Ceasefire reached in Boston

A dramatic cease-fire was announced over the weekend. No, not the one
in the Mideast, but rather in the health care market in Massachusetts.
As documented in this Boston Globe story
by Scott Allen and Jeff Krasner, Tufts Medical Center and Blue Cross
Blue Shield of MA reached an agreement on a payment contract. What's
the big deal? Well, Tufts had threatened to pull out of the BCBS
network when it felt that it was not being offered sufficient
compensation for its medical services.

The context was important. The Globe had previously reported
that payments to Tufts and its doctors were substantially below those
received by, in particular, the hospitals and doctors in the Partners
Healthcare System, and often below those received by BIDMC and its
doctors. As I have noted below,
there is really no justification for these differentials, if one
considers the actual quality of care delivered by the major academic
medical centers.

Well, I guess Tufts felt that enough was enough and stood its ground
in its contract negotiations with BCBS. This was a gutsy move, in that
BCBS has more subscribers than all the other insurance companies
combined, and Tufts and its doctors stood to lose a lot of business if
the dispute was not resolved.

We should all be pleased that the
issue was settled, apparently to the satisfaction of both parties. It
is difficult to believe that Tufts could have followed this path absent
the Boston Globe stories, in that those stories created the moral high
ground for a different kind of negotiation. After all, there is no data
to support the contention that a patient at MGH or Brigham and Women's
Hospital will receive better care than at Tufts.

But where does
that leave the state? On its face, the Tufts-BCBS deal seems to
contradict the hopes of Governor Deval Patrick, who, it is reported,
wants the hospitals and insurers to slow down the growth rate in health
care premiums. BCBS, for its part, has been pursing adoption of a
capitated insurance reimbursement approach to control those costs, and
adoption of that plan was announced as part of the Tufts deal. But
clearly some compromise must have been reached. The plan offered to
Tufts had to be more generous than the one previously offered, or the
deal would not have been done.

We have been discussing this
alternative contract idea with BCBS for several months, too, and both
parties are trying to figure out how it might be designed to work in
the environment of our medical center and our physicians. One key issue
is that such a plan transfers a portion of the insurance risk of health
care to the providers and away from the insurance company. Some element
of this risk-sharing is probably essential to align incentives between
the providers and the insurer, but the specific design and
implementation plan is important, lest the hospital and doctors find
themselves with a major revenue loss at the end of any given year.
After all, providers do not have the kind of financial reserves that
insurance companies have.

Another important issue is that we do
not control the delivery of the full spectrum of care, from primary
care to hospitalization to skilled nursing facilities. A capitated
contract requires some kind of relationship among providers across that
spectrum, so that risk can be appropriately monitored and shared.

people of good will can work through these issues, and I am hopeful
that we can, too. In the meantime, as I have noted often on these
pages, there are many steps that hospitals and doctors can take in the
current fee-for-service reimbursement environment that also help to
control cost increases. My passion for reducing harm that you have seen
repeatedly on these pages is an important part of that process. See
below, for example, the post about reducing ventilator associated pneumonia.
That program not only saved lives: It saved millions of dollars in
medical costs. That most of the savings went to the insurance companies
did not preclude us from adopting this standard of care. Our job,
simply, was to reduce harm and save lives.

As you can tell from my post below,
I am frustrated that the medical profession in this city has not
adopted an aggressive and transparent approach to this kind of quality
improvement. As noted by one or more comments under that post, in its
delays, the profession risks abdication on these matters to
governmental authorities, who will impose standards that will
inevitably lack the subtlety and effectiveness of those that the
profession could otherwise design for itself.

Also, on these pages you have seen an emphasis on BIDMC Spirit,
our process improvement program based on the Toyota production system.
We engaged in this program to improve the work environment for our
staff and to improve patient care, but it also has the effect of
controlling costs and improving efficiency. Again, a great portion of
the cost savings will flow through to the insurance companies, but we
still pursue the effort because of its advantages to the organization.
I want to acknowledge here that our progress on the front was greatly
aided by technical support and assistance from BCBS, as part of a pilot
program involving five hospitals in the state. The program gave us
exposure to people and ideas and resources that we might have
encountered otherwise, but that probably would have been delayed by
several years.

