The Massachusetts health reform law Part II, enacted in 2008 – laid the groundwork for cost control and quality improvement, as a follow-on to the initial legislation’s emphasis on achieving near-universal coverage. The legislation authorized several studies — including a report published a few months back on global payment strategies — and set the stage for hearings on health care cost containment to be held before the state Division of Health Care Finance and Policy (DHCFP), which are scheduled to begin March 16, 2010.
In anticipation of these hearings, and as required by the law, the Attorney General’s office released a report on health care cost trends and cost drivers on January 29.
While the names of providers and payors are not included in this report, it provides a fascinating level of detail regarding what we already knew, or at least suspected: some providers are paid as much as twice as much as others for the same services, with no correlation to improved quality or outcomes.
The AG’s summary conclusions in full:
[O]ur preliminary review has revealed serious system-wide failings in the commercial health care marketplace which, if unaddressed, imperil access to affordable, quality health care. In brief, our investigation has shown:
A. Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and amongst providers offering similar levels of service.
B. Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.
C. Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.
D. Variation in total medical expenses on a per member per month basis is not correlated to the methodology used to pay for health care, with total medical expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis.
E. Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.
F. The commercial health care marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.
This report is well worth reading, and it is well-illustrated with clear charts. While the detail is welcome, many have criticized the AG’s office for leaving out identifying information, and for coming to the party a year after the Boston Globe reported on some of the same issues.
At the end of last week, DHCFP released a series of three reports on health care cost trends as well. The DHCFP reports are summarized here; they really serve to describe the baseline facts on the ground and explore trends form 2006 through 2008. Here’s the summary of key findings:
- The Commonwealth’s health care system is a key employer and driver of economic growth for the region. However, personal health spending per capita is higher in Massachusetts relative to the nation and continues to rise.
- Some characteristics of the Massachusetts health care marketplace that may be contributing to the high levels of cost growth, include:
- Most of a health insurance premium goes toward spending on health care services as opposed to administrative and other non-medical services. On average, in Massachusetts more than 88% of premiums are spent on health care expenses (compared to less than 84% nationally).
- Average monthly health insurance premiums increased 12% from 2006 to 2008. If employers and individuals had purchased comparable benefits each year, the growth in premiums would have been larger.
- Premium trends, benefit levels, and trends in health care spending vary across different-sized employer groups. Small group premiums were higher and grew faster on average than mid-size and large group premiums, when adjusted for differences in benefits, demographics and location.
- Health care spending in the Commonwealth increased 7.5% per year from 2006 through 2008, a growth rate that is higher than the nation. The increased spending can be attributed to several factors:
- Price was an important factor contributing to rising health care spending across all service types.
- One area of particular concern (and opportunity) is the variation in prices, which was typically greater for facility charges than professional charges.
- In addition to price increases, care is being provided in more expensive settings over time—more inpatient care is being provided in academic medical centers and there is a decline in the provision of care at stand-alone outpatient facilities. Much of the growth in outpatient hospital care occurred at academic medical centers located in the metro Boston area.
- High concentration of physicians (especially specialists);
- Greater availability and use of academic medical centers for both inpatient and outpatient hospital based-services, and use of outpatient hospital-based facilities for some services that could be provided in less costly settings;
- Richer health insurance benefits compared to the nation; and
- Use of payment methods that are not designed to incentivize efficiency and coordination of medical care.
Again: no surprise here — Massachusetts health care costs are higher than national averages, and are growing at an unsustainable rate.The challenge before Massachusetts policymakers is clear: They need to put together these puzzle pieces of data, learn from the past, model potential solutions, and plan for the future. Even the national mainstream media acknowledges that, in the face of health reform meltdown, doing nothing is not an option. (Where were they six months ago?)
