2022 State of the State Addresses Reflect Realities of Health, Economic Recovery
/in Health Coverage and Access Blogs Chronic and Complex Populations, Cost, Payment, and Delivery Reform, Featured Policy Home, Health Coverage and Access, Health System Costs, Maternal, Child, and Adolescent Health, Population Health, Prescription Drug Pricing /by Allie Atkeson, Anita Cardwell, Clare Cartheuser, Rebecca Cooper, Gia Gould and Elinor HigginsGovernors use their annual state-of-the-state addresses to showcase successes and accomplishments over the past year and to define their policy priorities for the year ahead. This year 36 states will hold gubernatorial elections, so many governors use their state-of-the-state addresses to build their case for reelection and visions for the future. By late February, 41 governors had delivered speeches outlining plans to address a wide variety of health and economic related issues in the coming year, as the immediate health-related emergency of the COVID-19 pandemic has faded. Most governors reflected on the incredible response from frontline responders and public health agencies’ ability to meet the needs of the crisis but focused their future plans on how to emerge from the pandemic and respond to the economic and mental health crises that remain.
View a map highlighting governors’ goals on a variety of health-related policies here.
Priorities diverged from their 2021 health care and social determinants priorities. While many governors continued to address social drivers of health, citing affordable housing and access to healthy food and the environment as key levers to improve health, more highlighted livable wages, support for the workforce and business, and education. Notably, in comparison to last year, many more governors highlighted the need to address health care workforce shortages that have been exacerbated by the COVID-19 crisis. Governors also mentioned their priorities for investing American Rescue Plan Act (ARPA) funding.
These issues do not exist in isolation; many of these topics, including mental health, education, workforce, and equity, are woven throughout the speeches and require a whole-of-government approach to address. Below are highlights from key themes that the governors addressed.
Behavioral Health
Twenty-eight governors discussed behavioral health in their speeches this year, up from 22 last year. With an increased focus on crisis services, substance use disorder services and school-based mental health care as a result of COVID-19, governors addressed the need for investments in behavioral health services and workforce.
Fourteen governors mentioned making significant investments in behavioral health in their state-of-the- state addresses. In Idaho, Gov. Little proposed accelerating the implementation of the Behavioral Health Council’s recommendations, including a $50 million dollar investment in behavioral health care. In the executive budget, Gov. Lujan Grisham of New Mexico is proposing “tens of millions of dollars into new behavioral health services, expanding access to treatment for substance abuse, suicide interventions and more. New Mexicans call me about this issue more than almost any other, and we will answer that call.”
Ten governors mentioned substance use disorder, including the opioid epidemic and recent rises in overdoses over the past year. New Jersey Gov. Murphy discussed the state’s data driven approach to the opioid-use epidemic and expansion of harm reduction centers and naloxone.
In Delaware and Tennessee, governors discussed their executive branch efforts to combat the opioid epidemic. In Delaware, the Behavioral Health Consortium is led by Lt. Gov. Hall-Long, and the state was one of a few to see a decrease in the rate of overdose deaths. In Tennessee, Attorney General Slatery is working to deploy funding from the $26 billion dollar suit against pharmaceutical companies. Governors in Alaska and Missouri discussed providing behavioral health services to individuals in the criminal justice system.
Nine governors referenced youth behavioral health and school-based services now that children are back in the classroom. In Alabama, Michigan, Vermont, Washington, and Wisconsin, governors proposed additional school mental health supports. Gov. McMaster in South Carolina stated, “we must also recognize that a mental health crisis exists in South Carolina, especially among our young people who have weathered two years of disruptions, virtual instruction, isolation, and constant changes to normal routines.” He also directed the Health and Human Services Director to study the state’s behavioral health system as 60 percent of South Carolina children are enrolled in Medicaid. In Washington, Gov. Inslee’s budget will increase the number of school counselors, nurses, psychologists, and social workers in schools.
Six governors discussed strengthening the crisis system of care in their states through outreach services, mobile unitsand new centers. Gov. Ivey of Alabama proposed funding for two new mental health crisis centers and in New Hampshire, Gov. Sununu discussed mobile crisis support and a new 24/7 crisis call center. Alaska Gov. Dunleavy announced reopening the unit that serves adolescents in crisis, and additional funding for staffed beds.
Six governors also discussed supporting the behavioral health workforce through crosscutting investments. Massachusetts Gov. Baker discussed working with the legislature to address “enormous staff and clinician shortages in exactly the areas of care that we need most.” In Michigan, Gov. Whitmer stated, “40 percent of Michiganders do not get treatment for their mental illness. We will address this shortfall by expanding Michigan’s Loan Repayment Program for mental health professionals. And we will make a historic investment to retain and recruit hundreds more mental health workers.”
Broadband
This year, 17 governors discussed broadband in their state-of-the-state speeches, down from 30 in 2021. Governors in four states, Alabama, Delaware, Hawai’i and Maine proposed leveraging ARPA funding to support broadband efforts in their states. Other themes included broadband connectivity to support remote work and education and the creation of statewide authorities for broadband. Missouri Gov. Parson requested a “$34 million dollar investment in rural communities to increase access to telehealth and telemedicine services.”
Five governors identified broadband as critical for supporting remote work and education. According to Kansas Gov. Kelly, hotspots were deployed to students in low-income households to continue their education remotely. Gov. Dunleavy in Alaska stated that broadband “…unlocks the opportunity for us to live anywhere and work from anywhere in this Great State.”
Additionally, governors in Kansas and Maine are establishing statewide broadband authorities, In Kansas, the Office of Broadband Development has expanded internet access to over 50,000 new households and businesses. The Maine Connectivity Authority is “a new entity charged with achieving universal internet access.”
COVID-19
In 2021, 34 governors addressed COVID-19 in their state-of-the-state speeches, emphasizing vaccine distribution and economic recovery. In 2022, 17 governors mentioned COVID-19 with a focus on COVID-19 mandates, return to school, testing and vaccines.
The continued rollout of vaccines and testing as a strategy to mitigate the spread of COVID-19 were discussed by 12 governors. Gov. Sununu in New Hampshire emphasized the importance of data guiding the state’s approach. In South Dakota, Gov. Noem mentioned the state’s free at-home test program and announced an additional 1 million new tests to be delivered throughout the state.
Four governors spoke against COVID-19 mandates, including vaccines and masking. Gov. Dunleavy of Alaskastated his administration, “will continue to defend Alaskans’ rights to make their own medical decisions about vaccines and therapeutics for themselves and their families in consultation with their doctors and pharmacists.” Similarly, Gov. Parson of Missouri said, “when it comes to COVID-19 mandates, I firmly believe that the people should have say through their local elected representatives and not be dictated by needless executive action or any one person.”
Return to in-person instruction and masks in schools were discussed by three governors. Recently elected Gov. Youngkin of Virginia signed an executive order that allows parents to opt out of mask mandates in schools. In Kentucky, Gov. Beshear discussed the strategy to prioritize vaccines for educators and the state’s ability to return to in-person instruction in every school district early on.
Education
Thirty-seven governors discussed education this year and the impacts of COVID-19 were present throughout the speeches. Major themes included teacher recruitment and retention, addressing learning loss, and affordability of higher education. There was a marked decrease compared to last year in the number of governors that talked about expanding access to early education. Twenty-three governors proposed generalized investment in schools and students, and five governors emphasized the importance of keeping children in the classroom. Gov. Ige of Hawai’iemphasized the importance of in-person learning, but also announced the launch of the Hawai’i Virtual Learning Network—a virtual classroom network that can supplement in-person classes.
Eighteen governors talked about recruiting and retaining qualified teachers, with a major focus on increasing teacher salaries and recognizing the difficulties that educators have faced over the past two years. Gov. DeSantis of Florida proposed increases in teacher salaries in addition to $1000 bonuses for the second year in a row. Some governors also mentioned other types of support for teachers. For example, Gov. Hochul of New York proposed more “effective training and support, faster and easier certification, and stronger career pipelines and ladders”.
Sixteen governors proposed targeted investments in improving the quality of education in their states by enhancing literacy levels and meeting benchmarks, supporting greater investment in STEM education, or by making up learning loss sustained during the COVID-19 pandemic. Gov. Burgum of North Dakota talked about setting computer science and cyber science graduation standards for K-12 students, undergraduate students, and graduate students. Indiana Gov. Holcomb talked about the continued investment in accelerated learning programs to support students who fell behind during the pandemic.
Many governors also focused on opportunities following K-12 education, whether entering the workforce, enrolling at a community college, or attending a four-year university. Ten governors talked about apprenticeship programs and adult education opportunities, fourteen proposed investments in higher education, with nine of those focusing specifically on community college investments, and sixteen governors proposed higher education affordability measures like tuition freezes, scholarships, or loan forgiveness programs.
Ten governors also emphasized parental choices and roles in education, through vouchers, school choice programs, charter schools, or more parental involvement in curriculum. Idaho Gov. Little proposed an investment in Empowering Parents grants, which would cover “computers, tutoring, internet connectivity and other needs so students have the best chance for success.”
