Massachusetts Attorney General Martha Coakely has just released a report which reveals that the state’s health care costs are spiraling in large part because he state’s primo hospitals and physician groups –those with brand name recognition– -are demanding exorbitant reimbursements from insurers. Providers who control the market in geographically isolated areas also are insisting on reimbursements that far exceed what other providers receive for the same services.. http://www.mass.gov/Cago/docs/healthcare/Investigation_HCCT&CD.pdf
These providers have market leverage. Patients want both marquee names and providers close to home in their insurers’ network. If these providers are not included, customers will switch to a different insurance plan. Thus, insurance companies have no choice but to pay what the providers demand.
The investigators “found no evidence that the higher pay was a reward for better quality work or for treating sicker patients,” the Boston Globe reports. http://www.boston.com/news/local/massachusetts/articles/2010/01/29/attorney_general_says_clout_drives_up_health_costs/?page=1
“In fact, eight of the 10 best-paid hospitals in one insurer’s network were community hospitals, which tend to have less complicated cases than teaching hospitals and do not bear the extra cost of training future physicians.”
Sometimes hospitals claim that they charge more because they treat poorer patients who are sicker. But the truth is that, often, poorer patients receive fewer services because they have limited access to care. In addition the public hospitals and “safety-net hospitals” that treat indigent patients frequently have fewer resources: shriveled budgets, fewer specialists, less equipment. As I reported in Money-Driven Medicine, often “safety-net” hospitals must ration care.
The new Massachusetts report confirms what many already know about spending on low-income patients: the investigation discovered that hospitals that treat large numbers of poor patients . . . are paid 10 percent to 25 percent less than average by commercial insurers.
Meanwhile, Coakley’s report made me wonder: Maybe Massachusetts should consider Maryland’s solution?
But first, consider what this report means– or doesn’t mean– about two decades of Dartmouth research demonstrating that over-use of medical technologies ranging from new drugs to cutting-edge surgical procedures is driving health care spending skyward. By contrast, Coakely suggest that higher prices explain health care inflation..
What Does This Say About the Dartmouth Research?
After reading Coakley’s report, some commentators, including NPR’s Christopher Weaver, concluded that: “Coakely’ s report challenges a few . . . pieces of conventional wisdom. The Dartmouth Health Atlas has attracted a lot of attention lately for research concluding that changes in utilization—the number of health services used—drive total health spending more than changes in prices. Coakley’s reports says that price changes, rather than utilization, accounted for 80 percent of the growth in Massachusetts’ health spending from 2006 to 2009. http://www.npr.org/blogs/health/2010/01/mass_hospitals_with_big_names.html
Here, Weaver over-reaches. The report tells us what sent spending higher in Massachusetts over a period of three years (2006-2009). This in no way undermines Dartmouth’s findings that, nationwide over-treatment in the form of more tests, more surgeries, and more specialists’ visits has been a major factor in driving sky-rocketing health care spending in many parts of the country.
Indeed, as Dartmouth economist Jon Skinner reminded me yesterday: “Nationwide, Medicare spending rose 8.6 percent in 2008.” Medicare has been keeping prices fairly flat. So, as Skinner points out, “this increase was the result of increased utilization of medical services, not of higher prices.” Nationwide insured patients continue to undergo more tests and procedures. This remains a major factor driving the nation’s soaring health care bill.
In addition, in 2006, when the study began, utilization in Massachusetts was already extremely high—how much higher could it go? At a certain point, providers treating patients in a given population are doing so much that it becomes difficult to “do more.” For example, if patients in that region are already undergoing significantly more surgeries than Americans living in other places, the number of surgeries might increase by 3 to 5 percent over two or three years, but volume is not likely to jump by 8 to 10 percent. (These numbers are hypothetical; I’m using them just to illustrate the point.)
It also is critical to recognize that the Massachusetts report is looking at rising prices over a very short period of time—2006 to 2009. This narrow window tells us little about what is causing long-term growth in health care spending in the state, or in the nation.
In 2008, the Boston Globe reported that “five years ago, hospital and doctors bills were rising mainly because [more patients were receiving more services] according to Blue Cross data, but now the escalating prices that hospitals and doctors charge is far more important.” When looking at historical changes, beginning and ending points determine results. The Massachusetts report cover three years when rising prices were very important. This doesn’t tell us how or why health care spending in Massachusetts rose from 1989 to 2009. (Or what will propel spending over the next 15 years.) But in general, long-term trends are more telling, particularly if they persist. http://www.boston.com/news/local/articles/2008/11/16/a_healthcare_system_badly_out_of_balance/?page=3
What we do know is that in 2000, two of Massachusetts’ brand-name providers flexed their muscle and gained new power for marquee medical names throughout the state. That was the year that Partners Healthcare Systems, the result of a marriage between two of Boston’s most prestigious hospitals (Brigham and Woman’s Hospital and Mass. General), demonstrated that, in the words of the Boston Globe, “it could bend insurers to its will.” http://www.boston.com/news/local/articles/2008/11/16/a_healthcare_system_badly_out_of_balance/?page=3
Tufts’ Health Plan decided to stand up to Partners and refuse its demand for a substantial rate increase. Partners countered by declaring it would no longer accept Tufts’ insurance at its hospitals.
