THIS MONTH THE Center for Health Information and Analysis released its Annual Report on the Performance of the Massachusetts Health Care System, finding that between 2021 and 2022 health care spending in the Commonwealth increased by 5.8 percent to $71.7 billion, far greater than the 3.1 percent health care cost growth benchmark set by the Health Policy Commission and reaching the highest level since measurement against the benchmark began 11 years ago.

The report, like the dozens of state reports that have come before it, found that persistent increases in the prices that doctors, hospitals, and other providers charge, along with ever-rising pharmaceutical prices, threaten our state’s competitiveness and represent the main reasons for increases in health care premiums. 

While employers, particularly small businesses, grapple with the high cost of health care in Massachusetts, the prices charged continue to rise. And when hospitals, providers, and pharmaceutical manufacturers demand higher prices, health insurance premiums go up.

Despite decades of significant payments to hospitals, hospital spending rose to nearly $25 billion in 2022, among the highest in the nation. To compound this trend, health plans are routinely asked by hospital executives to increase their hospital’s reimbursement rates by as much as 20 percent to 30 percent per year, ignoring the state’s cost containment efforts and our state’s cost growth benchmark.

At the same time, pharmaceutical spending continues to skyrocket, increasing by over a billion dollars in a single year, while big pharma boasted an average 24 percent profit margin in 2022. These exorbitant price increases by hospitals and drug companies are no longer sustainable for employers and consumers and must end.

Massachusetts health plans have the strictest requirements in the country imposed on them, including how much must be spent on direct medical care, how much is allowable for administration, and how much profit or surplus can be earned in a single year.

If health plans fail to spend enough on medical care and spend too much on administrative functions, they must send rebates back to consumers. If health plans retain more than 1.9 percent in surplus, their rates can be rejected by the Division of Insurance. Annually, health plans must also attend a public information session to present their rates for the coming year and discuss underlying factors driving any premium increases. Hospitals and pharmaceutical manufactures have no such requirements.

With over 30 state reports that identify consistently that provider prices and drug costs drive health care spending, the Center for Health Information and Analysis findings make it clear that hospitals and pharmaceutical companies must do their part to rein in their costs and must have accountability like the regulations on health plans.

Some simple measures that would help bend the cost trend and should be considered by the Legislature include:

Strengthen the Health Policy Commission and Center for Health Information and Analysis: By transferring determination of need functions currently under the Department of Public Health’s purview to the Health Policy Commission, the Commonwealth will have more robust insight into health care transactions impacting the market. The HPC has developed the professional expertise to determine whether requested expansions, acquisitions, joint ventures, and mergers by hospitals and others will improve quality and lower costs, or whether they will simply provide an opportunity for a health care entity to increase market share and drive prices up.

The HPC should also be charged with statewide planning to ensure proposed projects meet the needs of the state and communities they serve and are not simply to increase market share. Likewise, entities under a performance improvement plan should not be allowed to expand. Further, hospitals and specialists, not just primary care practices, should be accountable to the cost growth benchmark.

Finally, health plans are required to comply with mandatory, uniform financial reporting to the Division of Insurance. Hospitals should be required to have similar detailed, mandatory reporting requirements. The Legislature should create a new Hospital Reporting and Analysis Division within the Center for Health Information and Analysis so that the agency can develop deeper, financial expertise to more robustly analyze the financial health of hospitals.

A strong oversight system, with mandatory reporting as a condition of licensure and steep penalties for non-compliance will ensure the legislature and policy makers have accurate insight into the financial health of individual hospitals.

End hospital practices that hurt patients and drive up prices: We must end hospital practices that hurt patients, like excessive provider pricing – defined as more than double what Medicare would pay for the same service. Excessive pricing contributes $3 billion annually to health care spending in Massachusetts and impacts 1 out of every 3 inpatient hospital stays and nearly 40 percent of lab services. Holding providers accountable for this excessive spending and rationalizing prices for the most expensive providers is vital.

Likewise, banning the practice of charging patients a “facility fee” and ending “surprise billing” by mandating an in-network default rate for out of network providers including anesthesiologists, emergency room physicians, pathologists, and radiologists is critical. Federal law in this area has been inadequate, and these providers continue to charge egregious prices for the services they deliver with many having private equity investors.

Finally, the HPC has found that Massachusetts hospitals have higher readmission rates and average lengths of hospital stays than their counterparts across the country. Massachusetts hospitals have also been identified as delivering low value tests or treatments that are not evidence-based in many instances. HPC should continue to pursue strategies to drive alternative payment systems like global payments to rout out these practices. Global payments will ensure we reward quality rather than volume.

Hold Big Pharma accountable for its role in health care costs: Ensure that the pharmaceutical industry, like providers and payers, is subject to the same transparency and oversight requirements, including annual reporting to the Health Policy Commission and the attorney general about their financial performance and participation at the state’s annual cost trends hearings.

When pharmaceutical prices increase without evidence to support the increase, drugmakers should be subject to a public hearing before the HPC to justify their price increases. Like health plans, pharmaceutical manufacturers should be subject to state oversight of financials, profit margins, and capital reserves.

Increase the primary care workforce: Hospital systems that own or contract on behalf of physicians should be required to reimburse primary care providers at rates that encourage physicians to enter primary care while ensuring that the system’s overall spending does not exceed the cost growth benchmark. To make this happen, hospitals will need to shift money from specialists to support primary care practices. Today, primary care providers are paid 50 percent to 75 percent less than specialists in most cases.

Leverage technology to make the administration of health care easier: Health plans and providers should work together to simplify the delivery of health care services by adopting technological solutions, such as automated prior authorization. To limit administrative spending, health plans should annually report publicly on services subject to prior authorization and remove any requirements that cease to add value.

Finally, attacks on the cost growth benchmark should be rejected. The benchmark was an essential component of the 2012 cost containment law, and it was widely supported by the business community and others. Without this critical tool, providers will demand steep rate increases that will go unchecked and health plans will lose another tool to try to hold providers accountable on health care costs.

To that end, HPC should continue to focus on the impact of the benchmark on the commercial market versus public programs to illustrate the impact that cost growth has on the commercial market and small businesses. 

We believe these steps will ensure a more effective and affordable health care system that will bend the cost trend for Massachusetts employers and consumers.

Lora Pellegrini is the president and CEO of the Massachusetts Association of Health Plans, which represents 14 health plans and two behavioral health organizations providing health care coverage to nearly 3 million Massachusetts residents. Jon Hurst is the president of the Retailers Association of Massachusetts and the head of the Retailers Association of Massachusetts Health Insurance Cooperative, the first non-profit small business health insurance cooperative authorized in 2012 by the state.