Equity
COVID-19 clearly shone a light on racial and ethnic health and economic-related disparities that existed prior to the pandemic, and in 2022, 9 governors highlighted the connection to equity in their plans, down from 21 governors in 2021. Three governors discussed the connection and disproportionate impact of the environment on low-income communities and communities of color. Oregon Gov. Brown used an equity lens to set the tone of her speech. She noted that she is “…most proud of is how Oregon approaches … challenges––through an equity lens. With a focus on our communities hardest hit by climate change: rural communities, people with low incomes, and people of color.”
Delaware Gov. Carney announced that the state, with federal support, will invest more than $400 million in Delaware’s clean water infrastructure, focusing on underserved communities. New York’s Gov. Hochul also proposed work to fix longstanding problems that disproportionately impact communities of color, including reconnecting neighborhoods that were cut off by highways, and directing the Metropolitan Transit Authority (MTA) to conduct an environmental review, to ensure no further harm is done.
Three governors also considered the intersection of poverty and communities of color and developed strategies to mitigate economic impacts.
Health Care Costs
Seven governors addressed increasing health care costs— emphasizing the need to alleviate the burden of rising healthcare costs on both individuals and state budgets. Notable state efforts to lower costs across the health care system include:
– New Jersey Gov. Murphy committed to lowering healthcare and prescription drug costs through a cost growth benchmark and additional transparency requirements throughout the prescription drug supply chain to identify cost drivers.
– Nevada Gov. Sisolak announced that the state will join the Northwest Prescription Drug Consortium with Washington and Oregon to leverage collective purchasing power to lower the cost of prescription drugs.
– Gov. Cox of Utah asked legislators to support the newly established Utah Sustainable Health Collaborative tasked with developing strategies to lower health care costs while improving outcomes.
Virginia Gov. Youngkin expressed support for legislation to extend access to association health plans, providing small business owners with a lower cost coverage option for their employees. Three governors celebrated successful state reforms which have lowered health insurance costs in the individual and small group market.
– Colorado Gov. Polis shared that the state reinsurance program reduced healthcare premiums by 24 percent on the individual market, with even more significant cost savings in the western region of the state.
– Following last year’s launch of a state-based marketplace, New Jersey Gov. Murphy shared that enrollment in the individual marketplace increased by more than 25 percent.
– Nevada Gov. Sisolak touted last year’s adoption of a public option to increase affordability and expand coverage options.
Five governors addressed the issue of rising prescription drug costs, with the majority focusing on the prohibitively high cost of insulin. Governors in Michigan and Colorado aim to improve insulin affordability through monthly price caps and Gov. Whitmer of Michigan announced that the state’s Attorney General would launch an investigation into one of the largest producers of insulin for excessive pricing.
Health Care Workforce
This year, against the backdrop of ongoing COVID-19 hospitalizations and concerns about burnout, 20 governors talked about their plans to address workforce shortages and bolster the health care workforce. In 2021, only eight governors mentioned plans to support or bolster the healthcare workforce. Recruitment was the overarching theme this year, with fifteen governors talking about how to successfully train more nurses, doctors, or emergency responders, how to use scholarships or loan forgiveness programs to incentivize entry into the health care field, and how to bring more health care providers into the state from elsewhere. Governors of New York, South Dakota, and Vermont talked about recognizing out of state licenses to attract qualified providers to their states. In Alaska, Georgia, Hawai’i, Maine, New Mexico, and Oklahoma, governors talked about expanding education programs to train more nurses and other health care providers. These proposals included plans for adding faculty to existing programs, opening new educational programs, and admitting more students to increase the number of graduates. Gov. Reynolds of Iowa announced a new apprenticeship program for high school students that would allow them to become certified nursing assistants before graduating high school. And governors in Iowa, Illinois, Rhode Island,and New York mentioned plans to offer additional scholarships, tuition reimbursement, or loan forgiveness for students training to enter the health care workforce—particularly if they stay in-state after graduating.
In addition to recruitment, nine governors also focused on strategies to retain the existing workforce—particularly those individuals who are experiencing the exhaustion of the COVID-19 pandemic. In Alabama, Colorado, Maine, New York, and Wisconsin, governors talked about increased compensation for those in the healthcare field, through pay raises, higher Medicaid reimbursement rates, or bonuses. Gov. Polis of Colorado and Gov. Pritzker of Illinoismentioned plans to wave licensing fees for healthcare providers in their states.
Housing and Homelessness
Sixteen governors addressed housing and homelessness in their state of the state speeches. Highlighting the impact of the COVID-19 pandemic, governors concentrated on the need to increase the supply of affordable housing, strategies to reduce homelessness, and rent and mortgage assistance. In her speech, Gov. Brown in Oregon made the connection between housing and homelessness stating, “there is no avoiding the fact that these two issues are undeniably linked –– a lack of affordable housing and some of the highest rates of people experiencing homelessness. In Oregon, today, missing one paycheck can be the difference between going to bed in a home with heat and running water, or sleeping unsheltered.”
Eleven governors spoke for the need to increase the housing stock with an emphasis on affordable housing. Gov. Mills of Maine referenced the Maine Jobs and Recovery Plan which will invest $50 million to “increase the number of energy-efficient, affordable homes for working Maine people.” In Colorado, Gov. Polis announced 14,000 units of affordable housing have been developed in the past year, saving families more than $72 million annually.
Governors in Delaware, New Mexico and Oregon discussed providing rent and mortgage assistance to residents, and governors in Colorado, Delaware and New Hampshire addressed using ARPA funding to support their housing programs. New Mexico Gov. Lujan Grisham said, “in the next 12 months your state government is going to deliver an additional $230 million in rent and utility assistance to the New Mexicans who need it most.”
In addition to increasing the housing supply, five governors discussed reducing homelessness in their states, proposing models such as permanent supportive housing. In Colorado, Gov. Polis proposed several interventions to address homelessness including “affordable and transitional housing, substance use treatment and recovery care, related residential programs, and permanent housing with wrap-around support services, and recipients of funds need to be held accountable for actually reducing homelessness.” Gov. Hochul of New York identified root causes of homelessness in her speech—poverty, addiction and housing insecurity—and announced a five-year housing plan to preserve 100,000 affordable homes with supportive services in 10,000 units.
Jobs/Livable Wages
The topic of employment, workforce investments, livable wages and the need to support overall economic growth was mentioned by a total of 38 governors, which is an increase from last year when 28 governors focused on this topic.
The most common theme was planned investments to promote workforce development through new training initiatives. Governors in Maine, Oklahoma, South Carolina, Tennessee and Vermont specifically mentioned apprenticeship opportunities and career development for adolescents and young adults, and Vermont’s Gov. Scott placed an emphasis on trades training, in particular to help grow the number of nurses and other healthcare workers in the state. Oregon’s Gov. Brown discussed plans to build upon Future Ready Oregon, a workforce training initiative focused on jobs in health care, technology, manufacturing, and construction. She also mentioned plans to incorporate support services to help individuals advance from an entry-level job such as a certified nursing assistant to a health care administrator. Governors in Delaware, Michigan, Mississippi, and South Carolina shared plans to invest recently allocated federal funds to support workforce skills training initiatives, and Hawai’i’s Gov. Ige highlighted the launch of an online hub designed to connect unemployed individuals with career and training opportunities.
Governors also focused on the issue of supporting overall economic development. Delaware’s governor highlighted the state’s focus on championing small businesses to bolster job growth, including both “mom-and-pop” small businesses as well as cutting-edge technology companies, and Gov. Murphy of New Jersey commented similarly about supporting both technology start-ups and traditional small businesses. Other governors spoke about the role of planned tax cuts with the intention of supporting job creation, with governors in Colorado, Idaho, and Indiana mentioning this issue.
Some governors also focused on the issue of wages and highlighted plans to increase pay rates for state employees, such as law enforcement and teachers. The governors of Alabama, Kentucky and Missouri announced pay raises for all state workers, and Gov. McMaster commented that while overall compensation for South Carolina state employees should be reevaluated, salary increases should be determined by merit-based performance incentives rather than an across-the-board pay raise. Proposals to increase salaries for teachers specifically were raised by the governors in Alabama, Florida, Georgia, Mississippi, Oklahoma, South Carolina, and Tennessee. Additionally, the governors of both Delaware and Pennsylvania advocated for an increase in the overall minimum wage in their states. Gov. Wolf noted that when factoring in inflation, minimum wage workers in Pennsylvania actually experienced a $2 pay reduction.
Medicaid, Coverage and Access
Despite the significant growth in state Medicaid programs during the pandemic, only five governors mentioned Medicaid in their speeches.
Several governors proposed Medicaid coverage and benefit expansions. In response to rising maternal mortality rates, governors in Georgia and Rhode Island advocated for extending postpartum Medicaid coverage from 60 days to 12 months to provide coverage continuity during the critical postpartum period. Rhode Island Gov. McKeeintroduced a proposal to cover all kids regardless of immigration status through the state’s Medicaid program. Tennessee Gov. Lee announced a $25 million dollar investment to broaden access to dental services for over 600,000 Medicaid recipients as well as an additional $55 million to support the Medicaid Pathways to Independence program.
Only Kansas Gov. Kelly advocated for adoption of Medicaid expansion, providing the economic argument that, “Medicaid expansion won’t just protect small towns and their residents, it will keep health care professionals from moving to neighboring states… (without Medicaid expansion) we are sabotaging our rural communities and their efforts to recruit new jobs and residents”.
