July 28, 2014

Health Reforms in Massachusetts and Maryland May Hold Lessons for Rest of U.S.

The growth in health care spending has slowed in recent years but could speed up again as the economy strengthens and the population ages. Even with slower growth rates, however, federal and state governments need to pursue reforms and innovations to keep public health programs sustainable.

Massachusetts and Maryland are at the forefront of such efforts. Officials in other states and the nation’s capital should watch how the experiments in these two states turn out and consider what lessons they may hold.

Maryland regulators recently received approval from the Center for Medicare and Medicaid Services (CMS) to limit the growth in hospital spending for each of the next five years to 3.58 percent. That is the state’s average annual rate of per capita economic growth since 2002.

Maryland already has successful experience restraining growth in health care spending relative to other states because of a unique commission that sets the payment rates for all health insurers, including Medicare and Medicaid.

Under the new arrangement, to which hospitals and private insurance companies agreed, insurers will no longer pay hospitals for each individual service they provide. This “fee for service” system promotes excessive spending by rewarding the volume of services rather than of efficiency and results.

Starting this year, Maryland hospitals will instead receive “global payments” -- fixed amounts for providing care for communities or groups of patients. State officials hope this will encourage greater efficiency and coordination, ideally reducing unnecessary hospital admissions and expenditures.

The state’s rate-setting commission will be able to enforce the new rules and ensure that spending growth does not exceed the cap.

In Massachusetts, a law passed in 2012 limits the annual growth of health expenditures to the state’s economic growth. This followed the state’s landmark insurance reforms in 2006, which mandated health coverage for everyone in the state and served as a model for the federal Affordable Care Act (ACA).

Spending on health care in the state, already high before 2006, is currently the highest per capita in the country. Thus, the 2012 effort created a Health Policy Commission to monitor spending growth and keep it on track. While the commission has limited enforcement powers, it can develop improvement plans with certain payers and providers who contribute to excess spending growth.

The state has promised to switch Medicaid and other state health programs from fee-for-service to alternative payment methods. An encouraging report by the state commission recently found that private insurers and Medicare are using global payments for a small but growing number of people. Providers are also implementing other reforms to deliver more coordinated, patient-centered care.

Five providers have agreed to participate in the Accountable Care Organization (ACO) model. Created by the Affordable Care Act, ACOs are networks of providers that receive global payments and use new methods to care for groups of Medicare patients. If the Massachusetts ACO providers give quality care while spending less than expected, they and the payers share the savings.

While some positive changes have been made in the state, there is still room for improvement. The commission estimates that 21 to 39 percent of total state spending on health care could be considered wasteful.

It says providers and state health programs need to reduce preventable hospital readmissions and unnecessary emergency room visits. Providers can also improve how they coordinate care for high-cost patients and those with multiple conditions. The state could also show more leadership by improving its online health insurance exchange.

Massachusetts and Maryland deserve credit for undertaking ambitious initiatives to rein in the costs of health care while improving its quality. While much progress still needs to be made in both states, if they succeed in meeting their goals they could serve as models for the rest of the country.