Economics of Health Care

2018 Cost Trends Hearing Day 2 Transcript

[Start 00:39:06]

Stuart Altman: All right, and you're gonna then … Secretary, you're gonna do the intro.

Mdm. Secretary: All right, Trish, come on up.

It's my privilege to formally introduce Trish Riley, who is the executive director of the National Academy for State Health Policy. And if you don't know about the National Academy for State Health Policy, shame on you. I think you have her formal bio, but just I'll give it briefly.

She was a distinguished fellow in state health policy at George Washington University and taught in the graduate program at the Muskie School of Public Service in the University of Southern Maine. She has had government experience as the director of the governor's office of health policy and finance in Maine and leading the efforts to develop a comprehensive and coordinated state health system. And she was the principal architect of the Dirigo health reform. She has chaired the governor's steering committee to develop a plan to implement the Affordable Care Act in Maine. Obviously she's a Mainer, in case you couldn't figure that out, and has held appointive positions under five Maine governors.

She was a founding member of the Medicaid chip payment and access commission, and she holds a bachelor's and master's from, any guesses? University of Maine. But most important, what I'd like to say about Trish and that National Academy for State Health Policy is that it is nonpartisan. It provides a unique forum across all levels of government: executive, legislative, and other players, policymakers and others. The National Academy offers a safe space both in small meetings and at the national conference for two things: one is the breadth of participation and the breadth of participants who come to both the small and the larger conferences, and the depth of analytic and problem-solving. So I think that really speaks to both the academy of which you are the executive director and how you have come to view and analyze and think about and innovate around health care policy because, as you have always said, not one person owns healthcare policy. All of us own healthcare policy.

So welcome, and thank you for being here today, Trish.

Trish Riley: Great. Thank you very much, Secretary. And I have a confession: I was born and raised in Massachusetts.

Mdm. Secretary: Well, we knew that too, but we were gonna let you say that.

Trish Riley: Chairman Altman, Vice Chair Everett, members of the commission, I'm very honored to be here. The work of the commission is very well known and followed closely. I think you're making groundbreaking efforts here, and I congratulate you, and I'm truly honored to be here. The secretary has nicely summarized my next slide, so we can move right on … NASHP has been around for about 31 years, and we're very, very pleased to have as part of our membership in steering committees that guide us three state officials here: [Louis 00: 42: 18] Gutierrez, Dan [Sighe 00: 42: 20], and your own David [Seltz 00: 42: 21], and many staff people who participate with us in small groups, including Secretary who's been very active with us. So thank you.

I've been asked to sort of walk us through generally where other states are, how Massachusetts and the Commonwealth's work places among state activities. David asked me a couple of specific questions, so I'll try to answer them. What motivates states to act? Obviously, the budget. Increasingly, the budget is challenging. States, except for one or two, have to balance their budgets, and the inexorable growth of healthcare makes that so very challenging.

Much of the discussion around the states has been around Medicaid, since it comprises about 25%, state and federal, of state spending, but in fact states spend a great deal of money in corrections, public employees, municipal, university faculty. There's lots of state funding often done in silos and not coordinated.

Obviously states have great oversight responsibility for at least part of the insurance market, and the high cost and high deductibles have driven lots of attention, and I want to spend just a minute because states have indeed been the laboratories of innovation. There's been much attention to the extraordinary work here in Massachusetts as it guided the Affordable Care Act, but that's a long tradition in states. Twenty six states had enacted the Children's Health Insurance Program before the Congress enacted CHIP. States had enacted mental health parity laws before the Congress enacted Mental Health Parity. Gag clauses that were just signed by the president have been passed in 26 states before they became part of the federal attention. So we think all of the areas of costs, states have a particular role, and a unique role, in that states can be more agile, can be more facile.

When we make mistakes we can fix them quicker. When we need to refine and reform, we can and do. And I think that's important. Of course, it's the public outcry that gets public attention, particularly at the state level. And here, this slide I think is particularly important. It's a little bit dated. It's February 2018, but the Kaiser Family Foundation asked an open-ended question. I think that's what important about this. "What healthcare issue do you most want to hear candidates talk about?"

Most of us are probably tired of hearing candidates talk at this late stage in the debate, but nonetheless it's stunning to me that 22% — the highest single area — was healthcare costs. The public gets it. The public wants action. And for states, that's particularly important since 36 governors are up, 17 open seats, 80% of our legislatures are up for election. So we will likely see some change, and we have very, most definitely seen healthcare play out in those races.

The frustrating thing for some of us in state health policy is we've been at this work for a long time trying to bend the cost trajectory, and despite the successes of much of that work, the trajectory keeps rising. Payment and delivery reforms, much of it fueled by CMS and CMMI and big federal investments, many of which have been part of the Massachusetts work, have been really important in states. Global budgets, sustainable growth rates, rate setting … Many states — Massachusetts, Maine — had rate setting for many, many years for hospitals. They fell by the waysides. Maryland's has continued perhaps because it was a state that had a Medicare waiver and was truly all payer.

More attention again is being riveted at rate setting as a potential vehicle for reform. There is cost market oversight responsibilities in the states. Twenty-three states have already passed surprise billing laws. There's great interest in the work here in Massachusetts with your determination of need in an increasingly consolidated healthcare system. What do we do when the market forces us such that those big consolidated systems have such power? How do we think about some of the state structures? Does CON need to be redone?

Transparency has long been a tool of the states. Several states — Washington, New Hampshire, and Maine — have pretty successfully used their all-payer claims database, and I think work is underway here to do cost-compare websites where you can go to a website, look at the cost, buy payer, buy facility. It's a beginning.

Some of the interesting trends that I think have grabbed state attention … One is reference pricing. There's been a good deal of activity, particularly around state employee benefit plans, California's CALPERS, where for [shoppable 00: 47: 01] activities, if one is to choose the lower cost but still, I'm sure, high quality colonoscopy or mammogram, then you don't pay a copay, so changing employee behavior by inducements around copays.

In Montana, they were experiencing a really serious budget problem with their state employee health plan. They negotiated with the hospitals. They decided that they would do reference pricing with Medicare, and that they would follow Medicare payment methodologies. They would do Medicare Plus. And they would pay all hospitals at that rate. And they were able to save $15 or $16 million, which in Montana is real money. States have interest in that. It also simplifies some of the billing procedures by tracking what Medicare does.

