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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7 replies »

  1. 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 less than #1 market share in their area. Your examples are totally irrelevant to Harvard Pilgrim, Tufts, etc.
    In any event, this is a pretty distorting statement: “Congress has often time made it clear they prefer a small handful of large national insurers they can regulate.” Congress has often made the opposite clear as well, and that they want more competition, or maintained the long tradition of regulating insurance at the state level, which has preserved small insurers. There are still around 1,000 health insurers out there, most of them obviously quite small. If there is a government (read: liberal) agenda to remove them it clearly isn’t very effective. Also, health insurance is a business where size matters a lot, so market consolidation doesn’t need any regulatory conspiracy theories to be explained. And don’t let’s get started about why ERISA came about. Suffice to say it came from big business, not the desire of Congress to reduce the number of insurers.
    Finally, this is just paranoid: “you falsely assume the small players would be allowed to stay in existance.” The implication of this is that you believe small players will not be allowed to stay in existence! That is crackpot thinking, not analysis.

  2. “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 get into the claims paying/insurance business. HIPAA and Medicare econdary payor all favor huge conglo insurance titans. Be it design or ignornace congress is destroying the small competition.
    “and give people a choice through the political process to vote essentially to tax themselves less by paying less for health care,”
    You mean like how the democrats by votes by taxing 51% of the population less then the other 49%. First group to 51% wins, zero percent taxes let the suckers pay it all?

  3. 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 getting muscled from Partners, they are large enough that they can get better rates than their competitors…from Partners and everyone else. BCBS doesn’t have to control costs fully, it just has to control them better than Harvard Pilgrim or Tufts.
    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.
    As for the ability of a government price-setting system to be captured by those it is supposed to protect us from, certainly there will always be efforts to do this. The key is to tie these pricing schemes to global budgets so that actuaries can calculate the impact and present it to the people. If we set prices at this level, we expect premiums (and taxes per person to be X. But if we were to set prices at this lower rate, we expect premiums/taxes to be X – A. The mirror image mechanism could also work: if we vote to keep taxes/premiums at X, then given utilization trends, etc., we have to freeze rates or lower them by the relevant amounts. And of course there would be intense wrangling over the procedures that are winners and losers in the price setting discussions.
    But the key is that when you can translate fees that very few people actually use in a given year (or in many cases a lifetime) into a population number, and give people a choice through the political process to vote essentially to tax themselves less by paying less for health care, then we begin to have an effective mechanism for cost control. This is an oversimplified version of what most other nations do and a big part of how they control costs.
    I would say that unless some translation into premiums and/or taxes is made public before the prices become final, the proposal does not make sense. But it may make a whole lot of sense if you set it up the right way.

  4. 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.

  5. 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 rooms, and other non-outcome-related positive experiences offered by the provider should be rewarded.”?? Shouldn’t the same procedure get the same reimbursement and either the provider eat the nicer surroundings or the patient pay the difference?
    We just had an article by John Hopkins CEO who states this:
    “Priority Partners operates under a capitated system—that is, it receives a set payment per individual per month from the state. Over time, we’ve developed the ability to manage the care of these individuals in a way that is both cost effective and that provides them with quality care. We’ve done it by tapping into our extensive delivery system, which includes four hospitals, a nursing home, the largest community-based primary care group in Maryland, and much more.
    We’ve hit above-national benchmarks on all clinical quality measures for our dialysis patients, reduced monthly costs for patients with substance abuse and highly complex medical needs, and 70% of our patients tell us they’re satisfied with our care.”
    See what happens when reimbursmsnts are set, the hospital and doctors actually cut costs – WOW, what a novel idea!

  6. 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.

  7. 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 right balance can be achieved by splitting the price into a purely medical component and a convenience/amenities component. The former can be priced homogeneously across providers based purely on medical outcomes. The latter is set by the provider in any way it wants, but must be publicly posted. All Insurance covers most of the first component, but the customer (or supplemental insurance) pays for most of the second component. And of course, there would be no state subsidies for the second component.

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