As a result of these joint efforts with BCBS and
with other helpful people like the Institute for Healthcare
Improvement, we find ourselves to be in the vanguard with others around
the country in the implementation of these approaches. Through this
blog and other presentations, we are doing our best to share what we
have learned. As I have often stressed, quality and process improvement and transparency is not a matter of gaining competitive advantage.

long as the distribution of health care reimbursement revenues is
viewed as a zero sum game, the likelihood of cooperation across the
hospital and medical community is likely to be minimal. If Tufts
Medical Center got more, must everyone else get less? No. My hope is
that the presentations here and elsewhere of what we and others have
learned will help people understand that it is not a zero sum game.
Society as a whole can benefit from the kinds of quality and safety and
other process improvements with which we have been experimenting. But
we need all participants to shed their defensiveness and fear of
disclosure, to acknowledge the areas needing improvement, and to share
what they have learned for the greater good.

Paul Levy is the President and CEO of Beth Israel Deconess Medical
Center in Boston. He blogs about his
experiences at, Running a Hospital, one of the few blogs we know of maintained by a senior hospital executive.

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6 replies »

  1. Nate, what drives single-pay cost saving is universal budgets and price controls. what drives efficiency is one provider payer with one set of rules. Physician office staffs are leaner because they don’t need all the extra people processing and chasing insurance paperwork. Graft and waste don’t seem to show up in single-pay systems when you look at the fact they do it for about 1/2 what we do it for.
    As for this statement; “Insurance and the presence of private companies trying to make a dollar is what keeps providers honest and innovation comming.”
    I can’t believe you actally believe this with all the over utilization in the system and this statement in the original post; “That most of the savings went to the insurance companies…”. It’s not insurance companies that scrutinize bills for fraud or errors, it’s patients, and usually the uninsured. Insurance companies don’t care about waste and abuse, they just pass the bills on to premium payers. You’ll need to get out of the office more Nate to see how the real world is operating.

  2. in a single payor system what drives efficiency? What moivates a single payor sytem with taxing authority to control cost or innovate?
    Assuming private insurance has 20% overhead that works out to $700 a year, this include taxes, and complaince with regualtion. Medicare loses $600 per person per year to fraud and waste. SCHIP has double digit fraud and waste rates.
    Insurance and the presence of private companies trying to make a dollar is what keeps providers honest and innovation comming. If you elimiate private entities first you don’t save anything second you bankrupt the system with waste and fraud.
    Unless you have a magic bullet to solve government graft and abuse single payor would never work.

  3. “Sooner or later you will have to admit not all insurance is bad and not everything is their fault.”
    I agree with that but they are the system we have in which all things health flow through them. Even for the uninsured the hosptial rates they are forced to pay (3-4 times insurance) is because of insurance. As well the lack of price transparency in the system is also tied up in insurance contracts. Even when savings are worked for as in the example above the rewards don’t flow in the direction of the innovator – certainly not what drives the rest of our economy.
    “There is no reason one insurer should have over 30% of any market, if they do you can’t call it a free market system.”
    Well how, in a so called “free market”, do you regulate percentage of market? Here in NC BCBS controls the market and contracts with providers – I can’t even imagine providers happy with the arrangement.
    “It takes collaboration between insurers and providers to drive cost up like they have.”
    Even when I look at the car insurance system here in NC I think there is no real competition. As with most states car insurance is regulated and every so often the Dept. of Insurance says that insurers charged too much and owe us a refund. This happens across the board for all companies, not just one or two, so it appears some sort of “collaboration” is even happening in a “more” competitive car insurance market. The other point is that the numbers are being driven by actuaries – a same brain number crunching group. If there is price competiton then it has to be insignificant as it would come from the “profit” side not from the better healthcare systems side – a bigger chunk of the waste.
    That’s why I continue to say that until we get away from the concept that the solution is insurance based we will not get any substantive reform. We need the army of insurance employees to administer single-pay, but we don’t need insurance companies or insurance solutions (an oxymoron).

