Editor’s Note: Seeking methods to better understand and control healthcare costs, many states are taking a careful look at a state-defined spending target, or “benchmarking” model, that originated in Massachusetts and has since been adopted, in varying forms, by three other states. Delaware and Rhode Island adopted streamlined benchmarking programs by executive order in 2018 and 2019, respectively. Also in 2019, the Oregon Legislature enacted a benchmarking program that rivals the Massachusetts program in its aspiration to use benchmarking as the state’s leading strategy for improving system transparency and accountability. Oregon officials view benchmarking as part of a broader effort to align providers and payers around a common set of cost control strategies.

In a new white paper, written with support from the Robert Wood Johnson Foundation, Manatt Health examines all four state benchmarking programs, but focuses primarily on how the Massachusetts program has evolved over the past seven years, how Oregon intends to implement its program and key considerations for other states considering similar reforms. The paper illustrates how benchmarking programs can vary significantly in scope and focus as each state pursues its own path to offer policymakers a new level of insight and transparency into their healthcare systems. It also discusses seven areas that states should consider in developing their own benchmarking programs. Below we summarize the seven key considerations.

To download the full white paper free, click here. To register free for our upcoming webinar based on the white paper, click here.

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State interest in healthcare cost containment has grown dramatically since Massachusetts enacted the nation’s first cost benchmarking program in 2012. Massachusetts’ cost benchmarking program has allowed the state to have data-informed and targeted conversations around prospective policy and program actions to contain costs.

Massachusetts saw its commercial healthcare cost growth decline significantly after implementation of the program, from being among the fastest growing in the nation to growing at rates below the national average. Massachusetts’ Health Policy Commission (HPC) estimated that establishing the benchmark would save those paying into the Commonwealth’s healthcare system $4.7 billion over five years.

As other states work to bring healthcare costs under control, states are assessing how to build on Massachusetts’ benchmarking model, which has since been adopted, in varying forms, by three other states—Delaware, Rhode Island and Oregon. All four states share common elements of the program: establishing a statewide cost benchmark; collecting data to measure health spending against the benchmark; publishing health spending reports to identify systemic cost drivers; and using a variety of levers, including public hearings and performance improvement plans (PIPs), to enhance transparency and contain spending growth that exceeds the benchmark.

Seven Key Considerations

In analyzing the four benchmarking programs, Manatt Health identified seven areas that states considering benchmarking must address based on state goals, local market dynamics and state resources. States evaluating developing their own benchmarking programs should consider the following factors when shaping the design:

1. Market landscape. The competitiveness of states’ payer and provider markets varies significantly, creating different benchmark reporting priorities. If payer or provider markets lack an appropriate level of competition, as in Massachusetts, the benchmarking program may prioritize collecting data that helps policymakers understand the potential impact of proposed consolidations.

2. State resources. States vary in their financial capacity and political will to support a benchmarking plan. Benchmarking programs require staff resources to support data collection and report writing, as well as the political will to engage key stakeholders and ensure they participate in addressing the identified cost control issues. States should establish a benchmarking program commensurate with available resources. Massachusetts, a state with a long and storied history of major reforms, created two new state agencies to implement its law, while Delaware and Rhode Island used executive orders and less sweeping mandates to institute more streamlined infrastructures to support their benchmarking processes. The Oregon Legislature enacted a law similar to the Massachusetts law, though more details were left to a blue-ribbon implementation committee.

3. Governance. States have different traditions and philosophies of how programs should be governed, especially as to when stakeholder boards should have policy oversight over state agencies. States should consider a governance structure and composition that would best serve the scope of their benchmarking programs and generate the most stakeholder support. Governance composition could be an effective way to engage key industry stakeholders to generate buy-in, subject matter experts to guide program development and interpret results, and governmental leadership to ensure accountability through appropriate regulation. The governance structure may include empowering an existing policy board (e.g., Oregon), creating a new board or commission (e.g., Delaware, Rhode Island), or vesting governance in new or existing state agencies (Massachusetts).