The broader topic of health coverage and access was mentioned by governors in six states — a significant decline from last year when 17 governors addressed these issues. Governors were largely focused on the need to improve rural health care access:
– New Mexico Gov. Lujan Grisham proposed the creation of a Rural Health Care Delivery Fund to provide support for health systems in counties with fewer than 100,000 residents. The fund would provide financial support for newly constructed hospitals in rural areas to compensate for operating losses incurred during the first five years of operation.
– South Dakota Gov. Noem aims to improve health care options for rural communities by extending telehealth flexibilities to emergency responders.
– Wyoming Gov. Gordon committed to improving care accessibility through improvements to the state’s Emergency Medical System.
– Gov. Evers of Wisconsin will invest $20 million to provide rural communities with flexible funding to increase staffing support and provide additional training to first responders.
Gov. Pritzker of Illinois commented on the state’s recent $3.8 billion dollar investment in hospitals serving high proportions of Medicaid patients to improve care in underserved communities.
Other health-related issues
Below is a snapshot of some of the other health-related topics that governors mentioned:
- Aging: Four governors mentioned issues related to the elderly population in their speeches. Mills of Maine announced plans to establish a Silver Cabinet (similar to the state’s Children’s Cabinet) to promote interagency action on long-term care issues. New Mexico’s governor proposed an initiative called New Mexi-Care to expand an existing state program that supports and reimburses caregivers for the care they provide to elderly family members, regardless of Medicaid eligibility. Also, although New York’s Gov. Hochul did not mention the topic of aging in her speech, in an accompanying document she outlined intentions to develop a state master plan for aging.
- Child Care and Family Supports: Nine governors commented on proposals to support the needs of families, such as Delaware’s Gov. Carney advocating for paid leave in the private sector as well as other governors promoting increased access to high-quality and affordable child care. Maine’s Gov. Mills noted plans to include $12 million in the state’s supplemental budget to increase child care workers’ wages, and also highlighted the use of American Rescue Plan Act funds to strengthen the state’s child care system, which includes stipends for child care workers as well as investments in child care facilities and early childhood education programs. Iowa’s Gov. Reynolds announced an expansion of the state’s Childcare Challenge, which is designed to increase access to child care options for families, and commented on progress in implementing recommendations from the state’s Child Care Task Force. North Dakota’s Gov. Burgum highlighted a new initiative that will be launched in the spring to help employers offer child care benefits to their employees and a soon-to-be finalized comprehensive state strategy for increasing access to high-quality, affordable child care. Utah’s Gov. Cox proposed creating a new government position to address the needs of parents and children, which will focus on parental leave, increased access to child care, and mentoring opportunities for parents. Also, Tennessee’s Gov. Lee highlighted recent funding for the state’s Healthy Starts Initiative, which focuses on maternal health and holistic care for both mothers and children.
- Child Welfare: Eight governors spoke about the child welfare system, including the governors of Arizona, Florida, Georgia, and Tennessee who mentioned potential new investments to support caregivers. Ducey in Arizona mentioned plans to provide resources to extended family members caring for children who would otherwise be in the foster care system, and Georgia’s governor proposed a 10 percent provider rate increase for all foster parents, relative caregivers, and child caring and placing agencies. In Washington, Gov. Inslee said that his budget would include $80 million to support foster care youth with complex needs and help them transition out of foster care. Gov. Kelly noted that Kansas was one of the first states to implement the Family First Prevention Services Act and the recent creation of the Division of the Child Advocate to help ensure that youth in the child welfare system are healthier and safer.
- Environmental Actions: Seventeen governors discussed their plans to protect the environment, including plans to address climate resiliency and ensuring clean air and water for residents. Ten governors discussed plans to improve water quality. Kansas shared the state’s new water plan, a five-year blueprint to ensure the state has a reliable, quality water supply to support the needs of Kansas communities, including their farming economy. Ten governors discussed their plans to address climate change and promote climate resiliency. Delaware’ Gov. Carney announced the state’s new Climate Action Plan. Six governors discussed actions to reduce carbon emissions or become carbon neutral, and four governors noted deadlines by which this must occur. Ige reflected that Hawai’i was the first state to commit to a net-negative goal by 2045 and re-committed to doubling down on this effort.
- Food Access: Eight governors commented on the issue of food security, distribution, and production. Alaska’s Gov. Dunleavy spoke about plans to create a Food Security Task Force to help promote the state’s agriculture and mariculture industries and minimize disruptions in the food supply chain by supporting state-grown products. In response to rising food costs, governors in both Illinois and Kansas advocated that their state’s grocery taxes should be suspended, and Utah’s governor proposed a $160 million grocery tax credit for families. Maine’s Gov. Mills announced that her proposed budget will include plans to fund universal free meals in schools and promote school and community gardens.
- Public Health: Three governors addressed the topic of public health, with the governor of Indiana mentioning a number of public health issues, including that the state’s Public Health Commission will be publishing recommendations on ways to modernize and strengthen the state’s overall public health system. Also, given that the state ranks 46th in obesity, 46th in smoking, and 40th in childhood immunizations, he emphasized the importance of investing in preventive measures to minimize future costly health complications. Additionally, he noted plans to continue focusing on reducing infant mortality and strengthening childhood lead screening efforts. Nebraska’s Gov. Ricketts highlighted plans to use $200 million from the American Rescue Plan Act for public health emergency response efforts. South Carolina’s governor also noted plans to use federal funds for investments in upgrading water and sewer systems and commented on how these enhancements can improve the overall public health of communities.
- Transportation: Seven governors spoke about transportation infrastructure investments from a health-focused perspective. Five governors mentioned initiatives to support clean transportation, with Delaware’s Gov. Carney and Michigan’s Gov. Whitmer highlighting plans to dedicate resources to support electric vehicles and Washington’s Gov. Inslee proposing to invest nearly $1 billion to fund a range of transportation programs that reduce pollution. Additionally, Indiana’s Gov. Holcomb spoke about investing in commuter rail projects as well as committing $150 million to expand the state’s walking, hiking, and biking trails.
- Violence Prevention: Thirteen governors commented on the issue of violence prevention. The governors of Delaware, Maryland, New Jersey, and New York emphasized the importance of gun violence prevention, and the governors of both Colorado and Illinois focused on community-based violence prevention initiatives. Alaska’s Gov. Dunleavy requested state legislators to fund the People First Initiative, which includes addressing the issues of domestic violence and sexual assault, human trafficking, and missing and murdered Indigenous individuals.
Conclusion
As the United States enters the third year of the pandemic, governors’ 2022 state-of-the-state speeches reflect the realities of health and economic recovery. Compared to 2021, states have access to additional resources through ARPA, and their priorities remain centered on addressing the lasting impacts of the COVID-19 pandemic with an emphasis on behavioral health, education and jobs and wages. As state legislatures convene and enact budgets, the National Academy for State Health Policy will continue to track many of these topics in the coming months.
Transparency Regulations and the Consolidated Appropriations Act: A Checklist for SEHPs
/in Health System Costs Featured News Home, Reports Health System Costs /by Marilyn BartlettMassachusetts Health Policy Commission Takes Steps to Hold High-Cost Health System Accountable
/in Health System Costs Massachusetts Blogs, Featured News Home Cost, Payment, and Delivery Reform, Health System Costs /by Johanna ButlerIn January, for the first time in its history, the Massachusetts Health Policy Commission (HPC)’s Board voted to require the Mass General Brigham (MGB) health system to submit a Performance Improvement Plan (PIP) because of the system’s substantial contributions to the state’s health care cost increases. The HPC’s comprehensive analysis of MGB cost data and decision to require the PIP comes at the same time as MGB is seeking approval from the state’s Department of Public Health to expand its hospitals and create new ambulatory facilities throughout the state. In taking this action, the HPC is addressing an identified cost trend with the PIP as well as raising concerns aboutMGB’s proposed expansions currently being reviewed through the state’s certificate of need process.
HPC to Require First Performance Improvement Plan for Large Health System
The HPC is an independent state agency charged with monitoring health care spending growth in Massachusetts and providing policy recommendations regarding health care delivery and payment reform. Among other activities, the HPC oversees the state’s cost-growth benchmark program and conducts cost and market impact reviews (CMIRs) to understand how significant transactions between providers may impact the health care market. If the HPC identifies a referred provider that has total health status-adjusted medical expenses that exceed the established benchmark for health care cost growth, the HPC may require that provider to complete a Performance Improvement Plan (PIP).
In January 2022, for the first time in its history, the HPC Board voted to require a PIP from MGB, which will require MGB to identify the causes of the health system’s spending growth, a savings goal, and specific action steps that MGB can take to achieve the goal. In making this decision, the HPC Board found that MGB’s spending performance has likely impacted the state’s ability to meet its health care cost growth benchmark, which has been exceeded in 2018 and 2019. The Board determined that if not addressed, spending at MGB will likely result in the health care costs continuing to exceed the state’s benchmark target. From 2014 to 2019, MGB had more cumulative commercial spending in excess of the benchmark than any other provider, totaling $293 million. The largest provider group within the MGB system has spending levels substantially higher than insurer network averages and is consistently among the highest in the state for the top three commercial payers.
Through the HPC’s review process, MGB had opportunities to provide its own data and present factors that may be contributing to high costs. For example, MGB stated that pharmacy costs are a consistent driver of medical expenditures. However, through reviewing medical expenditure data from 2017 – 2018, the HPC found that pharmacy was not a top driver of costs.
