Governor Deval Patrick's Budget Recommendation - House 1 Fiscal Year 2014

Expanding Access to Affordable, Quality Health Care

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Governor Patrick    FY 2014 Budget Recommendation:
    Issues in Brief

    Deval L. Patrick, Governor
    Timothy P. Murray, Lt. Governor


The Commonwealth of Massachusetts is a national leader in ensuring access to affordable, high quality health care. With the enactment of comprehensive health care reform legislation in 2006 and the Patrick-Murray Administration’s continued implementation, Massachusetts has achieved the highest rates of insurance coverage in the country.  Due to this leadership, Massachusetts served as a model for the 2010 federal Affordable Care Act (ACA). Today, the Commonwealth is well-poised to benefit from funding opportunities through the ACA for Medicaid expansion as well as other federal subsidies for insurance coverage through the Commonwealth Health Insurance Connector Authority (Health Connector).

At the same time, increasing health care costs have been an underlying challenge for government, employers, and individuals. Independent estimates suggest that health care reform only added approximately 1.4 percent in state spending to the budget. However, health care spending has increased from 20 percent of the budget in FY 2000 to 39 percent of the budget in FY 2013. This increase is due in part to having to restrain spending in other areas of state government when demand for government health programs increased during the recession. Therefore, health care spending increases have been driven largely by enrollment growth.

Based on long-term forecasts conducted by the Executive Office for Administration and Finance (A&F), should health care costs to continue to grow at these historic rates, they would consume approximately 50 percent of state spending by 2020. In addition to being unsustainable for governments, businesses, and families, health care spending has crowded out key public investments, which, among other consequences, can impact the health and welfare of the people in the Commonwealth. Containing the growth of health care costs has been a key priority of the Patrick-Murray Administration. Thanks to a variety of innovative cost containment initiatives, the state has saved over $1.6 B in health care costs over the last two years.

For example:

  • The Group Insurance Commission (GIC), through an active re-enrollment and targeted incentives to employees, enrolled 30 percent of state employees in limited network plans, saving the state over $20 M and saving each of the employees who selected a limited network plan hundreds of dollars.
  • The Health Connector used innovative, competitive procurements to incentivize plans to improve cost structures and reduce per member premiums by 12 percent over the last two years, saving $267 M. 
  • MassHealth leveraged innovative contracting strategies to achieve efficiencies in its managed care program, which resulted in $350 M in savings.
  • With support from many in the business community, landmark legislation in 2012 established a new, expedited process for municipalities to work with their employee unions to modernize benefit plan designs to achieve savings. The reform has been successful, with more than 200 cities, towns, and regional school districts leveraging the law to achieve over $175 M in premium savings.
  • Through the Division of Insurance’s (DOI) regulatory authority, average annual premium base rate increases have been reduced from over 16 percent to just over 2 percent, saving small businesses and families over $600 M.

In FY 2014, subsidized and employee health coverage programs account for 40 percent of the budget. The Commonwealth continues to implement extensive payment and delivery system reform initiatives that aim to control health care costs, support integrated systems of care and improve quality, putting Massachusetts again at the forefront of national health care reform.

Health care spending for MassHealth (35.5%), Health Connector (1.4%) and GIC (3.2%) is 40.0% of the state budget in FY14.

(1)     Federal Matching Funds for spending at MassHealth and the Health Connector are not displayed.  In addition, MassHealth spending includes Delivery System Transformation Initiative payments to safety net hospitals
(2)     Health Connector spending includes the Commonwealth Care program from July-December and State Wrap Qualified Health Plans from January-June.
(3)     GIC excludes municipalities which are included in the state’s appropriation but are reimbursed by cities and towns for their costs.

Health Care Cost Containment Legislation

In August 2012, Governor Patrick signed Chapter 224: An Act Improving the Quality of Health Care and Reducing Costs through Increased Transparency, Efficiency and Innovation. Chapter 224 includes a variety of tools to help further contain and reduce costs while maintaining high quality, best-in-class care. Highlights include: 

