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About the Series
ssessing the New Federalism is a multi-year Urban Institute project designed to analyze the devolution of responsibility from the federal government to the states for health care, income security, employment and training programs, and social services. Researchers monitor program changes and fiscal developments, along with changes in family well-being. The project aims to provide timely nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.
Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia, available at the Urban Institute's Web site. This paper is one in a series of reports on the case studies conducted in the 13 states, home to half of the nation's population. The 13 states are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington, and Wisconsin. Two case studies were conducted in each state, one focusing on income support and social services, including employment and training programs, and the other on health programs. These 26 reports describe the policies and programs in place in the base year of this project, 1996. A second set of case studies to be prepared in 1998 or 1999 will describe how states reshape programs and policies in response to increased freedom to design social welfare and health programs to fit the needs of their low-income populations.
The income support and social services studies look at three broad areas. Basic income support for low-income families, which includes cash and near-cash programs such as Aid to Families with Dependent Children and Food Stamps, is one. The second area includes programs designed to lessen the dependence of families on government-funded income support, such as education and training programs, child care, and child support enforcement. Finally, the reports describe what might be called the last-recourse safety net, which includes child welfare, homeless programs, and other emergency services.
The health reports describe the entire context of health care provision for the low-income population. They cover Medicaid and similar programs, state policies regarding insurance, and the role of public hospitals and public health programs.
In a study of the effects of shifting responsibilities from the federal to state governments, one must start with an understanding of where states stand. States have made highly varied decisions about how to structure their programs. In addition, each state is working within its own context of private-sector choices and political attitudes toward the role of government. Future components of Assessing the New Federalism will include studies of the variation in policy choices made by different states.
Contents
Highlights of the Report
Massachusetts has a large, high-quality and high-cost health system and a strong public sector commitment to supporting health services for the low-income population. Massachusetts is a very high-income state (fourth in the nation in median family income per capita) with a long progressive political tradition. It has relatively high rates of health insurance coverage; only 12.6 percent of the nonelderly are uninsured versus 15.5 percent for the nation. The state has a tradition of high-quality education and health services, excellent medical schools, and support of government programs.
The state has been a pioneer in health care reform. It enacted a universal coverage law in 1988, which included a "pay-or-play" mandate on most employers. Although the mandate gradually lost the support of key constituencies and was never implemented, the universal coverage law also included a number of other public programs to expand coverage to individuals outside the labor force, most of which are still in place. The state also has a system of redistributing hospital funds from hospitals providing little free care to those providing a substantial amount through an uncompensated care pool.
The Weld (now Cellucci) administration and the legislature have pursued a number of objectives in health care. They repealed the employer mandate for universal coverage and ended the state's hospital rate-setting system. They have slowed Medicaid growth through cuts in provider payments, reduced welfare case loads, and managed care. At the same time, they have received approval for a Section 1115 waiver that will result in a substantial increase in coverage through both Medicaid and employer-based coverage. Finally, they have managed the restructuring of the state's underfunded uncompensated care pool. The administration has been very successful in obtaining federal matching funds to support these initiatives.
The Massachusetts Medicaid program is large by national standards, spending $5.7 billion in 1995. Massachusetts spending per low-income person is $4,254 versus $2,041 for the nation. Only New York and Connecticut spend more per low-income person. On a per enrollee basis, Massachusetts spends more ($6,189) than any state other than New York ($6,194). Seventy-five percent of Massachusetts' expenditures are on the elderly, blind, and disabled, in contrast to 69 percent of expenditures nationally for these groups.
Medicaid enrollment for the low-income population is extensive principally because the program's eligibility income standards are quite generous and because the state has adopted most federal optional eligibility categories. As a result, the state covers 64 percent of the population below 150 percent of poverty versus 51 percent for the nation. Enrollment growth has been slow in recent years. In fact, there has been a decline in Aid to Families with Dependent Children (AFDC) participation because of an improved economy and the state's welfare reform efforts. However, Medicaid rolls have been stable, suggesting that many of those losing AFDC benefits are retaining health care coverage.
The most important development in the Massachusetts Medicaid program in 1997 will be the expansion of coverage under its Section 1115 waiver program. The waiver program, termed MassHealth, will extend coverage to new population groups and absorb two of the previously state-funded programs—the CommonHealth program for the disabled and the Medical Security program for the short-term unemployed. MassHealth will extend coverage in a number of ways. In addition to retaining current coverage of pregnant women and infants up to 185 percent of poverty, it will expand coverage to all children through the age of 18 to 133 percent of poverty (and perhaps to 200 percent of poverty, depending on the outcome of the current legislative debate). It will then establish a New State Benefit Plan that will extend coverage to long-term unemployed individuals and other adults whose gross incomes are no more than 133 percent of the poverty level. The most important and most controversial component of the waiver request is the Insurance Reimbursement Program for low-income workers. This program will provide subsidies to workers with incomes below 200 percent of poverty and provide subsidies to employers in small firms (fewer than 50 workers) that contribute at least 50 percent of the cost of premiums for plans that meet state standards.
The other major component of Massachusetts' support for the safety net is its policy of subsidizing hospitals that provide disproportionate amounts of uncompensated care. The former hospital rate-setting system established an uncompensated care pool to distribute the burden of uncompensated care and to reduce the incentives to underserve the uninsured. The pool was later tapped to contribute to the state's large network of community health centers as well. Three problems with the pool have emerged. First, the amount of money in the pool was frozen at about $315 million in 1988. As the cost of health care and the number of uninsured grew, the resources in the pool became increasingly inadequate. Second, the distribution of the funds in the pool heavily favored the major public hospitals in the state, particularly Boston Medical Center and the Cambridge Hospital. Finally, hospitals were finding it increasingly difficult to pass the cost of their pool assessments on to insurers in rate negotiations. A Special Commission on Uncompensated Care recently addressed these problems.
The solutions recommended by the commission and supported by the state's Section 1115 waiver application involved expansions of coverage through MassHealth and new supplemental payments (outside the pool) to Boston Medical Center and the Cambridge Hospital. Eliminating disbursements from the uncompensated care pool to these two hospitals freed $70 million of pool resources that could be distributed to other hospitals. Finally, the direct assessment on hospitals was reduced by $100 million and replaced by requiring direct contributions of all third-party payers to the pool.
The health care marketplace in Massachusetts is undergoing dramatic changes. Hospital rates were deregulated in 1991, permitting insurers and managed care plans to negotiate directly with hospitals. Hospital competition is becoming more intense as a result of the continuing growth of managed care and the deregulation of rates. One result has been a considerable number of hospital mergers and consolidations. However, the aggressive cross-cutting competition seen elsewhere is absent, perhaps because aggressive for-profit hospitals have only recently entered the metropolitan Boston marketplace. The weakness of competitive forces has been exacerbated by consolidation among the strongest academic medical centers. Essentially, insurers and managed care plans need affiliations with these networks in order to offer competitive insurance products.
The Medicaid program is attempting to rapidly expand managed care. Of 650,000 Medicaid enrollees, 378,000 are now in mandatory managed care for most services. About 75 percent of managed care enrollees are in the Primary Care Clinician (PCC) program, a fee-for-service gatekeeper model. Approximately one-fourth of the managed care enrollees are in health maintenance organizations (HMOs). The state wants to move toward greater reliance on HMOs and may phase out its PCC program. The primary issue is whether the HMOs in the state will be willing to take on substantially more Medicaid beneficiaries at rates the state would like to pay. HMOs are thought to control utilization better but to reimburse providers at higher rates than the state does under its PCC program. As a result, the state is reaping few savings with existing HMOs. HMOs offer the state the advantage of management expertise as well as the ability to exclude high-cost physicians and hospitals. Thus, the state believes HMOs offer more promise for the future even though it has not been realized to date.
Because of high expenditures for long-term care services, the state has focused considerable energy on long-term care policy in recent years. As a result, long-term care services grew by only about 4 percent between 1992 and 1995. Long-term care strategy includes attempts to substitute community-based long-term care services for institutional services whenever possible and appropriate. The state has reduced nursing home expenditures by restructuring admissions criteria, tightening nursing home reimbursement rates, and freezing nursing home bed supply. Massachusetts has developed ambitious plans to integrate acute and long-term care services through managed care. It has also made a concerted effort to have nursing home and home health agencies bill Medicare whenever possible. Finally, the state has moved large numbers of patients out of state mental hospitals and large state intermediate care facilities for the mentally retarded.
Overview of Massachusetts:
Thumbnail Sketch of the State
Sociodemographic Portrait of Massachusetts
Massachusetts' population of 6.0 million (
table 1) makes it the 13th largest in the nation. Population density is high, as the state is small and heavily urbanized; fully 96 percent of its population resides in urban areas. With a population of about 3 million, greater Boston dominates the state and most of New England.
Population grew by 0.9 percent between 1990 and 1995, much slower than in the rest of the nation (5.6 percent). The state's population is older than that of the average state, with a smaller proportion of children and a larger proportion of elderly. Massachusetts has fewer blacks and Hispanics than average, and a slightly lower share of immigrants. Immigrants constitute 5.4 percent of the population, compared with 6.4 percent at the national level.*
Economic Status
The Massachusetts economy struggled in the 1970s but boomed in the 1980s as information-based high-tech industries prospered, to some degree aided by high defense spending.
1 This "Massachusetts Miracle" helped fund expansion of public services and create support for mandatory universal health care. The recession hit late in the 1980s, cutting jobs and state revenues. The recession forced cuts in state spending and aid to localities and forced hikes in taxes. The drop in employment bottomed out in 1991, and economic growth returned the next year.
2 Tax revenues were continuing to exceed policymakers' expectations at the time of this study (late 1996) and through the rest of the legislative 1998 budgeting cycle as well.
3
Despite ups and downs in growth, Massachusetts remains a high-income state. Its annual per capita income of over $28,000 is 20 percent above the national average (table 1). The economic expansion of the 1990s has raised incomes sharply, though slightly less than in the nation overall. The unemployment rate is about 20 percent below the national average, and the employment rate is slightly above the norm. The poverty population is 10.9 percent, versus 14.3 percent for the nation. A higher share of children, 17.2 percent, live in poverty, a figure that is still well below the national average of 21.7 percent.
Political Characteristics
Massachusetts has a long, liberal political tradition, especially in its support for health care. Yet even many Democrats have supported severe budget cutting under fiscal pressure.
4 As a rule, active governors have taken most initiatives in health policy, but the legislature often makes changes. As shown in
table 1, both houses of the legislature are heavily Democratic. The Speaker of the House is the single most powerful legislator; the leading committee is House Ways and Means.
Politics is serious business in Massachusetts. Government, particularly state government, plays a large role, and the public sector has been a route to success for several waves of immigrants. The state remains heavily Democratic in voter registration, though the party has become more suburban and less based in old-time industrial unionism, ethnic associations, or big-city machines. There are urban-rural differences, but the state is overwhelmingly urbanized and so are its politics. Interest groups, of course, include strong representation of business entities, but also of health providers and well-organized "consumer" or "beneficiary" classes.
Republican Governor William F. Weld was in the middle of his second term at the time of our site visits. He had just lost a 1996 bid for the U.S. Senate and had not yet announced for re-election in 1998. A fiscally conservative, private-sector-oriented Republican, he is perceived as rather libertarian on social issues. Governor Weld subsequently accepted President Bill Clinton's offer to be ambassador to Mexico. 5 Lieutenant Governor Paul Cellucci has become acting governor and thereby the 1998 Republican front-runner, but he will face a strong Democratic challenge, likely from Attorney General L. Scott Harsharger. 6 The 1998 election may reshuffle political leadership, with unclear implications for policy.
Roadmap to Rest of Report
The rest of this report provides a descriptive analysis of the current situation and emerging developments in health markets and state policy relevant to the safety net population. We cover:
- the basics of the state policy agenda,
- a sketch of Medicaid and other state health programs,
- how Massachusetts may respond to increased administrative freedom and funding constraint,
- how Medicaid and other coverage reforms affect the poverty population,
- health care delivery and finance, market changes, and state policy toward managed care,
- effects on safety net providers and other deliverers of health care to the poverty population, and
- long-term care for the elderly and disabled.
Setting the Policy Context
Overview of State's Health Agenda
Governor Weld originally campaigned in 1990 to roll back the public sector expanded by his predecessor, Democrat Michael S. Dukakis.
7 The electorate voted for Weld's promises to cut taxes and control spending but decisively against a ballot measure to repeal all 1989-90 tax and fee increases, which Weld supported but which would have required more cuts in services. In office, Weld's top priorities were to cut taxes and streamline state government, privatizing where possible. He also moved quickly to deregulate health care and to rein in Medicaid cost increases.
The state legislature was heavily Democratic (table 1) but supported these initiatives. It later also approved most of Governor Weld's ambitious Section 1115 Medicaid waiver. The legislature nonetheless has shown some inclination to shelter government programs, resisting wholesale privatization and government reorganization. In health care, the strongest difference has been over how to expand coverage to the uninsured, notably children. Additionally, the governor has favored subsidies to employers who provide coverage to low-income workers, while the legislature supported direct public coverage. The governor also unsuccessfully sought to move the Department of Public Health, widely perceived as a patient advocate, into Medicaid, which is seen as much more fiscally conservative. Still, these differences relate to means, not ends—and they seem small in light of the state's unusual commitment to maintaining the safety net and expanding coverage for the near poor. Even strong consumer advocates recognize the state's unusual generosity.