MGB now has 45 days to file a proposed PIP with the HPC, request a waiver, or request an extension. Once the HPC receives the proposed PIP, the Board will vote on whether to approve it based on a variety of factors. If approved, MGB is subject to ongoing monitoring during an 18-month implementation period. After those 18 months, if the HPC Board finds the PIP is unsuccessful, it may require further action from MGB and can also levy a fine up to $500,000 for non-compliance.
Other states will be watching how the PIP process unfolds in Massachusetts. Following the Commonwealth’s lead, a number of other states have begun to implement cost-growth benchmark programs, including most recently in Nevada and New Jersey, where Gov. Steve Sisolak and Gov. Phil Murphy signed executive orders to establish benchmarks at the end of 2021. In 2021, Oregon’s cost-growth benchmark program was enhanced to include more enforcement mechanisms including the ability to require performance improvement plans like Massachusetts and fine payer or provider organizations that exceed the benchmark for three out of five years.
HPC Reports that Proposed Health System Expansions Will Raise Costs
In addition to requiring a performance improvement plan, the HPC board also voted in January to submit a public comment on three pending Mass General Brigham Determination of Need (DoN) applications, Massachusetts’ version of certificate of need.
In early 2021, MGB filed DoN applications for three substantial capital expenditures, totaling $2.3 Billion, including the expansion and renovation of Massachusetts General Hospital (MGH) and Brigham and Women’s Faulkner Hospital (Faulkner), as well as the creation of three new ambulatory sites across the state.
In determining whether to grant a DoN, the Department of Public Health (DPH) considers, among other factors, if an applicant has “sufficiently demonstrated that a proposed project will meaningfully contribute to the Commonwealth’s goals for cost containment, improved public health outcomes, and delivery system transformation.” DPH required an Independent Cost Analysis (ICA) to be conducted on each of the three applications, funded by MGB, which were released at the end of December.
While the HPC does not have formal authority over the DoN process, it can produce expenditure analysis and submit public comments. Leveraging its data analysis capacities and types of data similar to that used in its Cost and Market Impact Reviews, the HPC conducted its own analysis of the proposed MGB projects and ultimately concluded that the that the expansions are not in line with state’s cost containment goals.
The HPC found that in total, the proposed expansions would increase inpatient beds at MGH by 16.6% to 18.9% and beds at Faulkner by 45.6%. Based on conservative projections, the projects are likely to increase yearly commercial health insurance spending in Massachusetts by $46 million to $90.1 million.
This evidence will be considered in the state’s DoN review. Massachusetts DPH has four months to review the MGB’s application, with the option of a two-month extension (the clock was paused during the independent cost-analyses). A final decision on MGB’s proposed expansion is expected sometime this Spring or early Summer.
Impact of HPC’s Actions for Other States
Other states that are implementing cost-growth benchmark programs may consider Massachusetts a model for applying the benchmark infrastructure to examine proposed mergers and use collected data to bolster existing Certificate of Need (CON) programs. Across the country, 35 states have CON programs in place, although they vary dramatically based on which facilities are subject to CON, the range of activities that trigger a CON review, and the information considered during review. A primary challenge to state CON programs is having access to relevant cost data and analysis capacity to properly study the impact on care delivery and the expense of proposed expansions.
Massachusetts offers an example for other states interested in creating infrastructure that allows cost-growth benchmarks and CON programs to work with one another. While cost-growth benchmark programs are successful at studying spending growth, they provide a retrospective rather than prospective look at health care costs in a state. CON programs continue to be one of the few, albeit limited, tools to control future expansions, consolidation, and growth in costs. Leveraging data and analysis from cost-growth benchmark programs, may allow for more in-depth CON review processes.
Recently Enacted State Legislation to Address Hospital Community Benefit Policy
/in Community Benefit Featured News Home, Reports Community Benefit, Health System Costs, Hospital/Health System Oversight /by Allie Atkeson, Elinor Higgins and Adney RakotoniainaAs state legislatures convene for their 2022 sessions, addressing the public health and economic impacts of COVID-19 will remain front and center. In addition, many states will continue to decide how to allocate federal funding from the American Rescue Plan. Common themes in financing recovery efforts include sustaining new or renewed partnerships with community stakeholders to fortify emergency response capabilities and build community resilience, addressing long-standing and exacerbated health inequities, and increasing access to higher quality care. Hospitals play an important role in our communities as anchor institutions and are key stakeholders in these recovery themes. Many hospitals and health systems also have benefitted financially from federal funding in the past year and can be engaged as key partners in sustainable, value-driven approaches. Accordingly, as states move forward with COVID-19 recovery, they can consider hospital community benefit investments as another source for community health improvement.
To learn more about hospital community benefit policy, visit NASHP’s resource page.
NASHP developed a tool to help states assess hospital community benefit spending on health equity.
Hospital Community Benefit Policy
In exchange for their tax-exempt status, non-profit hospitals are required to report community benefit expenditures and investments in community health. The federal requirements for non-profit, tax-exempt hospitals have changed over time to reflect the shifting perspective of what factors influence health and what role hospitals should play in community health improvement.
In 2009, the Internal Revenue Service (IRS) updated the Form 990 Schedule H to require more detailed reporting of community benefit expenditures across seven different categories—including charity care, unreimbursed costs from means-tested government programs, community health spending, research, and others. The Affordable Care Act added requirements that non-profit hospitals 1) complete community health needs assessments (CHNAs) every three years to identify the most pressing community health priorities, and 2) create detailed implementation strategies explaining how the identified needs will be addressed.
Despite these changes, there remain significant opportunities for hospital investments to align with community-identified needs and gaps in federal oversight of hospitals’ community benefit programs. While there is congressional interest in pursuing additional clarity at the federal level about what activities constitute sufficient community benefit provision, state legislatures also are addressing enhanced transparency in and accountability of hospital community benefit programs.
2021 Community Benefit Legislation
In 2021, a number of states were interested in overseeing how hospitals implement federal community benefit requirements. Eight states introduced community benefit bills and four states enacted this legislation. Enacted legislation includes:
California Assembly Bill No. 1204. Under existing law, private non-profit hospitals must adopt a community benefit plan that “describes the activities the hospital has undertaken to address identified community needs within its mission and financial capacity, including health care services rendered to vulnerable populations,” and must submit the plan to the Department of Health Care Access and Information (HCAI) no later than 150 days after the hospital’s fiscal year ends.
This new law signed by Governor Newsom further defines vulnerable populations to include:
- Racial and ethnic groups experiencing disparate health outcomes, including Black/African American, American Indian, Alaska Native, Asian Indian, Cambodian, Chinese, Filipino, Hmong, Japanese, Korean, Laotian, Vietnamese, Native Hawaiian, Guamanian or Chamorro, Samoan, or other nonwhite racial groups, as well as individuals of Hispanic/Latino origin, including Mexicans, Mexican Americans, Chicanos, Salvadorans, Guatemalans, Cubans, and Puerto Ricans.
- Socially disadvantaged groups, including all of the following:
- The unhoused;
- Communities with inadequate access to clean air and safe drinking water, as defined by an environmental California Healthy Places Index score of 50 percent or lower;
- People with disabilities;
- People identifying as lesbian, gay, bisexual, transgender, or queer; and
- Individuals with limited English proficiency.
AB 1204 also requires hospitals and hospital systems to annually submit an equity report starting in 2025 that includes an “analysis of health status and access to care disparities for patients on the basis of age, sex, race, ethnicity, language, disability status, sexual orientation, gender identity, and payor.” The report must include a plan to address disparities identified by the data with measurable objectives and timeframes. The bill allows HCAI to impose a fine up to $5,000 if a hospital fails to adopt, update, or submit an equity report. The bill requires HCAI to set up a Health Care Equity Measures Advisory Committee that will assist with recommendations and analysis of the equity reports.
Florida HB 7061. In 2020, HB 7079 was passed requiring a hospital seeking a county property tax exemption to submit its IRS Form 990, Schedule H to the state. It also limited a hospital’s county tax exemption to the value of the net community benefit expense it provided according to its schedule H. HB 7061 removes these requirements and tax limitations.
Illinois SB 1840. This law aims to advance health equity by lowering hospital costs for low-income and uninsured residents and increasing transparency of community benefit plan information. Currently in Illinois, non-profit hospitals annually file their community benefit plan with the Attorney General. The law makes several changes to community benefit reporting requirements including:
- Requiring non-profit hospital community benefit plans to describe “activities the hospital is undertaking to address health equity, reduce health disparities, and improve community health.”
- Health systems must report charity care spending and financial assistance application data separately for each individual hospital.
- Adding definitions for charity care and bad debt to include:
- Charity care: includes the actual cost of services provided based upon the total cost to charge ratio derived from a non-profit hospital’s most recently filed Medicare Cost Report Worksheet C and not based upon the charges for the services. “Charity care” does not include bad debt.
- Bad debt: the current period charge for actual or expected doubtful accounting resulting from the extension of credit.
- Requires hospitals to post their hospital community benefit plan on their website. The plan must include charity care costs, total net patient revenue, total community benefits spending, and information on financial assistance applications, including submission and demographic (i.e., race, ethnicity, sex, and language) data.