In the midst of this challenge, Governor Deval Patrick seems to be distracted by health reform’s implications for his political future. Instead of waiting for a reasoned outcome of the deliberative process set in motion two years ago (well, as reasoned as possible, given the heavy-duty political and economic interests at stake here), he has leapt into the fray with what looks like an ill-conceived bit of political grandstanding: a bill that would give the state insurance commissioner the authority to cap health care price increases.
The Boston Globe reports:
Rates hospitals and other health providers charge insurers would be “presumptively disapproved as excessive’’ if they increased faster than the level of medical inflation, and they could be rejected after a public hearing.
Similarly, for health insurance plans sold to employers with 50 or fewer workers, premium increases that exceed one and a half times the level of medical inflation would be considered excessive and could be turned down.
The legislation would also impose a two-year moratorium on lawmakers’ mandating any new health benefits that must be covered by insurance plans, a practice that employers have said drives up their health insurance premiums. Small businesses have been hit with double-digit rate increases in recent years.
This proposal brings us back to the future here in Massachusetts:
Twenty years ago, Patrick’s presumptive GOP challenger in the fall, Charlie Baker (who, thanks to some of his views being out of step with GOP orthodoxy, will likely draw many of the significant number of independent voters in Massachusetts, as well as some Democrats), was largely responsible for the dismantling of the Massachusetts health care rate setting system during his tenure in budget and health policy roles in the Weld administration. (In fact, some of us who have been around long enough still refer to DHCFP as “the agency formerly known as Rate Setting.”) (As a second aside: For those of you tuning in from afar, Baker’s most recent position was CEO of Harvard Pilgrim Health Care, one of the three dominant payors in the Commonwealth.) Is Patrick trying to stake out a position in opposition to Baker’s legacy? What constituency is going to buy into this vision of the future? Other local observers have also questioned the wisdom of this approach, including fellow health policy bloggers Evan Falchuck and Paul Levy. (Taking a cue from Paul’s musings on blogger disclosure in connection with this issue, I’ll just say that as a life-long registered Democrat, I have voted for a Republican maybe just once.)
Deregulation was successful twenty years ago because we were collectively convinced that payors could do a better job of holding providers’ feet to the fire. We later framed this in terms of holding providers accountable, and have employed a variety of tools over time to try and make this private-sector arrangement work: capitation, discounted fee-for-service payments, quality incentives, global payments, etc., etc. Patrick’s proposal is one version of the general acknowledgment that the market approach has essentially failed.
Instead of going back to the future, Governor Patrick ought to let the health reform process play out. The legislature should hold the Governor’s bill pending the DHCFP hearings and the subsequent deliberations that will — we hope — yield a more data-driven and sustainable approach to the problem of health care costs and quality.
And who knows? The national debate may continue to be informed by what comes out of Massachusetts.
David Harlow blogs at the HealthBlawg.
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“Only about 2% of the U.S. population are farmers yet the farm lobby is incredibly powerful.”
Barry, if only the “farm” lobby were actually farmers. It is actually Monsanto, ADM, Cargill and other large corporate players that have way more money than any union and money is what drives influence, not votes. I doubt there’s much of a farm lobby in MA anyway. I don’t see many Ex politicians getting into lobby work for “farmers” or even unions. If what you say about union control over health plans was a significant factor in MA costs I’d expect the report to say as much.
its great place. i never seen this knowledge anywhere else
nice blog post. its interesting to get some rarely found knowledge
Peter – Only about 2% of the U.S. population are farmers yet the farm lobby is incredibly powerful. Generous subsidies will be with us probably forever. You and I would both favor taxing unhealthy food, but such an idea could probably never get passed over farm lobby objections. The subsidies keep unhealthy food artificially cheap and that’s not likely to change anytime soon either.
While private sector labor union membership is now down to about 8% of the private sector workforce, public sector union membership is high, stable and probably growing. Together, they remain a core Democratic constituency at both the federal level and in most of the Blue states. I think it is quite likely that they opposed meaningful coinsurance differentials just as they vehemently oppose taxing even high cost insurance plans above some very high threshold level.
