Round two of Romneycare

August 7, 2012

In an unprecedented move, Massachusetts Governor Deval Patrick has signed into law a state-level cap on healthcare spending. This effort, which seeks to reduce the cost and raise the quality of healthcare in the state, is an extension of the universal healthcare system that former Governor Mitt Romney championed and signed into law. Today 98 percent of Massachusetts residents have healthcare. The Boston Herald explains the political background of the legislation:

State Rep. Steven Walsh (D-Lynn), who co-chaired the committee that crafted the bill, said the program is expected to save at least $150 billion over 15 years and that the average family will save about $2,000 a year.

“That’s real money for real working families,” Walsh said.

Although creating the new agency is estimated to cost about $30 million, Walsh said other departments are being consolidated.

Both Walsh and a spokesman for House Speaker Robert A. DeLeo dismissed the idea that the bill was rammed through, pointing out it was four years in the making and that Walsh’s Committee on Health Care Financing visited 54 hospitals, held 800 meetings with doctors and patients and talked to a dozen academic experts.

Moody’s details the components of the legislation (subscription required):

The bill, titled “An Act Improving the Quality of Health Care and Reducing Costs Through Increased Transparency, Efficiency and Innovation,” limits the initial growth rate of healthcare spending to the potential growth rate of the state economy through 2017. After 2017, the spending limit falls to the state’s GDP less half a percentage point. Such an ambitious goal would cut healthcare spending increases by almost half, to 3.6% in 2013 from 6%-7% now.

The bill also establishes a commission with broad powers to [investigate] and advise on how market share and other factors influence healthcare costs. The commission can order hospitals that don’t meet cost reduction benchmarks to file a “performance improvement plan,” which would publicly expose organizations that do not meet cost targets. But the commission would not have the authority to tax or otherwise punish hospitals it deems non-compliant. Moreover, per existing law, no state authority would have the power to regulate hospital prices or levy taxes on hospitals.

The bill also uses the Medicaid program to control costs. To help lower costs, the bill requires alternative reimbursement models for at least 50% of Medicaid beneficiaries by 1 July 2014. Although the state has yet to provide specifics of those alternative models, we expect them to include bundled payments and shared savings models that are substantially different from the current fee-for-service model. We expect the new reimbursement models will reduce hospital revenues. The state will also likely incentivize the creation of additional accountable care organizations (ACOs), a loosely defined concept that involves a hospital managing the health for a set group of people. Hospitals unable to swiftly adapt to the new models will likely lose revenues. Given that payment models have not yet been defined, it is too early to estimate the revenue impact.

But the devil is in the details. John E. McDonough, a professor at the Harvard School of Public Health, wrote:

Consider, for a key example, the new macro limit on the rise in state health care costs. The new standard: health care costs shall not rise by more than the increase in the gross state product. The requirement does not have any effective enforcement provision tied to it. So when costs increase beyond that level, and they most surely will, we will need to rely on the political will of the then-Governor (not Deval Patrick) and the then-legislature to act. Times change and moods change. Maybe they will and maybe they won’t.

Massachusetts obviously faces many hurdles in implementing this new law, but its audaciousness is on a par with Romney’s 2006 legislation creating universal healthcare coverage in the state. Kudos to all involved. It’s a vital step in reorienting the Massachusetts economy to more productive economic activity.


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