Increasing attention, given that there are the silos of funding within states, that so much attention has been driven by Medicaid because Medicaid spends so much money, but increasingly states have begun to think about their role as public purchasers writ large. So we see in Washington the healthcare authority combines Medicaid, under one roof, Medicaid and state employee health plans. We'll soon bring teachers under that. The Oregon Health Authority purchases care for one in three Oregonians, and it does so by covering Medicaid, public employees, teachers, and they're now holding that plan to a 3.4% growth rate that they hope to expand into the private sector.

Tennessee has adopted episode-based payments across state employees, retirees, Medicaid, and I think this is one promising area of experimentation by the states.

Many ask: why focus on pharmacy? It's the smallest part of the pie. But I think as you all see, and we all know, it's the fastest growing part of the pie. Importantly, it's one of the places where we can really look at prices. The issue with the pharmacy issue is the black box of how prices are set. Unlike every other part of healthcare, where we decide what we pay, where we determine payment rates, in the pharmaceutical world prices seem to be set by what the market will bear. It's very much a black box and one in which states want very much to engage. So clearly it's an area that has grabbed a great deal of state attention and a big part of our work, as a result.

The biggest driver, I think, for states again recognizing their balanced budget requirements is not just the incredible launch prices that can provide sticker shock to anybody who's a buyer, but the unpredictability of increases throughout the year. And if you're trying to balance a budget, and a drug that's already costly goes up significantly, it's a tough, tough thing to deal with in your budget.

Obviously, even people with only remote understanding of healthcare have heard about specialty drugs, biologics, immunotherapy, extraordinary innovations with extraordinary promise, and yet it raises the specter in the states of how do we balance their extraordinary capacity to really help people against our ability to pay? So this clearly is an issue that has grabbed state attention. The 21st Century Cures Act fast-tracked drugs, making them more readily available without the kind of testing for efficacy that drugs have been required to pursue in the past, more expensive drugs on the market more quickly.

There is also no federal consensus, despite the president's effort around the blueprint and much discussion federally, and states simply can't wait. States don't wait; they can't wait. They need to act. They need to experiment, and they are doing so.

Our work with the states is designed in part to disrupt a business model that appears to be out of control, a business model that's very costly and where we, again, the balance. No one disputes the extraordinary innovation that's going on in the pharmaceutical industry, but the balance between what we can afford and what that price is, and whether the price is appropriate, it's a question that's difficult to answer.

And finally for us, as the secretary noted, we are a bipartisan group. The vast majority of governors today are Republican, and we are very much committed to bipartisan solutions. This is an area that enjoys strong bipartisan support, that people really do want to attack the issue of these costs. We have created as a result a center for drug pricing with support from the Laura and Jon Arnold Foundation. We have a work group that David sits on, and we're working hard to try to give states the support that they need to engage in this issue. And engage they will.

In 2018, we saw far more bills introduced in state legislatures than in 2017, and that's important because in 2018 these were short sessions in most states. Most states have only a couple of months of legislative session. In 2018, several states didn't meet at all, yet 170 different bills were introduced. Twenty-eight states passed 45 new laws. Those were largely around pharmacy benefit programs, with 31 laws. And I just list a few states to give you a sense of the bipartisan interest here in this issue: 26 bills on transparency were passed; 7 are in law. One state passed a bill to do wholesale importation of high-cost drugs from Canada: Vermont. Utah's close to doing so, passed it in one house and will reconsider it, we believe. The legislature ordered a study to reconsider it this year.

Maryland passed a price gouging bill. Thirteen other states proposed them, and three bills were proposed for rate setting.

Let me quickly take you through what those look like. Here's a snapshot of the transparency laws. As you can see, most states are looking at manufacturer prices increases. Some look at health plans. There's a variety of looks here. The launch prices are of keen interest. Interestingly, the state of Nevada has a provision uniquely theirs that requires patient groups, nonprofits, to identify whether they are funded by pharmaceutical manufacturers, and it reflects I think the findings of a Kaiser Family Foundation that in 2015, I think, which is the latest date it was available, looked at 14 companies. They spent $116 million supporting 594 patient groups around the country, which pales against the $63 million they spent in federal lobbying. So these are initiatives that are supporting consumer groups, and Nevada wants to know who and ask as part of their transparency bill for that information.

Vermont was the first state to pass a transparency bill and amended it last year. Like many of them, it asks health plans to report on the most costly drugs, the impact of drug costs on premium rates, and asks manufacturers for information on price increases and high launch prices. So, again, the issue here is not to suggest that pharmaceutical manufacturers shouldn't make money on the drugs that they have invested greatly in. It's what's the right rate? What should we be paying for these drugs?

California's bill is very comprehensive. Like Vermont's, it has much of the same provisions. It adds the requirement for manufacturers to give 60-day advance notice of price increases. Again, states are struck with the unpredictability of cost increases; this helps with that budgeting mechanism. Let me just quickly go through all of them.

As is the case in many of these situations, there is disagreement between the industry and the states about whether we should address these costs and what ought to be done if we do, and the industry filed suit against California arguing that it would cause all kinds of disruption. It has three major provisions. One is the commerce clause, which prohibits California from regulating drug pricing beyond the state's borders. This is a key area of concern in this whole pharmaceutical pricing issue. We can't set prices, and we can't impinge upon the industry's ability without violating the Dormant Commerce Clause. The First Amendment, arguing that they compelled speech through manufacturer's justifying price increases and due process because the law is unconstitutionally vague.

The case was thrown out by the district court, arguing that it failed to show that the court has jurisdiction to hear the case. The judge, however, gave pharma 30 days to amend the complaint after finding its initial claim that California's law attempted to dictate national health policy without merit. On September 28th, pharma did re-file, and we'll keep a look at that and see what happens there.

Connecticut has a very robust transparency law that they are developing now, and I think points out again the importance of insurance regulators at state government for having a role here. Insurance regulation has historically looked at how rates are set by insurers, holding confidential proprietary information. Here, too, health plans are asked to report how they impact premiums, and I think there's a dual responsibility here: one, you have the transparency of the information; two, you have the insurance regulator, who can then use that information in rate review, one would assume.