My issue with administered or dictated prices for healthcare services is that I don’t think it’s possible to do without overpaying for some services and creating surpluses and excess utilization of those and underpaying for others, like primary care, and creating shortages of those. As with Medicare currently, politics plays a role in how much gets paid in various states and cities while the politicians can’t seem to resist meddling in coverage decisions either.
It is interesting to note that UnitedHealth Group has about 7 million members in large, self-funded plans for which United provides administrative services only. These plans have experienced a medical cost trend of only about 5% per year for the last four years or so as compared to 7%-8% nationally. Self-funded plans are allowed to offer financial incentives to encourage members to quite smoking, lose weight, control blood pressure, and pursue other healthy lifestyles. It’s working, at least to some extent.
Harvard-Pilgrim Healthcare, for its part, offers its employees three health insurance options – a low benefit plan, a mid-level plan, and a high coverage plan. It makes a defined contribution set at the cost of the mid-level plan. Employees who want the high option plan can buy up with their own money while those who select the low option plan capture the savings as a deposit into their health savings account. About 60% of the plan members have a high deductible plan and are well satisfied. HPHC’s medical cost trend has also been running in the 5% range in recent years. Bottom line: market forces can work and incentives matter.
For the coinsurance differentials to work we need transparency around insurance reimbursement rates by provider and procedure as well as medical outcome information for hospitals such as infection rates, readmission rates, mortality rates, etc. and we need referring doctors to use the information to guide patients toward more cost-effective healthcare decisions including provider selection.
“One reasonable theory I heard as to why this is the case is that the labor unions used their clout in the Massachusetts State House to neuter the coinsurance differential so that their members would not see any meaningful reduction in their perceived health insurance benefits.”
Barry, you’re blaming unions, which represent about 15% of workers in MA (12% nationally), for system wide MA price jacking? How come that never made it into the report? You still advocate that somehow this is to be solved by health users (consumer driven) not the regulation of health providers which seem to stick together very well to support price increases. I won’t defend unions who fight taxing of company health benefits, but that won’t stop the pricing problem it will only level the playing field for those of us who don’t get any tax break for our healthcare.
Get over what? You are no longer holding the whip.
Even lowly auto insurers are not generally forced to accept “all comers.” You are proposing to twist insurance into a mechanism for the redistribution of income. If that redistribution is appropriate, it should, as an essentially governmental function, be funded and executed through government. If, in the exercise of their uncoerced judgment, the insurers see the “individual mandate” as an adequate trade off, so be it. I have my doubts.
You don’t think many of these state “mandates” are outlandish? Seems like a catch 22: If we allow sale across state lines, the insurers will contrive to evade our cherished “mandates” but, if we don’t, they will exploit their intrastate “monopolies.”
Public perceptions of the reputations of providers form over decades, and something tells me they won’t be much affected by publication of pricing and outcome data.
Subsidies for “middle income” people?
I am very much in favor of tort reform, but I see that both “progressive” and conservative scholars of consitutional law have doubts about whether the tort laws of the various states lie within the constitutional reach of the federal government. “Comity,” and all that.
As I’ve said several times, my preferred approach to dealing with hospitals and large physician groups that are paid much more than their competitors without providing demonstrably better care because they have significant local or regional market power is to (1) require disclosure of actual insurance reimbursement rates by procedure, DRG, and provider and quality measures like hospital infection rates, mortality rates, readmission rates and the number of surgeries performed by both the hospital and specific surgeons and (2) require patients to pay significantly higher coinsurance if they want to use one of the high cost providers. With good price and quality transparency tools, referring doctors should be in a position to guide their patients toward the most cost-effective hospitals and specialists.
