INSIDE THE ISSUE

> 48-Hour Inpatient Stays
> Is 3.6% Unrealistic?
> PBMs’ Vertically Integrated Businesses
> HWM’s $61.4B Budget
> Happy Patriots’ Day

MONDAY REPORT

Insurer Bases Admission Status on Length of Stay, Not Medical Necessity

If you’re rushed to a hospital emergency department, assessed by doctors, admitted to an inpatient bed while additional care is provided and then discharged within 48 hours, the Point32Health insurer will likely label your hospital experience an “observation stay” rather than “inpatient level of care” no matter what your doctor says.

MHA has raised concerns with the Division of Insurance (DOI) that the new, controversial Point32 policy for determining the level of hospital care a patient receives is based solely on the number of hours a patient is hospitalized, disregarding the clinical judgement of the attending physician, as well as state law.

Providers wishing to contest Point32Health’s rejection of an inpatient designation through a peer-to-peer review of the stay’s “medical necessity” are out of luck as the insurer is classifying its action as a “payment policy” rather than an “adverse determination.” Because Point32 now considers these level-of-care decisions to be administrative, it has asserted that clinical reviews are not productive for all involved, MHA recently informed DOI, requesting help on the issue.

“Observation” is defined as hospital outpatient services that are used while clinicians evaluate patients and decide whether to admit them as inpatients or send them home. Patients are often unaware that they are in observation status since they may be in a regular inpatient unit and stay as long as 48 hours or even longer. Because observation status is considered an outpatient service, it is possible that a patient could have a higher out-of-pocket liability than they would have if admitted as an inpatient. That observation designation also allows the insurer to pay the provider less than it would have to if the stay were deemed inpatient level of care.

Point32Health is the parent company of Harvard Pilgrim Health Care, Tufts Health Plan Commercial plans, and Tufts Health Direct. On January 1, 2025, Point32 implemented the new policy that administratively denies all requests for an inpatient stay of up to 48 hours with extremely limited exceptions. (Such exceptions include admissions to a behavioral health facility, obstetrical admission resulting in a delivery, and a neonatal admission, among others.)

Observation level of care can be an acceptable alternative to an inpatient admission in that it allows a facility, as Point32 says, “reasonable and necessary time to evaluate, stabilize, and treat a member.” However, local clinicians assert there are clearly circumstances in which a short stay inpatient admission is warranted; the determination of what constitutes that inpatient admission should be based on a review using the gold standard for such determinations – evidence-based medical necessity criteria, such as InterQual criteria and a clinician’s judgement. Point32’s recent action is replacing such determinations with one based solely on the number of hours the patient is in an inpatient bed.

“Since this policy was implemented, MHA has received extensive feedback from hospitals, physicians, and case managers asserting that inpatient cases that meet InterQual criteria were being denied solely based on the length of stay with no review of the Medical Necessity of the service or appropriate level of care and without the right to a Clinical Peer Reviewer reconsideration for what is actually an Adverse Determination, not an administrative denial,” MHA’s Senior Director of Managed Care Policy Karen Granoff wrote to DOI. “Additionally, while Point32 does list several exceptions to this short stay policy, hospitals have provided documentation that even those cases meeting exception criteria are being denied.” Point32 has implemented what it calls an expedited process to review these denials.

Granoff noted that the disagreement over observation status versus inpatient admission is a common occurrence among insurers and providers. But, she wrote, “While most payers either approve admission or request additional clinical information, Point32 is simply administratively denying the inpatient stay if it is less than 48 hours.” This is contrary to Point32’s own policy that states, “Inpatient admissions will be subject to review using InterQual criteria to determine appropriateness of setting (i.e., inpatient admission vs. observation admission)” – but that is consistently not happening since the January 1 policy went into effect.

Because the insurer’s policy appears to violate state law and the DOI’s regulations governing medical necessity and adverse determinations, MHA asked for the division’s prompt intervention to address the problem.