New Hampshire and Maine are likewise studying transparency and have to report back to their legislature in 2019.

We have convened the states that are engaged in transparency to try to standardize the effort, to try to have a searchable database, to try to build on each other and be able to do analytics across these states. But importantly, transparency is an essential but inadequate step to address pharmaceutical pricing. We need to know what's inside the black box. We need to get this information. But alone, transparency will not bring down costs. That's why we see some efforts beginning around the states to take on the price issue.

Maryland enacted the country's first price gouging bill on generic drugs. It was immediately ... The Association for Accessible Medicines, the generic trade association, filed suit claiming the law could hurt competition, drive up prices. And the 4th Circuit Court of Appeals found the law in fact regulates trade outside Maryland's border and thus violates the Dormant Commerce Clause. The attorney general has recently I believe announced that he will appeal, yet again, but this is an issue of interest among the states, and I'd point out 13 states knew that this bill was being challenged in the courts, yet introduced the bill, and I think that's the nature of the states. We expect these bills to be challenged, and yet states keep pushing to see if they can advance and test with reform.

But importantly, the price gouging bill looked at prices, and that triggers all kinds of legal issues that are … There are all these lawyers behind me. I don't pretend to understand them, but it's a challenge. So the new approach is how do we look instead at what we pay? Not what they set the price at, but what we pay? Again, we set rates for hospitals. We set rates for other providers. Can we do the same for pharmacy?

Maryland passed in the house, but failed to do so in the senate, a rate-setting bill that would basically establish, not unlike rate setting did in hospitals, establish standards for spending in a state by all payers. It's being revised and reconsidered, and we expect to see it advanced again this session.

It's been renamed, and I think properly so, the Prescription Affordability Board. This model follows a public utility's model. We regulate public utilities in states. There are drugs that are public goods. We're not suggesting all drugs, high cost drugs, that are public goods. And there may be a model here to look at payment. Minnesota proposed a similar bill, and New Jersey has a bill in the pipeline as well. And we expect to see some more introduced in 2019.

Vermont has taken a new approach: to import drugs from Canada where prices are significantly lower than they are here for the same drugs. Given that drug manufacturing has become a global industry … Forty percent of drugs now sold in the United States are made someplace else. Eighty percent of the raw ingredients in drugs in the United States are made someplace else. Thirty percent of wholesales in Canada are FDA-licensed, so the industry is itself global, the supply chain. And Vermont passed — Utah will reintroduce — a bill to import certain high-cost drugs from Canada in a wholesale introduction. This is not personal importation, where there have been some problems. This is a wholesale importation program where a wholesaler in Canada sells to a wholesaler in Vermont and follows the current supply chain, and Vermont is actively engaged. Now the federal government does have the authority, by law, to grant a state permission to do this if they can assure savings and safety.

You spoke yesterday about alternative payment methods. This is an area again of interest in states. In Louisiana, they're advancing an alternative payment model for HEP-C drugs that they call the Netflix model. It's a subscription model with a flat price, negotiated with the industry, to provide drugs in exchange for open access for all who need the drug.

Medicaid initiatives remain terribly important for the States because of the extraordinary amount of spending given who's on Medicaid. These are populations who use a great number of drugs. And so, there's a clear interest here among the States. It's really a tough nut to crack as no one knows better than Secretary Sudders because generations ago, decades ago, a grand bargain was struck with the Federal Government and the industry in which the industry agreed to significant rebates at the Federal level and allowed states to achieve supplemental rebates in exchange for every drug being offered on the states' formularies. States have some tools, prior approval, preferred drug lists, but they're very limited and every drug must be offered. The industry assures us that the Medicaid program gets the best price. The challenge here is that only CMS knows what those rebates look like.

I was a Medicaid director. And I remember being told … We were very proud of our supplemental rebate program. I remember being told that on a certain drug we got the best supplemental rebate. And then talking to my colleagues in other Medicaid programs who told me for the same drug they got the best supplemental rebate. And it's a black box. We don't know. CMS knows, but it's a tough place to negotiate as Massachusetts has found.

There was extraordinary interest in the waver that the Secretary and her colleagues advanced, very creative, very middle road, we thought. And states were keenly interested in it. It was denied, as you well know. And I think all eyes were on Massachusetts to see what your next steps will be. New York has also created an interesting approach to its Medicaid pharmaceutical pricing. Complicated but interesting. It basically establishes … it has established a budget for its Medicaid program and a budget for drug spending within the Medicaid budget. When that budget is exceeded, the state identifies those drugs that are high cost and that have broken the cap effectively. And they negotiate with those companies to see if they can get, if you will, supplemental supplemental additional rebates to bring their costs under budget. And they succeeded with many, many drugs this year when they broke the cap.

One company did not negotiate. It was a single class drug for cystic fibrosis, and would not negotiate an additional rebate. The state did not have the authority to say, "We will not use that drug," and of course, people needed the drug. It has created a series of transparency requirements when company manufacturers will not negotiate drugs and we'll see how that plays out in New York, but asks for more information about how prices were established in the instance where they are not able to get that change.

Alternative payment methods, we are happy to be supporting Oklahoma and Colorado through our Arnold Foundation funding. Oklahoma has the first in the nation alternative payment arrangement with a drug manufacturer. This is an area where the drug manufacturers and the states have found some harmonic convergence. There's some agreement. There's some interest on both sides to really look at this. Although it took Oklahoma negotiating with 20 to 30 companies before they found one or two would be interested in engaging with them. Basically, what happens is the manufacturer agrees to a set price. The expectation is that performance metrics will be established. And if the metrics are not established, there are additional rebates paid back to the state. The first drug that had this APM in Oklahoma is an injectable long acting antipsychotic. And the argument is that it will increase adherence for those who use the drug, lower hospital use and emergency use, and therefore both sides benefit and we will wait to see what happens.

In Colorado, they're looking at an area that has not gained much attention to date. Much of the work that we've been engaged in with states have been outpatient drugs. In Colorado, recognizing that inpatient physician administered drugs are often very expensive specialty drugs, chemotherapy drugs. And they're examining ways to restructure the payment for those drugs. The first step of which was to survey, which they've completed, survey physicians to get a better handle on how exactly those drug prices are established. So, again, an innovative approach worthy of review.