As it happens, the Group Insurance Commission (GIC), which insures public employees in Massachusetts, requires insurers to offer policies that include higher coinsurance for high cost providers. Unfortunately, contract insurance reimbursement rates are not disclosed, and the extra coinsurance amount is set so low by law that very few people vote with their feet by avoiding the high cost providers. One reasonable theory I heard as to why this is the case is that the labor unions used their clout in the Massachusetts State House to neuter the coinsurance differential so that their members would not see any meaningful reduction in their perceived health insurance benefits. At the same time, most economists will tell you that one of the most effective ways to bend the medical cost growth curve is to reduce or, ideally, eliminate the tax preference for employer provided health insurance. The most vocal opponents of this idea are also the labor unions.
If Democrats at both the state and federal level are really interested in bending the medical cost growth curve they might try taking on their own powerful special interest groups – organized labor and trial lawyers in particular. Just demonizing insurers and drug companies won’t cut it.
Republican calls for tort reform are on target if they mean specialized health courts instead of juries to resolve medical disputes and robust safe harbor protections for doctors who follow evidence based medical guidelines. Their call for damage caps for non-economic damages are off target, in my opinion.
On the other hand, if health insurance could be sold across state lines, there would likely be a race to the bottom to see which states were willing to allow the skimpiest coverage and the weakest mandates. Moreover, it would destroy community rating in the five states that have it as healthy people who could pass an underwriting screen would flock to buy insurance in the cheapest markets leaving all the sick patients behind. Republicans are off target on this as well.
I also have a problem with Republicans’ idea to strengthen state high risk insurance pools. These pools currently insure a mere 200,000 people nationwide, and the coverage is often incomplete at best, the cost to the insured is very high and the cost to the state is expensive as well. It sounds to me like the suggestion to expand high risk pools says, in effect, let the private insurance companies insure all the healthy people who are inexpensive to cover and stick taxpayers with the bill to insure the sick and expensive.
We cannot expect insurers to take all comers at non-discriminatory rates unless there is an effective mandate that everyone is in the insurance pool. We need to offer subsidies to middle and lower income people so they can afford to buy even a high deductible plan that would at least provide good coverage for the expensive medical episodes and conditions. If it means we need to raise taxes to do that, so be it. My advice to Republicans: Get over it!
Finally, the medical profession needs to recognize that it is part of the problem as well. Stop trying to stifle competition at every turn. Let NP’s, PA, pharmacists and other mid-levels practice at the top of their license to maximize their value and take some of the pressure off primary care which is in short supply.
This report shows that everyone in the system, insurers included, pushes price (and it’s the price that’s killing us), because that’s what they make their living from. The canard is that patient driven utilization and lawyer driven lawsuits account for our high medical costs.
“The challenge before Massachusetts policymakers is clear: They need to put together these puzzle pieces of data, learn from the past, model potential solutions, and plan for the future.”
No, the challenge is to make the political decisions necessary to solve this in the face of the financial support politicians get from all the providers. Don’t look for much here for until providers actually have problems getting paid, then maybe there’ll be another taxpayer bailout.
The report issued by the Massachusetts AG’s office showing the variations in cost among healthcare providers for similar services performed within the same geographic areas further illustrates the need for a new healthcare system that can better regulate these expenses. Additionally, as the DHCFP report states, another contributing factor to rising healthcare costs is the increase in use of inpatient and outpatient hospital-based services and facilities for services that could have been handled in more affordable settings. Services such as routine care, which makes up approx. 70 percent of all U.S. healthcare transactions.
One method that is currently working in Texas caps the cost of routine care by charging an affordable fixed annual membership fee and a small fixed visit fee for services rendered by a nurse practitioner to the patient at their home, office or wherever the patient needs medical care within their service areas. It’s affordable, quality healthcare for the masses that removes all variability, which up until now has never existed.
“some providers are paid as much as twice as much as others for the same services, with no correlation to improved quality or outcomes.”
Sounds like there hasn’t been much “reform” going on in Mass. at all.
So what mysterious forces are driving employers to select coverage plans linked to the most prestigious providers? Don’t suppose “collective bargaining” would have anything to do with it.