Massachusetts Healthcare Cost Trends Report: Controlling Utilization Remains the Key to Controlling Medical Costs

The alarm for vigilance toward increasing medical costs has been sounded again, this time by the Massachusetts Division of Health Care Finance and Policy (DHCFP), which released a report entitled “Massachusetts Health Care Cost Trends” last week.This is part of a continuing evidence-based effort to document the rising costs of healthcare in the Commonwealth.A previous report by Massachusetts Attorney General Martha Coakley brought us one side of the cost issue, presenting the considerable variation in pricing from various providers for identical services.This week’s report presents a different side of the costing dilemma, focusing on the dramatic cost increases both private and public payers have absorbed over the past several years.

The report is worth browsing just for the detailed breakdowns by cost center, but I would like to note three findings from this report that I believe are worth consideration when developing payer strategy over the next few years.First, this report found that private payer costs are not only increasing, but that the rate of increase nearly doubled from 2008 (5.7%) to 2009 (10.3%).Second, the increase in costs for private payers from 2008 to 2009 was almost exclusively driven by increases in fees passed on by providers.And, third, the principal driver of Medicaid spending (MassHealth) is increased utilization, particularly of imaging services (up 40% in 2008), as well as of professional and inpatient services, in general.

This seems to suggest a couple take-aways, the first being that despite substantial reporting of the variation in pricing contracts between providers, providers retain considerable market power.(Cost containment hearings scheduled for the end of the month may shed light on this at the provider level, as discussed by the Commonhealth Blog, but without a serious overhaul to fee-for-service in the works, I’m lukewarm on the prospects of these hearings having a strong impact.)As payer costs continue to rise at increasing rates, private payers will be in the uncomfortable position of either restricting services or raising premiums, either of which could raise the ire of regulatory agencies, and both of which will leave the payer in an uncompetitive position.Even in Massachusetts’ state-mandated expanded pool of insured, cost increases cannot be absorbed indefinitely.

The second take-away, however, points the way to improvements in this situation.With limited market power to control provider pricing or limit consumer choices, the biggest impact payers can have on their medical costs is to reduce utilization.This applies to both private payers, who are being hit by price increases from their providers, as well as to Medicaid, which is saddled with increased utilization by their sicker, aging population.In both cases, decreasing service utilization is the key to reducing medical costs.And in both cases, decreases in utilization cannot come without improved patient outcomes.I remain convinced that this comes back to active patient panel management by PCP’s who use comprehensive information about their patients’ health history help to break this cycle.By providing specialized preventative care and interventions for patients with chronic conditions, they avoid more costly future interventions.And by identifying sources of unproductive medical cost, such as avoidable re-hospitalizations, they reduce the cost to payers and reduce the strain on their own system.

Although this may seem like an obvious point, there are still relatively few structures in place to encourage reduction in use of services, and particularly to shift the focus toward outcomes.This same report points out that support for capitation and global payment systems continues to erode in Massachusetts, even as national consensus appears to converge on the view that an alternative to the traditional fee-for-service payment system is essential to creating real incentives for more efficient healthcare focused on improved outcomes and reduced costs.Some headway has been made with programs like Blue Cross Blue Shields’ Alternative Quality Contract, but without access to true quality metrics, most payers are in the dark with regard to outcomes, with only their claims data to provide a retrospective view of patient condition.

If we may take an optimistic view from this report, by once again drawing attention to the rising costs of care and the rising level of utilization, it also highlights the importance of creating the right environment for genuine payment reform and more efficient utilization of medical resources.This will only be possible when payers and providers both share and have access to trusted and actionable information about their patients.Perhaps by presenting this none-too-happy picture of the financial state of health care in Massachusetts, DHCFP will help bring payers and providers to the table to create the sort of collaborative changes that make such information sharing possible.