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MA Healthcare Cost Containment Law Comes with Teeth

Karen Minich-Pourshadi, for HealthLeaders Media, August 13, 2012

Massachusetts, a leader in healthcare reform is now the first state in the country to set healthcare spending goals. Bill S 2400, signed into law last week by Governor Deval Patrick (D), was written to address the quality of healthcare and reduce costs through increased transparency, efficiency, and innovation.  "We are ushering in the end of the fee-for-service care system in Massachusetts," said Patrick at the signing, according to The Boston Globe.

But does this law have sharp teeth (and who stands to get bitten)? And why should financial leaders nationwide take note of this state mandate?

The law takes effect November 15, 2012 with the goal of slashing an estimated $200 billion from state healthcare costs over the next 15 years. For that to happen, hospitals and physician will have to cut their costs in half.

"This law really gets at the market leverage and negotiating power of the larger hospitals; it is very much targeting them, but it shouldn't be a surprise to the C-suite at those organizations. This type of cost containment [legislation] has been coming for a long time," says Stephen Sadowski, principal for the Boston division of ECG Management Consultant, Inc.

The law directs that healthcare costs cannot increase faster than the Massachusetts gross state product (GSP) from 2013 through 2017. From 2018-2022 the target would dip to GSP minus 0.5 and after 2023 it would resume being equal to the GSP and be open for revision by an oversight committee. For greater detail, check out the bill summary here.

There's also a $165 million surcharge which will be levied against health insurers and a $60 million surcharge will be levied against larger hospitals in order to create a trust fund. These monies will be used to finance several provisions of the law, such as the $60 million to go toward a prevention and wellness program and another $135 million for community hospital infrastructure upgrades. In addition, trust money will fund state grants for programs to reduce the rates of preventable chronic diseases such as obesity, diabetes, and asthma.

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