Governor Weld achieved almost all of his objectives in health care, including repeal of the employer mandate to provide health insurance, ending state hospital rate setting and deregulating prices. The Weld/Cellucci administration has slowed Medicaid cost growth due to cuts in provider payments, reduced welfare caseloads, and placed greater reliance upon managed care. The administration has gained approval of its Section 1115 waiver, which will assure Massachusetts continued large federal financial contributions because of generous assumptions about what spending would have been under baseline conditions, continued disproportionate share hospital (DSH) spending at high levels, and refinancing of the uncompensated care pool. The waiver will also permit the state to pursue a substantial increase in coverage through Medicaid and private insurance and continued subsidies for safety net hospitals.
The principal remaining goal for the Weld/Cellucci administration is implementation: to do a good job of expanding Medicaid managed care by moving to capitated plans from noncapitated gatekeepers. A similar challenge is implementing payment to safety net hospitals via capitation rather than fee-for-service methods. For their part, legislative leaders have helped maintain support for disadvantaged populations and for the Department of Public Health as an important public agency in its own right. The Weld/Cellucci agenda seems likely to continue, even with future changes in leadership, because fiscal conservatism seems pervasive, the federal waiver locks in the promised state approach, and both parties are supportive of safety net institutions.
New difficulties seem most likely to emerge over regulation of private health care, not over the public beneficiaries who have received the most attention so far. Emerging concerns include (1) continuing consolidation of HMOs (Harvard-Pilgrim has over 40 percent of the HMO market and recently bought the leading Medicaid plan), (2) rapid sale of nonprofit hospitals to for-profit enterprises and large nonprofit networks, (3) implementation of the federal Kassebaum-Kennedy insurance market reforms, (4) phasing in of Massachusetts' rules on continuing access to private health coverage for those able to pay, and (5) maintaining quality of care and access to providers in the managed care era. These issues have received relatively little attention from the administration to date. More attention has come from the attorney general. The attorney general has no budgetary or programmatic authority over health matters, but he has actively exercised his powers of legal-regulatory oversight, making health care a key part of his own policy and political agenda.
State Health and Health Care Indicators
Massachusetts ranks high in extent of insurance coverage, including Medicaid (
table 1). But the uninsured population grew steadily in the late 1980s and early 1990s, after years of decline. By 1995, about one-eighth of the under-65 population was uninsured, heavily concentrated among the poor and among workers in small firms. This decline in coverage may have halted in 1996, but it remains a policy concern.
8 Massachusetts scores well on standard measures of health, often substantially better than the national average (
table 1).
Despite the absence of unusual health problems or insurance needs, Massachusetts seems to give health care such high-profile policy attention for a variety of reasons. The state has a political philosophy and long-standing tradition of promoting health care and aiding the needy. The state has a large, high-quality, and respected health care sector. In addition, the state has focused attention on Medicaid due to that program's high cost and rate of growth.
State Health Programs
In Massachusetts most health care initiatives fall under the Executive Office of Health and Human Services, an umbrella agency that oversees, among others, the Division of Medical Assistance, the Department of Public Health, the Department of Mental Health, the Department of Mental Retardation, and the Division of Health Care Finance and Policy. Considerable policy control also is exercised by the Executive Office of Administration and Finance. Control of health care funding and policy rests very much at the state level, with a small role reserved for local governments and health boards. This situation is in part due to Proposition 21/2, which limits the capacity of municipalities to generate new property tax revenues for local services. This limit has placed local health care in greater competition with other local services, such as schools and public safety.
9 In contrast to local limits, the state offers extensive health care programs, and very few geographic areas in Massachusetts are viewed as underserved.
Medicaid
Medicaid is the largest of the state's health programs. State government plays the predominant role in administration and funding of the Medicaid program. Counties do not contribute to the cost of the program, aside from intergovernmental transfers used for Medicaid DSH payments to city hospitals. The Division of Medical Assistance oversees both acute and long-term care aspects of the Medicaid program, with the exception of activities in the Departments of Mental Health and Mental Retardation.
Medicaid follows elementary and secondary education as the second largest item in the state's general-fund budget (table 2). It accounted for 13 percent of state general revenue spending in 1995, or 22 percent of the entire state budget including federal and other sources. From 1991 to 1995, Medicaid spending from the state's general revenues grew more slowly than state spending on Medicaid from all sources including federal aid (4.2 percent annually versus 9.0 percent). Medicaid, while growing faster than the state budget overall, has not been the state's fastest growing spending category. Elementary and secondary education leads, with growth rates of 8.5 percent for state funds and 13.2 percent if state and federal funds are combined.
Generous eligibility rules, high provider payments, and a broad definition of covered services have resulted in a costly Medicaid program. Medicaid spending in Massachusetts was $5.7 billion in 1995 (table 3). However, in the past five years, the state's total Medicaid budget grew more slowly than the national average, growing 16.1 percent annually from 1990 to 1992 and 9.4 percent from 1992 to 1995, compared to the national average growth rates of 27.1 percent and 9.9 percent, respectively. Expenditures grew more slowly in Massachusetts than in the rest of the United States for each enrollment group except children from 1992 to 1995.
Massachusetts' spending per enrollee was almost twice as high as the national average in 1995 ($6,189 versus $3,202—see table 4); only New York was higher ($6,194). The state reports spending about twice as much per enrollee on children and about 50 percent more per enrollee in each of the other enrollment categories. Spending per child enrollee grew more than 16 percent per year from 1990 to 1995; in contrast, the national average growth in spending per child enrollee was 9.9 percent from 1990 to 1992 and 8.2 percent from 1992 to 1995. This difference may be partly due to higher growth in health care costs in the state, but similar patterns are not seen among nondisabled adults.
In 1990, Massachusetts Medicaid spent more funds on long-term care (52 percent) than on acute care (48 percent). Since then, acute care expenditures have grown more quickly than long-term care expenditures. Nonetheless, Medicaid spending in Massachusetts continues to be weighted more toward long-term care (46 percent of total) than exists nationally (40 percent). As a result, more of the state's expenditures on Medicaid services are for the elderly and disabled (75 percent) than in the rest of the nation (69 percent).
Other Financing Programs
Aside from Medicaid, the state has several large programs that provide health care coverage or pay for health care services for low-income populations. They include subsidized insurance programs such as the Children's Medical Security Plan; prescription drug coverage for seniors; CommonHealth, which covers persons with disabilities; and the Medical Security Plan, which covers the short-term unemployed. However, by far the largest non-Medicaid subsidy program is the uncompensated care pool ($330 million) that funds hospital care to the uninsured. Even greater coverage plus employer insurance subsidies are contemplated under the Section 1115 waiver.
Cigarette taxes have become a favored mechanism for funding several of the state's health initiatives. In 1992, the state's voters passed the Massachusetts Tobacco Control Program, which raises $56 million annually toward public health and tobacco education programs. The cigarette tax was increased again in 1996, this time by the legislature to fund individual health care coverage, rather than population-based tobacco prevention programs. Specifically, this significant increase in the tobacco tax (approximately $100 million per year) is earmarked for expansion of the Medicaid program, the Children's Medical Security Plan, and a prescription drug coverage program for seniors.
Public Health
The state Department of Public Health (DPH) oversees four major areas: laboratory and communicable disease; health quality management; state-owned hospitals; and community health services, including AIDS, substance abuse, and family health programs. The state currently has four chronic care hospitals operated by the DPH. A small number of other DPH hospitals have been closed.
Unlike some states, Massachusetts has no county health department system. Instead, there are 351 local boards of health, one for each municipality, with varying expertise. They typically are responsible for animal control, disease prevention and reporting, environmental health, hazardous substances, and community sanitation. 10 Funding for local boards comes from local taxes and fees. Most services to communities are state-funded and provided by a network of providers on contract with the state. Rather than distributing state funds on a formula basis, the state mainly treats local health departments as vendors that compete for funds alongside other providers. Approximately half the department's total budget is contracted out on a competitive basis to about 600 public agencies and private providers.
Department of Mental Health
The Department of Mental Health oversees both treatment and research programs. These programs include emergency and crisis intervention, outpatient and inpatient care, vocational programs, and programs targeted at emotionally disturbed children and adolescents, including case management, day and residential treatment, and inpatient services. The state has identified comprehensive community support systems, or areas, where service delivery is coordinated and where services can be accessed. Service delivery has shifted to the community setting; the state has closed four of the psychiatric hospitals it once operated. Six state hospitals and two community mental health centers remain. The department also has worked closely with the Division of Medical Assistance to maximize the federal matching payment and to coordinate the mental health and substance abuse managed care programs. Medicaid DSH payments have become an important source of funding for the state-owned facilities.
Department of Mental Retardation
The Department of Mental Retardation oversees the majority of Medicaid-funded long-term care services to persons with disabilities. The department's 1996 budget was $714 million, of which 29 percent was spent on state-operated facilities for the developmentally disabled.
11 The department currently operates seven such facilities, having closed three since 1992. Concerted efforts have been made to move care into community settings. Funding for this initiative has been made possible largely through a Medicaid home- and community-based care waiver program. Funding for the waiver grew from $37.3 million in 1992 to $124.4 million in 1996.
12
Assessing the New Federalism:
Potential State Responses
to Additional Flexibility and
Reduced Funding
General Philosophy Regarding
Public Responsibility for the Poor
Massachusetts is a very high-income state with a long progressive political tradition. It has historically provided substantial support for Medicaid and other health and welfare programs. Massachusetts has been a pioneer in health reform and enacted a universal health care law (known as Chapter 23) in 1988. This legislation called for a phase-in of universal coverage through a "pay or play" employer mandate, reformed the Massachusetts hospital rate-setting system, and created other programs to expand public coverage. The bill was enacted with the support of the large business community. Business was concerned about increasingly high hospital costs because of the shifting of uncompensated care costs to businesses through higher hospital charges. Because of these concerns, businesses agreed to a mandate on all employers to provide health insurance or to pay a tax to the state. Business support did not last, however. When the economy declined in the 1990-1992 recession, business opposition to the employer mandate grew, and the legislation was never implemented. During this period, more businesses began to move to managed care, believing they could save on health care costs on their own.
Government policies of supporting health and welfare policies have generally continued under the Weld/Cellucci administration. Policies of the administration could be characterized as attempts to change but not undermine the safety net. The issue in Massachusetts seems to be not whether to support the low-income population but rather how to do it. The Weld administration submitted a waiver pursuing coverage expansion in part through Medicaid but also through the private sector—extending vouchers to low-income individuals and tax credits to employers to provide coverage to their low-wage workers. The legislature agreed to the Medicaid expansion, deferred action on the subsidy plan, and added its own plans in summer 1996 to expand Medicaid coverage of children and to establish a program covering prescription drugs for the low-income elderly.
There is some evidence that at least in recent years health care is somewhat better protected than the cash welfare programs. Public support for AFDC waned in the early 1990s, and the state enacted its own welfare reform plan. While the state's coverage of its AFDC population is very generous by national standards, AFDC rolls fell from 335,100 in 1993 to an expected 250,987 in 1997, in part because of a toughening of work and job training requirements. At the same time, Medicaid rolls remained relatively stable. Many individuals who left AFDC seem to have been able to retain health care coverage through Medicaid. The state also has an array of health programs to cover the disabled, the unemployed, and children outside of traditional Medicaid.
Block Grants and Flexibility
Under federal proposals in 1995 to convert Medicaid to block grants, administration officials believed the state would have done quite well. They were eager for increased flexibility in how health care services could be delivered. Weld administration officials believed that with the cost containment policies adopted in both acute care (e.g., managed care) and long-term care (e.g., deinstitutionalization and Medicare maximization), Massachusetts could live with reduced federal revenue growth. State officials believed that they would respond to increased flexibility by providing different sets of services to different groups. The result would be that the state could better target benefits to individuals with different needs than it could with the current structure, under which a broad benefit package must be available to all enrollees.
Advocacy organizations were concerned about allocation decisions that would be made with more limited budgets. Some were concerned that
the richer service package available to the elderly in Massachusetts would make those services an attractive target for cuts. However, this was not a universal concern: many responded that the nursing home industry and the elderly advocates were the strongest politically in the state, followed by advocates for the mentally retarded/developmentally disabled and advocates for younger persons with physical disabilities. The AFDC population seemed to have the least political strength in the state and therefore seemed the most vulnerable.
Medicaid Maximization
State officials take considerable pride in their ability to maximize federal Medicaid financial participation. Mandates imposed by the federal government to expand Medicaid contributed to the program's becoming the fastest rising item in the state budget. The result was increased interest in finding ways to bring state and locally funded services into Medicaid to obtain federal matching dollars. The state has used some of the Department of Mental Retardation and Department of Mental Health appropriations as the state share of financing services that could qualify for Medicaid. The Department of Medical Assistance reimburses for these services and then obtains Medicaid matching funds from the federal government. (In other words, the appropriations for the Department of Mental Retardation and the Department of Mental Health are passed through the Medicaid budget.) Medicaid is also used to help fund school-based services to disabled children. In this case, the local school systems contribute the state share, but because Medicaid pays for the services, the state receives federal matching funds.