So, I think our next steps is we will see more action from the states. It's touch work. It's a little like pushing that rock up the hill. It rolls back over you but you get up and push it back, and that's what states seem to be doing here. And again, it is interesting that 28 states with great diversity, red, blue, purple, have passed gag clauses assuring that pharmaceutical benefit manufacturers must pass onto consumers the savings that consumers are eligible for. Information if the PBM price is higher than what a patient could pay out of pocket, the pharmacist now is allowed to tell the patient that.

New England has been very actively engaged on the pharmacy issue and we very much would look forward to working with you should the Commission and the Executive Branch and the legislature want to pursue these efforts. It's hard work, and I think there is always value in states working together. So, thank you very much.

Stuart Altman: Trish, thank you so much. That was wonderful. So, we have a couple of minutes until the Attorney General comes, and I don't want to hold her up. So, if there are questions of Trish, I would welcome them. Elizabeth.

Elizabeth: First, thank you. That was a fabulous presentation. Could you expand upon the types of laws passed regulating PBMs?

Trish Riley: Yep. The PBM, they're a little bit all over the place because that's what states do. They tend to be gag clause laws. They often license PBMs. Some states have had some provisional certifications, but they license them. And there's a good deal of requirement around transparency, largely transparency about rebates, at least in aggregate. Again, recognizing that some of this information is proprietary.

Stuart Altman: Secretary?

Mdm. Secretary: Can you just … I know there's a lot of buzz around Oklahoma, but it's my understanding that no high cost drug company has actually come to the table. Can you … is that … could just be the buzz among states, but that's sort of my understanding.

Trish Riley: That's correct. 20 or 30 companies they spoke to before they got two small companies to participate. I think there are concerns about the data. There's concerns about the metrics of how you measure this. There's concerns on the … there's considerable skepticism on all parts, I think, and among some from the state perspective about can we get good enough metrics and good enough data? The exchange here is often to open up to everyone access to a drug that now may be prior approved, may be on a PDO. And there's questions about what the trade-offs are. I think it's very much toe in the water work, and we need to sort of see. But it is correct that the big companies … some of the big companies expressed interest in working with the state to examine utilization and get a better handle on what an APM might look like. So, there may be some future work with bigger companies.

Mdm. Secretary: Thank you.

Stuart Altman: Tim, I'm going to give you the last question.

Tim: Well, thank you very much. Just a quick question. Given all this, what would you say would be the right ... I mean, no way to go is clearly the best outcome, but what would you think we should be seeing if we implement some of these things and there's a Bill passed that tries to addressed the issues you've raised? What is a fair rate of growth that we should be seeing on pharmaceutical spending?

Trish Riley: Next question? I think we don't know. I mean, I think part of the problem is, we don't know what these prices are made … you know, how are these prices determined? What is a reasonable rate of growth, when we don't really have a good sense of what the underpinnings are of what goes into them? We hear a lot about R&D costs. And many of the states have shied away from that work because it's so complicated. A molecule is used for multiple drugs, how do you measure that? And instead looked to ask, how do you make that determination of launch price? How do you make that determination of a price increase? And I think until we get some of that … again, I think that's why transparency's the first important but inadequate step because we need to better understand so we can make fair and rational … These are emotional issues in the states. They're drugs people very much need and want. They're innovative, exciting, companies are doing great work, but the prices are out of control. So, I think that is the million dollar question about what is a fair and appropriate rate of return.

Stuart Altman: Well, what a great way to end, which gives us a little something to do. I think it ought to be on our agenda for next year, David. What is a reasonable price? Again, I want to thank you, Trish Reilly, for doing a phenomenal job. Keep it up.

[1:12:21] Well, we're so honored this morning that the Attorney General with the incredible workload that she has found some time to come visit us. So, it's such a pleasure for me to introduce Attorney General Maura Healey. As I was driving in this morning, it was something that you were doing with energy or something like … I mean, it's amazing you find any time to find healthcare in your agenda, but I know you do. And I want to personally thank you and your staff for the kind of work you're doing in the whole healthcare area and it's so pleasing to me the good cooperation that exists between your office and health policy commission. And I know we, and I know you, have the best interests of the state at heart, trying to balance that complicated issue of high quality healthcare with reasonable and affordable prices. So, again, I want to thank you so much for taking the time and addressing our cost trend hearings. It's a pleasure to introduce you, Attorney General Maura Healey.

Mdm. Secretary: Well, thank you very much, Stuart. And thank you for the compliment, although that is entirely a credit to the team on all fronts, whether it's energy or consumer issues, and certainly with respect to healthcare. And I'm lucky to have the team that we have in the office and I look forward to their presentation a little bit later. But I do appreciate the opportunity to personally come and thank you as a Commission for the work that you do. Thank you for the continued partnership. I appreciate all of your efforts. Thank you, Stuart. Thank you to all the Commissioners for your commitment to improving healthcare for all of our residents. I'm honored that Marty Cohen and Doctor Berwick and Doctor Cutler are serving on our behalf out of the Attorney General's Office on the commission.

Good morning to Secretary Sudders. In addition to the partnership that I think is strong with the Health Policy Commission, our partnership with the Executive Office of Health and Human Services across a number of fronts, particularly over the last couple of years, is really, really critical, I think, to doing the work that we need to do in Government. So, I thank you for that. To David Seltz and Ray Campbell and the entire staff at HPC, thank you for all that you do. And to the good folks at CHEER as well. And of course, to my team, your team in the Attorney General's office, Eric Gold, Sandra Wolitzky who celebrated a birthday yesterday. I'm sure this is … I don't know what you were doing yesterday, but you weren't having cake, I know in anticipating today's testimony. And Amara Azubuike, excuse me, Amara Azubuike who will be presenting to all of us in just a few minutes.

Look, I just wanted to share a couple of thoughts this morning. I know and you know that when it comes to ensuring healthcare as a right and not a privilege, Massachusetts really stands alone. And over the past few years, it's been my honor to stand with you against efforts to dismantle the Affordable Care Act, efforts that would jeopardize so much of the progress that we have made here in Massachusetts. Last year we sued to protect cost sharing reduction payments that allow tens of thousands of Massachusetts residents to access care on the Health Connector. We've also led the charge nationally to protect against cut rate low quality insurance products that could destabilize our health insurance market and put families at risk at the very moment they need care the most.

