Wednesday, May 12, 2010

Robin Hood in reverse

Jim Stergios and Amy Lischko from the Pioneer Institute write a well reasoned op-ed article in today's Boston Globe about current events in Massachusetts, where the Insurance Commissioner has decided to impose arbitrary price controls on a portion of the health care insurance market. More background here.

The consequences of this action are starting to be felt. Blue Cross Blue Shield of Massachusetts sent out a letter this week to the state's hospitals in which it notes:

In the coming weeks, we will work directly with individual hospital and physician groups on ways to reduce the payments we make to physicians and hospitals in the near term.

My translation of this is that those hospitals whose contracts come up for renewal this year will get no increase in their reimbursement rates from BCBS. Presumably other insurers will do likewise. These actions are predictable in that these insurance companies, under the supervision of the same Commissioner of Insurance, are required to maintain certain capital reserve levels. If they can't charge customers the actuarially appropriate rates for insurance, their only option is to charge other customers higher rates or to stiff the hospitals and doctors.

Ironically, though, the approach now being taken will aggravate an underlying problem in the Massachusetts insurance market, a problem documented in full by the Attorney General just a few weeks ago: The large disparity in rates paid to hospitals and physician groups based on their market power. The large, powerful groups who have contracts extending beyond the current period will continue to get their disproportionate rates -- and, indeed, annual rate increases based on a percentage of those rates. The "have-nots" who happen to be up for renewal this year will find their rates frozen, and the differential with the "haves" will grow.

The further irony of this approach, too, is that the current crisis in small business insurance rates is fundamentally not a hospital and physician cost issue. Hospitals and doctors do not charge different amounts to serve subscribers from small businesses and individuals than those from large businesses. It is the manner in which ratings are done by the insurance companies that drives the differentials in premiums. Those rating decisions are based on actuarial factors. One of those factors is that small business and individual subscribers do not have a single open enrollment period: They can enter and leave the insurance marketplace based on subscribers' health. They are the ultimate example of adverse selection.

Eventually, the courts may rule on the legality of the Commissioner's actions, but damage will be done in the meantime. Several of those "have-not" hospitals are the major employers in their communities. Their main options for dealing with reimbursement deficiencies will be to cut back on staffing, capital investment in needed clinical areas, and service to their cities and towns. Damage will be done to the "economic growth engine" of the Massachusetts economy, the health care sector. Also, public confidence in the state's ability to implement its landmark health care reform approach will be reduced.

10 comments:

Wendell Murray said...

Does Beth Israel Deaconess Medical Center publish financials that are available to the public?

Paul Levy said...

Yes, all the non-profit hospitals file annual financial forms with the IRS and with the Attorney General.

Author said...

I completely agree with this. It sounds to me like the government is imposing a price ceiling below the market price, which will cause huge inefficiencies in the market as you described, such as lower quality. Hopefully we don't reach the point of a black market for health care.

nasov said...

We already have a black market for health care. There are grocery stores selling medicine and underground doctors serving patients. This happens extensively in the Brazilian population but I assume it happens among other immigrant groups. Occasionally a bad one hits the news -- the plastic surgeon in metrowest and just this week the dentist with the filthy office. But there are also good people in the black market.

e-Patient Dave said...

This just makes my blood boil.

Nasov, thanks for the observation about the "black market" in healthcare. I hadn't thought of it that way, but I see the point. In my view as a high tech industry observer I just noticed a growing unserved audience, who would start to fend for themselves; a year ago my colleague Gilles Frydman wrote "Will the great recession create millions of e-patients?" as millions of people fall out of the system.

Paul, re the economic aspects, I wonder if an argument can be advanced for interim adjustments to compensate for the consquences during the time when "harm will be done." The precedent isn't coming to mind but I know there are cases where, in a time of wrenching structural change, government has inserted policies to prevent harm, as the system moves toward its new equilibrium.

Anonymous said...

Paul:
in one of the links you posted, Coakley mentions "global payment system" which I'm assuming is similar to capitation. If they move to a global payment system, this has the potential to cause some,not all providers to potentially withhold care and or tests that they truly deem necessary inorder to make money.

In terms of academic institutions, they often care for the most vulnerable and patients that have complex medical disorders and with a global system, this will cause these institutions to close or their patients to get worse.

Wth these cuts, the providers that will be hit the hardest are primary care providers. Unfortunately, they are already overworkd, reimburssed far less then their colleagues and underpayed from the institutions that they work for. I hope that if cuts are made it is to specialty areas and not to primary care providers because all this will do is create longer wait times and more work for these providers. There is already a primary care shortage and this for sure will turn future doctors away from primary care.

The system is clearly broke

David Semple said...

Patients can reduce their health care expenses, and if all patients did so, reduce total cost of care and insurance premiums in MA, by merely choosing physicians who practice at less expensive hospitals. So why don't they?

Simply put, there is NO MECHANISM TO DO SO.

For 18 months I have been trying to convince CEOs of MA hospitals with high quality and lower prices to, along with their affiliated physicians, form a network to offer their services directly to self-insured employers and through insurance companies to small businesses, families and individuals.

I created such an organization in Seattle that today provides high quality lower cost care to nearly 1.5 million persons. It can be done in MA too, even though it was "Not Invented Here."

Please give it a try, hospital CEOs and physician leaders.

David Semple

Anonymous said...

Hi Paul,

I need to point out that small businesses do have a single, yearly open enrollment period. The only times a small business employee may enroll are: during initial enrollment (switching carriers), the anniversary date (the yearly renewal of the contract), or when there is a qualifying event (birth, death in the family, marriage, or documented loss of other coverage - etc.). If an employee waives coverage during open enrollment, they are disqualified from enrolling in the plan until one of these scenarios presents itself (likewise for an employee who enrolls and then leaves the plan at any point). This is the same standard applied to larger employers, outside of the small group market.

It is true that individuals, purchasing insurance on their own, do have the ability to "come and go as they please" - so to speak - but not all carriers pool these individuals with the small group market.

BCBSMA, for one, does pool these 2 groups together, and has seen their small group premiums increase at a rate greater than any other major carrier in the state - this was reflected in their rejected April 2010 rate filings with the DOI - they were far greater than those filed by Tufts, Fallon and HPHC.

There are many factors contributing to the exploding premiums in the small group market, but while you're correct in pointing out the negative effect that (this kind of) adverse selection has on premiums, it cannot be pointed to as the foremost cause of the "current crisis" when it is not factored into all carrier's small group rates.

Cetus said...

If an HMO/health insurer cannot contain its costs in this environment and cannot offer providers sufficient compensation for services, then the option for BIDMC or any other provider is clear: opt out. Don't sign the contract. Let the HMO/insurer adjust or go belly-up.

There's a nifty term for this market model: "capitalism."

When insurers and providers are essentially guaranteed annual increases, via regulatory rubber stamp, that is not capitalism -- "crony capitalism" perhaps, but not the real McCoy.

76 Degrees in San Diego said...

the SF Chronicle reported today that a Connector official from MA testified yesterday in the California legislature about the MA health program....(I hope the right questions were asked)....

"Change is good; you go first" - Dilbert