The state also attempts to obtain federal financial participation for any activity that the state or a locality was funding that parallels a Medicaid-funded service. To qualify, it must be a parallel activity used by Medicaid-eligible persons. This practice allows the state to fund care provided in school health clinics, public health clinics, and case management services, as well as to cover administrative costs of other agencies and smoking cessation programs. Federal matching thus provides a large amount of fiscal relief to local governments.
There is now concern about the implications for localities as Medicaid managed care expands. If Medicaid managed care plans are not willing to finance local providers, the amount of local aid achieved through Medicaid revenue maximization will decline.
Another source of Medicaid maximization is the use of funds in the uncompensated care pool to obtain federal matching payments. The uncompensated care pool imposes a uniform assessment but essentially redistributes money from hospitals with low levels of uncompensated care to hospitals with substantial levels. The state distributes these funds as Medicaid DSH payments and collects $157 million in federal matching funds, all of which is returned to the state treasury, not to hospitals.
Providing Third-Party
Coverage for the
Low-Income Population
Medicaid
Medicaid eligibility standards in Massachusetts are quite generous by national standards. The maximum annual income that a family of three can have and remain on AFDC is $6,948 in Massachusetts, versus $5,231 for the nation. The maximum income as a percentage of poverty in Massachusetts is 56.4 percent, versus 41.9 percent for the nation. Massachusetts has extended coverage for pregnant women and infants to
185 percent of the poverty level (133 percent is mandatory) and covers children ages one to five up to 133 percent of poverty (the federal minimum). Its medically needy income limits are also well above the national average. Not surprisingly, then, Massachusetts covers a very high percentage of its low-income population. For example, in 1994 Massachusetts covered 64 percent of the low-income population, defined as those with income below 150 percent of the federal poverty line. The national average was 51 percent.
Table 5 shows that despite the fact that Massachusetts has large numbers of people on Medicaid by national standards, its growth rates in recent years have been well below the national average. For example, the overall Medicaid enrollment growth between 1990 and 1992 averaged 5.3 percent, versus 11.3 percent for the nation. Enrollment growth between 1992 and 1995 was 1.8 percent in Massachusetts, versus 5.2 percent for the nation. Recent enrollment growth for the elderly, as well as for adults and children, was well below the national average. Growth among the blind and disabled in Massachusetts was more in line with growth in this population throughout the country.
The Massachusetts Medicaid program provided data on enrollment growth since 1995. These data, shown in table 6, reflect average monthly caseloads, while data in table 5 provide numbers of individuals enrolled at any time during the year. These data show that Massachusetts had average monthly caseloads of 654,688 individuals in 1995. The state's caseload is expected to be virtually unchanged between 1995 and 1997. However, the composition of the state's caseload is expected to change to some degree. The number of adults and children in families (AFDC and related enrollees) is expected to decline and the number of disabled, to increase. The number of elderly will be virtually unchanged.
The small decline in Medicaid coverage of adults and children masks a much greater drop in the AFDC population. From 1995 to 1997, there were increases in the Medicaid-only population, both those covered through the poverty-related expansions for pregnant woman and children and the medically needy. It is also believed that many who lose AFDC are retaining their Medicaid coverage as medically needy. AFDC rolls fell from 308,900 in 1995 (335,200 in 1993 was the high point) to 273,600 in 1996, an 11.4 percent decline. AFDC rolls are projected to decline by another 23,000 people, or 8.3 percent, in 1997. Most of this decline has been offset by a growth in the number of Medicaid-enrolled adults and children who are not cash recipients, which grew from 109,800 in 1995 to 130,200 in 1996, an 18.6 percent increase. This population is expected to continue to rise by another 23,000 in 1997, again roughly offsetting the decline in the AFDC population.
The decline in the AFDC population, as noted earlier, is attributed both to Massachusetts' improved economy and to its welfare reform initiatives. The state has received an AFDC waiver to institute an employment and job training program, but the drop in AFDC recipients began before the work program was implemented. A year before the waiver program was implemented, the state sent out an information packet indicating what would be expected of recipients after implementation of the work and training programs. Many individuals appeared to drop off the rolls because of the perception of the cutback rather than the reality.
The disabled population continued to grow rapidly, much as it did nationally. The Supplemental Security Income (SSI) disabled population grew from 111,300 in 1994 to 126,800 in 1996 (13.9 percent). The entire Medicaid disabled population grew from 139,500 to 162,700 (16.7 percent) between 1994 and 1996. Another 3 percent growth in the disabled population is expected in 1997. The growth rates among the disabled are slowing as they have nationally, largely because the phase-in of disabled children covered through the Zebley court decision and the Health Care Financing Administration (HCFA) liberalization of the list of covered impairments are largely completed. The number of elderly on Medicaid has stayed virtually unchanged since 1994, about 83,700 people. The number of SSI elderly has declined slightly, and the number receiving eligibility as medically needy has increased by a roughly similar amount.
In addition to Medicaid, Massachusetts has three other programs that cover different low-income groups. These plans were all enacted as part of Chapter 23, Massachusetts' ill-fated plan for universal health insurance coverage. The first program, known as CommonHealth, provides health insurance to working adults with disabilities and to children with disabilities who are not eligible for Medicaid. CommonHealth provides full or supplementary health benefits to about 3,500 enrollees (April 1997) depending on their insurance coverage and requires paying a monthly premium according to an income-related sliding fee scale. CommonHealth benefits are equivalent to Medicaid coverage except that long-term care services are limited.
Second, the Medical Security Plan covers 16,000 persons (March 1997) receiving state and federal unemployment benefits. Individuals can be eligible with incomes up to 400 percent of the federal poverty line. The plan offers either a direct purchase of insurance coverage or partial reimbursement for insurance premiums.
Third, the Children's Medical Security Plan provides primary care and preventive services to about 33,000 uninsured children not eligible for Medicaid. The plan also provides outpatient mental health care and specialty services if approved by a primary care physician. There are no premiums for those below 200 percent of poverty, and premiums rise as incomes increase.
MassHealth: Expansions and Consolidation
Massachusetts has planned a major expansion of its health care coverage under a program called MassHealth, to be implemented in July 1997. MassHealth would extend the current Medicaid program under a Section 1115 waiver to new population groups and absorb two currently state-funded programs—the CommonHealth and Medical Security programs. MassHealth would retain the current coverage of pregnant women and infants to 185 percent of poverty and expand coverage to all children through the age of 18 up to 133 percent of poverty. (Governor Cellucci now supports expansion of coverage to 200 percent of poverty for children, and legislative approval is expected.) It would then establish the New State Benefit Plan, which would extend coverage to long-term unemployed individuals whose gross income is no more than 133 percent of the poverty line. Individuals who are between 18 and 64 and not institutionalized, not eligible for unemployment benefits, and not full-time students would be eligible. These expansions are expected to provide coverage to 75,000 adults and 53,000 children. The state would move the CommonHealth program for disabled persons and the Medical Security Plan for the short-term unemployed into the MassHealth program. These components were part of Massachusetts' original waiver request and have remained part of the plan through the legislative debate. The waiver was submitted by the governor and approved by the federal government, but portions still await authorizing legislation as of 1997.
More controversial was the proposed Insurance Reimbursement Program (IRP) for low-income workers. The administration wanted to provide a strong incentive for employers either to begin or retain coverage for low-income workers, those with incomes below 200 percent of poverty. Employers would get tax subsidies if they contributed at least 50 percent of health insurance premiums for plans that met state standards. At the same time, the state would subsidize low-income employees' share of the premiums. Low-income, self-employed persons would receive both the employer and employee shares of the subsidies.
The legislature, controlled by Democrats, believed that the IRP would largely crowd out existing private coverage and provide subsidies at public expense mainly to individuals who would have had coverage anyway. The legislature preferred to expand Medicaid coverage of all children to 200 percent of poverty. This debate, along with a number of issues over the state's uncompensated care pool, led to the formation of a Special Commission on Uncompensated Care in August 1996 legislation.
The legislature also required the administration to examine a variety of options for extending coverage that would be consistent with the budget neutrality provisions agreed on between the state and HCFA. The budget neutrality provisions permitted Medicaid spending per enrollee to increase by over 7 percent per year. The administration was required to develop alternatives to allow the state to live within this budget. A later administration report concluded that several alternatives would be consistent with budget neutrality. 13
After reviewing this report and considering issues of the size and distribution of uncompensated care pool funds, the commission made several recommendations. First, the commission recommended that the state adopt a limited form of the IRP, making it available only to firms with fewer than 50 workers and subject to appropriation by the legislature. HCFA had only agreed to provide the subsidies to firms for workers who otherwise would have been uninsured. This situation was viewed as being more likely in small firms. With this restriction, about 100,000 adults and 34,000 children were expected to benefit from the subsidies. The legislature's Joint Committee on Health Care amended the commission's recommendation to call for an extension of Medicaid coverage to children up to 200 percent of poverty, which according to administration estimates could be done within budget neutrality. The Weld administration opposed this expansion because of its concerns over crowding out private coverage. The Cellucci administration is now supportive.
The waiver coverage expansions are related to solving problems of the uncompensated care pool. Essentially, as part of the waiver, HCFA agreed to provide $70 million in additional support to Boston City Hospital and the Cambridge Hospital because of their role in providing a large share of the free care in the state. This support allowed the state to allocate $70 million in the charity care pool to other hospitals. The "additional" federal payment to these hospitals, however, still "fit" within the budget neutrality cap. (The issues in the uncompensated care pool debate are discussed in greater detail below.)
The final piece of MassHealth was the extension of the Children's Medical Security Plan (CMSP), which provides preventive and primary care services to all uninsured children. This program, entirely funded by the state and administered separately from Medicaid, will be expanded to add about 35,000 children, more if the expansion of Medicaid to 200 percent of poverty is not implemented.
The cost implications of the compromise plan are illustrated in table 7. The table shows the uses and sources of funds by year and illustrates how the expansions described above will be financed. For example, in the year 2000, Massachusetts will spend $200 million for the expansion to cover children and adults up to 133 percent of poverty; 50 percent of this expansion, or $100 million, will be federally matched. Second, it will spend $72 million on insurance vouchers to low-income workers (below 200 percent of poverty) in firms with fewer than 50 workers whose employers pay 50 percent of the cost of their insurance; again, the federal government will contribute half, or $36 million. Third, the plan will provide tax credits to these firms; the federal government will only contribute to the tax credits for workers who otherwise would not have been insured. This amount is assumed to be 50 percent; thus, the federal contribution will be about $10 million. Fourth, supplemental payments to Boston City Hospital and the Cambridge Hospital will cost $70 million, all federal funds. Fifth, the CommonHealth and Medical Security Plan will cost $79 million, half of which will be federal funds. Sixth, the pharmacy assistance program, the new drug benefit program for elderly recipients, will cost $30 million, all state funds. Seventh, the CMSP will cost $26 million and will be fully financed by the state. If the Medicaid expansion to 200 percent of poverty is adopted, Medicaid expenditures (and federal matching funds) will increase, but the costs for CMSP will fall. Finally, there will be $8 million in administrative expenses.
The pool funds that will be distributed to hospitals throughout the state will be $253 million in the year 2000. This is a decline from $330 million in 1996, because hospitals are expected to need less support as a result of the coverage expansion. Hospitals other than Boston City Hospital and the Cambridge Hospital will receive a higher share of the $253 million because they will be receiving $70 million in federal funds through the supplemental payments (see chapter on "Delivering Health Care to the Uninsured and Low-Income Population.").
The lower half of table 7 indicates that expansions will be financed through a combination of the $130 million in current state revenues forecast for Medicaid and $96 million from a cigarette tax enacted in 1996. The uncompensated care pool will still generate $330 million—the same as currently. There will be new federal revenues of $225 million—less than the amount that Massachusetts could spend and still remain budget neutral.
Table 8 shows how Massachusetts will be able to expand coverage and provide additional support to two public hospitals and be budget neutral to the federal government. The Massachusetts Medicaid program estimated that enrollment for families would not grow over the five-year period. It predicted an approximately 6 percent annual growth rate for the disabled. It was assumed that expenditures per enrollee would grow by 7.7 percent for families and 5.8 percent for the disabled. DSH expenditures were assumed to grow by 6.8 percent per year between 1995 and 2002. The baseline projection became the budget neutrality cap under which the state must operate. Expenditure growth was projected to increase over time, from 8.6 percent in 1997-1998 to 9.2 percent in 2001-2002.
The state assumes that it can do considerably better than this projection under the waiver, which will allow it to finance the expansions. The enrollment growth assumptions for the traditional eligibility groups were the same as without the waiver. Perhaps the most important assumption is that the state can hold actual spending growth per enrollee to 4 percent per year through the use of managed care and other cost-containing efforts. Overall, the state expects that expenditures under the waiver will grow by only 5.8 percent in 1998 and slightly more than 6 percent thereafter. The result is a considerable amount of money with which to finance the coverage expansion. For example, there would be $403.2 million in 1998, $611.1 million in 2000, and $873.7 million in 2002.
Welfare Reform
Massachusetts currently has waiver authority for transitional Medicaid coverage. It allows Medicaid coverage to continue for up to one year after leaving welfare if income is related to work and there is a dependent child in the family. Federal welfare reform also made changes in Medicaid coverage for immigrants. Massachusetts has elected to implement the federal options by keeping legal immigrants eligible for Medicaid where federal financing is available. It will provide Medicaid benefits to those in the United States before August 1996, and cover new legal immigrants after a federal five-year ban on coverage. Newly arriving legal immigrants banned from Medicaid for five years by federal law will probably also be covered at state expense, though with a somewhat reduced benefit package. The governor and the legislature have agreed to cover with state funds other immigrants receiving Medicaid or CommonHealth benefits who lost eligibility under the federal law, including many who are in nursing homes.
