Better Solutions for Healthcare

Modern Healthcare: High prices fuel Massachusetts healthcare spending growth

By Alex Kacik

March 25, 2021

While more care is shifting from inpatient to outpatient facilities across Massachusetts, that transition isn’t yielding the expected cost savings, new data show.

Massachusetts hospital outpatient spending grew by 7.3% per Medicare beneficiary from 2018 to 2019, which was twice the rate of the national average, according to data from the Massachusetts Health Policy Commission and the Massachusetts Center for Health Information and Analysis. More than 70% of the increase in hospital outpatient visits occurred among academic medical centers, which typically have the highest costs and prices.

Industry observers have hoped that healthcare costs would decrease as more procedures moved from hospitals to outpatient settings, which don’t have the same staffing and administrative requirements, equipment or hours as hospitals. But that isn’t the case in Massachusetts, said David Auerbach, senior director of research and cost trends at the Health Policy Commission.

“Care was shifting from lower cost inpatient hospitals to higher priced hospital outpatient departments and we weren’t saving any money,” he said during the HPC’s board meeting Thursday, adding that the percentage of care taking place at community hospitals and outpatient facilities continued to fall in 2019.

Rising volumes only accounted for about 30% of the recent growth in healthcare spending in Massachusetts. About 70% was attributable to higher prices, Auerbach said.

That’s in part why the HPC should target excessive prices, said Michael Chernew, health policy professor at Harvard Medical School and the director of its Healthcare Markets and Regulation Lab. That can be done either by capping fee-for-services prices or price growth via performance improvement plans or more rigid legislative solutions, he said.

“Capping fee-for-service prices would basically cut off the very top of the mountain of high prices—the top 5% to 10% of the highest prices,” Chernew said.

Caps could be adjusted. Massachusetts, for instance, could allow faster price growth for some of the lowest price providers, he said.

Massachusetts Attorney General Maura Healey implemented a seven-year cap on price growth as a condition of the merger between Beth Israel Deaconess Medical Center and Lahey Health. But the political will is often absent, said Dr. Donald Berwick, a HPC commissioner and former administrator of CMS.