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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