HPC Sets Benchmark at 3.6% Again

The Massachusetts healthcare cost growth benchmark will remain at 3.6% following a unanimous 10-0 by the Health Policy Commission last Thursday.

The intent of the 2012 cost containment law that created the benchmark process was to link healthcare cost growth to Massachusetts economic activity. But while the economy grew, inflation increased, and costs for labor, fuel, and medical supplies rose, providers still have been expected to meet the 3.6% benchmark. With last week’s vote, the seemingly outdated benchmark process continues.

As HPC staff noted in a presentation before the benchmark vote, the default healthcare cost growth benchmark is the Potential Growth State Product (PGSP), which this year, as in many years before, was set at 3.6%. Each year, the House and Senate Committees on Ways & Means and the Executive Office of Administration and Finance determine PGSP in January, which then sets the default healthcare cost benchmark, subject to change by the HPC and legislature. The HPC then holds a hearing and deliberates potential changes. Throughout the years, the healthcare cost benchmark has always defaulted to the PGSP determination as the basis, including a five-year period with a statutory requirement for the benchmark to be set at 0.5% below the PGSP determination. (Of note, there is no apparent calculation or formula that is used to make the PGSP determination.)

But actual state economic growth has exceeded the stagnant PGSP determination in seven of the last 10 years. In fact, the most recent figures from the U.S. Bureau of Economic Analysis shows that state Growth Domestic Product grew by 6% in 2024. That means that over the past 10 years, there has been 5.2% average growth in the state economy – well above the HPC’s 3.6% “unrealistic” healthcare cost growth benchmark and its companion PGSP component.

At the HPC board meeting last Thursday, the impracticalities of the current benchmark – which MHA and its members have been stressing over the past year and more – appear to have resonated. While some commissioners stressed that the benchmark needs to be enforced better as a way of keeping costs down for consumers, others recognized that the blunt benchmark tool could harm the very providers delivering that care.

“I am somewhat sympathetic with the hospitals, and hospital employees in my case, who express concern about how the benchmark has impacted them – particularly safety net hospitals – and particularly in a situation where a majority of their spending is on labor, and where workforce shortages cost money both in the short term and cost money in the long term to solve,” said the newly appointed HPC Commissioner James “Jamie” Willmuth, the senior policy analyst for the Massachusetts Division of 1199 SEIU. He added that it will be important over the coming years to explore some of the ways offered to reform the benchmark, such as creating a “multi-year benchmark” based on data over a three, four, or five year period. “There’s really an opportunity – and really an obligation – to respond to the physicians and the hospitals and these other major marketplace participants who are saying, ‘This benchmark is not working for us.’”

Said HPC Executive Director David Seltz before the vote, “One of the hallmarks of the way the HPC has done its work over the last 12 years is to be self-reflective and to evolve our approach and our thinking to meet the current challenges and dynamics in our healthcare system which are constantly evolving [and] very difficult to predict. But we also need to be nimble and flexible as we consider our role in helping to balance those that are paying for healthcare – often at a very unaffordable rate – and those that are providing healthcare and the unique challenges that they provide.”

AG Campbell Asks Congress to Break Up PBM Conglomerates

Massachusetts Attorney General Andrea Joy Campbell joined 38 other AGs in sending a letter to Congressional leadership asking Congress to break up the marketplace domination of pharmacy benefit managers (PBMs).

Specifically, the AGs ask Congress to prohibit the PBMs, their parent companies, or affiliates from owning or operating pharmacies.

PBMs were created in the 1960s to administer prescription drug programs for health insurance companies. The thinking was that they’d process claims and introduce efficiencies to drug programs to help drive down costs.

The AGs say the opposite is now true. “PBMs have overtaken the market and now wield outsized power to reap massive profits at the expense of consumers,” they wrote. “ The rise of PBMs as middlemen in the prescription drug market has resulted in patients facing fewer choices, lower quality care, and higher prices. PBMs’ use of affiliated pharmacies—pharmacies owned by either the PBM itself or the PBM’s parent company—has exacerbated the problem of manipulated prices and unavailability of certain prescription medications.”