And just last month an attorney from our office was in Texas defending the constitutionality of the ACA. I also appreciate the partners in the room who worked hard to ensure that we had legislation that Governor Baker signed ensuring women's access to reproductive healthcare in the state. All of this is critically important. We know we need to stay in this fight. We will stay in this fight. We know how high the stakes are, not just for the 20 million people around this country, but hundreds of thousands here in Massachusetts. We've got to continue to do the work. So, know that that is my commitment and our office's commitment.

We're also committing though to offense. And it's not just about holding the line and defending the progress that we've collectively made as a state. It's about building on that record, building on that progress. Massachusetts, now more than ever, must continue to lead this country when it comes to healthcare. And that starts, of course, by addressing cost and distribution challenges that make our system, as great as it is, unfair and inefficient in many ways. And fundamentally, as it's always been for me, cost and distribution challenges really are about access. And fundamentally, that's what I care about, what you care about.

We know that some of our poorest residents will still spend a third, a third of their yearly income on healthcare costs. We need to do better. We know the work we have to do on social determinants. And I think a lot of progress has been made in terms of the learning and the thinking in this space. Still, 75 cents of every healthcare dollar is spent on managing chronic conditions. The biggest drivers, of course, remain the social determinants of access to food, stable housing, exercise, employment, and prevention education. And by focusing on these social determinants, investing in people before they get sick or before they need care is one of the best ways to reduce health disparities and to lower costs. And so, earlier this year with the help of so many in this room, our office updated our Community Benefits Guidelines. And I want to take a moment once again to thank everyone who participated in that process, who lent our office their expertise and advice by serving on our task force from community hospital leadership to providers and medical experts. These new guidelines will help direct more than $300 million each year into local programs to improve community health. And we're committed to expanding on that work.

Last week, my office was proud to announce a million dollar grant from the US Department of Justice to partner with Sandy Hook Promise, which is an organization founded and led by several families who lost loved ones during the terrible shooting in Newtown, Connecticut. With this funding, we will be able to expand and supplement school based violence prevention and mental health training to nearly 140,000 students across Massachusetts. We're pleased about that.

And of course, to truly lead on healthcare, we must continue our work to end the opioid crisis that continues to take lives every day here in Massachusetts. Combating the epidemic has been and remains my top priority. We've worked hard to change laws to make Fentanyl trafficking a felony. We've worked with the medical community to stop unsafe and illegal prescribing this summer as part of our multi-state investigation that Massachusetts is helping to lead into opioid manufacturers and distributors. We sued Produpharma, the makers of Oxycontin and its owners and executives. Produ made hundreds of millions of dollars in Massachusetts alone based on the evidence that we've discovered to date off of what we believe is deception and addiction. The more drugs they sold, of course, the more money they made, and the more people here in Massachusetts suffered and died. And we intend to do our job as a matter of law enforcement and bring accountability to this space.

And the same time though, we know that while these efforts are critical, they're not enough. And we need to stop abuse before it sets in. That's why I'm heavily focused on prevention and prevention education. These days, when I talk to parents about keeping young people healthy, I'm hearing increasingly concerns about vaping and JUULing more than anything else. I think over half of our high school students in Massachusetts have reported trying these products. Half, that's amazing when you think about all the efforts made over the years to stop teenage smoking. And here we are again with what our office believes is in many ways a playbook ripped out of the pages of big tobacco years ago.

So, earlier this year, my office announced that we were opening an investigation into JUUL, JUUL Labs specifically to see if the company intentionally marketed, created a market for young people. We've also taken action against online retailers and we're looking at brick and mortar operations. But I just raise this as an issue because as I've done round tables with kids in middle schools around the state, this is the issue I'm hearing more and more about. And I know it really presents significant concerns. When it comes to opioids, however, my office has continued and expanded our work in partnership with the GE foundation, Chris Herren, and Health Resources in Action on the two million dollar program we call Project Here. We've also updated that to include the issue of vaping and JUULing and want us to be current in meeting kids where they are and speaking to issues that they are presented with in real time. We recently released another $450,000 to schools and non-profit organizations in 38 cities and towns as part of this effort. And now, as a result, this comprehensive substance use prevention education is available to every public middle school in our state. And so, we're going to continue to focus and support efforts to provide that kind of education.

Guaranteeing access to substance use education, investing in social determinants, modernizing community benefits and defending the ACA. These efforts are only possible because of the deep commitment to access and healthcare innovation shared by the people in this room. It's that same spirit of collaboration and willingness to challenge ourselves that brings us together each year to discuss cost trends and market challenges. I enjoyed listening to the end of the last presentation on what is certainly an important topic.

Today, my office is excited to build on that partnership. And in that spirit of teeing up challenges, we wanted to present our findings for this year's cost trends report. While, total healthcare expenditures in Massachusetts grew only 1.6% last year, well below the cost growth benchmark, enrollment in high deductible plans is increasing. The onus is increasingly on consumers to control their own healthcare costs. That means that everyone needs to have access to accurate and timely information about cost and quality. But our report found that getting information about the price of healthcare services is often nearly impossible thanks to the complexity of the underlying payment arrangements. A service that costs $1,000 at one hospital might only cost $300 at another hospital. A hospital with a reputation for low costs might still be relatively expensive for an MRI or radiology or other service with no simple way for the consumer to know in advance.

Our report also discusses the costs associated with administrative complexity, something that Doctor Jha highlighted in his presentation yesterday. For example, one study found that in medical offices for every 10 doctors, there are seven employees engaged in billing activities. Today, the team from my office will present the report and our findings in greater detail and lay out our argument for reducing administrative and financial complexity and increasing transparency. On this, and on all other issues I've touched on today, we look forward truly to continuing our partnerships and our collaboration with this Commission. At a time of uncertainty, it's imperative that we continue to find ways to collaborate, to innovate, and to plan for the future. And I know that that is the spirit and the intent of these discussions and of this Commission and of the work. I also know that we can only get to truly accessible and affordable healthcare, the kind of healthcare that our state, our businesses, our hospitals, our residents most of all deserve by working together and by not being afraid to talk about challenges. So, thank you for the work that you do. I now ask the team from the Attorney General's Office to come forward and ask them questions. But I'm happy to take any questions, of course, on any topic.

