BOSTON (SHNS) – Health care spending in Massachusetts dropped in 2020 for the first time since implementation of a decade-old landmark cost control law, but the decline is likely a one-time outlier driven by the COVID-19 pandemic and does not reverse worrying trends, state analysts concluded in a new report.

The latest annual health care cost trends report from the Health Policy Commission published Tuesday echoes many of the warnings the panel has made in recent years about the upward trajectory of health care expenses and the growing strain that imposes on Bay State families, even though a topline measure of the health care spending climate tilted downward for the first time since the agency was created in 2012.

From 2019 to 2020, statewide total health care spending per capita fell 2.4 percent, bucking seven straight years of annual growth, the past two of which have surpassed the 3.1 percent benchmark that represents a target for keeping cost increases within a manageable range.

Officials were clear, however, that they do not view that shift as meaningful progress toward containing prices in an industry that both stands as a pillar of the Massachusetts economy and saddles many families and employers with financial pressures.

To keep the cost curve bent downward, HPC members said Tuesday, lawmakers need to ramp up the panel’s regulatory might, subject medical industry power players to additional scrutiny and limitations, and lessen the burden residents face from health insurance premiums and cost-sharing — steps that have proven difficult to achieve for Democrats in the Legislature.

“As I think about the last decade, I feel very strongly that the Commonwealth has been much better off having the HPC, but as you said, our context is changing,” HPC Chair Deborah Devaux told reporters following her first meeting atop the panel. “We have new factors that are emerging that are driving cost growth. Some of the factors that have been in place for a long time are still there. So I do think that it’s time for us to consider new approaches.”

The spending growth that dominated recent years is “likely to continue” on an upward trajectory in 2021 and beyond, HPC analysts wrote in their report.

During a commission meeting Tuesday, HPC Executive Director David Seltz attributed the long-term trend of rising expenses to “persistent challenges and failures of market functioning that have not been adequately addressed in the past 10 years,” including increased consolidation, a lack of transparency in pharmaceutical prices, and excessive variation in costs across different providers.

“We believe urgent action is needed by policymakers to strengthen and evolve our approach, or else we will continue to have a health care system that is increasingly unaffordable for Massachusetts residents and businesses and that will continue to growing health inequities,” Seltz said.

Familiar Recommendations Return in New Context

The commission’s latest annual report attaches new, comprehensive data to trends that both providers and patients have been flagging for the past two-plus years. Some hospitals and other health care practitioners previously sounded the alarm about financial strain prompted by the pandemic.

The 2012 law that created the HPC established a benchmark to measure annual health care spending growth. Those annual figures exceeded the 3.6 percent benchmark in 2014 and 2015, fell below it for the next two years, then surpassed a new 3.1 percent benchmark in 2018 and 2019. In 2023, the benchmark will return once again to 3.6 percent.

State government does not face any formal consequences for blowing past the targeted level of health care spending growth, though the HPC can order individual providers and payers to implement cost-cutting measures.

HPC members unanimously approved a suite of recommendations in the report, whose latest iteration highlights a trio of action areas the regulatory experts believe need to feature as top priorities for the incoming administration and Legislature to tackle in 2023: above-benchmark spending growth, excessive provider and pharmaceutical prices, and rising premiums and cost-sharing.

Regulators also renewed their request for lawmakers to overhaul the performance improvement plan, or PIP, process through which providers can be ordered to make changes designed to rein in costs. The HPC said policymakers should broaden the list of metrics used to refer a provider to PIP scrutiny — which it described as its “primary mechanism for holding providers, payers, and other health care actors responsible for health care spending growth” — plus implement “escalating financial penalties” as a deterrent against excessive spending.

The commission has only flexed its full performance improvement plan authority once before, in January ordering Mass General Brigham to address spending that surpassed benchmark levels between 2014 and 2019 more than any other provider in Massachusetts.

HPC members on Tuesday approved a PIP with the hospital system that aims to slash its annual spending by $127 million.

