utilization rate for Medicare beneficiaries among all states, as well as higher statewide rates of inpatient stays, outpatient visits, and emergency-department visits. The Commonwealth also ranks among the highest in the nation in preventable hospitalizations and readmission rates.

• Between 2017 and 2021, primary-care spending grew more slowly than other medical spending, leading to a decrease in primary care’s share of total commercial spending. Meanwhile, significant disparities in access to primary care between low- and high-income communities persist.

• Behavioral-health trends show a substantial increase in psychotherapy visits and mental-health prescriptions among young adults, alongside a rise in the proportion of patients admitted to acute-care hospitals for mental-health conditions. While opioid-related hospitalizations declined overall, Black non-Hispanic residents experienced persistent increases until 2020.