Belt-tightening

New law has Mass. providers ‘aggressively focused’ on spending

The Massachusetts Hospital Association described a new state law that ties healthcare-spending growth to the state gross product as daunting, and some providers are echoing the sentiment. Executives at Massachusetts General Hospital and Boston Children’s Hospital say meeting the spending targets of the new law—signed last week by Gov. Deval Patrick—will be difficult, especially in a state in which Medicaid reimbursement rates have declined since 2009.

“If you look at why the distressed hospitals are distressed, it’s largely because the state hasn’t made good on its promise to pay hospitals adequately under the Medicaid program,” said Dr. Peter Slavin, president of 907-bed Mass General. “It’s important to look at the root cause of the distress and address that.”

Still, Mass General and 396-bed Boston Children’s are moving forward with programs aimed at producing cost savings.

Mass General, one of the CMS’ Pioneer accountable care organizations, established global payments contracts with its two largest insurers this year. Boston Children’s aims for a 3% operating margin each year. That’s less than half of the aggregate total profit margin posted by hospitals nationally, according to the latest available figures from the American Hospital Association.

“We are aggressively focused on trying to control costs while simultaneously trying not to harm patient care,” said Joshua Greenberg, vice president of government relations at Boston Children’s.

At the center of the wide-reaching healthcare cost-containment law is a provision that will require healthcare-cost growth to align with the gross state product from 2013 to 2017. Then, healthcare spending growth must be no more than 0.5% less than the growth in gross state product from 2018 to 2022.

Healthcare spending is growing about 6% to 7% each year in Massachusetts, while the projected gross state product for 2013 is 3.6%.

Along with insurers, several providers, such as Mass General and Boston Children’s, are likely to face a one-time surcharge assessment that will pool $135 million to support distressed hospitals within the state.

In a research note published Aug. 6, Moody’s Investors Service said the law is credit-negative for the state’s hospitals and will limit revenue growth and reduce operating flexibility.