Washington HB 1272. In Washington, non-profit hospitals must make their CHNAs available to the public and make their implementation strategy publicly available within one year of submitting their CHNA. This law aims to make hospital operations more transparent, and it includes a requirement that non-profit hospitals identify community health improvement activities that cost $5,000 or more and that designated critical access or sole community hospitals report information for the 10 highest cost community health improvement activities. These activities are reported through an addendum to their CHNA starting July 1, 2022. The addendum must include:
- The type of activity;
- The method in which the activity was delivered;
- How the activity relates to an identified community need in the community health needs assessment;
- The target population for the activity and strategies to reach the target population;
- The identified outcome metrics;
- The cost to the hospital to provide the activity;
- The methodology used to calculate the hospital’s costs;
- The number of people served by the activity; and
- Which organization administered the activity, whether it was the hospital or another organization.
Additionally, the law requires that hospitals report demographic data about the people involved with the CHNA process and requires that hospitals include the following groups:
- Community organizations that provide community health improvement services;
- Communities impacted by health inequities;
- Health care workers;
- Hospitals; and
- The governor’s interagency coordinating council on health disparities.
Community Benefit Policy in 2022 and Beyond
The legislation in 2021, both enacted and introduced, shows the broad range of policy levers available to states to address hospital community benefit policy. As states look towards public health and economic recovery, hospital community benefit investments can be considered as a source of funding to improve community health.
States can go beyond the current community benefit federal requirements to ensure non-profit investment in communities through a variety of levers including:
- Conducting state audits to determine the impact of community benefit spending;
- The Montana Legislative Audit Division calculated the total amount of community benefit spending by non-profit hospitals in Montana, and used the Robert Wood Johnson County Health Rankings to evaluate the relationship between such spending and community health improvement.
- Requiring non-profit hospitals to submit detailed financial information to a state entity;
- The Maryland Health Services Cost Review Commission requires hospitals to report, among other information, the cost of each community benefit initiative and provide a financial reporting template to capture detailed information.
- Setting a minimum spending amount on community benefit.
- The Oregon Health Authority sets a spending floor in collaboration with hospitals every two years based on an identified methodology.
To learn more, read the National Academy for State Health Policy’s (NASHP) report, Resources to Help States Maximize their Hospitals’ Community Benefit Investments. To join NASHP’s work on community benefit or for more information contact Elinor Higgins.
Support for this work was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation.
Disrupting Hospital Price Increases: Using Growth Caps in Insurance Rate Review
/in Health System Costs Blogs, Featured News Home, Reports Health System Costs, Hospital/Health System Oversight /by Johanna ButlerIntroduction
Rising prices for health care services are a major determinant of increased health care spending and health insurance premiums. Hospital prices (for inpatient and outpatient care) are the largest driver of rising health care spending in the commercial market in the U.S. Much of the increase in price stems from hospital market consolidation and the failures of competition in the health care marketplace.
State policymakers are concerned with high and rising hospital prices due to their impact on consumers, employers, and state expenditures. As major payers of health care for those enrolled in public programs and for government employees, states have a financial interest in and justification for taking action to rein in high prices. Additionally, in their role as market regulators, policymakers recognize the need to protect consumers from unchecked hospital price growth.
Facing this evidence, health care purchasers, from private employers to state officials, are raising important questions about the affordability of health care:
- As the nation makes gains in providing insurance coverage for more people and states have fewer uninsured individuals, what can be done to ensure health care is affordable?
- Are increasing hospital price trends, which outpace the consumer inflation index, justified by better quality or outcomes? Or are they reflective of imbalances in market power?
- As so much of the US health care dollar goes to high-priced hospital care, how can policymakers protect consumers from excessive prices?
Given the need for action, there are a variety of models on the state and federal level, a few of which are highlighted in this brief – each approach has specific, varying goals and implementation designs. If policymakers aim to disrupt rising hospital prices, rather than simply regulating provider behavior, states may consider using insurance rate review to cap hospital price growth via “affordability standards.” This policy idea, described in detail below, was implemented by Rhode Island and Delaware and is supported by research and theory presented in a March 2020 proposal by a group of health care experts and economists. Additionally, as outlined in the National Academy for State Health Policy (NASHP)’s model legislation, affordability standards allow states to use an existing infrastructure, insurance rate review, to shift insurers’ investment priorities, disrupt the negotiation dynamic between insurers and providers, and limit runaway hospital price growth.
Identifying Solutions to Disrupt Increasing Price Trends
If a state is motivated to target hospital prices to increase health care affordability, there are a few strategies to consider – each requires reining in rising prices rather than regulating the contracting or consolidation practices of hospitals. These models span a spectrum of approaches – some are grounded in a more stringent, regulatory approach and likely require legislative approval. Others are more flexible and potentially more politically expedient, may be less resource-intensive to operate and may not require special enabling legislation, but may also be less likely to yield profound impacts on prices and spending.
One model for lowering high hospital prices is articulated in a March 2020 proposal from Chernew, Dafny and Pany, a group of economists with expertise in health care financing. The proposal argues for flexible price caps with nimble oversight to account for the diversity across providers, hospital markets, and state regulatory infrastructures, and suggests approaches to three facets of the price control calculus:
- Addressing egregiously high-priced providers by establishing a hard upper limit on prices, essentially making it illegal to price above a certain level;
- For pricing below the upper limit, controlling the rate of growth using provider-specific price growth caps to prevent runaway price increases; and
- Addressing the potential to game this type of approach through value-based contracting or reimbursements that occur outside the parameters of service-based pricing mechanisms.
This model and variations thereof, do hold promise for reining in price growth and would not require the intricacies of a full-fledged rate setting system. It represents an option for some states but demands an investment of resources – and likely political capital – that may not fit into all states’ agendas or complement specific political perspectives. It is one promising option within a range of approaches that a state may consider.
The basis for the proposal is informed in part by work that has been ongoing in Rhode Island for over a decade to limit price growth through the insurance rate review process. This is a more “macro” approach to hospital price limitations. It has not required the state to seek specific enabling legislation outside of more general public interest and affordability language in the Office of the Health Insurance Commissioner’s statutory mandate and has been implemented using resources within the Office of the Health Insurance Commissioner.
Rhode Island uses a set of “affordability standards” in its insurance rate review process to ensure that consumers have access to stable, affordable, cost-efficient health insurance products. Health insurers with more than 10,000 covered lives are required to comply with the affordability standards. The standards include requirements for:
- a primary care spend obligation,
- primary care practice transformation,
- behavioral health care integration, and
- payment reform.
As part of the payment reform affordability standard, insurers must meet certain requirements for their hospital contracts, including keeping average contracted hospital price increases below inflation plus one percent and ensuring that at least 50 percent of the average rate increase will be for expected quality incentive payments. A 2019 Health Affairs review found that Rhode Island’s affordability standards led to a quarterly net reduction in fee-for-service per enrollee spending by a mean of $55 from 2010 to 2016.
In 2021, Delaware became the second state to require insurers to meet a set of affordability standards as a pre-condition for having requested premium rates approved. Mirroring Rhode Island, Delaware’s Department of Insurance will require that insurers’ average contracted prices do not increase greater than three percent or inflation plus one percent beginning in 2022. Delaware also included other priorities in their affordability standards like Rhode Island.
Additionally, New Jersey Gov. Phil Murphy signed an Executive Order in early 2021, requiring the state’s Department of Banking and Insurance to prepare a report and plan for the development of both a cost-growth benchmark and insurance affordability standards to apply to providers and insurers. The report is expected by the end of 2021.
Following state activity, NASHP released model statutory and regulatory language for states interested in leveraging insurance rate review to limit annual hospital price growth through affordability standards. NASHP’s model is very similar to Rhode Island and Delaware’s language but focuses exclusively on hospital price growth caps and allows states to add their own priorities to the affordability standards if appropriate, i.e., primary care spend obligation for insurers, etc. The success or ease of implementing this model may depend on the type and scope of a state’s existing insurance rate review authority. Although a state may be in a better position to enact an affordability standard if it has prior approval authority rather than file-and-use authority for insurance premium rates, a state could start with the authority it has and use retrospective enforcement under file and use review.
Chernew et al.’s proposal, Rhode Island and Delaware’s affordability standards, and NASHP’s model language are all iterations of the same type of policy that seeks to cap escalating hospital prices or interrupt the price growth trend in some capacity. Each approach has its strengths and its limitations. However, if policymakers are interested in disrupting the current market and impacting prices for hospital services, these types of policies may be appropriate. Price and price growth caps level the playing field for insurers, allowing them to negotiate lower prices with hospitals and health systems that may have disproportionate market power to keep prices high.
Strengths of Implementing Price Growth Caps via Insurance Rate Review
Leveraging Existing State Infrastructure:
A growing number of state policymakers who are striving to increase health care affordability have expressed interest in price growth caps, implemented via insurance rate review, due to its lower administrative burden. Compared to other policies, like rate-setting or a cost-growth benchmark, using insurance rate review to cap hospital price growth builds upon existing state infrastructure. State insurance departments and specifically offices that oversee health insurance products have a long history of working to protect consumer access and affordability. Many insurance departments already have the authority to engage in market conduct reviews to determine whether health insurers are offering reasonably priced products, complying with regulations, and operating in a manner that is fair to consumers.
