Massachusetts must reduce the growth of medical spending within three years to two percentage points below the growth in the overall state economy to resolve its health care cost crisis.

That is the prescription that AIM is writing today to end the run-up in health insurance costs that has depressed economic expansion and job growth in Massachusetts for more than a decade. It is a prescription that comes as Massachusetts reaches a pivotal moment in the health care debate, with market forces reshaping the health care industry in a manner that makes once unthinkable cost-reduction goals possible.

The appropriate role of government should be to establish cost-reduction targets for doctors, hospitals and insurers, rather than proscribing regulatory solutions. The market should be given the chance to correct itself within three years. If the market fails, then it is appropriate for the state to initiate action to get the market back on track.

Lowering the growth of health spending two percentage points below Gross State Product is an aggressive goal. Many in the medical profession and even some business groups will say that it’s an objective we can’t afford to meet. But in a state where consumers pay among the highest insurance premiums in the country, AIM believes it’s a goal we cannot afford not to meet.

The “two percentage-point solution” appears within reach considering that experts such as Harvard University economist David Cutler and former U.S. Medicare and Medicaid Administrator Donald Berwick agree that at least a third of all medical care is unnecessary – delivered in the wrong setting; marked by a lack of coordination; provided with an inadequate emphasis on prevention; harmed by medical errors; burdened with rules and fraud; or just plain excessive.

“Much is done that does not affect patients at all,” Berwick told The New York Times in December.

More than twice as many Massachusetts consumers have routine care delivered at high-cost academic medical centers as consumers elsewhere in the United States. Twenty percent of hospital admissions nationally are in teaching hospitals versus 45 percent in Massachusetts. A report by Attorney General Martha Coakley last year concluded that those patterns encourage price discrepancies among hospitals and doctors that have little connection to medical outcomes.

The math is pretty simple. Remove the unnecessary one-third from the overall medical spending that accounts for approximately 18 percent of the Massachusetts Gross State Product and the process of keeping health cost growth below economic growth seems reasonable.

It seems even more reasonable when you consider that the Massachusetts health care market is already moving aggressively to restructure itself to relieve some of the financial pressure on consumers. Health providers, insurance companies and employers are working together to change the way consumers pay for medical care, introducing tiered and limited health plans to reward consumers for receiving high-quality care in reasonably priced settings, and implementing “global payments” that reward doctors for good outcomes instead of the number of procedures they order.

The results so far are encouraging:

• The average health insurance premium increase approved the state’s Division of Insurance in the small group market for April 2012 is 1.8 percent, down from 16.3 percent just two years ago.
• Partners Health Care, the commonwealth’s largest provider of medical care, recently concluded global-payment agreements with Blue Cross Blue Shield of Massachusetts and Tufts Health Plan that will reduce the insurers’ reimbursement rates paid to Partners by $345 million over four years.
• Children’s Hospital Boston agreed to a three-year contract with Blue Cross Blue Shield of Massachusetts that will not pay Children’s any more money this year. In the second and third years of the pact, the hospital will be reimbursed by Blue Cross Blue Shield at a rate below the current 3 percent rate of medical inflation.
• Steward Health Care System and Tufts Health Plan are rolling out a limited-network health plan that the companies say will cost 15-30 percent less than a typical health maintenance organization.
• Overall, contracts negotiated by health insurers with providers in 2011 gave hospitals and doctors groups average fee increases of 2 to 3 percent, roughly half those given in 2010 and less than in any year since 2005.

Governor Deval Patrick and the Massachusetts Legislature must now decide the direction they wish to take as they prepare to debate an historic health care cost-control bill.

Beacon Hill faces an opportunity every bit as significant as it did with the 2006 Health Care Reform to redefine the health-care system in Massachusetts ahead of the rest of the country. No one, including AIM, shrank from the challenge six years ago. None of us should do so this time when the challenge is to preserve the world-class health care system in Massachusetts while ensuring the ability of employers and citizens to pay for it.

Considering that almost 78 percent of insured Massachusetts residents receive their health insurance coverage through an employer, companies realize that they must drive and sustain change in the way health care is delivered and consumed by using their collective clout as the largest purchaser of health care in the state. They need to re-think the way they purchase and manage health insurance, and, most importantly, the way they educate and communicate with their employees and dependents who are the true consumers of health care.

The economic consequences of half-solutions would be disastrous. It’s time to solve the problem.