Insurance Reforms
Traditionally, Massachusetts relied on Blue Cross/Blue Shield (BCBS), which in exchange for a statutory exemption from the premium tax and other considerations served as insurer of last resort. As an indemnity insurer with a very large market share, BCBS could afford to cross-subsidize higher cost enrollees. The state has never had a "high risk" pool. Deregulation and the decline of BCBS (see chapter on
"Financing and Delivery System") prompted regulatory attention to the availability of insurance.
Small-group insurance reform was enacted in late 1991 and implemented in 1992. The reforms include guaranteed issuance and renewal (for all products the company sells in this market), limits on pre-existing conditions, and portability (reduced waiting period for coverage). Further, they include modified community rating with adjustments allowed for age, sex, geographic location, industry, group size, and participation rate, and rate bands within geographic areas. The highest rate was to be no more than four times as high as the lowest, reduced to a 2:1 ratio over a three-year phase-in. Finally, there was a mandatory statutory reinsurance pool. Association coverage was exempted and evidently attracted many small businesses. (The Division of Insurance did little to monitor the market, much less to enforce the statute.) Additional reforms were enacted in July 1996. The stringent new provisions removed the exception for associations, increased the maximum size of covered groups to 50, eliminated the previously allowable use of gender for rating, and tightened the rate bands.
Individual reforms were enacted in the same 1996 statute. The legislation removed the old BCBS open enrollment rule, making the Blues subject to the same rules as commercial insurers, and applied the small-group reforms to individual policies: guaranteed issuance and renewal, modified community rating (without gender), limits on pre-existing conditions, and rate bands. It also made reinsurance available, but on a voluntary basis. Any company selling any small-group coverage must sell individual coverage. This is a "play or else" law, not "play or pay" as in New Jersey, where a company may make a cash payment rather than sell coverage.
The effectiveness of these reforms is unclear. There are no baseline data or information from the early years of small-group reform. Observers think the small-group reform probably changed the composition of the insured more than it increased the numbers. Anecdotally, since the 1996 changes, some insurers have exited from the regulated markets.
Financing and
Delivery System
Background: Indemnity Coverage and
Independent Hospitals under Rate Setting
Health care financing in Massachusetts has traditionally meant generous fee-for-service coverage, especially from Blue Cross/Blue Shield. BCBS covered about 60 percent of the privately insured as late as 1985.
14 BCBS had to contract with all willing hospitals and physicians, and hospital rates were regulated by the state beginning in the mid-1970s. In 1982, rate setting was expanded to an "all-payer" system initially including Medicare. In 1985 the uncompensated care pool was created, with funding from a uniform hospital assessment, which was incorporated into the regulated rates.
Hospital care came from nonprofit community institutions and prestigious teaching hospitals. Hospitals were plentiful and of high quality: Boston hospitals consistently appear on national "best" lists. But care was expensive because of high prices and high levels of utilization. 15 Massachusetts patients receive more inpatient care per 1,000 population than their neighbors in Connecticut or Maine, and much more than on the West Coast.
State rate setting had the side effect of discouraging for-profit hospitals, as the national chains had policies of not entering regulated states. It also encouraged the state's fledgling HMOs by exempting them from price controls and the direct pool contribution and allowing them to negotiate directly with hospitals. The high-water mark of regulation was the 1988 universal coverage plan of then-Governor Dukakis to mandate universal workplace-based coverage while continuing to control prices through rate setting.
The Medicare component of rate setting was dropped in 1985, when it became apparent that hospitals were better off under federal diagnosis-related group (DRG) rules. But the uncompensated care pool was continued, as well as regulation of other rates. Everything changed with the election of Governor Weld. All regulatory rate controls were repealed in December 1991, freeing all insurers, not just HMOs, to negotiate directly with hospitals. Medicaid continued to dictate its own rates, and the uncompensated care pool was restructured but retained. HMO growth, hospital deregulation, and market restructuring have since significantly altered financing and delivery of care.
Managed Care
Since the mid-1980s, Massachusetts has been a leading state in the extent of managed care. Managed care in Massachusetts usually involves HMOs, whether operating as fully insured HMOs or as purveyors of preferred provider organization (PPO) or point-of-service (POS) coverage. Harvard Community Health Plan (HCHP), a staff model HMO created in 1969, came first. The second major plan was an independent practice association (IPA) started by Tufts University in 1976. Still, HMOs had only about 3 percent market share in 1980.
16 Thereafter they grew rapidly, able to economize substantially on hospital care compared with regulated indemnity insurers. Yet HMOs were not tainted by a cut-rate image, due to nonprofit status and high-quality university names. HMOs were also sheltered from strong price competition because of the dominance of expensive BCBS and the lack of vigorous for-profit competition. To this
day, US Healthcare remains the only major for-profit HMO in the state, and after years of trying, it still has a small market share, mainly in western Massachusetts.
By the 1990s, HMOs had risen to about 30 percent of the private market, while BCBS's market share had plummeted to about 35 percent. 17 This shift transformed hospitals' finances and their expectations. In Worcester, for example, indemnity payment went from 25 percent or so of hospital revenues to about 5 percent in only a few years.
Managed care is somewhat regulated. The Division of Insurance currently enforces some financial and disclosure rules on insured managed care plans, focusing mostly on solvency issues. These traditional powers are not unimportant. The division had to use them to intervene in the financial troubles of Bay State Health Care, a large IPA, helping to broker its acquisition by BCBS in the early 1990s. Today it is BCBS that is in difficult financial straits, and the insurance commissioner has announced plans for strong intervention into the giant insurer's day-to-day operations. 18
The attorney general created additional standards in early 1996, calling on HMOs voluntarily to report on the community benefits they provide in a format agreed to by the industry. The state also has an "any willing provider" statute, but it is limited to pharmaceutical coverage and is not effectively enforced. Some very specific limits on utilization controls have recently been passed (e.g., minimum maternity stays), and more quality-oriented rules are proposed. The attorney general's February 1997 report called for new legislation, and legislators had filed about 30 to 40 managed care bills as of February 1997. The bills are not supported by the administration and passage is quite uncertain in the face of HMO opposition. As elsewhere, whether and how to regulate rapidly evolving managed care is a hot issue in the state.
Hospital Downsizing, Consolidations,
and For-Profit Acquisitions
The hospital market has been downsizing and consolidating since the early to mid-1980s. In 1988-91 came more aggressive HMO competition, recession, deregulation, and new rate cuts from BCBS and Medicaid—all in quick succession. Altogether, between 1986 and 1995, some 35 Massachusetts hospitals closed, 16 of them by conversion to other services; mergers affected 16 more hospitals.
19 Worcester, where the Fallon Community Health Plan HMO dominates insurance, is probably the most extreme example. It has gone from having 14 independent hospitals in the 1980s to only two systems in the wake of the latest merger in February 1997.
20 Statewide, the acute care bed supply fell rather steadily from 1984 through 1994—but not as fast as inpatient days, so that occupancy rates still declined.
21
For a time, its huge teaching hospitals seemed to insulate Boston from the market changes occurring elsewhere. But today the area is in the midst of a series of mergers, alliances, and consolidations, especially among hospitals. Unusually, change has been led by asset-rich tertiary hospitals, starting with a strategic alliance between two of the five leading academic hospitals announced in 1993. Change was triggered by deregulation but seems driven more by expectations of continuing change: Several interviewees spoke of expecting "California to come to Massachusetts," meaning even more wrenching pressures in the future.
By mid-1996, the top four Boston hospitals had paired up into two competing systems and were adding other components as well and spreading beyond Boston. The two main public safety-net hospitals in Boston and adjacent Cambridge also merged with neighboring hospitals in 1996. The fifth and last tertiary facility is Tufts-New England Medical Center, which in January 1997 announced a merger with Lifespan, a nonprofit chain from Providence, Rhode Island, rejecting an offer from Columbia-HCA. The merger activity extends to physician offices and community health centers (CHCs), some of which are expanding their services and forming alliances to claim larger shares of expected capitation.
For-profit hospital chains are becoming active, although as yet only on the fringes of the metropolitan Boston area. The state has never officially barred for-profit hospitals, but it never had one until very recently. Rate regulation and certificate of need surely have been deterrents, as has the general culture favoring not-for-profit entities (including HMOs, universities, and other institutions).
Meanwhile, consolidation has also occurred in managed care, notably with the merger of the staff model HCHP with Pilgrim IPA. Each had previously merged with smaller plans, but the new combination was huge, with nearly a million members in Massachusetts and Rhode Island. Harvard-Pilgrim soon announced plans to merge with a New Hampshire HMO as well, to give it over a million members and even greater regional presence. It recently purchased the largest Medicaid HMO, Neighborhood Health Plan, run by a consortium of CHCs. 22
The rash of consolidation has raised concerns about the continued competitiveness of markets for managed care and for hospital services or hospital-based integrated delivery systems. The office of the attorney general considers itself to have sufficient authority to oversee mergers and acquisitions under existing law of antitrust and charities. The attorney general has not yet had to act, in light of the continuing surplus of hospitals, even after mergers, and the inability of for-profits to acquire a major hospital. Investigations of Harvard-Pilgrim's threat to competition are currently under way, and hearings will be held soon on a pending Columbia-HCA bid for a local hospital. 23 Increased economizing among hospitals also raises fears about the ability of institutions to continue to fund indigent care, although the generosity of government and the presence of the uncompensated care pool makes this a less pressing concern than in most states.
Uncompensated Care and Disproportionate Share Payments
The uncompensated care pool was established in 1985 to distribute the burden of uncompensated acute hospital care, reduce cost shifting, and eliminate incentives to avoid serving the uninsured.
24 Rate setting financed the pool through a uniform surcharge on private payers. Hospitals whose total surcharges exceeded their uncompensated care costs forwarded funds to the pool. These funds were then redistributed to hospitals whose surcharges fell short of uncompensated care. The surcharge rose along with uncompensated care; by 1987 it was 13.1 percent.
25
The 1988 health reform legislation retained the pool but capped the aggregate amount of the surcharge on the assumption that expanded coverage would reduce hospitals' uncompensated care burden. The cap was set at $325 million in FY 88 and was phased down to $315 million for FY 90 and later years. 26 Because the total allowed surcharge was capped but hospital costs continued to rise, the percentage surcharge dropped to 6.25 percent of private insurance charges by FY 96. 27
Because pool costs exceeded revenues, this shortfall had to be distributed across hospitals. At first it was distributed evenly, so that all hospitals received an equal percentage of their uncompensated care costs. In 1991 the state changed the distribution formula and instituted a "greater proportional requirement method" that favored hospitals providing proportionately more charity care. Under this method the shortfall is distributed based on a hospital's size (i.e., operating costs). Larger hospitals are responsible for a greater share of the unreimbursed shortfall costs. 28
Although the entire hospital portion of the pool is $315 million, only 15 of 84 hospitals in Massachusetts are net receivers from the pool. The bulk of payments, nearly $150 million of the $315 million, go to two public hospitals, Cambridge Hospital and Boston City Hospital. 29 These two facilities are heavily dependent on pool funds and, combined, received approximately 38 percent of their total revenue from the pool in 1995. 30
Massachusetts distributes its funds from the uncompensated care pool as DSH payments and receives federal Medicaid matching payments. The state determined in 1990 that the pool surcharge met the test of an acceptable provider tax; it was broad based, uniformly applied, and no one was held harmless. Initially, the state then claimed federal financial participation for the DSH payments made from the pool to hospitals that were above the median level of uncompensated care. This translated to about $135 million in federal match for the $315 million in expenditures. In 1993 the state began claiming the entire $315 for federal matching funds, resulting in about $157 million in federal match annually, which goes to general revenues. The state pays $15 million a year to the pool from general funds.
Three major issues around the pool were addressed in fall 1996 by the Special Commission on Uncompensated Care. First, the amount of money in the pool was believed to be inadequate. The shortfall grew as hospital costs and the number of uninsured grew. By 1996 the state hospital association estimated the shortfall at $166 million, while the state estimated it at $153 million. 31 The growing gap between the amount in the pool and the estimated total uncompensated care burden became a concern for many hospitals and clinics. Second, the shortfall in the pool was exacerbated by the distribution of the pool revenues. With 85 percent of the pool revenues going to 15 hospitals, many hospitals whose uncompensated care burdens were increasing received few or no revenues from the pool. The net contributing hospitals became strongly opposed to the proportional distribution formula in the face of growing hospital competition.
Finally, the hospitals were having increasing difficulty in passing on the mandatory surcharge to third-party payers. As noted above, hospitals are assessed a surcharge on their private payer charges. Hospitals were expected to negotiate the assessment into rates paid by private payers. Hospitals have argued that the payers are increasingly unwilling to accept the surcharge.
The January 1997 recommendations of the commission had four major components. First, implementation of the expanded Medicaid and Insurance Reimbursement programs was expected to reduce the need for and the cost of uncompensated care provided by hospitals and CHCs. This was expected to significantly reduce the amount of pool funds needed to fund uncompensated care.