The PBMs now not only process prescriptions, but they own the pharmacies, and in some cases, the AGs note, they are “a part of parent conglomerates that operate insurance companies and healthcare clinics.” An example of such a conglomerate is UnitedHealth Group that owns the PBM OptumRx, the insurer UnitedHealthcare, and the large OptumCare medical group. CVS Health operates Caremark (PBM), retail pharmacies, Aetna (insurance company), and numerous clinics, among other parts of a vertically integrated business.

“The control of the pharmaceutical ecosystem by PBMs has resulted in decreased access, affordability, and choice for many Americans seeking prescription healthcare. Congressional action is warranted to restore a free market and protect consumers and small businesses,” the AGs wrote House Speaker Mike Johnson, House Minority Leader Hakeen Jeffries, Senate Majority Leader John Thune, and Senate Democratic Leader Charles Schumer. “As self-designated middlemen, PBMs should not be permitted to own or operate affiliated pharmacies. Further, they should not be able to skirt such a prohibition by having a parent company or other affiliated healthcare conglomerate own a pharmacy. PBMs should be prohibited from having direct ownership ties to the parties they purport to be bridging. This requirement would allow pharmacies to compete on fair terms and create a market that is more accessible to consumers.”

House Ways & Means’ FY2026 Budget Proposal

Last week, the House Ways & Means Committee released a fiscal year 2026 budget proposal totaling $61.4 billion, which is $600 million less than the budget proposal that Governor Healey released in January. The Senate proposal is expected in May.

Healthcare remains the largest area of investment in the FY2026 budget, with a total of $31.56 billion allocated. Of that amount, $22.4 billion is dedicated to MassHealth. MassHealth rates are assumed to be flat for most providers in the Ways & Means budget but the document contains a $13.8 million increase in primary care investments, and an additional $5 million allocated to expanding access to behavioral health services for the program’s most complex members.

The state’s financially distressed Health Safety Net (HSN) fund, which covers care for low-income, uninsured patients in Massachusetts, has emerged as a point of significant concern for the provider community this budget cycle. The HWM budget calls for the customary $15 million to be transferred from the Commonwealth Care Trust Fund to support the Health Safety Net (HSN). In recent years, the administration has fulfilled the entire transfer. For FY2025 and FY2026, MHA is now projecting Health Safety Net funding shortfalls to increase and exceed $230 million and $260 million, respectively. While providers, insurers, and the state contribute annually to fund the HSN, hospitals alone are responsible for covering the funding gap. Because the shortfalls are now so large, disproportionate share hospitals are estimated to receive 63% reimbursement as opposed to the 85% planned amount. All other hospitals will not receive any reimbursement from the fund despite paying into it. MHA has prioritized funding relief for the HSN and will work through the budget process in an attempt to reform the program.

House Ways & Means does not include the governor’s proposals to tax synthetic nicotine and candy. It also does not include the governor’s proposed pharmaceutical manufacturer tax for drug costs that exceed inflation or the proposed $2 assessment on prescription drugs.

Among the many other health-related portions of the proposed budget, Ways & Means designates almost $30 million to family and adolescence reproductive health, including $500,000 for a contraceptive awareness and access campaign and $2 million to support improvements in reproductive health access, infrastructure, and security.

Happy Patriots’ Day

Today is the official state holiday – Patriots’ Day – that commemorates the battles in Concord, Lexington, and Menotomy (now Arlington) that began the Revolutionary War, which ultimately led to American independence. The holiday was first proclaimed in 1894 by Governor Frederick Greenhalgh, was made a holiday by an act of the legislature in 1938, and became a Monday holiday (from the original April 19 celebration) in 1969. This year marks the 250th anniversary, or semiquincentennial, of the Revolutionary War battles. MHA offices are closed today.

John LoDico, Editor