AAMC Reporter: February 2009

Health Care Reform: Massachusetts Model May Show the Way

Many stakeholders have watched closely as Massachusetts has pushed to reform its health care system. Proponents of the state initiative, launched in 2006, have said that it would take several years for the effort to bear fruit.

So, as the reform plan approaches its third anniversary, how well is it working?

The short answer is that health care reform in Massachusetts is making significant progress and showing enormous potential. Still, caveats apply, and major questions remain unanswered.

To date, the plan has focused on "nearly universal," individually mandated insurance coverage. Adults in Massachusetts who can afford to purchase health insurance are required by law to do so (and are penalized if they do not).

When health care reform was first legislated, state officials estimated that some 379,000 Massachusetts residents were uninsured. But data from Commonwealth Connector, the state agency that helps residents find health insurance, show that nearly 440,000 residents have become insured since the program took effect. Estimates now suggest that as many as 97 percent of working adults in the state now have coverage.

Exceeding the projected numbers means that the plan will cost more—perhaps hundreds of millions of dollars more. (Experts debate the true impact of the overruns.) This past August, Jon Kingsdale, Ph.D., executive director of the Commonwealth Health Insurance Connector Authority, which oversees the Massachusetts reform, told a congressional committee that "from a budget perspective, the program is a victim of its own success in outreach and enrollment." The extra costs are exacerbated, of course, by Massachusetts' acute budget problems in the wake of the economic crisis.

The 2006 reform was greatly buoyed by a federal waiver that gave the state more flexibility in spending Medicaid dollars. In September, Sen. Edward Kennedy's (D-Mass.) office announced an agreement in principle to renew the aid waiver, but with an expanded three-year, $21.2 billion commitment. Kingsdale said that this critical development helps ensure the reform's financial future.

In Massachusetts, Kingsdale noted, "support for the reform among political leadership remains very strong." Surveys show voter support for the reform rose from 61 percent in 2006 to 69 percent in 2008.

How has Massachusetts health care reform affected teaching hospitals?

"I'd say, so far, that by increasing the flow of insured patients, reform has been very good for the academic medical centers in Massachusetts," Kingsdale said. "Overall, I think reform has led to a substantial increase in patient dollars flowing into academic medical centers."

Kingsdale also notes, though, that "one kind of facility where [reform] has a differential impact is the so-called safety net providers," including some academic medical centers. "This definitely is a big shift for them in revenue source. They're caring for much the same population, but it is a different way of getting paid," Kingsdale said.

The reform reduces public support to providers for care for the uninsured, opting instead for a model of subsidizing the purchase of health insurance for low-income state residents. The rationale was that as more residents obtained insurance, there would be less need for safety net provisions. State statistics released in November show a 36 percent decline in use of the Massachusetts Health Safety Net, a program for residents who cannot afford or are not eligible for health insurance, during the first six months of that program's 2008 fiscal year, and a 38 percent drop in related payments.

But advocates for the safety net institutions argue that better provisions are still needed to ensure access to high-quality care by disadvantaged populations (a subtext in the discussion is that safety net hospitals care disproportionately for low-income populations, ethnic minorities, and undocumented immigrants). Two of the state's largest safety net hospitals, for example, Boston Medical Center and Cambridge Health Alliance, are struggling to regain their financial footing under the state's new payment models. The evolving economics of the safety net system were further complicated by state budget cuts announced in October, under which the two hospitals alone could lose more than $100 million in Medicaid benefits.

Ellen M. Zane, president and chief executive officer of Tufts Medical Center and Floating Hospital for Children, spoke to other effects of the reform. While Zane said that reform hasn't led Tufts to change its business plan from a clinical point of view, it has raised other issues.

For example, she noted that despite the significant drop in the uninsured in Massachusetts, "we aren't seeing a commensurate drop in the use of our emergency rooms." She suspects one reason is that reform has brought more individuals into the health care pipeline unable to find primary care physicians who can help them find the right specialists and otherwise navigate the health care system.