Stuart Altman: Thank you so much. I tell you what, we're afraid to ask questions of the Attorney General. So, we're going to turn it over to your staff, which we can [crosstalk 01: 26: 20].

Mdm. Secretary: Some are not.

Stuart Altman: I have too much respect for you too. So, thank you so much again for taking the time. And again, I want to indicate how pleased I am about the level of cooperation between our offices. Thank you so much.

Mdm. Secretary: Terrific. Well, it's what Massachusetts deserves. Thank you.

Stuart Altman: Okay. So, if you'd be nice enough to introduce yourselves. And we've seen you before, and it's always a pleasure to have you back. So, Sandra.

Elizabeth D.: We're happy to be here. I'm Sandra Wolitzky. I'm an Assistant Attorney General in the healthcare division. Can folks hear me?

Stuart Altman: Yeah.

Elizabeth D.: And this is my colleague, Amara Azubuike. I want to thank all the Commissioners and the Health Policy Commission for inviting us to take the time to share some findings from our recent Cost Trends Report. As you know, our office has used our unique subpoena authority to examine market trends and report on our findings since 2010. Our prior reports have documented inefficiencies in the distribution of healthcare dollars, including provider price variation, unexplained by differences in complexity or quality. We've documented higher levels of commercial spending on care for residents coming from wealthier areas in the state.

This year, we examined payment methods in the commercial market and how they may be driving costs. First, I'll discuss our findings on how healthcare services are paid for in the commercial market. Through a review of contracts between hospitals and payers, we found variation across payers, products, providers, and services in how payment rates are determined. I'll present our findings on both hospital outpatient and inpatient payment methods. Then, Amara will present on the implications of these findings. First, she'll discuss the direct impact of this complexity on administrative costs, a cost driver noted throughout the day yesterday and in the Commissioner's remarks this morning. She'll conclude with a discussion of how this variation in underlying payment methods makes price comparisons more difficult for market participants, and she'll end with our recommendations.

So, this slide summarizes our findings on hospital outpatient contracting. As you know, outpatient spending accounts for a high and growing percentage of total healthcare spending, so this is a priority area for cost containment and transparency efforts. And we found significant complexity and variation in how fee for service rates are determined across these contracts. As this slide describes, the largest payers in Massachusetts use fee schedules in different ways to pay for outpatient services. A fee schedule is a detailed listing of services and the corresponding list prices that payers have established. The parties then typically negotiate multipliers that are used to inflate those base fees for certain groups of services.

so, for example, the parties may negotiate a multiplier of say 1.2 for a particular set of outpatient services, which would mean that the provider would receive 120% of the payer's base fee schedule for those specified services. We found that two of the three big payers in Massachusetts negotiate multipliers by categories of outpatient services. But they divide their fee schedule into different groups of related services for purposes of those negotiations. One payer uses 17 groups of related services, the other uses 12. So, for instance, payer two's hospital contracts include a single multiplier for radiology services, whereas, payer one negotiates up to three different multipliers for radiology related services. One for general radiology, one for high tech radiology, and then another negotiated multiplier for imaging agents.

The third payer has a different approach. While its contacts refer to four categories of outpatient services, these categories are not the basis of rate negotiations and do not contain associated multipliers in their contracts. Instead, this payer starts with an individualized fee schedule for each hospital and then negotiates an overall rate of increase for that hospital's outpatient services, which is then realized through changes to the hospital's specific fee schedule.

We found more variation in that fee schedules also vary significantly by insurance product. There are typically different rates for each MO and PPO products. However, in our examination, we also found that some plans and providers have different rates within their product offerings. Up to four different HMO rates and six different PPO rates. This means that there are different prices within a plan for the exact same services depending on factors like the member's employer or the provider group affiliation of the member's PCP. And these rate variations within products can be significant. For one payer and one hospital system, we found that PPO prices for the exact same services varied by up to 57% depending on the member's employer.

Now, a consequence of this approach to reimbursement is that hospitals negotiate different relative prices, sometimes significant different relative prices for different services. In this slide, we've depicted the outpatient fee schedule multipliers, which translate directly into prices applicable to several kinds of outpatient services for one payer, for one product, at a range of Massachusetts hospitals. For each hospital, we plotted three points to represent that hospital's negotiated multipliers for outpatient surgery, laboratory, and high tech radiology services. Now, the hospitals are organized here by size of the surgery multiplier, represented in blue circles. And this chart shows that other multipliers, laboratory in orange triangles, high tech radiology in gray squares, don't necessarily align with that surgery ranking. What this chart shows is that a hospital that's a good value for radiology, for example, may not also be a good value for outpatient surgery. Now we've found that some hospitals in our study were very expensive for almost everything and other hospitals were very low cost for almost everything. However, this was the exception. We found that significant differences in relative payment rates by service existed at most hospitals in our study. Now this approach to outpatient payment means that you need a lot of information to make an effective price comparison. A hospital with a reputation for being low cost may indeed be low cost for many or almost all services but maybe not for the service that you need.

Now not all outpatient services are paid based on a fee schedule. Where the payment methods deviate from fee schedules we found they were even more difficult to compare. You can see in this slide a case study that we did of contractual payment terms related to observations services. Observational services are short term assessments used to determine whether a patient needs to be admitted for inpatient care and we found significant variation across the big three Massachusetts payers in the way this service is paid for. So for example, Payer One reimburses for observation services based on defined time increments, but breaks out those time increments in different ways, in actually six different ways, across their contracts with hospitals. Another payer uses a base rate for each hour of observation with a negotiated multiplier multiplied by the number of hours at the stay. The third payer just uses an all-inclusive 24 hour per diem rate and each of these rates further varies by insurance product.