Total health care spending per capita also decreased nationally in 2020, but at a smaller drop of 0.3 percent compared to the 2.4 percent drop in Massachusetts.

The reason behind the 2020 shift underlines the panel’s warning: the overall decline in per capita spending was driven by a significant drop in health care use during the early months of the COVID-19 emergency, not by shrinking prices. In fact, the HPC’s analysts found, average commercial insurance prices grew by 2.7 percent, the highest rate since at least 2016.

Changes were uneven across different kinds of health care spending, partly reflecting disparate impacts the pandemic wrought. The steepest fall came in provider offices, where spending dropped 17.4 percent from 2019 to 2020, HPC said.

Commercial insurance expenses dropped more for outpatient services and emergency departments than they did for hospital inpatient services, while total spending grew more than 8 percent on pharmacies despite declines in other sectors.

“Warning Signal” About Struggling Families

Despite the mile-high view of reduced spending, regulators said it did not lead to “proportional cost relief” for Bay Staters with commercial insurance. The average monthly cost-sharing per person for those policy-holders dropped from $59 to $49 in 2020, but in the same year, family health insurance premiums swelled by about $500 including both employer and employee contributions, HPC said.

The conditions posed challenges in particular for middle-income earners, who typically are not eligible for MassHealth or to receive significant subsidies through the Health Connector.

Authors said for families of four with household income between $83,000 and $139,000 annually — translating to between three and five times the federal poverty level — combined employer and employee health insurance payments plus out-of-pocket costs represented 22 percent of total compensation. That’s the fifth-highest share of household compensation toward health expenses in the U.S.

The outlook grows worse when factoring other notoriously high costs endemic to Massachusetts.

“When combined with local costs for housing, child care and other expenses, a typical Massachusetts family of four with income in this range living in the Worcester metro area would have their entire income absorbed by housing, child care, food, transportation, health care and other necessities with no money left over for emergencies, one-time expenses or other discretionary expenses such as vacations,” the HPC wrote. “Such a family in the Boston area would be more than $1,500 in the red each month.”

HPC Senior Director of Research and Cost Trends David Auerbach said that finding in particular served as a “warning signal to us that, wow, affordability is seriously challenged, and health care is a big contributor to that.”

One pandemic-era success story highlighted in the report is telehealth. The Baker administration and lawmakers agreed during the crisis to formalize access to services delivered via phone or videoconference, and the HPC found that the use of telehealth “likely prevented a further worsening of income-related gaps” in health care access.

Mental health services in particular found a new home on remote platforms. In 2019, fewer than 1 percent of psychotherapy visits took place via telehealth; between April and December 2020, nearly 87 percent of such visits were via telehealth, the HPC said.

Gov. Charlie Baker in August signed a bill expanding access to mental health care services, but two other major health care bills stalled out when the House and Senate could not agree on an approach.

The House last year approved legislation that would update the regulatory hurdles that large health care providers, like MGB, face when they try to expand into markets covered by smaller, financially vulnerable community hospitals. It never emerged in the Senate for a vote.

That measure, a top priority for Speaker Ron Mariano, would update the “determination of need” process and allow the HPC to examine not just merger and acquisition costs and impacts but also probe the market impacts of hospital expansions.

Meanwhile, the House never took up a Senate-approved bill that would cap out-of-pocket insulin spending at $25 per month, require pharmaceutical companies to notify the state before significant price increases or rolling out new drugs, and subject drug manufacturers and pharmacy benefit managers to both the HPC’s annual cost trend hearings and to examination by the Center for Health Information and Analysis.

Health and Human Services Secretary Marylou Sudders said some of the commission’s recommendations featured in a health care bill Baker filed in March, which among other steps sought to penalize drug companies for “excessive” drug price increases. Neither branch advanced that bill for a vote before formal sessions ended Aug. 1.

Sudders said she hopes there will be an “opportunity” to tackle those issues early next year, when a new governor will be in office and the Legislature’s next two-year term will be underway.

“It’s an opportunity not yet realized,” she said.