Governor’s health care saving plan raises questions

State House News Service

After announcing plans to shave $1 billion from projected health-care spending next fiscal year, the Patrick administration has provided little insight into how the governor intends to achieve that goal following years of exploding health costs.

Fiscal observers, lawmakers, and industry stakeholders in recent days have all questioned the administration’s assumption and said they’re awaiting the details of Gov. Deval Patrick’s plan, which he outlined last week at a State House press conference. Patrick’s annual budget proposal, a $30.5 billion plan, hinges on the billion-dollar health-care savings.

For years, state government health-care costs have skyrocketed, crowding out revenues for other spending priorities and driven by spiking enrollment in Medicaid and other publicly subsidized health plans. Nearly 1.3 million Massachusetts residents are insured through Medicaid, also called MassHealth, with the sharpest recent increases in the “long-term unemployed” category. Administration officials anticipate enrollment in MassHealth to climb nearly 5 percent next fiscal year, which begins July 1.

Officials in the Executive Office of Health and Human Service and the Executive Office of Administration and Finance — the two agencies with the most direct oversight of the state health-care budget — did not respond to requests for comment.

In a document accompanying his budget, Patrick highlighted plans to wring $351 million from anticipated growth in MassHealth spending by introducing new “procurement and payment strategies,” and to prevent another $169 million in health-care cost growth through “capitation cost controls.” Few details on those strategies accompanied the budget.

“Starting immediately, MassHealth plans to conduct a competitive procurement that will focus on reducing costs while providing quality care to over 800,000 members,” according to the document. “The procurement process will promote innovative approaches to care management and delivery as well as payments for services for this population.”

Other savings identified by the administration include $150 million in rate reductions to providers that treat Medicaid patients, $66 million in benefit reductions and co-pay increases to MassHealth recipients, $50 million in streamlining coverage for residents eligible for both Medicare and Medicaid, and $13 million in “program integrity.”

Overall, Patrick is counting on cutting $798 million from projected MassHealth growth, keeping the budget for the program nearly flat at $10.34 billion.

Massachusetts Hospital Association officials worry that more than two-thirds of provider rate reductions will affect hospitals that already receive just 70 cents for every dollar of care they provide.

“That has a big impact on hospital operations,” said Joe Kirkpatrick, MHA’s senior vice president of health-care finance. “Seventy percent of our costs are labor-related costs related to employment. These reductions, along with the pressures from insurers, the Medicare reductions, have had a big impact.”

Kirkpatrick said hospital employment levels slipped in December 2010 to a lower level than they were a year earlier, the first annual decrease since 2001.

Dan McHale, MHA’s director of state government finance and policy, said hospitals are also facing the third year of delays in “pay-for-performance” bonuses.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, said he has yet to see details of the administration’s plans to curb procurement and capitation costs. He noted that the administration hasn’t yet released a request to procure new MassHealth plans.

“I haven’t seen any details, and so I think it’s exceedingly ambitious to try to achieve a billion dollars in savings, and I would say not very likely,” he said. “Not that they shouldn’t try, but I don’t think it’s realistic.”

Insurers also said they’re awaiting details on the administration’s proposals.

“We’re looking for more clarity as to where the administration wants to go with the Medicaid program,” said Lora Pellegrini, president of the Massachusetts Association of Health Plans. “We’re reaching out to officials to get that clarity.”

Health Care for All, which advocates for health-care consumers, also questioned the administration’s savings assumptions, particularly for its proposals on capitation cost control and procurement strategies.

“The narrative doesn’t really say what this entails, other than a commitment to reorganize provider arrangements to ensure access and improve quality, at a lower cost. That’s the puzzle,” Health Care for All research director Brian Rosman wrote in a post on the group’s blog last week. “The Medicaid populations are sicker than average, and have unique social needs. While we strongly support using payment incentives to provide integrated care and promote health and wellness, it is critical that any dramatic steps be carefully considered before being imposed on providers and beneficiaries”

MassHealth costs have vexed policymakers and budget writers for years, exploding during the recession as more low-income residents turned to public insurance programs, and consuming the bulk of tax revenue growth during the uneven recovery. The administration touts efforts that have resulted in more than 98 percent of residents obtaining health insurance, but the bulk of the newly enrolled have obtained taxpayer-subsidized insurance.

“Evidence of the impact of health-care reform in Massachusetts is clear,” according to Patrick’s budget filings. “Thousands who formerly relied on receiving care in over-burdened emergency rooms now have access to primary care through their own doctors. More than 90% of adults in Massachusetts report having a regular source of care. Since reform, more adults are making a visit for preventive care, and 63% of men have had colonoscopies.”

In addition to the 1.3 million MassHealth enrollees, nearly 161,000 residents are enrolled in Commonwealth Care, a state-subsidized program for individuals earning less than $31,000 a year. That program, combined with a program that covers 20,389 legal immigrants, was budgeted at $822 million this fiscal year, and Patrick has proposed the same level of funding next fiscal year. Patrick has described plans to incentivize enrollees to choose lower-cost health plans and to conduct a “competitive procurement” for insurers eligible to enroll Commonwealth Care members.

Despite the high insurance enrollment rate, often highlighted by the governor as a strength, costs borne by hospitals and community health centers to care for the uninsured have grown steadily for three straight years, according to the administration.

A trust fund supported annually by $160 million in assessments on hospitals and insurers, as well as $70 million in “offsets” and $30 million in state funds, would receive $30 million in state funding next fiscal year under Patrick’s budget proposal.

“An unstable economy naturally lends itself to individuals ‘cycling’ in and out of short-term employment and under-insurance,” according to the governor’s budget documents.

Patrick has also outlined plans to steer state employees into cheaper health plans, and require insurers that offer coverage to public employees to provide “limited network plans” that can slash costs while limiting the breadth of facilities that patients may access to obtain care.

During Wednesday’s snowstorm, Patrick convened senior administration officials for a closed-door meeting on efforts to reform the state’s health care payment system from one that encourages doctors to perform services to one that incentivizes outcomes for patients.

Officials did not respond to requests for details about the meeting. Attendees included Patrick; JudyAnn Bigby, secretary of health and human services; Jay Gonzalez, secretary of administration and finance; Barbara Anthony, undersecretary of consumer affairs and business regulation; Joseph Murphy, commissioner of insurance; and members of the governor’s senior staff.