Earlier today the Massachusetts legislature, on the final day of its 2011-2012 session, completed another major phase in the reform of health care that began with the dramatic expansion of coverage for health care services in 2006.

The earlier initiative, a model for federal health care reform in the Affordable Care Act, left largely unresolved the key issue of how to address the cost of care. Today’s action places on the governor’s desk legislation that would significantly change both the structure and the financing of health care delivery in the Commonwealth and that promises to have a dramatic impact on the cost of care for Massachusetts residents. The legislative leadership predicts that the bill will save the Commonwealth up to $200 billion over the next 15 years. Following today’s House and Senate votes, Governor Patrick stated that he will sign the bill into law.

The bill is actually the third comprehensive health care legislative effort in Massachusetts since the 2006 enactment. Each has addressed issues of health care cost, quality, transparency and promotion of health care workforce alternatives, among other topics. Today’s bill builds on these actions and seeks, as well, to institutionalize changes already under way in the provider and payer sectors to restructure health care delivery and move away from fee-for-service payment to alternative methodologies.

The bill would put in place mechanisms for capping growth in health care expenditures and for restructuring the delivery system in a manner that promotes coordinated care, quality, and incentives to adopt provider financing arrangements that are not tied to traditional fee-for-service mechanisms. While a bill that included significant regulatory interventions into the health care system was considered, the version as now presented takes an approach in which the government’s role is largely to set benchmarks, compile and analyze data on cost behavior, and undertake more collaborative approaches to impacting cost growth. As such, this bill may serve as a model for the unfolding phases of national health care reform.

Major highlights of the bill (but by no means all of the highlights) are outlined below.

Addressing Cost Increases

The bill sets out annual statewide health care cost growth goals based on the potential growth rate of the state’s gross state product (“potential” because the growth in gross state product is adjusted to smooth out business cycle fluctuations.) The benchmarks are set as follows:

• From 2013-2017, the potential growth rate of the state’s gross state product;
• From 2018-2022, the potential growth rate of the state’s gross state product minus 0.5%; and
• From 2023 on, the potential growth rate of the state’s gross state product.

A new commission will monitor performance against these benchmarks, and providers whose costs exceed the benchmarks may be required to file performance improvement plans that will be implemented under the commission’s oversight.

The new commission may also initiate cost and market impact reviews where providers or provider organizations propose to make material changes to their operations or governance structure. These material changes include, as examples, corporate mergers, acquisitions, or affiliations of a provider or provider organization and a carrier; mergers or acquisitions of hospitals or hospital systems; acquisition of insolvent provider organizations; and mergers or acquisitions of provider organizations that will result in a provider organization having a “near-majority of market share in a given service or region.” Under certain circumstances the commission can make a referral to the Attorney General for investigation under the Attorney General’s current authority related to unfair business practices or anti-competitive behavior.

A parallel agency, the Center for Health Analysis, will analyze how the state’s policies affect cost trends.

Promoting Primary Care and Preventive Resources

The bill enhances the role of physician assistants, building on earlier legislation liberalizing the role of nurse practitioners, and addresses how retail clinics may fit more readily into the overall delivery system. It also provides funding and programs for workforce development generally and creates incentives for the broader dissemination of wellness programs in the workplace.

System Restructuring and Financing

The bill creates certification mechanisms for accountable care organizations (ACOs) and patient-centered medical homes as a means for promoting more effective population health management. It also requires the registration of provider organizations engaged principally in payer contracting, to monitor changes leading to greater reliance on payment methodologies that are alternatives to fee-for-service, among other purposes. These organizations are to report regularly on financial performance, market share, cost trends, and quality measures.

It also sets in place a process to track price variation among different health care providers over time and establishes a Special Commission to determine and quantify the acceptable and unacceptable factors contributing to price variation among providers.

The bill mandates a transition from fee-for-service payment methodologies for the state-funded health coverage programs, including the coverage program for state and many municipal employees. It authorizes Medicaid rate increases of up to $20 million for providers that adequately present a transition to a more cost-effective, efficient form of payment while still providing high-quality care, and it establishes a contracting preference in state health programs for ACOs.

One-Time Fees on Hospitals and Insurers for Various Targeted Goals

The bill provides a one-time assessment on certain hospitals and private carriers to generate $225 million over four years. Of this amount, $135 million would be allocated to support distressed hospitals; $60 million would be applied to wellness efforts to reduce the instances of diseases such as diabetes, asthma, and obesity; and $30 million would be applied to support the transition to electronic medical records.

Medical Malpractice Reform

The bill creates a 182-day cooling off period for the parties to a medical malpractice proceeding to seek a negotiated settlement, and includes requirements relating to information exchanges to promote an early resolution.

It provides that a health care provider or facility may admit to a mistake or error, and the admission may not be used as an admission of liability in court (unless the provider lies under oath).

The bill also creates a task force to study defensive medicine and medical overutilization.

Medical Technologies

The bill requires that, when transitioning to the use of alternative payment methodologies, Medicaid must consider, among other factors, the use and the continued advancement of new medical technologies, treatments, diagnostics or pharmacology products that offer substantial clinical improvement and represent a higher cost than the use of current therapies.

Pharmaceutical Cost Controls

Under the bill, state agencies responsible for purchasing prescription drugs are to form a uniform procurement unit for bulk purchases. Further, the bill contemplates creation of a commission to determine methods by which the state can lower public and private costs for drugs.

As happened in 2006 when Governor Romney signed the now well-known Massachusetts health care reform bill, the federal government, along with state governments, will be watching Massachusetts as a test case for how to deal with rising medical costs. The bill takes a multi-pronged approach to dealing with this major concern of public policy. It may take some time to assess fully the bill’s overall impact, and there are certainly provisions that differentially impact providers that may raise concerns and objections. But to the extent that the changes already taking place in Massachusetts continue, both because of earlier enactments and because of the willingness of the private sector to respond to public policy concerns, on balance Massachusetts residents should benefit from the implementation of this newest in a succession of reform initiatives in the Commonwealth.