Second, the federal Medicaid waiver permitted the state to make $70 million in supplemental, non-pool annual payments to Boston Medical Center and the Cambridge Hospital for the provision of uncompensated care through capitated rates. HCFA was concerned that the reallocation of pool funds for the expansion of Medicaid through the waiver would cause a large loss of revenue to these two hospitals. Because the state could only increase DSH payments at the same rate as its increase in its total expenditures, it was limited in how much it could increase its DSH payments to hospitals and receive federal matching payments.
The Section 1115 waiver allowed the state to reduce the pool payments to Boston Medical Center and Cambridge; instead, these two hospitals would establish capitated managed care plans for uninsured individuals. The managed care plan would be paid capitation rates at an enhanced rate; essentially $70 million formerly in pool payments would be paid instead as supplemental payments to the managed care plans set up by these hospitals. 32 Half the funding would come from the respective cities through an intergovernmental transfer, the other half from federal matching payments. 33 Federal payments would still be under the budget neutrality cap to which HCFA had agreed. In this way the federal government would contribute to Boston City Hospital and Cambridge Hospital as before, but the contribution would not come out of the pool. Thus, the payment would also not be characterized as a DSH payment and would not count toward the 1991 aggregate DSH caps for states. The payment would also circumvent the Medicaid upper payment limits on managed care capitation rates, because HCFA has provided a waiver of that limit. Finally, the state could now increase the payments from the pool to other hospitals by about $70 million.
Third, funding into the pool was to be continued at $315 million. Hospitals' payments into the pool, however, were reduced from $315 million to $215 million. Private third-party payers, including commercial insurers, HMOs, BCBS, and self-funded plans, would contribute $100 million to the pool. The state would increase its contribution to the pool from $15 million to $30 million.
Fourth, payments from third-party contributors could be made as a surcharge on hospital charges or be made directly to the pool. The Division of Health Care Finance and Policy (DHCFP) (the former Rate Setting Commission) would estimate payments from private purchasers to hospitals and freestanding ambulatory surgery centers. The DHCFP would divide $100 million by the estimated payments to determine an assessment percentage. Hospitals and ambulatory surgery centers would make estimates of their cash payments from each payer. The DHCFP would then bill each payer for an amount equal to the assessment percentage multiplied by the statewide estimate of the expenditures of that payer for hospitals and ambulatory surgery centers.
Medicaid Hospital and Physician Payment
Hospital reimbursement under Medicaid is paid on a prospective per discharge basis. The state established efficiency standards by excluding data from hospitals with costs above the 75th percentile in setting rates; the result is that the state pays the full costs of hospitals at or below the median. Data from the Prospective Payment Assessment Commission indicate that the Massachusetts Medicaid program pays 83 percent of Medicaid hospital costs, versus 93 percent for the nation. The hospital industry, not surprisingly, views the rates as inadequate.
In addition to claiming $330 million distributed through the uncompensated care pool as DSH payments, the state has a number of other, smaller DSH programs. One ($11.7 million) is directed to hospitals that have over 63 percent of their revenues from Medicare and Medicaid or another public payer. Ten out of 84 hospitals receive these payments. Payments of $42 million go to the Cambridge Hospital, Boston Medical Center, and the University of Massachusetts Medical Center, with the state share financed by intergovernmental transfers from local government. The final significant DSH expenditure goes to seven state-owned long-term chronic care hospitals and psychiatric hospitals. DSH payments are made for otherwise nonreimbursable expenses associated with low-income individuals.
Massachusetts pays physicians on the basis of the Medicaid relative value scale but makes special adjustments for pediatric and obstetric rates. Data from a 1993 Urban Institute survey of 28 services indicate that Massachusetts pays
21 percent above the national average of state Medicaid programs. Massachusetts Medicaid paid on average 90 percent of Medicare rates for the same 28 services. 34
Medicaid Managed Care
Coverage. Massachusetts Medicaid has had statewide mandatory enrollment in managed care for select populations since 1992, when it received a Section 1915(b) waiver. Of approximately 650,000 Medicaid beneficiaries, 378,000 are subject to mandatory managed care enrollment for most care.
35 The beneficiaries include AFDC and related groups as well as SSI and related groups. Mandatory enrollment excludes beneficiaries over age 65 or with other third-party coverage, the medically needy, and individuals who are in institutions or receiving hospice care. Those required to enroll in managed care must choose a primary care clinician (PCC) or enroll in one of several HMOs. Individuals with severe disabilities or AIDS have the choice of two additional HMOs specially designed for their needs. Approximate enrollment is 290,000 in the PCC program and 87,000 in regular HMOs. Enrollment in HMOs is voluntary, and the number choosing HMOs has been relatively flat since 1993. In addition, Massachusetts contracts with a behavioral health managed care organization for mental health and substance abuse services. All nonelderly beneficiaries not in HMOs, or about 369,000 individuals, are in effect in the mental health HMO if they need to use mental health services.
36
The initial movement toward mandatory managed care emphasized increased access and care coordination. The PCCs are not capitated or otherwise rewarded for controlling utilization. However, the state's emphasis has increasingly been on cost savings. Payment rates for HMOs have been cut, and the state is seeking to better control utilization in the PCC program. The state is also considering phasing out the program entirely, moving PCC enrollees into HMOs.
The Primary Care Clinician Program. Beneficiaries not in HMOs must designate a PCC. A PCC can be a physician, clinic, or outpatient department. PCC providers offer preventive and primary care and must authorize most other medical services for their patients. Gatekeeping is viewed as loose, with relatively open access to emergency room and specialty care.
Payment to PCC providers is not risk based. Instead, providers receive an additional $10 per enrollee visit, regardless of the number of visits. The state is able to measure and improve quality in the program and believes it has increased access for patients. The state is contemplating phasing out the PCC program, believing that administering both an HMO program and a PCC program is burdensome. Additional oversight of PCC utilization is viewed as desirable but would add to the administrative burden. Furthermore, to better control utilization, the state might need to selectively contract with fewer providers.
Contracting with HMOs. The number of participating HMOs has declined from thirteen to eight, although this decline is attributed more to HMO consolidation than to plans dropping out. One for-profit plan discontinued its contract, and the remainder today are nonprofits. At one time, plans were required to bid for Medicaid in order to bid for state employees, but this is no longer the case.
The largest share of Medicaid HMO enrollment is in the Neighborhood Health Plan, a plan formed by community health centers with support of the Medicaid agency. In September 1995, 29,905 of the 87,288 Medicaid enrollees in HMOs (34 percent) were with Neighborhood Health Plan. 37 So far, the major commercial HMOs have not aggressively pursued the Medicaid market. In fact, Medicaid enrollment is less than 10 percent of total plan enrollment for all plans except the Neighborhood Health Plan. Recently a large commercial plan, Harvard-Pilgrim, agreed to purchase the Neighborhood Health Plan. 38
Enrollment. The Medicaid agency has enlisted an enrollment broker to assist beneficiaries with their choice of PCC or HMO. The broker also educates beneficiaries about their right to disenroll from an HMO and revert to the PCC program at any time. Direct (i.e., face-to-face) marketing and enrollment by plans are prohibited. Plans may only advertise, use mail campaigns, or distribute information during state-approved health fairs. 39 Marketing at provider locations (physician offices, clinics, hospitals) is prohibited. All marketing materials must be approved by the state.
Before 1995, beneficiaries who did not select a PCC or an HMO were assigned to the PCC program. The enrollment broker selected a PCC based on claims history, geography, language, and age of the client. Since 1995, the auto-assignment procedure also defaults clients to HMOs, continuing to use demographic and claims information.
Benefits and Quality Monitoring. Since 1992, all Medicaid HMOs have been required to cover most Medicaid-covered services, including all medically necessary mental health and substance abuse services (not just those typically covered in commercial contracts). Plans also must coordinate with school-based health centers, although they are not required to contract with them. Plans do not cover long-term care, although they must cover acute-level chronic care and rehabilitation, up to $1,500 in durable medical equipment, and up to 100 days of skilled nursing facilities care. Pharmacy benefits are typically not included in the capitated contract.
Massachusetts Medicaid has developed an extensive oversight and quality monitoring system for HMOs. Plans are required to collect and report utilization and quality data both for Medicaid and non-Medicaid enrollees. 40 Plans must conduct annual member satisfaction surveys, monitor voluntary disenrollment rates, and collect clinical indicator data, as well as develop clinical practice guidelines and special initiatives for certain conditions (e.g., prenatal care outreach, asthma management, and HIV/AIDS services). 41
HMO Payment Rates. The state negotiates rates with HMOs. The state calculates upper payment limits (UPLs) for each rating category of enrollees (except the rating category for dual eligibles). UPLs are based on experience in fee-for-service and in the PCC program with adjustments for differences in population and geography. For each rating category, the state calculates a per member per month (PMPM) expense, which is adjusted to be actuarially equivalent to the HMO-enrolled population for the set of HMO-covered services. 42 Separate UPLs for each rating category are then calculated by geographic area, a PMPM administrative expense is added, and the UPL is trended forward to the current year. The state uses five rating categories to pay HMOs: AFDC, disabled, severely disabled, AIDS, and dual eligibles who are enrolled in risk plans. 43
For the disabled categories only, the state conducts a year-end reconciliation process, whereby the utilization experience and demographic characteristics of a plan's specific enrollees are compared with the data used to estimate the original UPLs. An adjusted UPL is calculated, and plans are reimbursed if their actual incurred benefit expenses exceeded the adjusted UPL. 44 Plans likewise must return funds if they fall below 98 percent of the adjusted UPL.
The state does not publicize the UPLs. If a plan bids above the UPL, the state negotiates with that plan individually. Typically, the HMO bids have come in above the UPL. In the past two years the state has brought down HMO rates by 10 percent per year to a level roughly corresponding to its upper limits. HMOs appear to have made a small profit before 1995, based on data submitted to the state by HMOs. However, payment rates were cut in 1995, and HMOs on average showed losses the following year. Because the state cut rates again in 1996, HMOs are expected to be even less profitable.
At the moment, the state is not saving on HMO contracts relative to the PCC program despite the apparent HMO losses on Medicaid. HMOs were viewed as controlling utilization better than the PCC program but paying higher rates to network physicians. The state would like to see plans pay lower rates to network providers to lower costs; plans are permitted to pay Medicaid rates, but typically do not.
While most observers considered access and capacity in Medicaid managed care to be good, there was some concern about the future, particularly in light of reduced payment rates to HMOs. Under the Section 1115 waiver request submitted in April 1994, Massachusetts seeks to expand Medicaid coverage to about 220,000 previously uninsured individuals. 45 Many, although not all, of the newly eligible individuals would have HMO coverage. In addition, the state is contemplating moving the 290,000 PCC enrollees to HMOs. Some argued that most PCC providers already were participating in the HMOs; thus, patient access would not be significantly affected by eliminating the PCC program. However, the combined impact of both changes would be a large increase in HMO enrollment by Medicaid beneficiaries. It is not clear whether HMOs would embrace such a large increase at current payment rates.
Special Provisions for Persons with Specific Disabilities. In Massachusetts, PCC and fee-for-service beneficiaries must obtain mental health and substance abuse services through a specialized behavioral health HMO. However, persons enrolled in an HMO for their general medical care receive mental health benefits through that HMO.
Persons with severe disabilities or end-stage AIDS who live in the community may elect a PCC provider, one of the commercial HMOs, or one of two specially designed managed care plans. These two experimental programs, the Community Medical Alliance and a program through the Neighborhood Health Plan, serve Medicaid clients almost exclusively. (The Community Medical Alliance has announced its intention to merge with the Neighborhood Health Plan. 46) Beneficiaries have an incentive to enroll in these specialty plans because they cover a broader range of services, including home health care, enhanced case management, and alternative care services (such as physician extenders or adult day health care). Other commercial plans must demonstrate that they have sufficient specialized providers, case management programs, and ties to clinical research to serve persons with severe disabilities. If they do
not, they must give individuals with disabilities the option to disenroll. Even if the individual does not disenroll, the plan will not receive the higher capitation rate.
Delivering Health Care to the Uninsured and
Low-Income Population
Public Health
The total budget for the Department of Public Health was approximately $520 million in 1997, with a significant portion of the budget targeted at personal health care services.
47 Federal grants make up $129 million, or about a quarter of this budget. The largest federal grant is for nutrition programs, but other grants support personal health care services, such as maternal and child health grants ($13 million), early intervention programs for children ($10 million), and vaccination programs ($9 million).
The major portion of state funds goes to personal health care services (38 percent) and the operation of the DPH hospitals (26 percent). Other major state-funded activities include smoking cessation (14 percent) and nutrition programs (9 percent). Overall, state appropriations to public health have grown faster than federal sources. Personal health care services have been the fastest growing segment; these include, in particular, new AIDS drug therapies, substance abuse services, and family health. 48
The state funds personal health care services by paying providers directly for certain services and by purchasing third-party coverage. In 1997, the largest programs with personal health care services components were AIDS ($41 million), 49 substance abuse ($38 million), family health ($31 million), the Children's Medical Security Plan ($12 million), immunizations ($11 million), and Healthy Start ($6 million). Some prevention programs have small health services components (e.g., breast cancer screening or prostate cancer screening), but these are not included above. Many of these services are targeted at low-income persons. The Children's Medical Security Plan and CenterCare programs were recently transferred from another department and complement DPH efforts to reach pregnant women and enroll them in the Healthy Start program.