It's hard to compare these approaches and determine which one will provide the best value for consumers. In some cases it's impossible to tell because one option will be cheaper for a short observational stay but much more expensive for a longer stay. So what this means is that consumers getting the same service at the same hospital may get very different bills due to differences in the underlying payment methods that's been negotiated between the hospital and their payer. These differences in methodology however are not transparent to purchasers. On the inpatient side, payment methods are somewhat more standardized across the big three payers, but variation does exist across the commonwealth. So this slide shows the percentage of Massachusetts hospitals with which each carrier uses a particular inpatient payment method totaling over 100% where multiple methods are used by a single payer for some hospitals.

So the big three payers represented on the left predominantly use diagnoses related groups or DRGs for inpatient payment and that's reflected in the tall blue bars associated with Payers 1, 2, and 3. But while these three payers primarily use DRGs, they group diagnoses differently, use different versions of DRG groupers and apply different severity weights to those groupings. Outside of the big three payers we found that other payers use a range of different inpatient payment methods including percent of charges or a just negotiated discount off of the hospitals list prices shown here in red, and per diems or a negotiated fee for each day of a hospital admission shown in green. So for example in this chart you can see for Payer Four, over 90% of its hospital's contracts include a percent of charges payment for at least some services.

Finally across inpatient and outpatient services we found that billing requirements vary significantly across payers and providers. Coding and authorization requirements as well as documentation requirements for determinations of medical necessity vary significantly across commercial plans and sometimes across products within a plan. [Amara 01: 37: 04] will present on the implications of these findings.

Amara: Thank you Sandy. So why does this matter? First I'll discuss the impact of this complexity on administrative costs. Then I will discuss how this complexity makes price comparisons more difficult. This complexity matters because administering a complicated set of healthcare payment methods are expensive and there is no clear link to added value for patients. Yesterday Dr. [Daus 01: 37: 50] cited data that underscore our findings. The US is an outlier in healthcare spending and a major driver of US spending is administrative waste. While there have not been published studies of this cost in Massachusetts, one national study found that 25% of hospital costs are administrative and another study found that for every 10 medical doctors providing clinical care in a medical group setting there are seven full time employees on the provider side alone engaged in billing activities. One can imagine that more administration could reduce overall costs by increasing efficiency. However the data suggests the opposite. A study comparing administrative costs of hospitals in eight nations found that the total hospital costs were highest in the nations that had the highest hospital administrative costs.

The varied payment system that we observed in our study also matters because this complexity is a barrier to price transparency. Here again is the chart that shows different negotiated multipliers for different services within a single payer. As Sandy described, this approach to outpatient payment means that different services within a single hospital varies significantly in relative price. For instance on this chart, Hospital 7 is high value option for laboratory service for this payer. Its laboratory prices are 47% below average, yet its prices for radiology services are 28% above average. These price differences are significant for consumers, employers and providers who need to make value assessments when comparing different payer and provider rates for different services.

Massachusetts has some important tools like the Relative Price Index that aggregate hospital prices to facilitate high level price comparisons. This aggregation is valuable for analysis of overall price relativities but it is not well tailored to capture variation and prices for specific services. So market participants may not be making the most efficient choice if they are relying on aggregate measures or provider reputation when deciding where to get a particular procedure. To be clear, the fact that some hospitals are lower cost overall but have very high rates for a particular service does not mean that price variation and overall payment disparities does not exist. What it means is that purchasers need additional information to make reliable price comparisons for specific services.

Service level price variation creates obstacles for consumers who want to shop for high value providers. One way consumers identify these high value providers is through tiered insurance products. On this chart, each pair of blue and gray bars represents a hospital's prices for surgical daycare and high tech radiology for one large Massachusetts payer. The hospitals are organized in the graph based on their co-pay tiering level shown in yellow for both surgical day and radiology services. For example, Hospital 25 on this chart is classified as a Tier One hospital with a co-pay for $150 for surgery and yet it is significantly more expensive for this service than hospitals 26 through 29 who are classified as Tier Two. Patients who receive surgical care in these Tier Two hospitals have co-pays of $250 even while they are receiving less expensive care. This means that consumers are in some cases motivated by their Tier Network Plans to choose care that is actually lower value for that particular service.

Tier Network Products are supposed to motivate consumers to choose high value care by offering lower co-pays if that choose a provider with a preferred tier classification. However as this chart demonstrates, we found that tier status is not a robust predictor of actual prices and can actually mis-signal consumers about the price of the service. Consumers need accurate information about cost and quality to make cost efficient choices, especially as they are increasingly enrolled in high deductible products. While Massachusetts law requires payers to maintain online pricing tools that consumers can use to look up price estimates for specific services, reported consumer use of these tools is limited. Also these price transparency tools are not available to employers who pay for the majority of healthcare costs and select the benefit plan design offered to employees. Or to referring providers who frame the options available to their patients and should be able to assess the value of specific specialties services.

These market purchase participants referring providers and employers also need to be able to look across payers to identify high value services. This chart shows rate multipliers for two Massachusetts payers for radiology services across 32 hospitals. Payer One is represented by red triangles and Payer Two by blue circles. From a provider's perspective, this chart illustrates that identifying a low cost referral for a particular service may not be possible without information about the patient's insurance. For instance, Hospital 11 on this chart is a very low cost radiology option for Payer Two, but for the same service at the same hospital it is significantly higher cost of for Payer One. It is important for healthcare providers to know the relative prices of different services at different sites of care for a few reasons. So they can refer patients to high value specialists that contain overall costs to perform non-risk contracts and to provide patients who are increasingly in high deductible plans to affordable options.

For example, a provider who wants to refer a patient to a high value hospital for a radiology procedure would need to know the patient's insurance carrier and while this chart reflects payer rates for one insurance product, a provider would also need information about the patient's insurance product and sometimes even their patient's employer's group as rates vary within pairs and across products in employer groups. Similarly, the ability to make service level price comparisons across payers is important for employers who seek to create innovative, high value plan offerings that account for service specific rate variations. During panel testimony yesterday, Miss [Leore Stone 01: 44: 16] highlighted for us the real challenge for employers. She noted that it's hard to contain cost when you don't know what's driving them. With timely accurate pricing data, employers will be able to steer employees to high value options while before patients have developed relationships with their doctors or in acute healthcare situations.

