Mass. cost-con­tain­ment law could hurt hospi­tal mar­gins, re­port says

Re­port: New Mass. law may hurt hospi­tal mar­gins

Modern Healthcare - - FRONT PAGE - Beth Kutscher

A new cost-con­tain­ment law in Mas­sachusetts is fac­ing con­cerns about whether it will ham­string hos­pi­tals as it at­tempts to hold down health­care spend­ing. The law is be­ing closely watched in other states and, if suc­cess­ful, could serve as a model for re­duc­ing health­care costs na­tion­wide.

Mas­sachusetts Demo­crat Gov. De­val Patrick signed the leg­is­la­tion Aug. 6. The law re­quires health­care providers to limit spend­ing in­creases to a rate no higher than the change in the gross state prod­uct through 2017 and to half of a per­cent­age point be­low the GSP there­after. Hos­pi­tals that don’t com­ply will face penal­ties of $500,000.

In a re­port last week, credit an­a­lysts at Stan­dard & Poor’s Rat­ing Ser­vices said the law could neg­a­tively af­fect hospi­tal oper­at­ing mar­gins as well as add costs as­so­ci­ated with greater mon­i­tor­ing and com­pli­ance. A re­port from Moody’s In­vestors Ser­vice sim­i­larly expected the law to limit rev­enue growth and re­duce oper­at­ing flex­i­bil­ity at hos­pi­tals.

Ac­cord­ing to Moody’s, the law is expected to limit spend­ing in­creases to about 3.6% in 2013 from their cur­rent level of 6% to 7%.

The law also im­ple­ments an as­sess­ment on the state’s larger med­i­cal cen­ters to help pay for in­fra­struc­ture im­prove­ments at smaller community hos­pi­tals, and re­quires all providers to adopt al­ter­na­tive pay­ment mod­els for at least 50% of Med­i­caid pa­tients by July 1, 2014.

“I don’t think it’s a se­cret that Mas­sachusetts had a higher growth rate of health­care spend­ing per capita than other states,” said Jim Vallee, a Demo­crat who is the for­mer ma­jor­ity leader in the Mas­sachusetts House of Rep­re­sen­ta­tives and now serves as coun­sel at Nixon Pe­abody.

Vallee said hos­pi­tals were at the ta­ble to draft the law, but he ac­knowl­edged that they will face on­go­ing fi­nan­cial tri­als, par­tic­u­larly as up­wards of 60% of hos­pi­tals’ costs come from la­bor. “It will chal­lenge them to re­struc­ture,” he said.

Ti­mothy Gens, ex­ec­u­tive vice pres­i­dent at the Mas­sachusetts Hospi­tal As­so­ci­a­tion, ex­pressed sup­port for the law, but said it does not ad­dress some un­der­ly­ing is­sues, namely that more than 50% of hospi­tal rev­enue comes from gov­ern­ment pay­ers, and Med­i­caid only cov­ers 71% of the cost to de­liver care. “As long as we’re ju­di­cious in its im­ple­men­ta­tion, we can be suc­cess­ful,” he said.

Stephen Weiner, a Bos­ton-based health­care at­tor­ney at law firm Mintz Levin, said states likely will take the lead on any con­tain­ment ac­tions, as the

cost- fed­eral gov­ern­ment may have lim­ited author­ity to en­act price con­trols. Al­though the U.S. Supreme Court up­held the in­di­vid­ual man­date of the Pa­tient Pro­tec­tion and Af­ford­able Care Act, it did so as a tax, not as an ex­ten­sion of the com­merce clause.

Weiner noted that while some states will be hes­i­tant to en­act heavy-handed reg­u­la­tion, oth­ers will be watch­ing Mas­sachusetts’ ex­am­ple more closely. He em­pha­sized, how­ever, the state law is not a di­rect reg­u­la­tory in­ter­ven­tion. “Po­lit­i­cally, it was more palat­able than it could have been,” he said.

Yet Joshua Ar­cham­bault, di­rec­tor of health­care pol­icy at the Pi­o­neer In­sti­tute, a Bos­ton­based think tank, ques­tioned whether it will have the in­tended ef­fect of help­ing smaller community hos­pi­tals. He pre­dicted that health­care de­liv­ery in the state is likely to co­a­lesce around a hand­ful of large ac­count­able care or­ga­ni­za­tions.

“We think they fo­cused al­most ex­clu­sively on the sup­ply side of the equa­tion while com­pletely ig­nor­ing the de­mand side,” Ar­cham­bault said. “As a re­sult of this, I think we’ll see hos­pi­tals clos­ing.”

AP PHOTO

Patrick, who spoke at the Demo­cratic Na­tional Con­ven­tion last week, said about the law: “We are ush­er­ing in the end of the fee-for-ser­vice care.”

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