  • Establishing a statewide health care cost growth goal for the health care industry pegged at a rate no greater than the growth of the state’s overall economy, resulting in estimated savings of $200 B in the entire health care sector over 15 years.
  • Requiring state programs to lead by example in moving toward alternative payment methodologies (APMs) that promote the delivery of high-quality and coordinated health care.
  • Establishing a certification process for accountable care organizations (ACOs) and patient-centered medical homes (PCMHs). ACOs are health care provider systems focused on reducing costs by promoting integrated, efficient, and high quality care. PCMHs focus on providing patients with a single point of coordination for all of their health care in a primary care setting. 
  • Committing $57 M over four years through a competitive grant process to invest in community-based prevention, public health, and wellness efforts to reduce the rates of costly preventable chronic diseases, such as obesity, diabetes and asthma.
  • Increasing transparency and protections for consumers regarding costs and health care quality through the establishment of a new health information website with price and quality data; the requirement that insurance carriers disclose in real-time the charges and out-of-pocket costs for proposed health care services; and the requirement that providers disclose charges for proposed services.
  • Charging the Attorney General with monitoring trends in the health care market, such as consolidation in the provider market, in order to protect health care access and address market power.
  • Establishing a commission to determine and quantify acceptable and unacceptable factors for provider price variation.
  • Reforming the medical malpractice system by requiring a “cooling-off” period before a party may initiate a suit, while protecting patients’ right to sue and making providers’ apologies inadmissible as evidence in litigation.
  • Committing $28.5 M to accelerate the ongoing statewide adoption of interoperable electronic health records (EHRs) and the creation and sustainability of a health information exchange that will facilitate the transfer of EHRs across the Commonwealth.
  • Committing $128 M to a Distressed Hospital Trust Fund to improve service delivery and health information technology at community hospitals. These improvements will facilitate the transition to APM and the adoption of EHR technology for community providers.
  • Establishing the Health Care Workforce Transformation Fund, administered by the Executive Office of Labor and Workforce Development, to support initiatives such as health information technology curriculum and workforce development, the health care workforce loan repayment program, and the primary care residency grant program.

The upfront investment that these initiatives require is modest compared to the long-term savings that will result. By 2026, the percentage of gross state product (GSP) is projected to decrease from 21 percent to 17 percent. Cumulatively over the next 15 years, Chapter 224 has the potential to result in an estimated $200 B in savings across all sectors of the state economy.

Personal Health Care Cost Growth:  Trend vs. Chapter 224.  For 2012, 2021, and 2026, this bar chart shows Personal Health Care Expenditures in millions of dollars, and Health Care as a percent of Gross Statue Product (GSP).  Health Care as a % of GSP, Trend is shown rising.  Health Care as a % of GSP, Chapter 224 is flat.  Personal Health Costs Trend rise faster than Personal Health Costs, Chapter 224.

Executive Office of Health and Human Services and Department of Public Health

The Executive Office of Health and Human Services (EOHHS) and the Department of Public Health (DPH) will receive $950 K in FY 2013 and $2.23 M in FY 2014 to implement three key initiatives associated with Chapter 224:

  • Health Resource Planning: EOHHS will chair and convene a health planning council that is required to develop a state health resource plan. The state health plan will identify the Commonwealth’s needs in terms of health care services, providers, programs, and facilities, as well as compile an inventory of available resources to meet those needs. The plan will also identify priorities and make recommendations for addressing those needs ($503 K in FY 2013; $1.61 M in FY 2014).
  • Determination of Need (DoN): Health care facilities planning substantial capital expenditures or change in services must submit proposals to the DoN program, which then reviews them and makes recommendations to the Public Health Council. DPH will modify 20 the Determination of Need statute to maintain consistency with the state health plan, as well as update definitions and fee structures. The program is also being mandated to reduce its mean application review time from the current 5.8 months to 4 months. ($251 K in FY 2013; $502 K in FY 2014)
  • Prevention and Wellness: DPH will administer the Prevention and Wellness Trust, funded through industry assessments in 2014. The Trust will invest $57 M over 4 years in evidence-based community prevention activities. Funding will be administered through competitive grants to municipalities, community organizations, regional planning agencies and health care plans and providers. Additionally, DPH will develop a model wellness guide and implement a wellness tax credit program for small businesses. ($196 K in FY 2013 for administrative costs; $116 K in FY 2014 for workplace wellness activities not funded through the Trust)

Title: Health Information Exchange Graphic  - Description: This graphic displays in the funding resources of the Health Information Exchange, detailing the levels of state funding ($1.1 million), capital funding ($2 million), other ($3 million), and federal matching resources of $16.7 million.

Health Information Exchange

A health information exchange (HIE) enables the sharing of health care information across organizations. The HIE allows for secure electronic information to be transmitted between health care providers and organizations to better coordinate care, increase patient safety and lower health care costs.

The completion and operation of the Massachusetts Health Information Exchange is integral to the success and sustainability of health care cost containment.  Grounded in its unique investment model characterized by high (75-90 percent) federal financial participation (FFP), the Commonwealth’s HIE stands out among all other electronic health record tools in the nation. 

In FY 2013, phase 1 of HIE brought functionality that allows two health care entities to send and receive health care transactions. Phase 2, in FY 2014, will allow for query and search functionality for patient records to exist across Massachusetts.  This will further expand the benefits of the HIE for achieving better coordinated, safer, and more efficient care. 