Within days, “as thousands of Tufts customers threatened to change insurance rather than lose the right to treatment at the two famous hospitals, Tufts gave in to Partners' demand,” the Globe reported. “Since then, Partners has negotiated one big pay increase after another from insurance companies fearful of a similar humiliation.”
In its 2008 Spotlight investigation the Boston Globe demonstrated that, following that debacle , hospitals with elite reputations were being paid more for identical services.
Dr. James D. Alderman, for example, is an interventional cardiologist who routinely opens patients’ clogged coronary arteries by inserting a flexible tube with a tiny balloon at the tip. Sometimes he does the angioplasties, at MetroWest Medical Center in Framingham. Sometimes he operates at Brigham and Women’s Hospital as part of a research program.
When he does the procedure in Framingham, the insurance company will pay the hospital about $17,000, not counting the physician's fee. If Alderman is sent to Brigham and Women's in Boston, that hospital will receive about $24,500 — 44 percent more , even though the patient's care will be the same in both places.
"It's the exact same doctor doing the procedure," said Andrei Soran, MetroWest's chief executive told the Globe. "But the cost? It's unjustifiably higher."
Often, different hospitals charge very different prices for relatively simple tests. “Children's Hospital typically gets about $1,100 for making an MRI of an ankle or a knee, not counting the physician's fee,” the Globe noted. “Insurers pay Boston Medical Center $490 for the same procedure, using a similar high-tech machine”.
“The technician who makes a simple chest X-ray to help diagnose pain or an insistent cough brings in $75 at Anna Jaques Hospital in Newburyport. Mass. General earns more than twice as much, $160, for producing the same image.”
Consider how much higher charges add to the health care bill that we all pay: “the Brigham and Mass. General receive at least $500 million a year more from the three biggest insurers than if they were paid at the lower rates typical of their rivals. Likewise, Partners' 6,000 physicians are paid 15 percent to 40 percent more than most other Massachusetts doctors, based on Blue Cross rates, while the company's community hospitals earn at least 10 percent more than their peers. http://www.boston.com/news/local/articles/2008/11/16/a_healthcare_system_badly_out_of_balance/?page=4
“Altogether, those higher rates add up to at least $800 million more for Partners hospitals and doctors than if they were paid at rates similar to competitors.”
What the New Massachusetts Report Does Show
Back in 2008, the Boston Globe Spotlight Team found that hospitals such as Partners’ Massachusetts General Hospital and Brigham and Women’s Hospital typically were paid 15 percent to 60 percent more for essentially the same work as other hospitals, even though the quality was not superior.
Coakley’s report, which is based on tens of thousands of contracts and other documents subpoenaed from insurers and providers and depositions from more than 30 key health care executives, reveals that the payment gap is even wider than the Globe suspected. Today, a small group of about 10 hospitals statewide command up to to 100 percent more than 55 rivals doing similar work.
Coakley did not release the names of the highest-paid saying she wanted to lay out system wide problems, not blame individual organizations. But we may get more detailed information during Patrick administration hearings on how to control medical costs, scheduled to begin March 16.
I believe that this information should be made public.
There may be reasons why certain hospitals need to be paid more—higher labor costs and overhead, or the costs of educating medical students. But the disparities are way too large.
Preview, Part 2—Should We Break Up Large Insurers? Maryland’s Answer
In Part 2 of this post, I’ll talk about a proposal , backed by many in Congress—to repeal the law that exempts health care insurers from anti-trust laws. Supporters point out that insurers are highly concentrated in many regions, giving them very little incentive to compete on price. Legislators would like to see more, smaller insurers competing with each other. In theory this would lead to lower prices.
But smaller insurers would have even less leverage in the marketplace. (Austin Frakt makes a strong argument on The Incidental Economist, here. http://theincidentaleconomist.com/antitrust-and-health-reform/
As hospitals consolidate, insurers are losing negotiating power. And this isn’t just happening in Massachusetts. It is happening anywhere that the balance of power between providers and insurers has tipped to favor largef providers.
An Alternative Solution –Maryland
Rather than hoping that market competition will bring down prices (something that rarely happens in health care markets), Washington might consider Maryland’s solution.
In Maryland, hospital prices have been regulated since 1977. An independent agency sets rates for all patients, including Medicare beneficiaries, at Maryland’s acute-care hospitals.
Adjustments are made for hospitals located in cities where the cost of labor is higher, as well as for hospitals that care for sicker patients and/or train medical students. http://online.wsj.com/article/SB125288688445707403.html
Private insurers, Medicare and Medicaid all must pay the prices set by the commission. Medicaid cannot underpay hospitals—and private insurers cannot over pay, or negotiate side deals and discounts with certain hospitals while paying others a premium for their brand name. Hospitals also cannot charge uninsured patients more.
In 1976, before regulation began, Maryland hospital costs were paid 25% more per case than the national average. By 2007 Maryland's costs were 2% less than the national average. And , according to a recent article in the Wall Street Journal Maryland’s hospitals are seeing small, but predictable profit margins. http://online.wsj.com/article/SB125288688445707403.html
To me, this sounds like a much more rational health care system.
I’ll talk about this more in part 2 of this post