Creating a Flexible Framework:
In policy solutions for hospital cost containment, policymakers must contend with the fact that hospital prices are both high and highly variable – they differ based on provider, service, insurer, and geographic location. In addition, there is a wide variety of hospital types, financial positions, and corporate structures across communities. This can make it challenging for policymakers to track, understand, and address high prices on a wide scale and to rely on solutions crafted for specific markets as they may not be directly transferrable.
Affordability standards with a price growth cap offer a flexible approach that can account for the differences between hospitals and allow for changes over time. NASHP’s model gives the insurance commissioner the authority to waive a requirement if a health insurer can show good cause, such as if a hospital or health system can’t appropriately meet the average price growth cap on contracted prices. This allows a state agency to determine if certain hospitals, such as smaller, rural facilities, should be held to the same cap as urban, university-affiliated teaching facilities. There’s also the possibility of re-basing provider reimbursement rates over time. In 2020, Rhode Island updated its affordability standards and allowed hospitals that are reimbursed at less than the network median rate to receive a one-time, value-based rate increase for inpatient services. This means that hospitals that were historically lower-priced had their rates increased to be more in line with other hospitals without violating the growth cap.
The Rhode Island Office of the Insurance Commissioner (OHIC) has also used the affordability standards as a framework to consider the impacts of consolidation. In June 2021, OHIC released a working paper to help inform the state’s review of a proposed hospital merger. OHIC proposed principles for oversight of the merged entity, which would have a market share representing nearly 80 percent of the Rhode Island hospital discharges. As part of this oversight, OHIC recommends building on the price growth caps for hospital services to include comprehensive price growth caps for professional services as well. This represents the type of flexible caps that adjust for different market factors as proposed by Chernew, Dafny and Pany.
Changing Hospital-Insurer Negotiation Dynamics:
Many reform strategies aimed at containing hospital costs demonstrate some reduction in overall costs, but most do not directly impact hospital prices. These policies may rely on correcting or improving competition in the existing hospital market. However, as Chernew et al. point out, even the most robust market-based reforms can only have limited impacts in concentrated markets where there is little competition. As of 2016, 90 percent of metropolitan areas have highly concentrated hospital markets. As hospitals and providers consolidate, insurers lose their leverage in negotiations to lower prices. Capping price growth through insurance rate review creates a backstop for insurers to negotiate against. Instead of being forced to accept rising prices by dominant health systems, insurers can point to the affordability standards to keep contracted prices from rising any more than the allowed threshold.
Building Affordability Standards to Match State Goals:
Both Rhode Island and Delaware included additional requirements for insurers in their affordability standards. Beyond price growth caps, the states outlined specific goals for the future of the state’s health care system, including greater investment in primary care, adoption of alternative payment models, and tying price increases to quality of care. Importantly, the affordability standards allow states to set goals based on observed trends or data. For example, Delaware found that while carrier spending on hospital inpatient and outpatient services was increasing over time, professional prices (those paid to primary care doctors) remained relatively flat. Through this research, Delaware recognized a need to shift spending away from hospitals and to primary care.
Chernew et al. suggest that interested states could also inversely tether growth caps to prices. In other words, a state could set a lower growth cap (allowing for smaller price increases) for higher-priced providers. This type of structure would incentivize high-price providers to become more efficient and lead to convergence of prices across providers over time, meaning there would be less dramatic variability in prices across hospitals. Overall, using affordability standards gives policymakers an opportunity to shape future spending to be more sustainable and focused on specific goals or outcomes for the state.
Importance of Flexible State Oversight and Monitoring for Industry ‘Gaming’
The approaches adopted by these states do not address the potential for carriers and providers to “game the system.” Adherence to price growth caps can be frustrated in several ways. For example, adoption of some types of risk-based purchasing contracts that are not claims-based effectively moves a considerable amount of payment outside of the context of the strict service transaction. So, while price limits may be adhered to, actual spending could increase more than desired, by structuring risk-based price contracts to shift monies outside of the price per unit of service construct.
Similarly, it is conceivable that providers commanding a significant market share may decide to simply refuse to enter into contracts with carriers that fail to meet their revenue or pricing demands. This is most likely to be seen in those markets where there are few dominant providers, a landscape that is growing increasingly common. In such instances, states may wish to consider coupling a price limiting strategy with initiatives to assertively address market consolidation or cap out-of-network prices. A June 2021 NASHP blog described how states can leverage insurance commissioners’ authority to take a comprehensive approach to cost containment – limiting hospital price growth, prohibiting anticompetitive hospital contract terms, and enforcing limits on unwarranted facility fees.
Conclusion
As states continue the important work of containing hospital costs, there are a variety of policy models and approaches policymakers could take. If a state is specifically interested in reining in hospital price growth and has the appetite for a more aggressive approach, policymakers may consider the three-pronged approach outlined by the Chernew, Dafny, and Pany or go even further and consider a full-fledged rate-setting system. If less stringent – though proven effective – approaches are of interest, policymakers can consider those adopted by Rhode Island and Delaware and laid out in NASHP’s model. This approach also allows policymakers to shift investment and spending priorities in a state.
Price growth caps are not a one-size-fits all solution to high health care costs. They are a tool to achieve a specific goal: stopping runaway price increases. Price growth caps alone will not slow down or prevent consolidation, prohibit anticompetitive provider behavior, or protect consumers from inappropriate charges like facility fees. But these caps are a bite at the apple to disrupt the current negotiation dynamic between hospitals and health plans and the trend in rising hospital prices. Regardless of a state’s strategy, policymakers know that hospital prices and costs must be addressed, particularly as we envision a new health policy landscape amidst ongoing waves of the COVID-19 pandemic. Affordability standards may be a way to reshape the existing system to better meet consumer needs and states’ goals for the future while also limiting cost increases over time.
Acknowledgements: NASHP recognizes and thanks Michael Chernew for his thoughtful guidance, helpful review of this brief, and contributions to the hospital cost research field that supports state policy development to reduce rising prices. The authors also thank the state officials from Rhode Island and Delaware who shared their time and expertise to inform the research for this brief and other related NASHP resources on the topic. The authors would also like to thank Arnold Ventures for their generous support for work on hospital and health system prices and costs.
State Community Health Worker Models
/in Community Health Workers Featured News Home, Maps Behavioral/Mental Health and SUD, Care Coordination, Chronic and Complex Populations, Chronic Disease Prevention and Management, Community Health Workers, Cost, Payment, and Delivery Reform, Health System Costs, Long-Term Care, Medicaid Managed Care, Physical and Behavioral Health Integration, Population Health, Primary Care/Patient-Centered/Health Home Community Health Workers /by NASHP StaffA Tool for States to Address Health Care Consolidation: Improved Oversight of Health Care Provider Mergers
/in Health System Costs Blogs, Featured News Home Health System Costs /by Katherine L. Gudiksen, PhD, MS and Erin Fuse Brown, JD, MPHA comprehensive and growing body of evidence demonstrates that health care consolidation leads to higher health care costs with little to no increase in quality. Federal antitrust enforcers have historically focused on horizontal mergers, or mergers involving two hospitals in the same geographic area, but health care consolidation increasingly occurs through transactions that evade antitrust scrutiny. In particular, physician practice acquisitions by hospitals, health plans, or private equity investors are typically too small to be reported to federal antitrust agencies under the Hart-Scott-Rodino Act. Moreover, despite evidence showing that vertical mergers of physicians or clinics with health systems or cross-market mergers of hospitals also raise prices and threaten access to services, federal antitrust authorities have been hesitant to challenge these types of transactions.
While the Biden administration has signaled strong support for increased competition policy, most of these non-horizontal mergers escape review by federal antitrust enforcers. Thus, states have an important role filling the gap in reviewing and overseeing these forms of stealth health care consolidation. The National Academy for State Health Policy (NASHP)’s Model Act for State Oversight of Proposed Health Care Mergers helps states fill this gap.
NASHP’s model act grants state attorneys general and state health officials with overarching authority on cost, like a health cost commission, the authority to review, place conditions upon, and block potentially harmful consolidation of health care providers in their state. The model requires any health care provider to obtain approval from the attorney general or state health cost commission before completing a transaction that would transfer control of or a material amount of assets to another party. It creates a comprehensive review process for transactions with the potential to reduce access, increase costs, or that are otherwise not in the public interest. The model addresses gaps in federal antitrust enforcement because it would require state review of health care transactions at values below the Hart-Scott-Rodino Act threshold and apply to all types of consolidation, including horizontal, vertical, or cross-market.
Importance of a Comprehensive, Administrative Review Process
Under states’ existing laws, attorneys general can file a lawsuit alleging a merger violates state or federal antitrust laws. To block a merger, a state attorney general must expend significant time and resources to convince a court that the merger will “substantially lessen competition,” but, state attorneys general cannot challenge proposed mergers unless they are aware of them. Additionally, the resources needed for a trial mean that attorneys general can typically only challenge the largest, most problematic mergers.
The NASHP model creates an administrative notice, review, and approval process over a broad range of significant health care transactions, including mergers, acquisitions, or contractual affiliations that result in a change of control. It authorizes a state attorney general to block or place conditions on problematic transactions without going to court. Establishing an administrative process is important because it allows state officials to be more effective at overseeing cumulative, smaller transactions that may amass market power over time.