In FY 2013, the Commonwealth invested $2 M in budgetary resources for HIE development. In the FY 2014 budget, HIE support and operation will require $1.1 M in budgetary resources.  This funding, along with capital resources and contributions from private and other health care trust funds, will be directed to a Health Information Exchange Fund managed by EOHHS, which will allow for the reinvestment of FFP to support the HIE.  The innovative use of FFP to support HIE allows the Commonwealth to bring the benefits of a $40 M HIE project to its residents, providers and payers in a comparatively affordable way.


In support of the goals and mandates in Chapter 224, the Commonwealth is investing significant resources in MassHealth. Hospital rates are increasing by 5 percent to help address costs associated with the transition to alternative payment methodologies and models of care which will produce sustainable savings in the health care system. Please refer to the MassHealth Investment section for more information.

State Auditor’s Office

The State Auditor’s Office is receiving an additional $863 K to fund a new line-item dedicated toward evaluating the impact of Chapter 224, its implementation and its impacts on controlling health care costs. Of the total, $708 K will support additional staffing and consultants to advise the Auditor’s office and $155 K will be devoted towards implementing IT build-out to support this initiative.

Division of Insurance

The Division of Insurance (DOI) is level-funded in FY 2014 although it will continue to prioritize its cost-cutting insurance carrier rate review process.  Chapter 224 requires DOI to promulgate regulations and establish an application and renewal process for certifying Risk-Bearing Provider Organizations.  Chapter 224 also requires DOI to strengthen the reporting and implementation requirements for health plans with regard to compliance with state and federal mental health parity laws.

Health Policy Commission

The independent Health Policy Commission (HPC) is an integral component of Chapter 224 implementation. The HPC will set health care cost growth goals, enhance provider transparency, monitor the health care marketplace and assess patient access, among other responsibilities. It is governed by an 11-person board, as appointed by the Governor, the Attorney General, and the State Auditor.

Center for Health Information and Analysis

Chapter 224 abolished the Division of Health Care Finance and Policy and transferred the Division’s responsibilities to MassHealth, the Connector, and the newly-created Center for Health Information and Analysis (CHIA). CHIA was created as an independent state agency to monitor the Massachusetts health care system through data collection and research and to release reliable information and meaningful analysis to a wide variety of audiences. CHIA’s analytics will be a critical resource for the HPC to fulfill its obligations with respect to measuring cost growth and identifying opportunities for improvement in the health care system. The comparison of CHIA’s analysis of statewide health care cost trends to the benchmark growth rate set by the HPC is one of the key triggering mechanisms of Chapter 224.

Chapter 224 assigns three broad categories of new obligations to CHIA. First, the law greatly expands existing monitoring and analytics, including calculation of statewide health care spending. Second, CHIA’s role in developing and coordinating a statewide quality strategy – including a reinvestment in the Betsy Lehman Center for Patient Safety and Medical Error Reduction – will expand significantly. Finally, the law requires CHIA to increase investment in the All-Payer Claims Database to further enhance the ability of providers, payers and purchasers to improve the health care system.

Much of the former DHCFP’s analytic resources (including staff) remain with CHIA, but the new obligations require additional investments. In November 2012, the operation of the Health Safety Net and the development and promulgation of health care pricing regulations were transferred to MassHealth. The movement of these responsibilities during FY 2013 allows CHIA to pursue its new responsibilities, largely within its existing $22 M appropriation level. In FY 2014, CHIA will receive an investment of $2.8 M, for a total funding level of $24.8 M.

Implementation of the Federal Affordable Care Act

Beginning January 1, 2014, the federal Affordable Care Act (ACA) will affect all state health care programs and cause significant shifts in funding. Massachusetts will benefit from being a state that expanded health care access prior to the ACA, enabling the Commonwealth to utilize existing infrastructure to reduce costs and increase federal support. There are several major program changes related to the ACA that will have a significant impact on the Commonwealth’s budget, resulting in increased revenue and decreased cost totaling $205.7 M in the second half of FY 2014.

The table provdes a breakdown of Affordable Care Act's impact on the Commonwealth. The expansion at MassHealth will save $155.7 M while the reduced net state spending at the Health Connector is $50 M.

Expansion of MassHealth-Eligible Population

Prior to the ACA, eligibility for MassHealth was limited to certain categories of individuals such as pregnant women, children under 19 and their parents, the disabled and the elderly, provided their income met certain requirements. Under the ACA, all Massachusetts residents under 133 percent of the federal poverty level (FPL) are eligible for MassHealth if they are citizens or qualified aliens. The expansion, referred to as MassHealth Expansion populations, will be supported by enhanced federal matching funds. Federal financial participation (FFP) will increase from 50 percent to 75 percent for this population, ramping up to 90 percent in 2020; FFP is also anticipated to increase to 100 percent for some new enrollees in 2014, gradually falling to 90 percent in 2020.