  4. Peter,
    cost will trickle down in every market but a few, MA might be one of the unlucky ones. The oft repeated facts, insurance companies only make around 6% profit margins. It is relatively easy for a small carrier to open up in a new market. You can rent PPOs for contracts so the only hindrance is state licensing. If a carrier in any market was making 10% margins within 6 months a couple small carriers would enter the market and start chipping away at their business, it happens every year in markets all over the country. 5-6% savings is not enough to get most employers to change insurance carriers, specially if they are doing a decent job. 10% the majority would change. If carriers margins increase to much they will either lose the business to another carrier or be forced at renewal to lower rates. There’s just not that much fat or potential savings in carrier profits. What you save is lost two fold to government inefficiency and waste.
    MA is not like the others, in fact it holds the honor of most expensive healthcare in the world. A good portion of this the providers have brought on themselves. This is an oft repeated mistake they make all over the country. BCBS owns the local market, not that people love them but they really have no choice. See above where I said employers won’t change for 6% savings but would for 10%, the problem is not only can’t I beat BCBS by 10% I can’t even get with 10% more expensive. If they don’t have a most favored nation contract in writing they most likely do de facto. As nice as Paul seems and sincere on reform I can almost guarantee he won’t give me the same discounts he offers BCBS. I would be lucky if they where 10% higher would expect closer to 20%. If my cost of healthcare is 10-20% higher then BCBS even if I am more efficient and have smarter plan designs there is no way I can compete.
    Let me give a specific example, my family started one of the earlier PPOs in NV. We have a public hospital, UMC, that bleeds money every year. Our contract was never as good as the 2-3 big players in town but was close enough that clients where willing to pay extra to work with us, we also made up some of the difference on lower overhead, smarter admin, and plan design. Our contract was minimum 15% higher and with some stop-loss provisions considerably higher, we had 40% max discount where as the major ones had per diems with no max. Few years back some idiot working for the hospital decided it would be more efficient and they could make more to eliminate all the small payor contracts. At renewal they offered us 5% prompt pay discount take it or leave it. We did the only thing we could, rented one of the bigger PPOs and paid them 20%+ less then they would have received otherwise.
    Sooner or later you will have to admit not all insurance is bad and not everything is their fault. There is no reason one insurer should have over 30% of any market, if they do you can’t call it a free market system. The one thing all high cost systems have, MA, NY, CA small group, is high regulation and a lack of competition. Besides the government no one has the power to control a market by themselves. It takes collaboration between insurers and providers to drive cost up like they have.
    If you forced providers to offer the same discount to every patient you would see a seismic realignment of the market over night. I could run through MA and hand BCBS their ass if I had the same contracts.
    I don’t see capitation making a come back, CA was such a colossal failure and I don’t see where we have identified why it failed or come to grips with the short comings. In NV special hospital districts which are taxed like new home developments is an interesting idea. It’s mainly in rural areas but seems like an efficient way to fund the general operation of the hospital. My fear is spending constraint by the hospitals when they have taxing authority. Like all good ideas the problem is in the implementation and evolution of it. Any system designed will be abused and compromised. The only way to constrain this is two sides competing for the same resource. Without ying and yang keeping each other in balance you get MA. No system will survive long term with a competitive insurance market seeking profit or some similar entity limiting the providers.

  5. “Some element of this risk-sharing is probably essential to align incentives between the providers and the insurer, but the specific design and implementation plan is important, lest the hospital and doctors find themselves with a major revenue loss at the end of any given year.”
    Interesting that the concept of capitation slowly seems to be creeping back into the discussions again between providers and insurers. Probably a portion of payments do have to have some type or risk attached to providers to better align incentives but even if a relatively benign design plan can be created – Do the IT systems exist on the payer side (claims systems, eligibility, etc) and on the provider side (reimbursement) to handle such a system?
    I would say not really from what I have seen on both ends.

  6. “That most of the savings went to the insurance companies…”
    Twice stated in the post and the reason cost/access reform will not “trickle down” to premium payers or needed PCPs. Under single-pay there would not be reimbursement discrimination by facilty which now the insurance industry controls.