Hospitals on Board With 3.1% Benchmark – With Caveats

The Health Policy Commission in coming months is scheduled to decide on whether the state’s healthcare cost growth benchmark – currently set at 3.1% – should remain at that level. Last Wednesday, the HPC held a hearing to begin the process of reviewing the benchmark.
The current 3.1% standard was determined by taking the 3.6% potential gross state product (PGSP) that is set annually by the administration and the legislature’s Ways & Means Committees, and then subtracting 0.5% as the law mandates. The PGSP for next fiscal year already has been set to remain at 3.6%, so the benchmark will stay at 3.1% – although the HPC can modify it by a 2/3 vote to anywhere between 3.1% and 3.6% subject to legislative review. (It can’t be lowered below 3.1%.)
The healthcare system is meeting the benchmark and total healthcare spending growth in Massachusetts is consistently below the national rate. But healthcare costs continue to be of concern, so there is little appetite for the HPC to raise the benchmark.
In its testimony to the HPC last week, MHA said it supports the 3.1% benchmark but asked the state to recognize “several critically important caveats” that could destabilize the state’s success to date.
First, MHA noted that “pharmaceutical pricing is largely outside of healthcare provider control,” and pharmaceuticals continue to be a significant driver of total healthcare expenditure growth.
MHA also noted that labor accounts for close to 70% of a hospital’s operating costs, and the demand for healthcare workers is exceeding the supply, especially for behavioral health caregivers. The aging healthcare workforce, especially RNs, is putting price pressure on hospitals as nurses retire from the market and replacements are in short supply.
Behavioral health is further at risk, MHA wrote, due to the nature of how such care is financed. “Currently, providers cross-subsidize underpaid behavioral health services by relying on revenue from those services that are reimbursed at a higher level. Targeting cuts for higher-margin services in an effort to reduce the cost growth benchmark has the potential to result in fewer resources to support underfunded services, and could potentially result in unintended consequences for expanding behavioral healthcare,” MHA wrote.
Another unknown, according to MHA’s testimony, is the federal landscape – especially repeated legal, regulatory, and political challenges to the Affordable Care Act.
In its testimony, MHA also noted the ongoing concern of its members regarding commercial insurers using the 3.1% benchmark as a cap on any rate increases to providers, adding, “This is particularly problematic when used against lower-paid community hospitals and was never intended to be used in this manner.”
“While we support the aggressive 3.1% benchmark, it is critical to recognize that there are factors – many of which are outside of the direct control of providers – that could make meeting this target difficult to attain,” MHA said.