Current estimates suggest that 325,000 members will enroll in MassHealth, including members currently enrolled in the Commonwealth Care program, the Medical Security Program (MSP), the Health Safety Net (HSN), MassHealth’s Essential and Basic programs and new enrollees. The cost of the ACA expansion population in the second half of FY 2014 is estimated to be $437 M, with projected revenues of $461 M. Much of this cost represents a shift in spending from other programs and the consolidation under MassHealth will lead to savings of $155.7 M.

MassHealth will continue to cover certain groups above 133 percent FPL, including children up to 300 percent FPL, individuals with breast and cervical cancer up to 250 percent FPL, individuals with HIV and pregnant women up to 200 percent FPL, and disabled people with higher incomes. 

State Wrap Premium Assistance at the Health Connector

Under the ACA, the Health Connector will administer the Commonwealth’s health insurance Exchange. The Exchange will allow individuals and businesses to shop for health insurance coverage. The State Wrap will supplement federal subsidies available in the Exchange by providing premium assistance to individuals with incomes 133 percent to 300 percent FPL, as well as certain Aliens with Special Status (AWSS) with incomes 0 percent to 300 percent FPL who are ineligible for MassHealth. These combined federal and state subsidies are intended to make subsidized coverage for this population as affordable for them as it is today under Commonwealth Care. An estimated 150,031 members are expected to enroll from Commonwealth Care, MassHealth, MSP, and HSN. The FY 2014 cost of the State Wrap is estimated at $118.5 M

The Centers for Medicare and Medicaid Services (CMS) has indicated that a 50 percent federal match will be available in FY 2014 for premium assistance payments for State Wrap members, with the exclusion of AWSS, making available an additional $21 M in available revenue. This revenue, combined with the enhanced FFP available through the ACA, will enable the restoration of full adult dental coverage for MassHealth members and for individuals with incomes below 133 percent FPL who are enrolled in the Health Connector with the State Wrap.

Subsidized Coverage for Small Business Employees

MassHealth currently has an Insurance Partnership program that encourages small employers to offer health insurance by providing assistance with premiums for small businesses and their low income employees. Under the ACA, MassHealth plans to discontinue the employer-side subsidy, in light of the proposed changes to the Commonwealth’s employer responsibility provisions and the availability of federal tax credits and state wellness rebates to certain small businesses that purchase coverage through the Exchange.

However, MassHealth will continue to support employees of small businesses through a pilot program offering premium assistance for adults 133-300 percent FPL who work for small employers, are ineligible for other subsidized programs through MassHealth or the Health Connector and would otherwise be uninsured. The member’s required premium contribution will align with the state’s affordability schedule. There will be a transition period of one year to ensure that employers are ultimately shopping through the Exchange in order for their employees to be eligible for the premium assistance. This will allow eligible employers to have access to federal tax credits and the Health Connector’s wellness rebates. Enrollment in the pilot program will be capped if necessary to ensure that expenditures do not exceed the amount of funding available. Total FY 2014 funding for subsidized coverage for small business employees, through both the Insurance Partnership in the first half of the year and the pilot program in the second half of the year, is $33 M total with a $16.5 M federal match.

Health Safety Net

The Health Safety Net (HSN) makes payments to hospitals and community health centers for providing certain health care services to their low-income patients who are not eligible for health insurance or cannot afford it. The HSN is funded primarily through assessments on hospitals and health insurance providers. FY 2014 funding also will include a $30 M contribution from the General Fund.

Due to expanded options for affordable health coverage through MassHealth and the Health Connector, HSN demand is expected to decline by $36 M (assuming 8 percent growth rates) to $58 M (assuming 4 percent growth rates). The reduction in the shortfall from $143 M in FY 2013 to at least $107 M represents a 25 percent decline, with the possibility of a 41 percent decline to $85 M. This constitutes a major step towards improving the fiscal outlook for Massachusetts hospitals.

Medical Security Program

The Massachusetts Department of Unemployment Assistance provides health insurance assistance through the Medical Security Program (MSP) for low income residents of the Commonwealth who are receiving unemployment insurance benefits. The MSP has projected spending of $43 M for the first half of FY 2014. Beginning January 1, 2014, MSP members will become eligible for other health insurance programs such as those offered by MassHealth and the Health Connector.

In addition, the funding that supported the MSP, known as the Unemployment Health Insurance (UHI) assessment will be reduced and repurposed to support subsidized coverage in MassHealth and the Connector. For more information, see the “Lowering Health Care Costs for Businesses” Issue in Brief.

