Monday, May 24, 2010

Flash! MA has rate-setting!

It's just that we don't call it that.

Many months ago here and often in private with my hospital colleagues, I have advocated for a formal rate-setting process for hospital reimbursement rates. (To the best of my knowledge, only Maryland currently has such a system.)

The reaction from the industry has been uniformly negative. "How can we let faceless bureaucrats in the state government decide on the fees that hospitals could charge for care?"

My answer is that for years we have let unaccountable insurance companies do the same thing. This has led to the current disparities in pricing in the Massachusetts market, a phenomenon that the Attorney General found to be partially responsible for the growth in health care costs and insurance premiums in the state.

Now, the state insurance commissioner has expanded the power of insurance companies to do more of the same. By enforcing arbitrary rate limits on certain policies, the commissioner has, in essence, directed the insurance companies to take money out of the hands of the hospitals and doctors. And, sure enough, it is happening, as noted in this Boston Globe story.

As I have mentioned, this approach serves mainly to increase the current disparities in payments.

So, on the one hand, we hospitals oppose rate-setting. On the other hand, we let it happen to us. But instead of having an administrative state agency whose hearings would be open to public scrutiny and whose determinations would be subject to judicial review, we now have insurance company personnel making these decisions in private sessions. Their rate-setting decisions are not public and are made without accountability.

13 comments:

Anonymous said...

As a resident of and former hospital-based doc in Maryland - you make a good point. We didn't really like our system, but yes, it's out there in public and anyone can read the state commissions' meeting minutes online. I must say the Massachusetts process is leaving me scratching my head; it seems like they're making it up as they go along.

nonlocal

Lynn Nicholas said...

Paul, while I disagree with your premise that the state should set reimbursement rates for hospitals and other providers, you make an excellent and strong case for increased transparency and accountability in the commercial healthcare payment system. The public is aware that government regulates healthcare through a public process. Few members of the public are aware of the extent to which commercial insurers "regulate" not only payment to providers, but to an increasing extent, the clinical process. Insurers negotiate payment rates through contracts, but also increasingly use the “backdoor” – invoking their so-called “policy ” changes – to unilaterally change hospital revenues and the way care is delivered. There are no negotiations and often not even much notice of such changes to affected hospitals. And, the changes often take us in a direction counter to the most widely accepted long term answer to better cost and care management: "integrated care." Hospitals' concerns regarding a formal hospital rate setting process by government is more than matched by their objection to commercial insurers' undercutting the validity of contract negotiations through unilateral, backdoor moves.

Anonymous said...

With a huge share of the market (I'm told close to 60%), Blue Cross sure looks, smells and feels like a regulator. Over the past 15 years, they set prices that make no sense at all. By establishing prices that are lavish for some, and totally unsustainable for others, they pick who will live and who won't. Then they act shocked when more of their members decide to get their care at the lavishly paid hospital. Not so surprising really. Pretty predictable, no?

Even with their huge market share, they claimed to have limited control over pricing. Yet when hospitals with high Medicaid shares who serve the Commonwealth's poorest communities beg for rate increases that would still leave those hospitals with rates 10-20% lower than their competitors, they suddenly have boatloads of resolve! They never had any problem saying "no" to the poorest hospitals. Bill Van Faasen's tough talk in the Globe today wasn't for Partner's or Children's or others who they already gave excessive rates to, it was for the "have nots." It was sabre-rattling reminding the lowest paid hospitals that he isn't interested in serving poor communities anyway, and will gladly leave those markets for more profitable pastures if they dare to ask for rates that would reasonably cover their costs.

We do have a regulator in Massachusetts, and they aren't benevolent and definitely not fair. Blue Cross is defensive of the mess they've made of this market, and unwilling to own up to the damage they've done to so many low-income communities. Van Faasen's comments today show that we should expect more of the same. The healthcare juggernauts Blue Cross created will keep their super-duper hospital and physician rates, and the rest of the state, can "eat cake!" We hear you Blue Cross. Really, we do.

Cetus said...

