On August 6, 2012, Gov. Deval Patrick (D-MA) signed into law a nearly 350-page bill that builds on the health reform legislation signed into law by Gov. Mitt Romney in 2007, and supports the Patient Protection and Affordable Care Act. The legislation’s cost containment provisions are estimated to save Massachusetts up to $200 billion in healthcare costs over the next 15 years.

Significantly, the new law provides for the establishment of an annual "healthcare cost growth benchmark." This benchmark will set the acceptable average growth in total healthcare expenditures for the calendar year. For years 2013 through 2017, the healthcare cost growth benchmark will be equal to the growth rate of the potential gross state product, which is defined as the long run average growth rate of the commonwealth's economy, excluding fluctuations due to the business cycle. Stated differently, Massachusetts has effectively tied the growth rate of healthcare costs to the growth rate of the commonwealth’s gross state product.

Providers (physicians, physician practice groups, hospitals, or any other entity qualified under Massachusetts law to provide healthcare services) that exceed the benchmark may be required to submit and implement a "performance improvement plan." The plan must identify the causes of the provider's cost growth and set forth specific strategies, adjustments and actions steps to improve cost performance. Providers that fail to submit a plan or fail to implement the plan in good faith may be subject to fine of not more than $500,000.

The new law also expands the Division of Insurance's authority with respect to the adjustment of insurance premiums; oversight of risk-bearing entities, including the review of alternative payment contracts; and the disclosure of information to the commonwealth’s all payer claims database.

Other key provisions of the bill:

  • establish two new independent agencies, the Health Policy Commission and the Center for Health Information and Analysis;
  • require the registration of provider organizations;
  • mandate a one-time hospital and insurer surcharge;
  • provide for the certification and oversight of Massachusetts accountable care organizations;
  • promote the adoption of health information technology;
  • set the framework for the development of Medicaid alternative payment methodologies; and
  • increase authority of the Attorney General’s office.