MassHealth Policy Initiatives

The Administration proposes policies that aim to maintain coverage for current populations who otherwise could be adversely affected by ACA implementation, and that support streamlining current programs to promote alignment, access and administrative simplification in a post-ACA coverage environment at minimal cost to the Commonwealth. These proposals include:

  • Considering the use of Modified Adjusted Gross Income (MAGI) instead of gross income to determine eligibility for adults with disabilities, consistent with the methodology used for non-disabled adults.  This may protect individuals with disabilities from having more stringent MassHealth income eligibility standards than non-disabled individuals. ($5.9 M cost; $3 M revenue);
  • Continuing to provide health insurance coverage at full state cost to Aliens with Special Status (AWSS) who are ineligible for participation in the state Exchange; this is a small number individuals, as most AWSS are newly eligible for federal assistance through the Exchange ($5.9 M cost; $0 revenue);
  • Extending MassHealth coverage to the end of the month for members transitioning to Health Connector coverage, which begins on the first of the month, in order to prevent gaps in coverage ($7 M cost; $3.9 M revenue);
  • Maintaining current waiver programs to cover individuals with breast or cervical cancer up to 250 percent FPL and individuals with HIV up to 200 percent FPL (no budget impact in FY 2014); and
  • Providing a MassHealth Standard level of benefits for all pregnant women up to 200 percent FPL ($5.2 M cost; $4.5 M revenue).

Health Insurance Exchange/Integrated Eligibility System (HIX-IES)

The Health Connector has received a $45 M Early Innovator Exchange Grant in conjunction with EOHHS and the University of Massachusetts Medical School to help support the inter-agency Health Insurance Exchange/Integrated Eligibility System (HIX/IES) project.

HIX/IES will build be an integrated, real-time eligibility determination system for the Health Connector and MassHealth health insurance programs to ensure that people can readily find their way to the coverage options for which they qualify. Existing state eligibility systems will be significantly enhanced – and linked up with federal databases – to ensure a quick and seamless path to coverage. These improvements will ultimately be extended to determine eligibility for certain other state human services programs.

The project will also enable the Health Connector to enhance its already leading-edge shopping website to incorporate new decision support tools, improved functionality for brokers and other new features for the benefit of consumers. The objective is a best-in-class Health Connector shopping experience that sets a new standard for consumer ease of use and satisfaction. HIX/IES is also tied to a collaborative where participating New England states can share lessons learned from developing the information technology backbone for their respective Exchanges, as well as participate in the development of cost-effective and reusable technology components.

MassHealth Program Investments and Savings Initiatives

The MassHealth program currently provides health insurance for approximately 1.38 million members that qualify for the program based on income or categorical eligibility (i.e., long-term unemployment, seniors, children, pregnant, and disabled adults). This figure does not include the new MassHealth Expansion populations; with the Expansion population and projected growth in the base population, total MassHealth enrollment will be approximately 1.6 million. Many of these new MassHealth enrollees are not new to subsidized coverage but are currently enrolled in Commonwealth Care or MSP.

Overall, MassHealth’s FY 2014 funding level of $12.3 B (excluding DSTI) represents a 13.1 percent increase over FY 2013. Most of this increase, however, is driven by the ACA Expansion populations and coverage preservation under ACA (4.2 percent of increase), operational and hospital investments and dental benefit restoration (0.8 percent of increase), enrollment increases for current eligible members of 40,000 member months (2.6 percent of increase) and FY 2013 cash management strategies (2.9 percent of increase). When the annual growth rate is adjusted for these unavoidable costs, the resulting growth rate is 2.5 percent, which is lower than the state’s health care cost growth benchmark. In addition, there will be 105,000 members leaving the Health Connector and moving into MassHealth which will result in decreased spending at the Health Connector of $257 M gross/$128.5 M net over the 6-month period in FY 2014.

The Commonwealth has made significant investments in MassHealth in recent years and will continue to do so in FY 2014 in order to promote program innovation and lay the ground work for larger savings.


Program Integrity: $1.5 M cost; $750 K revenue

MassHealth received $1 M in FY 2013 to enhance its auditing and program integrity capabilities through several initiatives, including enhanced asset verification and the implementation of a predictive modeling application. For FY 2014, MassHealth will receive an additional $1.5 M to staff the Predictive Modeling unit and to run the application.  MassHealth is on track to become one of the first Medicaid programs in the country to leverage predictive modeling to help avoid provider fraud and abuse.

Operations Investments: $2 M cost; $1 M revenue

MassHealth Operations will require additional Benefit Eligibility and Review Social Workers (BERS) to manage the increased enrollment as a result of the ACA in January 2014 and to build upon the improvements in customer service and document processing times achieved thus far in FY 2013. MassHealth received $1 M in FY 2013 and will receive an additional $2 M in FY 2014. In addition to enrolling new members, the additional staff will be essential to improve the customer service experience for all members and enhance program integrity efforts. 

Hospital Rate Adjustments: $81.4 M costs; $40.7 M revenue

Hospitals continue to be integral partners in reforming the health care system, and that role will only be enhanced as ACA implementation continues. Accordingly, the Commonwealth is making significant investments in hospital rates generally, as well as investments in specific pediatric and chronic disease hospitals. These investments will enable hospitals to move toward providing a higher quality of care through more significant use of alternative payment methodologies (APMs).

