People from other states would be wise to watch the sequence of events happening here in Massachusetts with regard to health insurance rates. As I described below:
Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned down proposed rate increases, the state's insurers appealed to the courts, and now they can't write policies.
Now, Rob Weisman at the Boston Globe reports on yesterday's hearing in Suffolk Superior Court. The insurers argue that the action by the Insurance Commissioner is arbitrary and capricious, the traditional standard used to overturn a decision by a regulatory agency. The Division of Insurance argues, in part, that the insurers have not used up their administrative remedies before the agency, another traditional argument. A ruling is expected on Monday.
Meanwhile, columnist Scott Lehigh offers thoughts on "The State's great health care standoff," noting that "Unease is in the saddle in the state’s health care sector, and chaos looms on the horizon." He says,
Everyone is awaiting the next big political development. And here it is: Senate President Therese Murray will step into the breach when she speaks to the Greater Boston Chamber of Commerce Wednesday, unveiling a proposal she hopes will resolve the great health care standoff.
Senator Murray is a thoughtful and decisive person, and I, for one, look forward to her taking the reins here as many other elected and appointed official ignore the remarkable conclusions reached by the Attorney General. Just a few weeks ago, the AG issued a report, after months of study, in which she clearly explained that insurance price increases in the state were the result of two factors, the underlying increase in health care costs and a disparity of reimbursement rates that pay some providers substantially more than other providers. "Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers."
She also noted that the movement by some insurers and providers to capitated contracts did not result in a different growth rate in underlying medical costs from the traditional fee-for-service payment method. "Variations in providers’ per member per month expenses are not correlated to the methodology used to pay for health care, with expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis."
In a comment below on one of my posts, astute observe Barry Carol offers the following thought. While he focuses on just one of the better paid hospital-doctor systems in his first paragraph, his second paragraph makes it clear that his approach could apply more broadly to others as well:
As I see it, the key problem from the insurers’ perspective is that employer customers felt it was absolutely essential to have Partners in their networks because that, presumably, is what the employees wanted. While narrow or limited network insurance products are quite well accepted in CA especially, it’s a different story in MA. Harvard Pilgrim, I believe, offered an insurance product that did not include Partners in the network but it didn’t gain much traction with customers.
This is why I keep coming back to disclosure of contract reimbursement rates and quality information to the extent that it’s measurable to help referring doctors steer their patients toward more cost-effective healthcare choices. I think that’s the best and most viable way to create countervailing power against Partners and other hospital systems with significant local or regional market power. Insurers could develop a mechanism to reward referring doctors who actually do this most effectively but they would need the price and quality information first. I think I know why insurers resist disclosure of contract rates but I don’t know why the regulators do.
To which I add one other thought in my comment on Scott's article:
Let's also look at the 10% of premiums used by the insurers for administrative costs, a percentage that has stayed remarkably steady over the years. As overall premiums have gone up, the number of dollars collected for non-medical costs has risen dramatically. Other financial services industries have been able to achieve improvements in their administrative and transaction-related expenses. Why has that not been possible in the health insurance field?
And just to make it clear that providers have a role, please review what I have said below about the potential for real quality improvement and cost savings to be achieved. An excerpt:
[I]t is possible for the participants in the health care system to accomplish major changes in the rate of medical cost inflation. Two articles have this theme. One is by Business Week's Catherine Arnst. The other is by Lucien Leape, Don Berwick, and others in Quality and Safety in Health Care. Both are worth reading, and they overlap in recommending several areas -- reducing infections and other preventable harm; empowering patients and families to participate in their care; and disclosing and apologizing for mistakes.
[T]here is a remarkable consensus on these items, and yet hospitals and doctors often fail to implement them. . . .
It is not unusual for industries facing structural change to be slow to move. Why? Because the leaders of those industries were promoted based on their success in the past financial, political, and social environment. They were hired for their ability to maintain the status quo, rather than for their ability to make change. Eventually, though, societal forces make themselves felt. If an industry does not adapt, the government will step in.
That is what we is happening right now in Massachusetts. Watch us closely, other 49! Do we go the route of short-term political expediency and bad regulatory policy, or do we show the wisdom and maturity to put in place directionally appropriate policies? There is an old legal expression: Hard cases make bad law. As things founder in the judicial and executive realms, brava to Senator Murray for having the courage to step in.
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10 comments:
I do research for a living but not in healthcare. I have read the AG's preliminary and final reports and I think the methodology is flawed. I admit that the conclusions (e.g., that MGH can charge more because everyone wants the option to go there) look intuitively correct but in research speak, the sample looks flawed. The AG reports do not appear to be looking at all health care delivery activity. Only what two insurance companies do vis a vis providers. But for example, while that picks up what BCBS pays Fallon Clinic, it does not appear to include what Fallon Community Health Plan pays Fallon Clinic
By the way, I care because I am one of those that has been cancelled by my insurer (Fallon) solely I believe because I am an individual, have been told to go to the exchange, but the exchange does not work. This is a perfect example of why you don't want the guys that run the Registry running your healthcare.
Good blog by the way!
From the perspective of an out-of-stater, the twists and turns of the Mass. debacle make good political theater. However, the lesson I take away is that dramatic public events among insurers and politicians serve only to divert attention from more important influences in health care: providers, meaning hospitals and physicians, and the patient.