In addition, state officials can more easily impose conditions on a transaction through an administrative review rather than through an antitrust settlement, which requires the attorney general and merging parties to negotiate an agreement and for the court to approve the settlement in a consent decree. Thus, an administrative transaction review process can be more efficient than antitrust enforcement, and the cost of the review can be paid for through fees charged to the parties of the transaction.
Some states already have an administrative process to review transactions involving health care providers. For example, the Office of Health Strategy in Connecticut must approve mergers involving hospitals and physician group practices. Massachusetts requires that any provider organization changing its ownership or governance must report to the Health Policy Commission (HPC) for review before completing the transaction. While the HPC lacks the authority to block or condition a merger, it is empowered to conduct a cost and market impact review (CMIR) and refers that report to the attorney general when it finds that a transaction should be blocked. The Oregon legislature recently passed a law that gives the Oregon Health Authority the ability to review and block many mergers of health care providers that have the potential to negatively impact access to health care in the state. Best practices from these states and others are included in the NASHP model act.
Key Considerations for Provider Merger Oversight Laws
NASHP’s model law is organized into seven sections to allow state policymakers to tailor oversight of transactions to state-specific priorities including cost, access, and equity. Each section allows policymakers to shape oversight specifically to their state with consideration of the following key questions:
Which hospitals or providers are covered?
NASHP’s model applies to any “health care entity,” including any person or institution licensed by the state to provide health care services, that undergoes a “material change transaction,” including traditional mergers and acquisitions in addition to joint ventures and private equity roll-ups. It also covers any other transactions that may increase providers’ bargaining leverage in negotiations with insurers.
State policymakers may choose to narrow the definitions to decrease the number of transactions covered by this model, but a more robust alternative would be to create a streamlined process through administrative regulation to automate the procedures for approving these transactions. For example, states may use regulations to “deem approved” any transaction in which the resulting merged entity employs less than six physicians. Requiring all providers to give notice to the attorney general means that state officials will at least be aware of and able to track ongoing consolidation.
As described in section two of the model, health care entities must provide written notice to the attorney general and any state health care cost commission in advance of a proposed transaction. The model act requires the attorney general to disclose some information about the proposed transaction publicly.
What does the state’s review process entail?
The model act authorizes the attorney general to conduct a preliminary review and approve transactions that do not pose competitive concerns or are unlikely to negatively impact other state priorities like access or equity. When approving a transaction, the attorney general has the authority to impose conditions on providers, such as maintaining access to emergency services. This type of flexibility allows states to quickly review and approve transactions that are unlikely to impact a state’s health care market.
Based on the attorney general’s preliminary review, a transaction may go through the two components of the comprehensive review process – a public hearing and a cost and market impact review (CMIR). The model includes a non-exclusive list of criteria that specify when a transaction needs a comprehensive review and grants the attorney general the authority to require any transaction to undergo a comprehensive review, even if the transaction does not meet criteria specified in statute. The CMIR requirements in the model are adapted from the factors considered by the Massachusetts Health Policy Commission and can be refined by lawmakers based on state priorities.
For smaller transactions, policymakers may adopt regulations for a shortened or streamlined CMIR to review transactions with small competitive concerns in a timely manner. This streamlined CMIR allows states to track consecutive acquisitions of small provider groups that on their own may present little competitive concern, and allows the attorney general to intervene when the result of these cumulative transactions may harm competition, such as when a private equity firm uses a “roll-up” strategy to buy multiple, smaller practices.
The results of the CMIR are reported to the attorney general, who may use the CMIR report in the determination of whether to approve or impose conditions upon the transaction.
How is the review process funded?
Importantly, the model allows the attorney general and, where applicable, a state cost commission to charge the transacting parties for the cost of the review, regardless of whether a state agency or consultant performs it.
What approval authority does the attorney general possess?
After the review processes, the attorney general has the authority to approve or disapprove of any proposed transaction and the authority to impose conditions on any transaction. The model provides a list of non-exhaustive factors that the attorney general can use in making his or her determination, including whether the transaction is in the public interest.[1] These factors include the findings of the CMIR (such as the transaction’s anticipated impact on costs, access, or equity), as well as factors related to antitrust concerns, anticompetitive effects, and broader concerns related to the public interest that fall within the attorney general’s scope of authority.
What kind of enforcement or post-approval monitoring is necessary?
The model act authorizes the attorney general to monitor the effect of the transaction on market conditions and for compliance with any imposed conditions. The attorney general is authorized to contract with consultants to monitor compliance and charge the transacting parties for this oversight. It also requires the transacting parties to submit reports one, two, and five years after the completion of the transaction to demonstrate the effect of the transaction on the parties’ costs and cost growth trends. Importantly, the model does not place time limits on the length of post-transaction oversight. If a merger has competitive concerns and is likely to increases costs, policymakers should consider imposing price caps or inflationary price caps for decades as the competitive harms may last as long as the merged entity maintains market power.
Conclusion
The harms of health care consolidation are well-known, yet merger activity continues to increase and the pandemic may be driving additional consolidation. While the federal government is increasing attention on promoting competition, state policymakers need additional tools to oversee transactions that may harm competition and the public interest. NASHP’s model act provides comprehensive oversight through an administrative process to allow the attorney general to review proposed transactions. This additional authority should reduce harmful mergers and help state officials safeguard health care markets.
[1] The authority in this section is adapted from Cal. Corp. Code §§ 5917 & 5923, but that California law only applies to transactions involving a non-profit health care facility. The model act includes factors related to cost, access, and competition.
A Model Act for State Oversight of Proposed Health Care Mergers
/in Health System Costs, Model Legislation and Resources, Policy Consumer Affordability, Health System Costs, Hospital/Health System Oversight, Making the Case for Action /by NASHP StaffSection 1: Definitions.
(A) As used in [this Act], the following words shall have the following meanings:
- “Health care entity” means a health care provider, health care facility, or provider organization.
- “Health care facility” means a licensed institution providing health care services or a health care setting, including, but not limited to, hospitals and other licensed inpatient facilities, ambulatory surgical or treatment centers, skilled nursing facilities, residential treatment centers, diagnostic, laboratory and imaging centers, imaging centers, free-standing emergency facilities, outpatient clinics, and rehabilitation and other therapeutic health settings.
- “Health care provider” means any person, corporation, partnership, governmental unit, state institution or any other entity qualified or licensed under state law to perform or provide health care services.
- “Health care services” means supplies, care, and services of medical, behavioral health, substance use disorder, mental health, surgical, optometric, dental, podiatric, chiropractic, psychiatric, therapeutic, diagnostic, preventative, rehabilitative, supportive or geriatric nature.
- “Material change transaction” means any of the following, occurring during a single transaction or in a series of related transactions [within a consecutive 12-month period]:
a. A corporate merger including one or more health care entities;
b. An acquisition of one or more health care entities, including insolvent health care entities. For the purposes of [this Act], “acquisition” means the direct or indirect purchase in any manner, including, but not limited to, lease, transfer, exchange, option, receipt of a conveyance, creation of a joint venture, or any other manner of purchase, such as by a health care system, private equity group, hedge fund, of a material amount of the assets or operations of a health care provider;
[Note: States may have a statutory definition of the word “material”. If not, policymakers may consider defining it in regulation.]
c. Any affiliation, arrangement, or contract that results in a change of control for a health care entity. For the purposes of [this Act], “change of control” means an arrangement in which any other person, corporation, partnership, or any other entity acquires direct or indirect control over the operations of a health care facility or provider in whole or in substantial part. For purposes of this section, an “arrangement” shall include any agreement, association, partnership, joint venture, or other arrangement that results in a change of governance or control for a health care entity;
d. The formation of a partnership, joint venture, accountable care organization, parent organization or management services organization for the purpose of administering contracts with carriers, third party administrators, pharmacy benefit managers or providers;
e. A sale, purchase, lease, affiliation or transfer of control of a board of directors that involves a hospital.
6. “Material change transaction” does not include any of the following:
a. A clinical affiliation of health care entities formed for the purpose of collaborating on clinical trials; or
b. Graduate medical education programs; or
c. The mere offer of employment to, or hiring of, a physician.
7. “Provider organization” means any corporation, partnership, business trust, association or organized group of persons, which is in the business of health care delivery or management, whether incorporated or not that represents 1 or more health care providers in contracting with carriers for the payments of heath care services; provided, that ”provider organization” shall include, but not be limited to, physician organizations, physician-hospital organizations, independent practice associations, provider networks, accountable care organizations and any other organization that contracts with carriers for payment for health care services.
Section 2: Notice.
(A) Any health care entity shall, before consummating any material change transaction, submit written notice to the Attorney General, state Department of Health, [and the state cost commission] not fewer than [60 days] before the date of the proposed material change transaction.
(B) Written notice shall include and contain the information the Attorney General [or the Department of Health or state cost commission] determines is required. The health care entity may include any additional information supporting the written notice of the material change transaction.
(C) Within [10 days] of receiving written notice of a material change transaction, the Attorney General shall post to the Attorney General’s website information about the material change transaction including:
- A summary of the proposed transaction;
- An explanation of the groups or individuals likely to be impacted by the transaction;
- Information about services currently provided by the health care entity, commitments by the health care entity to continue such services and any services that will be reduced or eliminated;
- Details about any public hearings and how to submit comments;
- The notice and other materials submitted by the health care entity, except for materials that the Attorney General determines would cause public harm.