These investments are offset by 50 percent FFP. Combined with the reduction in the HSN shortfall, new Commonwealth investments in hospitals will total at least $117 M in FY 2014. A portion of the investment will be supported through a $20 M ($10 M net) transfer from the HPC’s Healthcare Payment Reform Trust Fund, the purpose of which is to foster innovation in health care payment and service delivery.

Hospital Investments and program savings in FY 2014 versus FY 2013
  FY 2013 FY 2014 Change since FY 2013
Base Hospital Rates & APM Participation $0 $51.4 M $51.4 M
Children's Hospital $1.2 M $11.8 M $10.6 M
Tufts Medical Center $800 K $3 M $2.2 M
Franciscan Hospital for Children $0 $3.3 M $3.3 M
Infrastructure Capacity Building grants $14.5 M $26 M $11.5 M
Critical Access Hospitals $1.9 M $4.3 M $2.4 M
Health Safety Net Surcharge Reduction $0 $36 - $58 M $36 - $58 M
Total $18.4 M $136 - $158 M $117 - $139 M


Hospital Investments and program savings in FY 2014 versus FY 2013

  • Base Hospital Rates: Through a combination of base rate increases and increases tied to participation in alternative payment methodologies (APMs), MassHealth hospital payments will grow by as much as 5 percent. Chapter 224 authorizes MassHealth to implement rate increases to hospitals that demonstrate significant transition to the use of APMs. MassHealth has the authority to determine what constitutes significant use of APMs.
  • Pediatric Rehabilitation Hospital Rates (Franciscan Hospital for Children): Chapter 224 requires MassHealth to set rate increases for pediatric chronic disease rehabilitation hospitals at 1.5 percent of the FY 2012 rate.
  • Children’s Hospital and Tufts Medical Center:  MassHealth will refine its approach to reimbursing freestanding pediatric acute hospitals and pediatric specialty units for services to complex patients. 
  • Infrastructure Capacity Building: Grants provided for investments in hospitals and community health centers.
  • Critical Access Hospitals: Chapter 224 requires MassHealth to pay critical access hospitals 101 percent of Medicare costs for both inpatient and outpatient services. 
  • Health Safety Net: The reduction in the HSN shortfall constitutes a major step towards improving the fiscal outlook for Massachusetts hospitals.

Adult Dental Coverage

Restoring full adult coverage in MassHealth and providing comparable dental coverage for adults with incomes up to 133 percent FPL who are enrolled in the Health Connector with the State Wrap. The total cost for 6 months is $72 M and the revenue to support the costs is collected from federal support from premium costs for State Wrap and other resources such as enhanced FFP from the ACA.

Primary Care Payment Reform

In accordance with Chapter 224, the Commonwealth will make a $10 M investment in enhanced care coordination for Primary Care Payment Reform (PCPR), MassHealth’s innovative accountable care model. The goal of PCPR is to promote delivery system transformation by improving accountability for health care quality, cost, and access, and providing incentives for enhanced care coordination and behavioral health integration through patient-centered medical homes.

MassHealth will implement an innovative payment system that combines a Comprehensive Primary Care Payment (CPCP) with a shared savings/risk arrangement and quality incentives. The CPCP is a per-member-per-month risk-adjusted payment for a defined set of primary care services and medical home activities, with the potential to include certain outpatient behavioral health services. This system will improve care for individuals by encouraging primary care providers to deliver effective care, independent of the rigid structure that fee-for-service billing requires.  Innovations in primary care delivery include improving access through phone and email services, expanding the care team to include community health workers and using group or family visits or other delivery mechanisms.

Shared savings is an incentive structure in which providers share in savings if MassHealth’s actual costs fall below the expected costs over a specified time period.  MassHealth anticipates supporting participants through timely data and technical assistance to foster care coordination and cost management. The quality incentive payment is an annual performance incentive payment for improving primary care service delivery.

PCPR will span across the Primary Care Clinician (PCC) Plan and Managed Care Organizations (MCOs).  MassHealth plans to launch a procurement for PCCs to participate in the program, and MCOs will participate in a similar payment structure with PCCs who are in their provider networks.  MassHealth expects to have 25 percent of PCC Plan members and MCOs participating by July 2013, with participation rates increasing to 50 percent by July 2014 and 80 percent by July 2015.


Managed Care Organization Rate Efficiencies: $79 M gross savings; $39.5 M revenue offset

MassHealth intends to implement rate adjustments for Managed Care Organization (MCOs) for FY 2014.  These include level funding capitation rates to the Massachusetts Behavioral Health Partnership (MBHP) and reducing rate growth assumptions in the MCO program to 1.5 percent over FY 2013. 