Because the state has been expanding health coverage under a variety of programs, including the Medicaid Section 1115 waiver programs and Children's Medical Security Plan, the DPH is shifting some of its other program priorities, particularly in maternal and child health. It plans to focus less on medical services and more on supportive services, such as case management, social services, and transportation. Prior to the expansion of health coverage, DPH hesitated to shift away from medical services out of concern for both access to services and the overall financial stability of safety-net providers.
DPH funding has increased with the passage of the Massachusetts Tobacco Control Program in 1993. Of the $56 million that supports Tobacco Control and Comprehensive Education Programs, more than half goes to the DPH. (The remainder goes to the Departments of Education and Public Safety.) Tobacco programs also are contracted out; more than 250 local health departments have become contractors with the state to pursue tobacco control initiatives.
County and City Governments' Safety-Net Role
Local Health Departments (LHDs). LHDs are run by cities and towns in Massachusetts. (County governments do little other than administer justice; legislation is even proposed to abolish them.
50) LHDs act as contractors for the state and sometimes band together to undertake initiatives. For the most part, the focus is public health activities rather than primary health services to the poor. For that, the state relies on a well-developed set of community health centers. CHCs are concentrated in Boston and other older, formerly industrial cities, where the state's uninsured are also concentrated. LHDs mainly focus on population-based health (data collection, standard setting, communicable diseases, etc.). They do provide some primary care, but typically only "wrap-around" services (e.g., home visits and extensive services for at-risk pregnant women and young children up to age two) and limited gap-filling where they identify unmet clinical needs (e.g., school-based services for at-risk students not reached in other ways). They may or may not try to bill Medicaid for such services.
In Boston, the LHD once ran Boston City Hospital (BCH). When BCH merged with Boston University Hospital Center (BU) in July 1996, the LHD retained public health functions and emergency medical services, which serve the public at large. Many LHDs in Massachusetts, as elsewhere, appear to suffer from an excess of responsibilities and a dearth of funding. Public health often loses out in battles for the local resources available under the property tax limits set by Proposition 21/2. In many localities, the public health officer is only a part-time position, assisted by a public health nurse and some clerical help. Yet all LHDs in principle have similar basic legal responsibilities, regardless of size.
Public Hospitals. For community hospital care, the uninsured poor are supported by the uncompensated care pool. Interviewees report that there is good access to inpatient care at most institutions, even after some years of fiscal stress. As a rule, the state does not run public hospitals; it is withdrawing from those psychiatric and chronic care institutions it once did operate, having closed or converted a number of them in recent years. Some cities, notably Boston and Cambridge (below), run public hospitals. Hospital officials and outsiders say that both these hospitals maintain a truly "open door" policy for uninsured patients, often drawing them from afar.
Impact of Government Policies and
Market Changes on Safety-Net Providers
The Boston-Cambridge Site—Background. Boston has a significant poverty population, many uninsured, many immigrants, and a high share of the elderly. The Boston-Cambridge safety net is extensive and consists of two core public hospitals, numerous nonprofit hospitals with large Medicaid and free-care patient loads, and many CHCs dedicated to neighborhood service. Between them, the leading Boston and Cambridge hospitals account for a majority of all uncompensated pool care in the state; a quarter of the state's total uncompensated care charges come from the two public hospitals, BCH and the Cambridge Hospital (TCH) (
table 9).
Impact of Managed Care on Safety-Net Facilities and Beneficiaries. The immediate issue for providers under managed care is how to make do with payment levels that have been cut through negotiated discounts. There is often little negotiation as such. Just as Medicaid and Medicare simply dictate prices administratively, BCBS moved after deregulation to impose large payment cuts essentially on a "take it or leave it" basis, even under indemnity plans. The insurance giant also stopped making any explicit allowance in rates for hospitals' uncompensated-care-pool assessments. Similarly, CHC executives complain that HMOs simply offer them physician office rates, not recognizing their qualitatively different services (e.g., after-hours access, multilingual services) or their higher cost caseload (multiple health problems exacerbated by socioeconomic conditions).
Truly vigorous managed care and provider price competition seem not to have arrived in Boston, but they are clearly expected. One executive noted, for example, that his prestigious hospital could command a higher price for its (qualitatively different) care and still fill its beds. He expected that premium to drop to about a 10 percent increment for those services (about 70 percent) that any hospital can provide.
Longer term, selective contracting with only limited networks probably has the largest potential impact for providers, as losing a contract means losing a big chunk of patients all at once. So far, most plans feel obliged to contract with both big new hospital systems (Partners and CareGroup), 51 but this may change. Already, Tufts-New England Medical Center (NEMC) was badly hurt by being dropped by Harvard-Pilgrim Health Plan. Some observers say that NEMC would have closed already without its access to Tufts HMO patients. NEMC's merger partner Lifespan has a long-standing contract with Pilgrim in Rhode Island, and NEMC wants Harvard-Pilgrim to include it in Boston after the merger goes through. Harvard-Pilgrim has refused, which may halt the merger. There has been adverse commentary in the press, and the state attorney general is investigating the mergers for possible antitrust violations.
Impact of Welfare and Immigration Reforms. It is too early to see effects of the 1996 federal changes. They seemed of little concern to providers interviewed. Federally mandated welfare reform had only just begun, and the state is protecting old immigrants from cuts. Substantial "reform" had already occurred, moreover, in the form of greatly reduced AFDC caseloads even before federal reform. This shift apparently did not much trouble providers, either; or perhaps it was obscured by the magnitude of other changes.
Impact of Market Changes and Related Policy Changes. Here, too, it is too soon to discern clear impacts. Deregulation only occurred at the end of 1991, and its impacts are still playing out. Other big changes in Boston are also recent. It will be hard to disentangle what provider reactions and impacts on patients are due to what factors, as so much is happening at once. It does seem that Medicaid and charity patients are likely to be well served by enhanced competitiveness. Already, many interviewees comment that public enrollees have benefited from having an assigned primary doctor (or CHC), even under the limited managed care of the PCC program. Competition appears to have been healthy for hospitals as well, on average, as their net operating revenues have risen since deregulation. 52 Their ability to finance uncompensated care thus seems unimpaired. The uncompensated care pool clearly helps here, too, and all interviewees emphasized their opinion that patient "dumping" is extremely rare in Boston. Finally, for the future, it appears that health plans and providers alike are positioning themselves to compete for public beneficiaries under increased managed care. This could change if payment rates are too low or administrative and regulatory burdens too high. But the early signs are encouraging.
Hospitals' most basic goals are easily summarized: They want to increase revenues and reduce costs. Strategically, most hospitals seem to be simultaneously "bulking up" to build clout with big payers and offer patients broader access to better care and "slimming down" to improve cost-effectiveness and offer better value for money. A number of common strategies are emerging, though the public hospitals and Children's Hospital seem to be seeking a separate niche from the big nonprofits. Most providers are trying to consolidate, and some also want to move "upstream" into health care financing, getting all or almost all of the premium contributions made by employers and enrollees by accepting capitated risk or its functional equivalent.
Revenue enhancement is sought by formal networking or consolidating with other providers, horizontally or vertically, and by simple customer service, catering better to health plans, patients, and referring providers. Much of the Boston consolidation of hospitals appears to be aimed at increasing market share. The two leading tertiary hospital-based systems seem initially to be trying to leverage their reputations for high quality—having such a strong referral base that no purchaser will dare omit them from its network of providers. So far, this strategy seems to be working, but hospitals seem to be seeking out efficiencies in production as well. In the future, a broad network may also be needed to accept global capitation from payers or self-insured employment groups.
Children's Hospital, in contrast, has decided to be fiercely independent and is reaching out to referral physicians and hospitals with better service, more integrated data systems, and more feedback. It is also trying to increase paying referrals from out of state and internationally. The public hospitals have been quite successful in getting funds from both city and state governments. BCH and TCH also successfully lobbied HCFA to impose advantageous conditions on the state's Section 1115 waiver. The public hospitals' 1996 mergers also had revenue effects: Boston Hospital Center (BHC) joined next-door Boston University (BU) Hospital Center to create Boston Medical Center (BMC), a private nonprofit. TCH merged with nonprofit Somerville Hospital in neighboring Somerville, and the combined entity became a more independent hospital authority. The mergers gave the private partners an immediate fiscal boost in that their uncompensated care payments rose to the higher rates allowed for the two big-city hospitals.
Market share of course also depends on perceived quality, and all hospitals are trying to upgrade facilities and technology, information systems, clinical outcomes monitoring, and consumer satisfaction at the same time. All this costs money up front, though efficiencies are hoped for down the road. Consolidation, especially merging with a more financially secure entity, is often seen as a way to improve access to capital for these upgrades.
Cost cutting and efficiencies are sought in many ways. For Boston hospitals, this means closing beds and reducing staffing—but also building clinic capacity by acquiring or linking to CHCs and physician practices. Merger or consolidation can be a strategy for achieving efficiency as well as building market share. An "easy" efficiency is to combine administrative functions and improve economies of scale in purchasing. Consolidating clinical services is harder but probably brings larger savings. Where merged hospitals are adjacent, like BMC and Beth Israel-Deaconess, shutting down duplicative plants is feasible. At BMC, all of BU is expected to move physically into the new BCH facility.
Why hospital price competition lags in Boston is something of a puzzle, given the very high penetration of HMOs and other managed care. In part, Massachusetts seems to be different from other states. Contributing factors include the state's long history of rate regulation and BCBS hegemony, the friendly cooperation of so many teaching hospitals with shared clinical rotations and interlocking referral patterns, and the nonprofit status and quality consciousness of HMOs. Boston also lacks for-profit hospitals that compete for those patients not needing tertiary care by offering good quality and convenience at standard prices. In late 1996, Columbia-HCA pursued the NEMC's trustees, offering quite favorable terms for a takeover. The trustees rejected the offer in favor of remaining nonprofit and New England-based by merging with Providence's Lifespan system, to the evident relief of the local medical establishment. 53 It will be interesting to see how much future competition will change local culture and how much local culture will shape a Massachusetts style of competition. For now, strong public support and a strong medical culture help maintain support for the safety net in Boston-Cambridge.
Long-Term Care for the Elderly
and Persons with Disabilities
Long-term care for the elderly and persons with disabilities is a critical component of the state's involvement in health care and has a dominant role in the Medicaid program. The state's overall strategy has been to lower the cost of long-term care services by substituting, wherever appropriate, community-based long-term care services.
Supply, Expenditures, and Utilization
Massachusetts spends a substantial amount on long-term care and has a large supply of services. As shown in
table 3, long-term care accounts for 46 percent of Massachusetts Medicaid non-DSH expenditures;
table 10 shows that the vast bulk of these expenditures are for nursing facilities. Through a variety of initiatives, growth in Medicaid spending has been kept to about 5 percent per year per elderly enrollee and less for persons with disabilities between 1992 and 1995 (
table 4).
The state has a large supply of nursing homes and home health agencies; it has a shrinking supply of institutional mental health and mental retardation services. In 1995, Massachusetts had 56,912 nursing facility beds, or 66 beds per 1,000 elderly, which is above the national average. As a result of the shift in focus to short-term, postacute care, nursing facility lengths of stay have fallen from 2.4 years in 1988 to 1.4 years in 1994. In 1997, there were approximately 160 Medicare-certified home health agencies. Home care is funded both by the Medicaid program and the Executive Office of Elder Affairs, which focuses on individuals ineligible for Medicaid. In 1997, there were 1,200 state hospital beds and between 900 and 1,000 clients residing in state hospitals. There are 1,781 clients in state intermediate care facilities for the mentally retarded (ICFs/MR).
Long-Term Care for the Elderly
Major activities include a strong program of Medicare maximization for skilled nursing facility and home health care, expansion of home and community-based services, plans to integrate acute and long-term care services through managed care, and aggressive efforts to control nursing home costs by narrowing admission criteria, tightening reimbursement rates, and freezing the nursing home supply. Through these efforts, the state has been able to keep spending for nursing facilities and home care relatively flat.
Maximizing Medicare and Private Resources
The Weld/Cellucci administration firmly believes that Medicaid should be targeted on low-income people and that other payers should be pursued aggressively. As such, a significant part of Medicaid's long-term care strategy is to bill Medicare whenever possible for nursing facility and home health services. Partly as a consequence of various initiatives, the proportion of Massachusetts nursing home residents receiving Medicare reimbursement increased from 2 percent in 1990 to 11 percent in 1996.
A corollary of the notion that Medicaid should be the payer of last resort is that Medicaid should be a program for low-income people, not the middle class. As a result, rules prohibiting transfer of assets in order to qualify for Medicaid nursing home benefits and recouping Medicaid institutional expenditures through estate recovery are vigorously enforced. Moreover, the so-called "public-private partnerships" for long-term care insurance initiatives popularized by the Robert Wood Johnson Foundation that would allow the middle class easier access to Medicaid have not been favored, although they were during the Dukakis administration.
Reorganizing the Delivery System
Massachusetts funds a broad array of home and community-based services through the Medicaid program and the Executive Office of Elder Affairs. Part of the state's long-term care strategy is to gradually increase the availability of home and community-based long-term care services as a way of diverting people from inappropriate and costly institutional care. The state's goal is to provide care in the most cost-effective and least restrictive setting possible. Medicaid-covered services include private-duty nursing, personal care services, case management, hospice services, home health care, adult day health, adult foster care, and group adult foster care (an assisted living-like model).