So based on these findings we offer the following recommendations. First, there should be further study of administrative costs associated with the current approach to payment methods for healthcare services. One way to start would be to form a working group with representation from marketing participants that could determine a consistent way to report on these costs with the goal of developing strategies to reduce them. Second, we should reduce complexity and explore increased standardization where appropriate in the methods for determining underlying healthcare payments and finally we should establish real time service level price transparency for employers, consumers and providers. A simpler, underlying approach to payment methods would allow for new transparency initiatives that would enable purchasers and providers to compare options for specific services. Thank you for your time and we're happy to answer any questions that you may have.

Stuart Altman: Well your ears must be burning because the last set of questions that we raised among us is we need to learn more about administrative cost. Thank you, thank you, thank you. So I have just one question and then I'll turn it over to some, so this is incredible information. Do you turn this back to the payers and say "Do you know what you're doing?" and do they even, and I don't say that negatively about. They may not know what they're doing relative to another payer. So I'm just curious.

Speaker 2: Chairman, I think that they just did, to the payers in front of all of us.

Stuart Altman: Yeah, so do you talk to them?

Elizabeth D.: Yes, so as part of our examination we do have the opportunity to sit down with market participants and transcribe interviews to learn kind of from their perspective what's driving the variation that we observe, but I think Chairman your question really gets to kind of next steps. Certainly we see this forum and the opportunity to share this work with all of you and the public as an important launching point for these conversations and I think as reflected in our recommendations, we raise a lot of questions in this report and I think we're—

Stuart Altman: Are we allowed to know which one, who is Payer One and who's Payer Two and who's Payer Three? Or can we get it ourselves?

Elizabeth D.: We published blinded because the point here really is that even across big payers we documented this compelling and striking fragmented approach to payment and determined that it wasn't necessary to make that point, to name names.

Stuart Altman: Well thank you. Comments or questions? Would you?

Speaker 2: I'm sure Doctor Keller has some, yes.

Wendy: Excellent presentation. Thank you so much. If you can flip back to Slide 40 which is comparing prices across providers is challenging. What was fascinating to me was going back to several of the conversations we had yesterday about tiered networks. If you look at your Tier Two co-pays and that second tiered network, it would be really interesting over time if we could look at that combination of premium and co-pay together. This came up several times yesterday from the purchasers. I just as surprising to me to look at this and see that this small group of, I guess it's hospitals, 26 to 30ish, 29 maybe, would be considered Tier Two. Maybe one of the things we need to do is to find a way to creatively change the definition of tiering so that it does include the co-pay.

I don't know how the other commissioners thought about this, but that was really interesting to me and Chris may go back to your question yesterday of how do we go either to more limited networks or if those are not palatable to employers and purchasers then do we need to completely, creatively and innovatively rethink how we tier the different providers.

Elizabeth D.: Yeah, thank you for that comment and suggestion. I think it harkens back to work we shared with the commission a couple of years ago in our thinking about what innovative approaches to tiering might look like, which I think is supported by the data that we've unearthed in this examination which is that the point of service tiering has some challenges embedded in it. One of which is this rate variation that we've documented here, but there are other challenges as well like the stress of having to make those shopping decisions when you're sick and you've already developed relationships with a referring provider. So I think this slide and your comments speaks to the need for innovative approaches to tiering. Potentially to include consideration of tiering at the point of enrollment and thinking about ways to adjust not just co-pays but also premium contributions to reflect an upstream decision of a consumer to opt in to a higher value system of care.

David Cutler: I think this presentation is terrible because of what it does to my blood pressure. Which after the readmissions discussion didn't need to go up any further. It seems to be going up.

Wendy: Much less after the cost of what that blood pressure medication is going to be.

David Cutler: This is degenerating and it's really not my fault. I want to know I guess a little bit about the extent. Did you find out from any of the providers about what had been happening to their administrative costs? I know you cite the national data. Did you do any surveying about what their own internal spending has been on administrative adherence or do you have any anecdotes or anything like that that would help us?

Elizabeth D.: Unfortunately that was not within the scope of our examination. I think it certainly begs the question and is a direction for further study, but the national data was the best that we could find to speak to the provider's experience of this complexity.

David Cutler: I just want to have like one other issue that I think you mentioned in passing which I suspect is important, that the severity adjustments that they're doing all differ across the payers. So the severity adjustments are things like if the patient has high blood pressure, which I don't see how one could not after this, and then visits the physician that gets recorded on the code and then the patient is more severely ill and so then you sort of get paid more for them. So that they both have to invest an enormous amount of time and resources in figuring out everyone's blood pressure, but then it also counts differently, so they may have to measure it differently for different payers and different plans within payer. So did I correctly hear you about all of that?

Elizabeth D.: Yeah and we didn't make specific findings on the severity adjustment and the way that those are coded, but that is certainly consistent with what we've observed overall about the ways that coding and billing requirements vary across these plans and also within plans which was also something that we were really surprised by as we dug in deeper to these kind of administrative areas of inconsistency and variation.

Stuart Altman: So I'm gonna take one more question, but I want a commitment from you that you'll come back and talk with us some more about this because this is gonna be a high priority for the commission.

Dr. Kryder: So just take a quick suggestion. If you go all the way to the other side of the payment system. So all the way from fixed prices, for procedures and all the multipliers and all the adjustments and all the work that goes into claims based, there are examples of direct contracting that are… There's a reason restaurants go away from detailed menus and go to buffets, right? So direct primary care that's occurring in this state in a small degree. I know [Aura 01: 53: 54] Health has gotten a lot of press. They don't bill. They don't have claim based. They devote all of their resources to patient care after negotiating a fee for everything. So as you continue your investigations I hope you look at some of these direct primary care models.

There are also example of employer direct contracting with providers that are dis-inter mediating insurers and there is an ultimately simple way. It's really hard to get there because of the spaghetti that exists and that you've helped us begin to unravel. We all know now why we get those things that say, "This is not a bill," right? Because it would talk 30 pages to explain it. Thank you very much.

Stuart Altman: Well again I want to thank. This was great stuff and we will be back to you. Thank you so much. All right, so you've been all very patient so we need to take a break and I know breaks take longer than they, not that they should but they do, but let's try to be back in 10 minutes 'cause we need to keep going. So thank you so much. Colleen, I don't know who did the time.

[End 01:56:00]