Nursing Home Rate Efficiencies: $5 M gross savings; $2.5M revenue offset

MassHealth intends to reduce nursing home rates by .03 percent below FY 2013 estimated spending levels. This is consistent with policies to shift members out of nursing homes and into the community.

Program Integrity and Predictive Modeling: $41 M gross savings; $21 M revenue offset

To support high quality service delivery, operational efficiencies and process improvements, MassHealth will be able to achieve additional efficiencies in FY 2014 by leveraging the investments in program integrity described above.  The new Integrated Eligibility System and a range of innovative business process improvements will strengthen MassHealth’s approach to member program integrity.  Using a predictive modeling application, MassHealth will utilize advanced software to analyze claims and identify potential cases of fraud, waste and abuse before claim payments are made to providers, establishing the Commonwealth as a trailblazer in the use of this new technology. 

Cash Management: $316 M savings

Every year, MassHealth implements a variety of cash management strategies, including adjustments to the timing of payments, and will continue to do so in FY 2014.

Additional Program Initiatives


With a proposed start date of July 1, 2013, the state Duals Demonstration to integrate Medicare and Medicaid for dual eligible individuals is designed to provide seamless person-centered care. It will improve quality and health outcomes for 111,000 individuals aged 21-64 years with full MassHealth and Medicare benefits. This delivery model will hold Integrated Care Organizations (ICOs) accountable for a member’s total care, eliminating conflicts and competing incentives between Medicare and Medicaid and reducing administrative overlap to create efficiencies for members, providers, contractors, Medicare and Medicaid.  ICOs will also be required to use alternative payment methodologies to drive greater focus on cost, quality and access.

Dual eligible individuals under age 65 have among the most complex care needs of any MassHealth or Medicare members, yet the current delivery system for this population strains, unevenly and inefficiently, to meet those needs. The Demonstration will provide comprehensive services that address enrollees’ full range of needs, beyond currently covered standard Medicare and Medicaid benefits. It will ensure that the services are effective by delivering them in a setting of integrated care management and coordination based on a patient-centered medical home (PCMH) model. The Demonstration will employ a payment structure that realigns the conflicting incentives between Medicare and Medicaid.

In August 2012, Centers for Medicare & Medicaid Services (CMS) gave MassHealth the approval to implement the Demonstration through December 2016.  Six regional health plans have been identified to begin a review phase that precedes contracting with CMS and EOHHS.  MassHealth projects cost savings of 1 percent during the first year of implementation, with savings percentages rising incrementally to 4 percent by 2016.

Patient-Centered Medical Homes

The Patient-Centered Medical Home (PCMH) model supports fundamental changes in primary care service delivery and payment reforms.  The PCMH Initiative is intended to address a series of challenges to health care delivery, including fragmented care, increases in health care costs due to prevalence of chronic disease and a growing shortage of primary care providers.  The PCMH model is designed to promote coordinated, patient-centered care delivered by teams of primary care providers, including physicians.  EOHHS has set an ambitious goal for all primary care practices in Massachusetts to become PCMHs by the year 2015.  Providers that currently participate in the PCMH model will be encouraged to transition to the more comprehensive PCPR Initiative described above.

Money Follows the Person

Money Follows the Person (MFP) is a federal demonstration initiative that will support the transition of individuals from long term care facilities to the community. Massachusetts was awarded a federal MFP grant in 2011 at a 5-year funding level of $110 M. Through the use of lower-cost home and community-based services, individuals who are currently in high-cost facilities will be able to move to the community and achieve a level of independence. The shift to lower-cost services will also provide savings to the Commonwealth through reductions in the use of institutional care.  MassHealth is partnering closely with the Department of Developmental Services, Elder Affairs and the Massachusetts Rehabilitation Commission in the design and implementation of this important initiative.

Delivery System Transformation Initiatives program: $94 M cost; $47 M revenue

The Delivery System Transformation Initiatives (DSTI) program offers incentive payments to safety net hospitals throughout the Commonwealth in order to fundamentally change the delivery of care. The ultimate goal is transitioning away from fee-for-service payments toward alternative payment methodologies that reward high-quality, efficient and integrated care systems. 


The DSTI program traditionally provides two payments per fiscal year to hospitals, but due to the timing of program requirements, only half of the FY 2014 obligation will be paid in this fiscal year. The first FY 2014 payment totals $105 M, funded with $94 M from the General Fund and $11 M through an Inter-Governmental Transfer (IGT) by Cambridge Health Alliance. The federal match for this payment is $52 M. The second DSTI payment will also total $105 M, with a $52 M federal match, and will be moved from FY 2014 to FY 2015. This change does not alter the timing of the payment, only the fiscal year in which it occurs.

Group Insurance Commission Program Initiatives

The Group Insurance Commission (GIC) provides high value health insurance and other benefits to Commonwealth and certain public authorities’ employees and retirees as well as their survivors and dependents. The GIC also provides health-only benefits to participating municipalities' employees and retirees and their survivors and dependents.