4. Data collection for cost benchmarking. Measuring total healthcare system expenditures relies on data submitted directly from public and private payers, which have access to claims-based and non-claims-based payments made on behalf of their fully insured and self-insured members, and which have unique insight into where the dollars come from and the types of providers and services that receive them. States have several options on how best to pursue this data to balance data submission burdens with data needs:

  • Data submission thresholds: States may alter reporting thresholds to require only the biggest state payers to submit data, acknowledging that these entities are best positioned to bear the reporting burden. However, if high thresholds are pursued, states should consider how much of the market they would be leaving uncaptured and whether there is reason to believe members of smaller payers may have a different experience than those enrolled with larger payers. States also may choose to start the benchmark process by collecting data from only select payers during its first year of implementation and expanding data collection in subsequent years as the data collection and reporting infrastructure matures.
  • Scope of data submitters: Payers are uniquely positioned to supply benchmark data on aggregate spending trends. States relying solely on a payer-driven data submission model, however, will be naturally limited in their understanding of potential provider-centric cost drivers (i.e., payers may be able to pinpoint higher-cost providers and which of their members receive which services there, but they do not have direct insight necessarily into why those costs are higher). States considering the development of robust benchmark models may consider whether companion provider-based reporting would help to create a bifocal view of the health system.
  • Scope of data request: Benchmark data requests can grow exponentially with each new membership breakout-of-interest. For example, a payer’s responsibility to submit data on its total spending on behalf of its members in a given year may change from one data point to eight when a state asks for that data by group size: individual (subsidized), individual (unsubsidized), small group, midsize group, large group, jumbo group, association health plan and student health plan. Reports may further double in size by classifying whether those members, by those group sizes, are fully insured or self-insured. In addition, with each new breakout, the opportunity for definition misinterpretation increases. States should work with payers to understand the reporting burden introduced with each added breakout. As with thresholds, states also may choose to introduce new requirements as the program matures and payers develop initial systems to provide more basic data in an accurate and timely manner. States may also need to work directly with public payers whose data is not reflected in the information available to commercial payers (e.g., Medicaid fee-for-service, Medicare Part A/B) in order to collect data that reflects the full market. Keeping requests simple will maximize the chances that requests are fulfilled in a timely manner.

5. Supplemental data collection. Beyond data collected directly to inform the benchmark program, states also may collect companion or “supplemental” reports from payers and others to provide context and depth to results. Massachusetts, for example, regularly collects data on consumer premiums and cost sharing, quality, alternative payment method (APM) adoption, and provider price variation, with many of these metrics bound to benchmark data by referencing the same populations. These data often can be more consequential than the “core” benchmark information, illuminating potential causes or mitigating factors of cost drivers. For example, in Massachusetts, while benchmark data may not highlight a particular health system for excessive cost growth, the state’s provider price variation reporting could reveal it to be the highest-cost network in the state, adding important context to the policy conversation. States with All Payer Claims Databases (APCDs) may also leverage these databases to expand their missions. States without APCDs may want to establish them.

6. Public process. Benchmarking programs derive much of their leverage from establishing how benchmarking data is publicly profiled; identifying cost drivers across market segments; and making recommendations to mitigate them, including corrective action plans for payers and providers whose spending exceeds the benchmark. Massachusetts has a rigorous annual schedule of data reports and public hearings, culminating in an annual report with actionable recommendations. The Oregon statute envisions a similar public process. The extent to which states are willing to engage all stakeholders, the media and ultimately the public in the benchmarking process will influence the level of impact the process has on outcomes.

7. Enforcement. Benchmarking programs are primarily a soft path to cost containment, relying on transparency to improve the behavior of market actors. States, however, also may choose to develop specific enforcement tools to enhance accountability. In Massachusetts, payers and providers who exceed the benchmark may be required to develop performance improvement plans (PIPs), though no such plans have been publicly ordered yet. The Oregon Legislature authorized full implementation of the state’s benchmarking program—pending only the enforcement of PIPs for further legislative consideration. How far states are willing to develop explicit enforcement mechanisms will differ significantly.

Note: To download a free copy of the full white paper “Implementing a Statewide Healthcare Cost Benchmark: How Oregon and Other States Can Build on the Massachusetts Model,” click here