Unlike some other states, Massachusetts' use of Medicaid home and community-based waivers for the elderly is very limited (less than $9 million in 1996). Medicaid officials believe that the HCFA waiver form for home and community-based waivers is very cumbersome and that the need to obtain waivers at all is a "pain in the neck." However, given the relative ease of obtaining waivers in the Clinton administration, the state is considering using them to finance more services for the elderly. The ability to limit demand to a predetermined number of "slots" is particularly attractive.
Because most home- and community-based services under Medicaid are offered as an open-ended entitlement, the Division of Medical Assistance (DMA) actively manages the "woodwork effect" (induced demand) through the use of "medical necessity" criteria and the prior approval process. According to one official, if the service is for respite care or if it is a social support and not fulfilling some larger medically related goal, the service is denied payment by Medicaid. In addition, as part of this process, prior approval is now required (as of April 1, 1997) for a wide range of home health services after a relatively brief period or number of visits.
Integrating Acute and Long-Term Care through Managed Care. Massachusetts is strongly committed to extending its managed care program to include the elderly and to integrate acute and long-term care services. The state believes that the current health care system is "horrible" for persons who are in need of both acute and long-term care services and who are eligible for both Medicare and Medicaid. The financing and delivery system is believed to be confusing to beneficiaries, overly expensive because it encourages the use of costly, inappropriate services, and lacking accountability and quality control.
Massachusetts' plans involve two projects. One initiative is an effort to design an integrated system for elderly people who are dually eligible
for Medicare and Medicaid. In negotiations with HCFA over research and demonstration waivers, two issues have been sticking points. First, Massachusetts wants to pool Medicare and Medicaid funds into a single capitation payment by Medicaid to managed care organizations, but HCFA has steadfastly maintained that it will not "block grant" the Medicare program to the states. Second, Massachusetts would like enrollment to be mandatory, while HCFA insists that freedom of choice for Medicare beneficiaries must be maintained and enrollment for dual eligibles must be voluntary.
Separate but closely related is the proposed Medicaid Senior Care Plan, which will implement Medicaid managed care for acute and long-term care services in Massachusetts. Under existing rules, the elderly will have a choice of enrolling in a senior care organization (SCO) or remaining in the fee-for-service system. SCOs that provide extensive long-term care benefits do not exist in the marketplace.
The DMA wants to contract with only a limited number of SCOs in order to improve the state's ability to monitor these organizations, reduce its involvement with direct care providers, and lower its administrative costs. Long-term care providers and elderly advocates are worried that this strategy of restricting the number of SCOs will limit participation to large HMOs, which have little or no experience with the disabled elderly or long-term care services. Community-based home care and nursing home providers are anxious about potentially being "cut out" of funding by the SCOs or having their rates cut by them. A key issue has been what the relationship will be between the SCOs and the new, legislatively mandated Aging Single Access Point, which is under the direction of the Executive Office of Elder Affairs; both entities are envisioned to have a service coordination function, but they are the creations of different agencies.
Traditional Approaches to Cost Containment
Massachusetts has also tried to control its nursing facility expenditures by tightening eligibility criteria for admission, imposing a moratorium on nursing facility construction, and reducing the rate of increase in reimbursement rates.
Eligibility for Nursing Home Care. Aside from providing home and community-based services, Massachusetts has attempted to limit nursing home use by tightening eligibility for admission. The Home Care Corporations, funded by the Executive Office of Elder Affairs, do preadmission screening of all Medicaid clients seeking nursing home care, with the goal of diverting them to the community. Consistent with its concept of Medicaid as a "medical" program, the DMA has attempted to raise the level of disability needed to qualify for nursing home care and to eliminate the ability of nursing home residents to leave the facility occasionally. These initiatives were opposed by the nursing home industry and consumer advocates, and the legislature adopted language prohibiting Medicaid from implementing these changes.
Moratoriums on New Nursing Home Construction. Construction of new and replacement nursing homes requires a certificate of need in Massachusetts. To control expenditures, the state has had a moratorium on new nursing home construction since 1989; in 1995, a moratorium was placed on applications for renovation and replacement of existing nursing homes. However, because a large number of beds were approved in the late 1980s but are not yet licensed, the nursing home bed supply will probably continue to increase until 2000. As a result of the influx of new beds and somewhat lower (although still high) occupancy rates than before, both government and industry representatives report that access to nursing facility beds is not a problem.
Reimbursement. Massachusetts Medicaid reimburses nursing homes using a prospective, cost-based, case-mix adjusted, resident-specific rate methodology. Care for each resident is paid based on one of ten rates per facility, determined by the individual's disability. In 1993, average nursing home reimbursement rates were $99.46 per day, the seventh highest in the country. 54
The DMA has been very aggressive in negotiating Medicaid nursing home payment rates. For example, over the past six years, there have been several freezes in the base year used to calculate subsequent rates. In addition, inflation factors are aggressively negotiated by the state rather than fixed by formula.
The nursing home industry has yet to file a Boren amendment lawsuit, but it came close in 1993 after the base year for calculating rates had been frozen for three years. The industry has shied away from lawsuits because they are expensive, time-consuming, and unlikely to be resolved for years. Although Medicaid officials said that they would like to see the Boren amendment repealed (which occurred in the 105th Congress), they believed that they had been so successful in controlling the rate of increase in reimbursement rates that it would not make much difference.
Younger People with Disabilities
Responsibilities for younger people with disabilities are spread among 15 state agencies under four secretariats. Those with a major role related to the provision of long-term care services are the DMA, the Massachusetts Commission for the Blind, the Department of Mental Retardation (DMR), the Department of Mental Health (DMH), and the Rehabilitation Commission. The overall strategy is to provide benefits that are consumer-directed, individualized, and cost-effective and allow consumers to receive their services in the least restrictive setting possible.
Institutions and Community-Based Services for the Mentally Ill
and Developmentally Disabled/Mentally Retarded
Massachusetts continues to move toward community-based options and to decrease its reliance on institutional services. Since 1992, this effort has been pursued primarily through the implementation of two major initiatives. First, the state closed three large state ICFs/MR and four state mental hospitals, consolidating resources at the remaining eight state ICFs/MR and six mental hospitals. The state has also connected 77 small ICFs/MR to community residences. Further reductions may be more difficult because of opposition within the legislature, the affected communities, state employee unions, and some parents with children in the state ICFs/MR. Since much of the growth in community-based services has been financed by the fiscal "dividend" obtained by closing state facilities, the lack of future progress on this front may mean that additional funding for these services will not be available.
Second, the state has made a significant effort to maximize federal sources of revenue (e.g., Medicaid) whenever possible. For example, the state operates a large Medicaid home and community-based waiver for persons with developmental disabilities/mental retardation and has tentative plans to request a tripling of the number of people who can be served under the waiver. The state has also implemented a procedure whereby the lead program agencies (e.g., the DMR) provide the state share of certain Medicaid-covered services, thus increasing federal funds without increasing the state portion of the Medicaid budget.
As a result of these activities, the state has been able to significantly shift the provision of long-term care services from institutions to the community. For example, in 1990, 51 percent of "priority" mental health clients were served in inpatient settings and 49 percent in outpatient settings. 55 As of December 1996, 65 percent of priority mental health clients were receiving outpatient services, and 35 percent were receiving inpatient services.
Relative to developmental disability services, in FY 91, 51 percent of the DMR budget went for the provision of community-based services, and 44.5 percent went toward funding institutional services, with the remainder going for administration. By FY 96, 66 percent of the DMR budget went for community-based services, while 29 percent went for institutional care.
Despite these increases in home and community-based services, there continue to be large underserved and unserved populations. Both the DMR and DMH continue to have significant waiting lists of clients in need of community-based residential and day services, including almost 1,400 persons residing in nursing homes.
Although DMR and DMH budgets have grown substantially in recent years, they are not projected to increase much in the near future. Additional funding for community-based services will depend primarily on a "fiscal dividend" from closure of additional state facilities and growth of the Medicaid home and community-based waiver.
Managed Care
The state is actively pursuing the use of managed care for persons with disabilities. As part of MassHealth, disabled Medicaid clients who are not also Medicare beneficiaries are required to enroll in HMOs or sign up with a PCC. For those enrolled in the PCC option, the state implemented a statewide managed mental health carve-out program called the Mental Health and Substance Abuse Program. HMOs are responsible for providing behavioral health services. In addition, as discussed in the section on long-term care for the elderly, the state is pursuing a Medicaid research and demonstration waiver to use managed care to integrate acute and long-term care services. Once the program is implemented for the elderly, the state would like to expand it to include younger persons with disabilities.
Personal Care Assistance
A major long-term care service used by younger persons with disabilities is personal care assistance. For the past 20 years, Massachusetts has operated two highly consumer-directed personal assistance programs that provide personal care attendant services to persons with disabilities. Under the programs, clients hire, direct, and fire their own attendants; the state views the attendants as independent contractors. The Medicaid Personal Care Attendant (PCA) program serves persons of all ages with disabilities and chronic conditions, although 85 percent of the roughly 3,700 beneficiaries are under the age of 65. The state-funded PCA program is for severely disabled individuals who are able to work but unable to pay for attendant care services.
The Medicaid PCA program has faced a number of challenges as it has grown. In 1988, the program's regulations were changed to enable persons who required "surrogates" to obtain PCA services. 56 While the DMA argues that most PCA services for people with cognitive impairments constitute a form of respite and are, therefore, not "medically necessary," disability advocates argue that people with cognitive impairments unfairly face limited access to these services.
At the same time, the DMA has expressed growing concern about the lack of controls in the program. It is concerned about the possibility of fraud and abuse related to cash payments to consumers; it is also concerned about the prospect of liability for employment-related taxes (e.g, income, Social Security, Medicare, and unemployment taxes), as the independent contractor status of the attendants has been challenged by the Internal Revenue Service and the state's Department of Employment and Training.
As a result of these issues, the DMA is looking to modify the program in ways that could make it less consumer directed. However, the resistance of the disability community has been formidable, and it was able to convince the legislature to pass language prohibiting the DMA from changing the program for a year.
Challenges for the Future
Massachusetts has a high-cost health care system with a high proportion of academic medical centers and a large supply of specialists. There seems to be a bipartisan consensus on the importance of retaining government support for health care for its low-income populations, particularly if the state can remain successful in tapping a large amount of federal dollars to help finance it. The state currently covers a higher share of its population on Medicaid and has higher rates of insurance coverage than most other states. Its plan for coverage expansion under MassHealth is among the most ambitious in the nation. As a result, the safety net in Massachusetts should be better protected than in most other states.
Nonetheless, the state faces some serious challenges. A major part of the MassHealth strategy would be to provide subsidies to low-wage workers and tax credits to small business. There is no real evidence on how this will work. MassHealth should provide answers to questions such as: How do workers and employers respond to subsidies? How much will coverage expand? Will expansion be among the previously uninsured? Will many individuals drop their employer-sponsored coverage? Will employers be more likely to continue offering health insurance coverage to their employees?
The uncompensated care pool should now be adequately supported with the recommendations made by the Special Commission on Uncompensated Care and subsequent legislation that will result in new sources of revenue and changes in the distribution of funds. Because of the support for uncompensated care, particularly for that provided by public hospitals, access to acute care is likely to be good in Massachusetts even for the uninsured. The major threat to the pool, at this point, would be the federal cuts in DSH payments now being considered by Congress.
The major question facing the state in implementing the MassHealth program is whether it can, in fact, be budget neutral. The state has assumed that it can hold its expenditure growth to 4 percent per year. The state will have to be very successful in implementing the expansion of managed care to achieve this low rate of growth. The central problem is that the state has an array of relatively high-cost HMOs. The state to date has not found contracting with HMOs to be any less costly than operating its own PCC program. It now hopes to expand its contracting with commercial HMOs and achieve a low growth rate at the same time. This may prove to be a difficult challenge. If the state cannot limit its expenditure growth as planned, the coverage expansions may need to be scaled back.
In part, the state's success in controlling its own costs will depend on what happens in the health care market in general. A key question facing the state is whether the market will become more competitive. The health care system in Massachusetts is relatively high cost because of the dominance of outstanding teaching hospitals and the large number of medical and surgical specialists. Will competition bring health care costs down, or will the merger activity, particularly among the academic medical centers (e.g., Partners and Care Group), exert such substantial market power that costs will not be altered significantly?
The current evidence suggests that pressures to maintain high levels of quality and access make it unlikely that health care costs will decline significantly. This could in turn affect the ability of the state to achieve savings through managed care. If, because of market forces over which it has no control, the state cannot continue to control cost growth, the coverage expansion that it envisions could be threatened. In turn, if coverage does not expand, the rate of uninsurance may not decline as envisioned. The result would be more pressure on the uncompensated care pool and the hospitals that depend on it.
Massachusetts spends a substantial amount of funds to provide a fairly rich array of long-term care services. Although it has successfully controlled expenditures in recent years, it may not be able to sustain this low level of spending growth in the future, especially with an aging population. To control expenditures and improve care for the future, the Weld/Cellucci administration is depending heavily on finding ways to integrate acute and long-term care services through managed care. Pursuing this strategy will not be easy. Federal law, regulations, and policies limit the state's ability to merge Medicare and Medicaid funding. Moreover, elderly Medicare beneficiaries, while joining HMOs in record numbers, are still mostly in the fee-for-service system. For their part, managed care organizations have little experience with persons with disabilities, raising questions about their ability to serve this population. Finally, the relationship between HMOs and long-term care providers is extremely uneasy and not well developed.