In FY 2013, the Group Insurance Commission (GIC) is focused on providing high quality health insurance coverage to its members while containing costs for the Commonwealth.  The GIC embarked on a major procurement of its health plans, utilizing innovative strategies to maintain coverage and quality of care while containing costs. To pursue this in a creative and thoughtful manner, the GIC devotes significant internal resources to successfully incentivize health plans to reduce costs over the long term. This includes implementing the principles of payment reform and incorporating changes resulting from national health care reform.

Holding the Line on Premium Increases

The GIC continues to work closely with its health plans to minimize rate increases.  The Commission held rate increases in FY 2013 to 1.4 percent and initiated a procurement that is estimated to save the Commonwealth $1.29 B through FY 2018. The GIC will accomplish this by reducing the average annual growth in spending from 6 percent to 2 percent in FY 2014, saving over $65 M and holding growth at or below 2 percent thereafter.

Title: Savings to the GIC due to the procurement of their health plans - Description: The chart shows a starting spending level for the GIC in FY13 of $1.5B. Savings due to a reduction in average cost increases from 6% annually over 5 years to -1.5% are $1.29 B.

Municipal Health Care  

Through Municipal Health Care reform the GIC has opened its doors to the cities and towns of the Commonwealth to participate in the Commission’s health insurance program. Member communities have been provided a stable and predictable cost through payments to the GIC and have benefited from the GIC’s large size and formidable negotiating power.

Since the Administration proposed municipal health reform in January 2011, more than 200 municipalities and regional school districts came to agreements with employees, achieving premium savings totaling more than $175 M. Sixteen cities, towns, and school districts joined the 27 cities, towns, and school districts already in GIC; seven used the new reform’s expedited decision-making process and 9 joined as a result of negotiations inspired by the reform process). The GIC now has more than 45,000 municipal subscribers, triggering the addition of a second municipal representative and an additional labor representative to the Commission.


Promoting wellness is a further opportunity for the Commonwealth to manage health care spending by encouraging healthy choices among its employees and retirees.  In the FY 2012 budget, the GIC was tasked with developing a wellness program for its members.  The GIC proposed to fund its Wellness Initiative from its operating budget in FY 2014 and A&F supported this proposal by creating a new GIC line item funded at $1.5 M.

Commonwealth Health Insurance Connector Authority Program Initiatives

The Health Connector was recently one of the first six state exchange programs in the nation to be certified conditionally as a state-based health insurance exchange on the path to operating in compliance with the Affordable Care Act. The Health Connector will kick off its annual Seal of Approval process in early 2013 for coverage that will be available to individuals and small businesses starting January 1, 2014.  This year’s Seal of Approval is a major milestone for the Health Connector, as it will enhance its products and services to comply with the ACA and better serve small employers and individuals.  Enhancements to the Health Connector shopping experience will include:

  • Real-time, integrated eligibility determinations that will dramatically improve the processing time for applications seeking subsidized health insurance coverage through MassHealth or the Health Connector;
  • An updated health insurance product portfolio, including newly offering dental products alongside market-leading health insurance coverage options and a new option for employers to allow their individual employees to choose their own health insurer or a specific plan that they feel is right for them;
  • An improved website with updated decision-support tools to educate and assist individuals, small businesses and brokers in choosing the best health insurance option for themselves, their employees or their clients;
  • New health insurance carriers to choose from, including insurance cooperatives and national plans established under the ACA;
  • Enhanced call center and on-line customer assistance tools like web chat, email messaging centers and both in-person and live chat to assist individuals, businesses, brokers and navigators throughout the eligibility determination process, shopping, paying bills, managing accounts, or just seeking general information about health care reform;
  • New subsidies to help those between 300 percent and 400 percent FPL purchase health insurance along with newly available state and federal subsidies to help those below 300 percent FPL purchase commercial coverage through the Health Connector; and
  • An expanded wellness rebate program offering small employers with 25 or fewer employees the opportunity to earn a 15 percent rebate on the employer’s contribution to their employees’ health insurance coverage for successfully participating in the Health Connector’s Wellness track program (enrollment begins February 2013).

Governor’s Priorities in the Program Budget

For more information on the Governor’s priority of accessible, affordable health care in program format, please visit, the online version of the FY 2014 Governor’s Budget.  Click on the Administration Priorities tab in the FY 2014 Program Budget Recommendations Quick Link.  The tab will open to show a list of the four Governor’s priorities and the core set of programs that are critical in supporting the goals of each priority.

Additional investments included in this memo can be viewed by visiting the website and selecting the Health Coverage Related Services program.

Prepared by the Executive Office for Administration and Finance ·
For more information email: (617) 727-2040

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