I wonder about the real financial health of the insurance industry. So much attention has been given to the financial industry but not nearly as much to the liquidity crisis that has been quietly impacting insurance and reinsurance. And folks think the machinations of Wall Street banks are complicated!

How confident is everyone in the accuracy of ratings agencies' reviews of health insurance company's actual reserves and cash flows, hmm?

There's more driving the current shake-down than meets the eye. The insurers' liquidity problems are straining their ability to manage on margins most folks thought were already hefty in "normal" times. I doubt that legislators at any level will force greater transparency at this time for fear of upsetting "orderly markets." The M.O. has been to support "extend and pretend" in this economy. Very sad times.

Anonymous said...

WHY ISN'T ANYONE LOOKING AT THE BIGGER PICTURE? THIS IS ALL ABOUT INSURANCE COMPANIES MAINTAINING THEIR PROFITS.

Health insurance companies play a major role in our current healthcare crisis. These companies make huge profits and their CEOs make millions,. Physicians, patients, and hospitals are being squeezed mercilessly while the insurance companies rake in the profits.

HEALTH INSURANCE COMPANY PROFITS IN 2007:

1. UnitedHealth Group -- $ 4.654 BILLION. UnitedHealth Group owns Oxford, PacifiCare, IBA, AmeriChoice, Evercare, Ovations, MAMSI and Ingenix, a healthcare data company

2. WellPoint -- $ 3.345 BILLION. Wellpoint owns BLUES across the US, including Anthem Blue Cross Blue Shield, Blue Cross Blue Shield of Georgia, Blue Cross Blue Shield of Wisconsin, Empire HealthChoice Assurance, Healthy Alliance, and many others

3. Aetna Inc. -- $ 1.831 BILLION

4. CIGNA Corp -- $ 1.115 BILLION

5. Humana Inc. -- $ 834 million

6. Coventry Health Care -- $626 million. Coventry owns Altius, Carelink, Group Health Plan, HealthAmerica, OmniCare, WellPath, others

7. Health Net -- $ 194 million


HOW TO WE EDUCATE THE PUBLIC ABOUT WHAT'S REALLY GOING ON?

Paul Levy said...

Anon,

Those companies are not big players in the MA market.

Anonymous said...

If you eliminated all of the administrative costs in the entire health insurance industry in Massachusetts, we'd be back to the same level of total spending in a 2-3 years with the current rates of increase in medical costs. There are absolutely opportunities for administrativce efficiency and simplification and I wouldn't mind a single payer system myself because it would be more efficient and create some countervailing leverage vs. the hospitals. But don't kid yourselves that there is an easy path to cost nirvana by getting rid of insurance company administrative costs. (And also don't kid yourselves that insurers are the only entities that have large levels of reserves/surplus--the combined surplus of the largest hospital systems in Massachusetts far surpasses--by orders of magnitude-- the combined reserves of insurers.) Private negotiations among hospitals and insurance companies have produced large and unjustifiable disparities in payment rates, disparities that are explained primarily by market leverage of hospitals, as the AG's March report makes clear. Fine to focus on the dominant position of BCBS, and it certainly could have done more if it had had the will and resolve to do so. But the increasingly dominant position of many hospitals, combined with an employer community and legislature that have been unwilling to take them on is by far the biggest problem. It sure seems to me that we need some other entity to help re-calibrate the system, and I don't see any plausible candidate than government. Sadly, there seems little to no willingness in the legislature to take this on in any real manner. So, get ready for a continuation of an unfair and inefficient payment system and a growning gap between the haves and have-nots. If you don't want the insurers setting the rules of engagement, support another approach, and urge your legislators to do the same.

MOS said...

Please also note that most of the companies above are for-profit insurance companies.

I have worked in Healthcare Finance for over 15 years. During that time, I have worked at two nationally accredited Mass HMO's that almost went under.

It is far easier to blame the big bad HMO than to deal with the crisis at hand. Members want the best tests/care available and don't understand what healthcare truly costs. Providers often want to maximize the RVU's-- get as much as they can. Yes, insurance companies want to make $, but in Massachusetts the profits are used to offset losses in bad years, as we are in now. And, no I don't make a HUGE salary.