Section 3: Preliminary Review
(A) Within [30 days] after receiving a notice described in [Section 2 of this Act], the Attorney General shall do one of the following:
- Approve the material change transaction and notify the health care entity in writing that a comprehensive review is not required for the material change transaction;
- Approve the material change transaction subject to conditions set by the Attorney General and notify the health care entity in writing of the conditions under which the transaction may be completed; OR
- Notify the health care entity [and state cost commission] in writing that the transaction is subject to a comprehensive review. The Attorney General may request additional information necessary to perform a comprehensive review under [Section 4 of this Act].
(B) A comprehensive review is required when any of the following apply to the material change transaction:
- Will result in the transfer of assets valued above [$2 million];
- Occurs in a highly consolidated market for any line of services offered by any party to the material change transaction;
- Will cause a significant change in market share, such that any resulting health care entity possesses market power upon completion;
- If either party to the material change transaction possesses market power prior to the transaction;
- If the Attorney General, at the Attorney General’s sole discretion, determines that the material change transaction is likely to have a material impact on the cost, quality, or access to health care services in any region in the state.
(C) For purposes of [this section], “market power” means possessing 30% or more market share in any line of service in the relevant geographic area or under other criteria that the Attorney General may define by regulation
[Note: Policymakers may need to define some of these terms and specify how they are to be calculated in regulation. States may also use regulation to specify additional criteria that trigger comprehensive review. Additionally, the market power thresholds may not capture vertical or cross-market mergers, so policymakers may want to specify when non-horizontal mergers should trigger comprehensive review in regulation based on market conditions in the state.]
(D) Nothing in this section limits or infringes upon the existing authority of any state agency including the Department of Health, Department of Insurance, [state cost commission], or the Attorney General to review any transactions.
[Note: This clause is intented to preserve existing review processes in a state by a Certificate of Need program, the Department of Health, and or by the Attorney General for transactions involving charitable trust concerns for non-profit transactions.]Section 4: Comprehensive Review Process
(A) No later than [30 days] after determining a transaction is subject to a comprehensive review, the Attorney General shall:
-
- Conduct one or more public meetings, one of which shall be in the county in which the health care entity is located, to hear comments from interested parties; and
- [Notify the state cost commission of the determination under Section 3 of the proposed material change or contract with consultants to] produce a cost and market impact review (CMIR) report.
(B) The CMIR report may examine factors relating to the proposed transaction, transacting parties, and their relative market position, including, but not limited to:
- The market share of any transacting party;
- Any previous transaction involving either transacting party, including, but not limited to acquisitions or mergers of similar health care providers;
- The prices charged by either of the transacting parties for services, including its relative price compared to other providers for the same services in the same geographic area;
- The quality of the services provided by any health care provider(s) party to the transaction, including patient experience;
- The cost and cost trends of the health care provider in comparison to total health care expenditures statewide;
- The availability and accessibility of services similar to those provided, or proposed to be provided, through the provider or provider organization within its primary service areas and dispersed service areas;
- The impact of the material change transaction on competing options for the delivery of health care services within its primary service areas and dispersed service areas;
- The role of the transacting parties in serving at-risk, underserved, and government payer patient populations;
- The role of the transacting parties in providing low margin or negative margin services within its primary service areas and dispersed service areas;
- Consumer concerns, including but not limited to, complaints or other allegations that the provider or provider organization has engaged in any unfair method of competition or any unfair or deceptive act or practice; and
- Any other factors that the Attorney General or the [state cost commission or consultant] determines to be in the public interest.
(C) The Attorney General [or state cost commission] may request additional information or documents from the transacting parties necessary to conduct a CMIR. Failure to respond or insufficient responses to requests for information by transacting parties may result in the extension of the deadline for the Attorney General or state cost commission to complete the CMIR, the imposition of conditions for approval, or the disapproval of the material change transaction.
(D) The Attorney General [and state cost commission] shall keep confidential all nonpublic information and documents obtained under [this section] and shall not disclose the confidential information or documents to any person without the consent of the party that produced the confidential information or documents, except that the Attorney General may disclose any information to an expert or consultant under contract with the office of the Attorney General to review the proposed transaction, provided that the expert or consultant is bound by the same confidentiality requirements as the office of the Attorney General. The confidential information and documents shall not be public records and shall be exempt from [state open records act].
(E) In addition to commissioning a CMIR report, the Attorney General may, in his or her sole discretion:
-
- Contract with, consult, and receive advice from any state agency [including the Department of Health, Department of Insurance, or any other state agency] on those terms and conditions that the Attorney General deems appropriate.
- Contract with experts or consultants to assist in reviewing the proposed agreement or transaction.
(F) Not more that [185 days] after receiving written notice from the Attorney General that the transaction is subject to a comprehensive review under [Section 4], the [state cost commission or consultant] shall submit to the Attorney General a CMIR report; provided that the health care entity has complied with the Attorney General’s [or state cost commission’s] requests for information or documents pursuant [this section] within [21 days] of the request or by a later date set by mutual agreement of the health care entity and the Attorney General [or state cost commission].
[Note: Nothing in this section prevents policymakers from creating a streamlined process in regulation to conduct a smaller CMIR with reduced timelines to review smaller transactions with few competitive concerns.](G) The Attorney General [and state cost commission] shall be entitled to [charge costs to or receive reimbursement from] the transacting parties for all actual, reasonable, direct costs incurred in reviewing, evaluating, and making the determination referred to in [this section], including administrative costs.
[Note: Lawmakers should follow existing state law regarding procurement practices when drafting this section to determine whether the Attorney General should be reimbursed or whether the transacting parties should be billed directly. The Attorney General should maintain complete discretion in choosing consultants or experts to review the transaction.]Section 5: Approval Authority
(A) The Attorney General shall have discretion to approve, conditionally approve, or disapprove of any material change transaction for which the Attorney General receives notice under [Section 2 of this Act].
(B) The Attorney General shall inform the health care entity of the determination within [30 days of notice under Section 2], or in the case of comprehensive review, within [30 days of the Attorney General’s receipt of the CMIR]. No proposed material change transaction may be completed before the Attorney General has informed the health care entity of the Attorney General’s determination.
(C) In making the determination, the Attorney General may consider any factors that the Attorney General deems relevant, including, but not limited to:
- The likely impact, as described in the CMIR report where applicable, of the material change on:
a. The growth in patient costs;
b. The availability or accessibility of health care services to the affected community;
c. Provider cost trends and containment of total state health care spending;
d. Access to services in medically underserved areas;
e. Rectifying historical and contemporary factors contributing to a lack of health equities or access to services;
f. The functioning of the markets for healthcare and health insurance;
g. The potential for the material change transaction to affect health outcomes or health equity for residents of this state; or
h. the potential loss or change in access to essential services.
2. Whether the material change transaction is proper under [state antitrust laws];
3. Whether the benefits of the transaction are likely to outweigh the anticompetitive effects from the transaction;
4. If the transaction is in the public interest.
[Note: Lawmakers should tailor this non-exhaustive list of factors to state priorities. Lawmakers may want to list specific services in Section 5 (C)(i)(g) or choose to define “essential services” in regulation and to help define when transactions are in the public interest. As above, lawmakers should note if their state has a statutory definition of “public interest” and if that definition is appropriate here. ](D) This section does not limit or alter any existing authority of the Attorney General or any state agency to enforce any other law including state or federal antitrust law or to review non-profit transactions.
Section 6: Post-transaction Oversight
(A) The Attorney General may enforce conditions imposed by a conditional approval pursuant to [Section 5] to the fullest extent provided by law. In addition to any legal remedies the Attorney General may have, the Attorney General shall be entitled to specific performance, injunctive relief, and other equitable remedies a court deems appropriate for breach of any of the conditions and shall be entitled to recover its attorney’s fees and costs incurred in remedying each violation.
(B) In order to monitor effectively ongoing compliance with the terms and conditions of any transaction, the Attorney General may, in his or her sole discretion, contract with experts and consultants to assist in this regard.
(C) One year, two years, and five years after the completion of the material change transaction approved or conditionally approved by the Attorney General after a comprehensive review under [Section 4], the health care entity or the person, corporation, partnership, or any other entity that acquired direct or indirect control over the health care entity must submit reports to the Attorney General that:
- Demonstrate compliance with conditions placed on the transaction, if any; and
- Analyze cost trends and cost growth trends of the parties to the transactions.
(D) The Attorney General shall be entitled to [charge costs to or receive reimbursement from] the transacting parties for all actual, reasonable, and direct costs incurred in monitoring ongoing compliance with the terms and conditions of the sale or transfer of assets, including contract and administrative costs.
[Note: Lawmakers should follow existing state law regarding procurement practices when drafting this section to determine whether the Attorney General should be reimbursed or whether the transacting parties should be billed directly. The Attorney General should maintain complete discretion in choosing consultants or experts to review the transaction.](E) Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. The transacting parties shall pay the Attorney General promptly for all contract costs.
Section 7: Regulations
(A) The Attorney General [or state cost commission] may adopt regulations implementing [this Act].
Overview of States’ Hospital Reference-Based Pricing to Medicare Initiatives
/in Health System Costs Blogs, Charts, Featured News Home Health System Costs, Hospital/Health System Oversight /by Adney RakotoniainaSign Up for Our Weekly Newsletter
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