OP-ED

What Happens Next in MA?

Paul levyWhat happens next in Massachusetts with insurance reimbursement rates now that many of the facts and figures have been made public?

Here’s what I see. The dominant parties in the state on whose watch the disparities in the marketplace have taken place — Blue Cross Blue Shield and Partners Healthcare System — face financial and political problems, respectively. The PHS rates that are so much higher than others’ cause a major financial drain for BCBS. They do so in the short run just by the degree of current utilization. The effect is compounded over the long run, though, as PHS has a competitive advantage vis-à-vis other systems in recruiting community-based doctors and thereby brings more and more referrals into its hospitals. That these differentials have now been made public by the state creates a political embarrassment for PHS, which has often asserted that its creation brought about substantial economies of scale through integration of care.

I suspect that these factors will lead to a negotiated agreement between BCBS and PHS, where PHS takes a bit of a haircut in its current reimbursement contracts. Not so much that it dramatically affects the PHS bottom line, but enough so that both parties can say that they have cooperatively acted to slow down the rate of health care spending in the state. Will the new rates be anywhere near the statewide average? No way. Will they do anything to offset the competitive advantage that PHS has had or will continue to have? No.

Then, BCBS will come to the rest of us (including BIDMC and our physician group) whose rates are next in line and ask for a “comparable” rate reduction. Citing the PHS deal, we will be publicly and privately pressured to make similar concessions for the good of the Commonwealth. Of course, any such rate reduction would then serve to maintain PHS’ market dominance.

Here’s my proposal instead. Let us, in the presence of the state’s Attorney General, so there are no concerns about antitrust violations, all agree to rate schedules equal to the current statewide average reimbursement rates for hospitals and doctors.* Let’s create two major categories — one for academic medical centers and their doctors to reflect the societally important teaching role — and one for community hospitals and community-based physicians.**

In other words, let us recognize that the health care reimbursement system in Massachusetts is broken. It is time to get rid of the idea that rates should reflect market power. Have them instead reflect the health status of the population, with appropriate adders for medical education or other specific programs of societal value as directed by the state. Further, if the state and federal government insist on underpaying for Medicaid and Medicare patients, let us acknowledge that amount explicitly in the approved rates for the private insurers.

I know I don’t fully understand the insurance business, but I cannot figure out why BCBS and the other insurers in the state would object to this approach. I can’t see why it is to their advantage to conduct numerous negotiations for reimbursement rates or to have different rates in place for exactly the same services.

What about quality, you might ask? Well, it would certainly be great to adjust reimbursement rates for meaningful measurements of quality of care. But let’s start first by equalizing the base rates, and then we can work on quality metrics in the next step.


*Or if would make more sense, perhaps a different average would be employed for the Eastern and Western parts of the state, or urban versus rural areas, to reflect regional differences in the cost of living.

**

While I make this point with regard to fee-for-service payments, it is certainly a prerequisite for a move towards the kind of global, or capitated payment recommended by the state’s Massachusetts Special Commission on the Health Care Payment System.

As I have noted in an earlier postIf a capitated rate were established for PHS providers today based on this differential, it would perpetually reward this health care system for its market dominance.

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jdNatePeterPK InternistPaolo Recent comment authors
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jd
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jd

That is incoherent. The changes we were talking about (setting uniform rates) have nothing to do with other regulations that may make it difficult for a new start-up to set up shop as a health insurer. They are totally different sets of regulations and pursing one does not make the other more likely. If gov’mint has it in for small insurers, allowing them to use the rates the big guys use doesn’t help that objective. So, why would a small insurer resist such legislation? In any case, your examples only applied to new entrants, not to existing insurers with a… Read more »

Nate
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Nate

“I agree with you that I don’t see why any of the smaller insurers would resist a level playing field and getting rid of all the time and bad blood of negotiations with hospital systems.” you falsely assume the small players would be allowed to stay in existance. Congress has often time made it clear they prefer a small handful of large national insurers they can regulate. As more power and regualtion is consolidated in Washington, it’s ability to lock out new entrants grows. Just in the past 3-4 years regualtions passed in WA have made it extremly hard to… Read more »

jd
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jd

Paul wrote: “I know I don’t fully understand the insurance business, but I cannot figure out why BCBS and the other insurers in the state would object to this approach. I can’t see why it is to their advantage to conduct numerous negotiations for reimbursement rates or to have different rates in place for exactly the same services.” It’s like the old adage that you don’t have to outrun the bear, you just have to outrun the guy next to you. It is in fact to BCBS’s (short term) advantage to keep the current system because even though they are… Read more »

Nate
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Nate

Who will set capitated state set prices? Is it really that hard to imagine hospitals contributing to political campaigns for higher reimbursements? I see how the hospitals win and I see how the politicians win, I don’t see any chance the rest of us don’t get screwed royally.

Peter
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Peter

This from Paul Levy’s link to his blog: “Medicare and Medicaid, do not pay rates that are fully compensatory.” Maybe he can explain what they do not fully compensate for? What are non-Medicaid/Medicare rates based on and how are they negotiated? As we have just been told PHS stated they had “economies of scale” which would infer they did it for less, yet did not reflect that in the reimbursements. “However, forcing the same price on all providers of the same type may be going too far.” Why because of this; “A better customer service, a more convenient location, nicer… Read more »

PK Internist
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PK Internist

Paul,
Perhaps you should run your own hospital better. Your marbled cardiac surgery wing gives patients the impression that the care is excellent as they lay in bed ignored by your computer clickers.

Paolo
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Paolo

Paul, I agree that the state should step in and limit prices on some health care providers. This is similar to what it does with other critical suppliers such as utilities. However, forcing the same price on all providers of the same type may be going too far. Whether it is for the right reason or not, health care users have preferences. These preference should be reflected to some extent in the prices of the providers. A better customer service, a more convenient location, nicer rooms, and other non-outcome-related positive experiences offered by the provider should be rewarded. Perhaps, the… Read more »