The article by Leape et al clearly demonstrates that neither hospitals nor doctors are yet on board with the necessary changes in health care delivery. This view is supported by the many skeptical and even vicious comments on blogs by physicians, who clearly don’t “get” what people like Berwick are trying to do. The hospitals are successfully pursuing business strategies like “kill your competitor” which are typical of companies like Microsoft, instead of taking care of patients.
Patients, in the meantime, figure an academic center is the best place to go to have the most routine medical care, apparently especially in Mass. They have no incentive to do otherwise.
The people directly on the giving and receiving end of health care are at the root of the issue. Actions by insurers, employers, and government should be directed toward adjusting incentives to shape their behavior - but let’s not let those actions divert our focus from what’s at the bottom of this “root cause analysis.”
nonlocal MD
Many good comments in this post.
And while the other 49 states look at MA, perhaps MA should look at the few other countries that have recently tried private multi-payer universal health care. Switzerland and Holland come to mind.
They both have a publicly-available fee schedule for medical procedures, as well as an open mechanism to negotiate and determine those rates. I suspect we'll end up with something similar in MA as well.
I'm in agreemnt that fracas in our little Massachusetts fish bowl portends what we will see on a national level as healthcare reform is implemented. Local healthcare reform was really just insurance reform and the national plan is MA writ large. Nothing save a few demonstration projects even begins to look at the cost of care. In our state we face particular market dynamics driven by academic medical centers and the "Partners Problem". I have to imagine that variations on this theme exist in virtually every state. It is no wonder that the AMA signed on to support reform, they came away virtually unscathed. While correcting the worst behaviors of insurance companies is a socially desirable outcome until we are willing to deal with direct healthcare costs this problem will not go away. Let hope Ms. Murray has something positive to add to the mix.
No doubt there are general things that people can do to lower the costs that we all hear about, diet, exercise etc. but once you're in a hospital, the pricing is entirely opaque. The patient has no discretion on any matter, nor any insight into what doctors and staff are spending on you. To add insult, once you're back on the street, the hospital makes it as difficult as they can to get a detailed copy of the charges with the $6 aspirin and $4 gauze pads. If people could see what they were being charged they might take a greater interest in holding down costs.
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Because as healthcare providers come up with new technologies, expanded programs, new capabilities, and increased capacity, insurers have had to develop programs and add staff to review the effectiveness of those programs, monitor the eligibility of those services for coverage under benefit terms, and review the medical necessity of the services being provided.
Otherwise the costs would have gone even further up; it is fairly well-established that program capacity, more than epidemiology or symptomatology, correlates to use of medical services. Reagan may have been wrong about supply side economics as a cure for recession, but he would have been unquestionably, unimpeachably correct were he to apply voo-doo economics only to healthcare service delivery.
As a former CEO in the federal healthcare system, my guess is that ultimately the state will act in the only way they know to respond, with price controls. This will make it challenging for healthcare organizations to sustain financial viability while maintaining quality and scope of services.
Paul, you point repeatedly recently to DA Coakley's report (and it is important data), but what's missing from the DA's report that would make it more useful, is a denominator, or more accurately denominators.
While it provides a framework for discussions and provides valuable information, what it doesn't provide are the denominators such as quality metrics (Paul you're obviously a big fan of this) or such as the difference between setting a compound fracture and doing so on a high risk diabetic as just two examples (there are many more).
Like any good scientific study, comparisons can only be made if the denominators are the same, I would argue they are not or at the very least not defined.
It's a good idea a third party in the guise of Therese Murray is getting involved.
I think this will resolve in the favor of the non-profits with a twist: if the insurers want to impose the rates, they must open their books for review by an independent auditor to see how things are being paid out to the providers. The non-profits that agree and are found to have their rate hikes justified will allow to hike them, otherwise the rejection stays and the non-profits must then decide whether to drop provider groups, reduce payouts, or a mixture of both.
On the other hand, the judge could rule in favor of the governor, but allow a much higher cap for hikes than the governor wants. If the governor is mandating a 5% rate hike cap, the judge could raise that to 15%. Then the non-profits could decide to accept the decision, although it would mean paying out less to providers, or reject them, which would result in dropping provider groups.
You are correct, though, Paul - Massachusetts will be the test lab in how the new national health care bill works.
MA purchasers of health care may be approaching the “tipping point.” You note that institutional leaders may be slow to respond but purchasers cannot wait. Self- insured employers can and probably will move the quickest.
Health care providers with better cost/pricing structures can appeal to self-insured employers today and start educating patients for the future by publishing their prices on easily understood comparable services, such as the following.
CT Neck without Dye
MGH. $1,063 to $1,380
BIDMC $461 to $734
MRI Neck without Dye
MGH $2,805 to $3,307
BIDMC $1,621 to $1,757
Source: 2009 Aetna fee schedule – facility charge only
Price competition on surgery and other sophisticated services probably await much improved quality measurements and "bundled prices per procedure."
Small businesses and individuals are likely to see savings large employers are receiving and demand insurers offer plans that do the same for them. Such plans need not be “closed panels.” PPO plans let patients choose any provider they just have to pay more out-of-pocket.
The above steps would quickly save money for purchasers/patients and increase market share/cash flow of efficient providers. Meanwhile providers could pursue more challenging, long term initiatives such as: 1) improving quality 2) re-engineering service delivery and 3) managing patients with chronic conditions and 4) preparing for “annual bundled payments."
David Semple
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