Lastly, I practice what I preach. I try to get the most effective care by going to the ER only when it is an Emergency. I use Community Hospitals for routine care and Teritary ones for higher level services. I know how much an MRI costs and will instead ask for a plain film x-ray. I shop healthcare as I do for other services. Things have to change.

Keith said...

I would agree that there is some stupidity of the insurers that seems focused on short term profit by there act of annoiting some hospitals with richer reimbursement than others. The result will eventually be large, expensive hospitals dominating the market and being able to leverage higher rates from the insurer. It is a system that seems destined to result in little or no competition in each health care market, and we know what happens once there is no competition.

As I have stated before, I don't know why insurance companies don't fight back against higher cost hospitals by tiering their reimbursement much like they do with pharmaceuticals. You want the expensive branded drug? You pay the higher co-pay. You use the generic version and your contribution is less. This would allow insurers to have these supposedly premier institutions in their network, but not at a higher cost that is passed on to the other members using lower cost hospitals.

If insurers flat rate the consumers portion of the bill, but pay some providers more than others, this system will eventually fail. This is like someone purchasing a voucher to buy a car, where once you have bought your ticket, you can purchase your new car from any auto dealer in the Boston area. How many Mercedes do you think will be sold vs Ford Focuses? And eventually, the higher ticket brands would dominate the market and wipe out the lower priced competition. So then the only choice we will be left with is to buy the high priced Mercedes that most people would never be able to afford in the first place! Isn't this is what is actually happening in the health care market in most areas of the country?

76 Degrees in San Diego said...

Anon 0230 am -

Good question! "HOW TO WE EDUCATE THE PUBLIC ABOUT WHAT'S REALLY GOING ON?"

Well, buy stock! Become a shareholder. Read the financial reports. Look at the overhead. See what your return on investment is. Go to a shareholder meeting and ask questions. There is a lot of financial risk in healthcare - the expenses are great. So, there has to be the potential of reward for you to risk your own money (it is always easier to ask others, including the taxpayors of the great Commonwealth, to risk their money).

Anonymous said...

76 Degrees: I own a few shares of stock in each of the for-profit health insurers so I can get their annual reports and see what's going on. It's pretty nauseating. And if you think the companies pay any attention to me, owner of a miniscule number of shares, you are deluded. As for risk, I don't see much of it in health insurance for the insurers. They mainly act as fairly passive pass-throughs for medical costs, taking their very generous executive comp and profit margins. So I am educated but let's get real: I don't have much power to change anything by being a shareholder. I just understand more how rotten to the core the system is. And I have more recycling.

76 Degrees in San Diego said...

Anon - OK, what has your return on investment been(I sense you are not happy)? Do you know how much (or little) profit has come from healthcare operations? (we are all probably shareholders in the healthcare industry via mutual funds)

Cetus said...

Anonymous, not sure what you mean when you say you don't see risk in the health insurance business.

See this old chestnut from the Congressional Budget Office in 1992, available at:
http://www.cbo.gov/doc.cfm?index=4935&type=0

Collapse of Asset Markets

A severe drop in the prices of bonds or other assets that the insurance industry holds also could threaten the smooth functioning of the insurance industry. The collapse of the market for a single financial asset normally would have a small impact on the financial condition of insurers because they typically hold well-diversified portfolios of high-quality assets. But life insurers, like savings and loans and banks, assumed greater investment risks during the 1980s, and the collapses of the junk bond and commercial real estate markets have pushed a number of moderately large life insurers into insolvency.

Additional problems may appear in the coming years as a large number of risky "bullet" mortgage loans on commercial real estate come due in a weak real estate market. Given that the junk bond market has rebounded from its lows of two years ago and that the bottom may be near for the commercial real estate market, these markets appear rather unlikely to be a major source of additional financial difficulties for insurers in the near future.


Insurance company structured finance operations and reinsurance relationships are complex, risky and opaque.