CHIA: Massachusetts health spending rose 8.6% in 2023 as pharmacy and hospital outpatient costs accelerate

The Center for Health Information and Analysis reported that total health care expenditures in Massachusetts rose to $78.1 billion in 2023, a per‑person average of $11,153 and an 8.6% growth rate — more than double the 3.6% health care cost growth benchmark.

CHIA executive director Lauren Peters and Health Policy Commission staff presented the agency’s annual report at the Health Policy Commission (HPC) hearing, citing pharmacy spending, hospital outpatient services and non‑claims (supplemental) payments as the largest drivers of the increase. “In 2023, total health care expenditures increased to $78,100,000,000 equating to $11,153 per Massachusetts resident. This put the per capita growth rate at 8.6%,” Peters said during the presentation.

CHIA’s breakdown showed commercial spending rose 7.2% with a 1.5% decline in membership (an 8.9% PMPM increase), Medicare spending rose 7.1% and MassHealth grew 14.8% in 2023 (4.4% enrollment growth), driven in part by roughly $1.5 billion in new supplemental payments to hospitals for performance‑based incentives and base‑rate increases. CHIA noted those supplemental payments were largely financed by a mix of an updated hospital assessment and federal matching funds; excluding them reduced MassHealth growth materially.

Pharmacy spending grew 10% in 2023 (net of rebates) and accounted for more than $11 billion of statewide spending. CHIA highlighted two pharmacy trends: very high prices for branded drugs and rapidly rising utilization for newer medicines. Brand prices rose sharply (the average commercial gross price per branded prescription rose about 69% since 2019) while generic prices remained flat. CHIA singled out GLP‑1 drugs (Ozempic, Wegovy, Mounjaro and similar agents) — used for diabetes and weight‑loss — whose utilization rose fivefold since 2020 and which accounted for roughly 5.5% of commercial drug spending in 2023 after rebates. CHIA staff estimated the GLP‑1 class added about three percentage points to commercial drug spending growth in 2023 and about 0.6 percentage points to overall commercial spending growth.

Hospital outpatient department (HOPD) services were another major cost driver. CHIA and HPC staff said HOPD spending is large and heterogeneous: it includes emergency department and ambulatory surgery services, infusion and oncology care and services that can also be delivered in physician offices. HPC Senior Director David Auerbach explained that site‑of‑care shifts — for example, hip and knee replacements moving from inpatient to outpatient settings — can lower per‑case costs, but overall HOPD spending rose because of price increases, higher utilization of expensive infusion and oncology drugs, and a greater share of care performed by hospital‑licensed outpatient facilities rather than physician offices or ambulatory surgery centers.

CHIA and HPC also highlighted utilization and capacity issues: inpatient discharges remain below pre‑pandemic levels while average length of stay has increased (about 5.5 days as of June 2024), and emergency department length of stay also remains more than 10% above pre‑pandemic levels. Hospital margins improved in fiscal year 2023 but trended down again in quarterly data through June 2024, with only 43% of hospitals reporting positive operating margins as of June 2024.

Speakers tied the spending trends to household affordability. CHIA’s household insurance survey found more than 40% of Massachusetts residents reported at least one health care affordability problem in 2023 and more than one in four reported an unmet need due to cost. HPC staff modeled the implication for a representative household and showed health care spending (premiums plus out‑of‑pocket) at an average family’s level exceeded growth in typical household income — a dynamic that leaves many families with substantially less disposable income if spending continues at recent rates.

CHIA and HPC staff listed several policy levers under discussion: greater transparency on pharmaceutical pricing and pharmacy benefit manager activity (now required by recent law), targeted policies to reduce unwarranted hospital outpatient price variation or site‑neutral payments for services that can safely be provided outside hospital settings, targeted investment in primary care, and reforms to authorize more public accountability where spending growth is excessive.

CHIA emphasized the report offers a fact base for the HPC’s annual benchmark decision but is not the only input: the HPC also reviews pricing, patient acuity, capacity and affordability measures before any modification to the benchmark.

The HPC will not set the 2026 benchmark at the hearing; staff said the HPC board will vote at a later meeting (announced for April 17) after digesting testimony and data.