I received this query, submitted last night as a comment on my initial posting. I thought I would reprint it up here, as it is worth some commentary on the questions raised:
Just saw you on Emily Rooney show. Congratulations on the Blackberry! Why don't all hospitals offer the same discounts to all insurers to create a level playing field for competition? Are you worried that BC/BS is leveraging its power to become the only real player in MA healthcare?
The answer goes to the heart of the market power question in the Massachusetts health care environment. There are currently two dominant players in Eastern Massachusetts. On the provider side, Partners Healthcare System has built a very strong base of tertiary hospitals, community hospitals, and physician groups. PHS' ability to demand the highest rates from the insurance companies has been documented over the years. Here is a excerpt from the battle between PHS and Tufts Health Plan in the year 2000, where PHS threatened to withdraw from the Tufts network in the face of a rate offer PHS found inadequate. Tufts soon gave in because it could not afford to have insurance plans that did not include the PHS network. I don't think anyone can disagree that a sign of market power is the ability to engage in this kind of brinkmanship and win.
I am waiting for an enterprising reporter to document the extent of PHS' power by preparing a simple chart that compares the percentage market share of PHS versus other hospitals against the percentage of revenues collected by PHS versus other hospitals from the three major Massachusetts insurers. It is no secret that PHS gets higher rates for its doctors and its hospital procedures. Certainly the insurance companies know this, and perhaps there is enough public information available to document it.
Please note that I am not suggesting that this fact means there is an illegal level of market power or price discrimination. As far as I know, no such conclusion has been reached by a state or federal attorney general. I am just suggesting that size matters in the health care marketplace. PHS was created in part to enable its participants to be strong financial performers. The managers of the system have executed their business strategy well. Also, as noted below in my posting on the Harvard Medical System, the PHS hospitals are national leaders in clinical care, research, and teaching -- so I am not in any way suggesting that they have used funds unwisely. It is just that PHS' public modesty about its market influence does not reflect its true success as a business enterprise.
So, to answer the query received above, the other hospitals are fighting for whatever rate increases they can get from the insurers in the face of PHS' dominance in the marketplace. There is no way they would volunteer to offer preferred rates to an insurer while they are fighting for their lives to get rates comparable to those received by Partners.
On the insurer side, Blue Cross/Blue Shield has an even more dominant position, with more subscribers than all of the rest of the market put together. I can't speak for Harvard Pilgrim Health Care and Tufts, but I am guessing they feel the strength of this competitor every day when they seek to sign up companies as subscribers. BC/BS has the balance sheet to focus on market segments it cares about and to design rate plans that are attractive to those potential customers.
BC/BS is also part of a national network of the Blues, which gives them the ability to sign on national accounts: And if you haven't noticed, corporations with multi-state locations are a growing segment of the Massachusetts economy. HPHC has created an alliance with UnitedHealth Group to offer a similar national product line. This is a wise decision, although integrating a local company like HPHC with a huge national firm is sure to be a lot of work. Meanwhile, Tufts appears to be going on its own, an uphill battle for sure, although there is a chance that local loyalties will be an effective marketing approach.
To its credit, BC/BS has used its strong market position to push important aspects of the health care agenda. The company's focus on transforming the health care system to eliminate overuse, underuse, misuse, and waste is exemplary. Its stated goal -- to pay according to the quality of patient outcomes and efficiency in the delivery of medical services -- is the right thing for society and, by the way, is the only effective way to counterbalance the market power of a dominant provider system. When each hospital is paid for the results it achieves in patient care, rather than its market share, everybody wins. Ultimately, it is the only way to control the growth in health care costs because it stimulates the right kind of competition -- competition measured by results and efficiency -- among all providers. BC/BS' dominance in the marketplace gives it a unique ability to lead the way and achieve this result.