Notes
* Please note that these numbers have been corrected since the original printing of this report.
1. Laura Barrett, "Fiscal Health of Massachusetts: Overview," in Background Paper—Assessing the New Federalism (Commonwealth Center for Fiscal Policy, August 16, 1996).
2. Massachusetts Department of Economic Development, Key Economic Indicators, April 2, 1997, edition.
3. Adrian Walker and Frank Phillips, "Senate Endorses $18.3 Billion State Budget," Boston Globe, 22 May 1997, C16.
4. Barrett, 1996.
5. Adrian Walker, "Weld Vows to Pursue Mass. Agenda," Boston Globe, 30 April 1997, A30. On September 15, 1997, Weld withdrew his nomination for the post.
6. Frank Phillips, "Clinton Aide: AG Weighed for Post," Boston Globe, 9 May 1997.
7. Barrett, 1996.
8. Report of the Special Commission on Uncompensated Care (Boston: The State House, February 3, 1997).
9. Executive Office of Health and Human Services, Department of Public Health, The Commonwealth of Massachusetts, Report of the Local Health 2000 Commission (Boston: Department of Public Health, September 10, 1996).
10. Executive Office of Health and Human Services, Department of Public Health, The Commonwealth of Massachusetts, 1996.
11. Commonwealth of Massachusetts, Joint Legislative Committee on Human Services and Elderly Affairs, "Programs and Issues Addressed by the Legislative Committee on Human Services and Elderly Affairs," February 1995, and information provided by the Department of Mental Retardation, December 1996.
12. D. Braddock and R. Hemp, Towards Family and Community (Chicago: Institute of Disability and Human Development, University of Illinois, 1996).
13. Division of Medical Assistance, Commonwealth of Massachusetts, "Chapter 203 Budget Neutrality Analysis," January 22, 1997.
14. John E. McDonough, "Mass Retreat: The Demise of Massachusetts Hospital Rate Regulation," Journal of American Health Policy (March/April 1992): 40-44.
15. Note the title of one report: Alan Sagar, Deborah Socolar, and Peter Hiam, The World's Most Expensive Hospitals: One-Fifth of Massachusetts Hospitals Costs Appear Unjustified (Boston: Boston University School of Public Health, Access and Affordability Monitoring Project, February 1, 1991).
16. McDonough, 1992. By 1984, HMO market penetration was 10 percent. Jason R. Barro and David M. Cutler, Consolidation in the Medical Care Marketplace: A Case Study from Massachusetts (Cambridge, MA: National Bureau of Economic Research, Working Paper 5957, March 1997).
17. McDonough, 1992. Barro and Cutler (1997) report HMO penetration of about 30 percent in 1991, rising to 35 percent in 1994.
18. Alex Pham, "State Seeks Oversight of Ailing Blue Cross," Boston Globe, 22 May 1997, A1.
19. Special Commission. 1997. Massachusetts Medical Society, 1996. Barro and Cutler (1997) counted 77 closures or mergers during 1980-96.
20. American Health Line, "UMass Medical Center to Merge with Memorial Health Care," February 13, 1997, citing Boston Globe article of the same date.
21. Barro and Cutler, 1997.
22. "Harvard-Pilgrim Plans Link," Modern Health Care, April 14, 1997, p. 32.
23. Alex Pham, "HMO in Antitrust Probe: Attorney General Eyes Harvard Pilgrim," Boston Globe, 20 March 1997, C1. Alex Pham, "AG Will Hold Hearing on Columbia/HCA Buy," Boston Globe, 8 May 1997.
24. Division of Health Care Finance and Policy, "Healthpoint," vol. 2, no. 1, September 1, 1996, Boston, MA.
25. Division of Health Care Finance and Policy, 1996.
26. There is one exception. In 1992 the surcharge was below $315 million.
27. Report of the Special Commission on Uncompensated Care, p. 5.
28. Two hospitals of equal size will be allocated an equal portion of the shortfall, i.e., unreimbursed care. Therefore, the hospital with more free care will have more of its free care reimbursed, because the absolute dollar amount of the shortfall is the same for both hospitals.
29. Boston City Hospital has since merged with Boston University hospital and is now part of the private, nonprofit Boston Medical Center.
30. Report of the Special Commission on Uncompensated Care, p. 32.
31. Report of the Special Commission on Uncompensated Care.
32. The state would contribute nothing on net to the enhanced portion of the capitated rates, but would fully fund the rate up to the upper limit imposed by federal regulations for capitated rates.
33. The financing would work as follows: The state would pay $140 million dollars in enhanced capitation rates to the hospitals. It would receive $70 million in intergovernmental transfers from the cities and collect $70 million in federal financial participation. The net gain to the hospitals would be the $70 million in federal funds.
34. Stephen Norton, "Medicaid Fees and the Medicare Fee Schedule," Health Care Financing Review, vol. 17 (Fall 1995): 167-181.
35. Urban Institute analyses of HCFA data, HCFA 2082, HCFA 64, and Medicaid managed care data. Estimate of total number of beneficiaries was provided by Massachusetts, Division of Medical Assistance, and reflects average monthly enrollment.
36. HCFA, data as of June 30, 1996.
37. Division of Insurance, data from September 1995, in Massachusetts Medical Society, Massachusetts Health Care: A 1996 Profile (Waltham, MA: July 1996).
38. American Health Line, "Managed Care Monitor—Harvard-Pilgrim Acquires Neighborhood Health Plan," April 3, 1997, based on reports in the Boston Globe.
39. Division of Medical Assistance, 1995-1997 contract.
40. Division of Medical Assistance, 1995-1997 contract.
41. These initiatives typically must address identifying enrollees, educating providers, developing care programs, and ensuring access to services both within and outside of the network.
42. An independent actuary then certifies the equivalence between HMO-enrolled and non- HMO enrolled populations, by rating category, based on demographic and claims data from both groups.
43. Severely disabled, generally speaking, is defined as quadriplegia, quadripareses, or tripareses associated with severe cerebral palsy, spinal cord injury, or degenerative neurologic illness. Payments for severe disability are only made to the two specialized plans for persons with severe disabilities and end-stage AIDS. Division of Medical Assistance, 1995-1997 contract.
44. Division of Medical Assistance, 1995-1997 contract.
45. Authorizing legislation was not passed until 1996.
46. American Health Line, "Inside the Industry—Managed Care: Merged HMO Focuses on Poor, Chronically Ill," June 14, 1996.
47. Commonwealth of Massachusetts, Department of Public Health, FY 1997 Spending Plan documents.
48. Commonwealth of Massachusetts, Department of Public Health, FY 1997 Spending Plan documents.
49. Funding refers to state dollars only.
50. Walker and Phillips, 1997.
51. Partners Health Care was formed by Brigham and Women's Hospital and Massachusetts General Hospital in 1994; CareGroup was founded by the mergers of Beth Israel, Deaconess, and Mt. Auburn hospitals in 1996.
52. Report of the Special Commission on Uncompensated Care.
53. Walker and Phillips, 1997.
54. American Health Care Association, Facts and Trends: The Nursing Facility Sourcebook (Washington, D.C.: 1996).
55. The Department of Mental Health serves two priority populations: adults with a diagnosis of mental illness that is serious (e.g., schizophrenia) or of greater duration than one year, and emotionally disturbed children and adolescents.
56. Surrogates are people (either family or nonfamily members) who act on behalf of the person with the disability. In some cases, this may mean hiring, paying, and supervising a consumer's PCA.
APPENDIX
List of
People Interviewed
State Government
Department of Mental Health
Paul Barreria
Michelle Goody
Gary Pastva
Department of Public Health
Kathy Atkinson
Sally Fogherty
Paul Jacobson
Joy Rosen
Deborah Walker
Division of Medical Assistance
Meryl Friedman Adelson
Ngoc Bui-Tong
Bruce Bullen
Jeremiah Cole
Ellie Shea Delaney
Diane Flanders
Elizabeth Greene
Joanne McDonald
Tammy O'Donnell
Christopher Perrone
Elizabeth Pressman
Jean Sullivan
Executive Office of Elder Affairs
Barbara Chandler
Lilian Glickman
Patricia Rivard
Executive Office of Health and Human Services
Lou Bertonazzi
Betty Ann Ritcey
State Budget Office
Steve Barnard
Patricia Flagherty
Kristin Keel
Others
Charles Baker, Executive Office
Kevin Beagen, Consumer Affairs and Business Regulation Executive Office
Philip Campbell, Department of Mental Retardation
George Weber, Attorney General's Office
Barbara Weinstein, Division of Health Care Finance and Policy
State Legislators and Staff
Susan Lovelace, Office of Rep. Paul Kollios
Carol Malone, Office of Rep. Paul Kollios
Rep. John McDonough, Massachusetts House of Representatives
Local Government
Lillian Shirley, Boston Department of Health
Provider Associations
Association of Massachusetts Homes and Services for the Aging
Paul Lanzikos
Monica LeBlanc
Jeff Melin
Massachusetts Medical Society
Charles Alagero
Harry Greene
Yael Miller
Others
Laurie Allen, Massachusetts HMO Association
Matt Fishman, Partners Health Care System, Inc.
James Hunt, Massachusetts League of Community Health Centers
Patricia Kelleher, Home Health Care Association of Massachusetts, Inc.
Joe Kirkpatrick, Massachusetts Hospital Association
Peggy Munro, Massachusetts Council for Home Care Aide Services
Scott Plumb, Massachusetts Extended Care Federation
Advocacy Groups
Massachusetts Developmental Disabilities Council
Daniel Shannon
Ruth Smith
Others
Jetta Bernier, Massachusetts Committee for Children and Youth
Neil Cronin, Massachusetts Law Reform
Phyllis Gallante, Massachusetts Association of Older Americans
Robert Restuccia, Health Care for All
Hospitals and Other Health Care Providers
Tritam Blake, Southend Community Health Center
Myles Coverdale, Children's Hospital
Jack Cradock, East Boston Health Center
James Mongan, Massachusetts General Hospital
John O'Brien, Cambridge Hospital
Thomas Taylor, Boston Medical Center
Experts
James Callahan, The Heller School, Brandeis University
Nancy Kane, Harvard School of Public Health
Alan Sagar, Boston University School of Medicine
Miscellaneous
James Hooley, Neighborhood Health Plan
Tables & Figures
Sources: Three-year average of the Current Population Survey (CPS) (March 1996-March 1998,
where 1996 is the center year) edited by the Urban Institute to correct misreporting of citizenship.
Please note that these numbers have been corrected since the original printing of this report.
About the Authors
John Holahan is the director of the Urban Institute's Health Policy Center. He has authored several publications on the Medicaid program. He has also published research on the effects of expanding Medicaid on the number of uninsured and the cost to federal and state governments. Other research interests include expanding health insurance for children, health system reform, changes in health insurance coverage, physician payment, and hospital cost containment.
Randall Bovbjerg is a principal research associate in the Health Policy Center of the Urban Institute. His main research interests are health coverage and financing; regulation, competition, and the appropriate role for government action; and the working of law in action, including the influence of legal culture upon policy. Earlier work on changing state policy led him to co-author one book on Medicaid and another on block grants, both from the Urban Institute Press.
Alison Evans is a former research associate in the Urban Institute's Health Policy Center. She participated in several case studies within the Assessing the New Federalism project and analyses of all-payer rate setting systems and Medicare budget issues. She is currently a doctoral student at the University of California at Berkeley.
Joshua Wiener is a principal research associate at the Urban Institute's Health Policy Center, where he specializes in research on Medicaid, long-term care and health care for the elderly. He is the author or editor of seven books and over 50 articles on health care. Prior to coming to the Urban Institute, he did research and policy analysis for the Brookings Institution, the Health Care Financing Administration, the Commonwealth of Massachusetts, the State of New York, and the City of New York.
Susan Flanagan is a program manager in the Research and Policy Division at the MEDSTAT Group in Cambridge, Massachusetts. She is responsible for conducting research and managing government and private sector projects related to long-term health care issues. Ms. Flanagan is also an adjunct assistant professor at Boston University Medical School, School of Public Health, where she teaches a long-term care finance course in the Health Systems Department.
This report is part of The Urban Institute's Assessing the New Federalism project, a multi-year effort to monitor and assess the devolution of social programs from the federal to the state and local levels. Project codirectors are Anna Kondratas and Alan Weil.
The project has received funding from the Annie E. Casey Foundation, the Henry J. Kaiser Family Foundation, the W. K. Kellogg Foundation, the John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, the Commonwealth Fund, the Robert Wood Johnson Foundation, the Weingart Foundation, the McKnight Foundation, and the Fund for New Jersey. Additional funding is provided by the Joyce Foundation and the Lynde and Harry Bradley Foundation through a subcontract with the University of Wisconsin at Madison.
The authors are grateful for the comments and suggestions of Bruce Bullen, John McDonough, and Alan Weil. The contents of this paper are solely the responsibility of the authors and do not necessarily represent the views of the sponsors, The Urban Institute, or the MedStat Group.
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