Cindy Parks Thomas

This report identifies the major areas of information needed in order to support Vermont’s health care policy development, analysis and evaluation – health care spending, health, and value of services provided (the relationship between spending and health). At the highest level, the report identifies five critical questions:
• How healthy are Vermonters?
• How much is spent on health care?
• Where does that money come from?
• What is driving health care spending increases?
• Where are the most significant opportunities to improve the value of health care (to increase health, decrease spending growth, or eliminate inefficiencies)?

While answering each of these questions is important to the Board’s work, ultimately the critical questions will be how much value the health care system provides -- have we improved the health of Vermonters while reducing the rate of spending growth to a level that we can afford and sustain?

This report examines the factors that contribute to high health care costs in Massachusetts, including the structure of the health care system and the payment methods currently used by Massachusetts health insurers. Understanding these factors will better prepare the Commonwealth to evaluate and develop reforms that have the potential to simultaneously contain cost growth and improve quality.
Data describing the Massachusetts health care system are drawn from various published sources. Data on payment methods are based on the results of a 2009 questionnaire administered for the Division of Health Care Finance and Policy, in which Massachusetts insurers documented the ways in which they pay hospitals, physicians, and intermediary organizations (medical groups, Independent Practice Associations [IPAs] and physician-hospital organizations [PHOs]).

MassHealth, the Massachusetts state Medicaid program, serves 1.19 million low-income state residents, with an annual budget of 8.2 billion.3 The MassHealth Pharmacy program is
responsible for providing and managing prescription and selected over-the-counter (OTC) medications for all non-Medicare beneficiaries, with the exception of those in managed
care. In addition, MassHealth fills in coverage gaps for uncovered drug classes for the 220,000 dual eligible beneficiaries who were transferred to private prescription drug coverage in 2006 as a result of the Medicare Modernization Act of 2003. The MassHealth Pharmacy program has as its foundation several components: the MassHealth Drug List (MHDL), which designates which drugs require prior authorization for dispensing; drug
management strategies stressing appropriate drug use and generics when indicated; drug
price management; monitoring of quality; provider, pharmacist, and patient education; and
the setting of benefit design and other policies. In state fiscal year (FY) 2009, MassHealth
Pharmacy services are expected to account for approximately 6.2 percent of the
MassHealth budget.