States pay close attention as Massachusetts blocks hospital expansions to control health care costs

A Massachusetts health care cost watchdog and a broad coalition including consumers, health systems and insurers in April helped stop the state’s largest and most expensive hospital system from expanding into the suburbs of Boston.

Advocates for more affordable care hope regulators’ move to hold Mass General Brigham accountable for its high costs will usher in a new era of aggressive action to curb hospital expansions that are driving up spending. Their next target is a proposed $435 million expansion by Boston Children’s Hospital.

Other states, including California and Oregonare paying close attention, considering ways to emulate Massachusetts’ decade-old system of monitoring healthcare costs, setting a benchmark spending rate and holding hospitals and other providers accountable for overshooting their target.

The Massachusetts Health Policy Commission reviews hospital-specific data and recommends to the state Department of Public Health whether to approve mergers and expansions. The commission can also ask suppliers and insurers to develop a cost reduction plan, as is the case with MGB.

“The system works in Massachusetts,” said Maureen Hensley Quinn, senior program director at the National Academy for State Health Policy, who emphasized the importance of the state’s strong data collection and analysis program. “The focus on healthcare cost transparency has been really helpful. It’s what all states want to do. I don’t know if other states will adopt the Massachusetts model. But we’re hearing increased interest.

With its many teaching hospitals, Massachusetts has historically been among the states with the highest per capita health care costs, although its spending has moderated in recent years as state officials have tackled the problem.

On April 1, MGB, an 11-hospital system that includes the famed Massachusetts General Hospital, unexpectedly withdrew its proposed $223.7 million outpatient expansion to the suburbs after being told by officials from state that it would not be approved.

The expansion would have increased annual expenses for commercially insured residents by up to $28 million, driving up insurance premiums and driving patients away from low-cost competitors, the commission said.

It was the first time in decades that the state health department had used its authority to block a hospital’s expansion because it undermined state goals to control health care costs.

Other parts of MGB’s $2.3 billion expansion plan have also met with resistance.

Health Department staff have recommended approving MGB’s proposal to build a 482-bed tower at its flagship Massachusetts General Hospital and a 78-bed addition to Brigham and Women’s Faulkner Hospital. But they urged rejecting a request for 94 more beds at the MGH.

The department’s Public Health Board, whose members are mostly appointed by the governor, is due to vote on those recommendations on May 4.

The health policy commission, which works independently of the public health department but provides advice, has also asked MGB to submit an 18-month cost control plan before May 16, because its prices and expense growth have far exceeded those of other hospital systems. It’s a key reason why state health spending growth hit 4.3% in 2019, beating the commission’s 3.1% target.

It’s the first time a state agency in Massachusetts or anywhere else in the country has ordered a hospital to come up with a plan to control its costs, Hensley-Quinn said.

MGB’s $2.3 billion expansion plan and its refusal to acknowledge its high prices and their impact on state healthcare costs have unites a generally fragmented set of stakeholders, including competing hospitals, insurers, employers, unions and regulators. They were also angered by MGB’s lavish advertising campaign touting the consumer benefits of the expansion.

Their fight was supported by a report last year by state attorney general Maura Healey, who concluded that expanding suburban outpatient clinics would boost MGB’s annual profits by $385 million. The association MGB reported operating profit of $442 million in 2021.

The Massachusetts Association of Health Plans opposed MGB’s expansion of outpatient clinics.

the well-funded coalition warned that the expansion would seriously harm local hospitals and other providers, including leading to job losses. The consumer group Health care for all planned moving patients to the more expensive MGB sites would result in higher insurance premiums for individuals and businesses.

“Having all this opposition made it pretty easy for [the Department of Public Health] doing the right thing for consumers and cost containment,” said Lora PellegriniCEO of the health plan association.

Republican Gov. Charlie Baker, who has made cutting health care costs a priority and is leaving office next January after eight years, did not want to see the erosion of the government’s pioneering system of global spending targets. state, she said.

“What would it say for the governor’s legacy if he allowed this massive expansion? she added. “It would render our entire cost containment structure meaningless.”

MGB declined to comment.

Massachusetts’ aggressive action reviewing and blocking a hospital expansion comes after many states moved in the opposite direction. By the 1980s, most states required hospitals to obtain state permission for major projects under “certificate of need” laws. But many states have relaxed or dropped those laws, which critics say have hindered competition and failed to control costs.

The Trump administration has recommended that states repeal these laws and leave hospital expansion projects to the free market.

But there are signs that the tide is coming back to more regulation of hospital construction.

Several states have created or are considering creating commissions similar to Massachusetts’s with the authority and tools to analyze the market impact of expansions and mergers. Oregon, for example, recently passed legislation authorizing a state agency to review healthcare mergers and acquisitions to ensure they maintain access to affordable care.

Despite the defeat of MGB’s outpatient expansion, Massachusetts House Speaker Ron Mariano, a Democrat, said the state’s cost-control model needed to be strengthened to prevent hospitals from circumventing it. A bill he backed and passed the House would give the commission and the attorney general’s office a bigger role in assessing the cost impact of expansions. The Senate did not take up the bill.

“Hospital expansion is the main driver of the whole kettle of medical spending,” he said.

Meanwhile, cost control advocates are eager to see how MGB proposes to control its spending and how the Health Policy Commission responds.

“Unless MGB somehow agrees to limit its supernormal price increases, such as a system-wide five-year price freeze, I don’t know if the [plan] will accomplish anything,” said Dr. Paul Hattisformer member of the committee.

Hattis and others are also waiting to see how the state will adjudicate on a bid from Boston Children’s Hospital, another high-priced provider, to build new outpatient facilities in the suburbs.

“For those of us on the affordability side, it’s like the sheriffs have rediscovered their badge and realized they really can say no,” he said. “It’s a message to other states that they should also restrict their larger provider systems, and systems that they can no longer do what they want.”

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues. Along with policy analysis and polling, KHN is one of the three main operating programs of KFF (Kaiser Family Foundation). KFF is an endowed non-profit organization providing information on health issues to the nation.

This story was originally featured on Fortune.com

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