Tufts is also seeing an increase in bad debts, a trend Zane attributes in part to relatively high deductibles for some of the insurance products newly offered through the Commonwealth Connector. (Work is under way in the state to push insurers to cap deductibles and out-of-pocket spending, and expand such benefits as drug coverage.)

At the same time that reform has led to increased demand for its services, Zane said, Tufts faces cutbacks in Medicaid reimbursement and graduate medical education (GME) rates. Originally, Zane said, "there was recognition...that Medicaid rates were not keeping up with the true cost of care."

Accordingly, she said, the initial reform plan included provisions "to mitigate that by putting aside millions of dollars, some of which would be added to our base rates and some of which would have to be earned through pay-for-performance type activities." Those provisions were beginning to roll out in the first two years of the reform.

But then, the nation's financial crisis hit the state. One effect was that Gov. Deval Patrick was forced to wipe out the newly legislated Medicaid rates, relegating them to their previous lower levels.

"This hospital alone had about a $12 million hit from Medicaid this year," Zane said, "and a fair amount of that could be traced back to health care reform."

Along with the Medicaid cuts were reductions in graduate medical education (GME) rates. "A fair amount of that has been wiped out," Zane said, adding that it is too soon to tell precisely how those cuts will affect medical education. She observes, though, that "all of us feel that we provide way more medical education than we ever get reimbursed for, because it is so much a part of the fabric of what an academic medical center does."

Cutbacks in GME support "feels like death by a thousand cuts," Zane said.

Tackling the Cost Conundrum

By design, the Massachusetts reform initiative first addressed the problem of insuring more of the state's uninsured. Having substantially met that challenge, the focus is now shifting to try to address the proverbial gorilla in the room that was purposely ignored until now: health care costs.

"The big challenge is cost containment," Kingsdale said. Eyeing the many elements that make up the cost of health care, including expenses for delivery, administration, and technology, observers are also watching trends in insurance premiums. The Massachusetts legislature introduced some cost containment measures this past August that are just beginning to play out, he said.

A spirited discussion about reimbursements is already under way. The Boston Globe sparked something of a firestorm in November with an article that drew attention to disparities in reimbursement rates. Citing what it called "the best-kept secret in Massachusetts medicine," the Globe wrote that "health insurance companies pay a handful of hospitals far more for the same work even when there is no evidence that the higher-priced care produces healthier patients."

That article prompted Marshall Carter, chairman of Boston Medical Center, to ask Gov. Patrick to redress the inequalities. In a follow-up story, Zane told the Globe that "clout, over anything else, has driven insurers to disproportionately and inappropriately pay some providers more than others. There are huge imbalances in this market—not just between teaching hospitals and community hospitals, but among the various teaching hospitals."

In addition to finding solutions to issues of cost, an overarching goal of the Massachusetts reform is to find ways that can ensure its sustainability over time. One factor in making that happen is that the unusual confluence of legislators, insurers, providers, and other key stakeholders who collaborated to launch the reform will have to hold together as it moves forward. For her part, Zane is optimistic. "There is a tremendous amount of fortitude to make sure that everyone stays at the table and does their part to make this work," she said.

Also of keen interest, of course, is whether the Massachusetts reform can be a model for other states or even for the country as a whole.Much of President Barack Obama's health care platform was styled after the Massachusetts reform plan. Different health care ideas floated by Sens. Kennedy and Max Baucus (D-Mont.) also echo tenets from the state. The same issues that challenge the Massachusetts reform initiative, such as costs, sustainability, and finding workable models for safety net care, will likely also be part of the national discussion.

"All the major stakeholders in Massachusetts recognize that everyone is looking at this," Zane said. "There is a strong desire by all constituencies to see this work."

Clearly, the Massachusetts reform still faces enormous and thorny questions of policy and finance. For now, however, regardless of whether the reform ultimately proves sustainable over time and however daunting the remaining challenges appear, Massachusetts has found a way to advance productive change in health care.

—By Stephen Pelletier, special to the Reporter