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Massachusetts Health Spending Report

By January 23, 2014Commentary

While Massachusetts is obviously not representative of the entire country, because the health reform there is fairly similar to the federal one, its experience has been closely examined.  A new report from the state’s Health Policy Commission examines cost trends and issues.    (Mass. Report)   Massachusetts has the highest per capita spending of any state, resulting from both higher utilization and higher prices and its spending has grown faster than spending for the nation as a whole.  On the plus side, the state does have better overall health care quality and good access.  Three quarters of the per capita spending in excess of the national average are attributable to the hospital, long-term care and home health care categories.   The Commission examined three cost drivers in-depth:  hospital operating expenses; wasted spending and high-cost patients.

Similar to other research, the report finds that hospitals which can get high payments have higher operating costs, with the direction of causation in that direction, not the other way around, although an obvious feedback cycle is at work here, whereby once a hospital spends more, it needs to get more revenue to continue to cover that higher spending.  Some hospitals spend as much as 23% more to provide the same service as other hospitals.  Surprisingly, since it has a reputation as a healthy state, Massachusetts residents also use the hospital more frequently than the national average.  Hospital price growth has also been high in the state, which is dominated by a few “prestigious” health systems.

The report says that as much as 21% to 39% of health spending in the state is “wasteful” but as with similar national estimates, this one is likely a very gross exaggeration of reality.  The specific examples listed don’t come close to the $14.7 to $26.9 billion total estimated.  And some that are listed, like $700 million in preventable readmissions, are probably not that high.  Estimates of excess readmissions are almost always not realistic.  It is absurd and misleading for people to keep quoting that high percentage of “wasteful” spending, especially when they don’t offset it with the cost of providing needed care that patients currently aren’t getting.  The goal of the system should be to ensure that everyone gets the care they need and I am not sure we would save anything if only all the appropriate care were delivered.

As for the country, a few patients account for a great deal of spending; in the state 5% of patients are half of spending in the commercial and Medicare market.  These are complex patients and their socio-economic characteristics emphasize the need to address social along with health needs.  But only about 30% of high-cost patients in one year are high-cost in the next, therefore predicting who those patients will be in a particular year and managing them is not necessarily a simple task.

The state has set a legislative goal of holding growth in health spending to the rate of economic growth from 2013 to 2017 and then one-half percent below the GDP growth for the next five years.  It has to do this if health spending isn’t to swamp the state and local budgets.  But little to proposed to address the real causes of growth–high unit prices and irresponsible health behavior.  Don’t expect the state to see lower spending until it fixes those problems.

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