Wednesday, June 02, 2010

Tsunami heading here

With the speed of tidal changes in the Bay of Fundy, word is now arriving at hospitals throughout the state that they will be given rate decreases in their current contract renewals.

Think about this. These hospitals face increases in salaries and wages for their nurses and other staff (sometimes as contractual commitments in collective bargaining agreements) and increases in the cost of goods and supplies needed for patient care.

Insurers say, in essence, "That's not our problem."

Well, it is your problem. Insurers do not deliver care. They are financial intermediaries who add little value to the provision of health care*. If they cut the resources needed by hospitals, they will affect communities throughout the state.

By communities, I mean people. Workers at hospitals. Patients and families in the cities and towns.

We need to remember that the proximate cause of this crisis is an Administration that imposed arbitrary price caps on the insurers and then told them to go make up the losses by squeezing the providers.

But not all providers. Not the ones who were found by the Attorney General to have rates that are out of whack.

As disclosed by the Attorney General in explaining the longer term health care cost trend: Disparities in reimbursement rates permitted the highly compensated hospitals and physician groups to expand market share by building facilities and recruiting doctors, compounding the rate advantage they already had.

If we have a $100 million or $200 million short-term problem, let's look in the right place for the solution. Beyond the short-term problem, there is a structural problem that arises out of the state's noble decision to provide greater access to health care and out of the rate-making process that rewards market power.

Insurers who characterize their current approach as being a virtuous resolution to these difficult problems are complicit in the general unwillingness to engage in meaningful change that will set the Commonwealth along a sustainable path.

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* Admittedly, they have provided actuarial value in the past, but as we move to capitated contracts, that value is diminished.

11 comments:

Anonymous said...

Paul, I truly sympathize with the disparities that impact BIDMC and BMC. That absolutely needs to be rectified. If you can provoke immediate legislative action on this, God bless, I'm with you.

But WRT costs, there's a persuasive school of economic thought that maintains we're in a deflationary wage cycle being papered over by the quantitative easing policies of the Federal Reserve and other central banks. Sorry, but I'm just not buying the argument for ever-increasing costs in this environment. And if the "free market" is not currently yielding good price discovery for healthcare services, where else will cost containment come from if not "arbitrary" govt action?

See, for example:
http://wallstreetpit.com/26700-david-rosenberg-we-are-on-the-throws-of-seeing-wage-deflation

Anonymous said...

Can you provide a general idea of what percentage of hospitals in the state have their contracts up for renewal this year?

Also, I thought I read somewhere previously that the insurance contracts have some sort of "out" whereby insurers (or maybe either party) can re-open negotiations even if the contract term is not expired?

It would appear that a lottery in reverse is being created here - those hospitals unlucky enough to be up for renewal are going to take the hit for those who aren't. Which I assume includes the 800 lb gorilla who is consuming most of the goodies.

It would seem only fair that the state, having changed the rules in midstream, should also decree that all state insurance contracts have to be re-negotiated now, under the new rules.

Paul Levy said...

Anon 1:41,

Dunno, but figure 1/3, since three-year durations are common.

Anon 1:07,

If government is to be involved, let's do it rationally, with court-reviewable rate-setting rather than arbritrary figures pulled out of the air.

The Medical Quack said...

I just posted a press release this morning too on device companies and technologies are not happy either as current reimbursement strategies and coding are stifling innovation for minimally invasive procedures performed at hospitals.

http://ducknetweb.blogspot.com/2010/06/surgical-and-medtech-experts-state.html

There's a reference there to Brigham and Women's hospital being included with their viewpoints as well. Also mentioned is the better informed patient today having an impact. This add more fuel to the fire relative to insurance reimbursements too.

Anonymous said...

What is the status of the legislation referred to in one of the Globe articles you reference:

" Patrick has also filed legislation that would allow regulators to review contracts between insurers and health care providers..."

Paul Levy said...

No bills have passed.

Anonymous said...

@The Medical Quack:

Are you really saying that insurance reimbursement schemes (which have been relatively constant) are more of a factor in stifling new device development than the collapse of VC over the last 3 years? Surely you jest...

The days of investors expecting Ponzi-scheme level returns on initial capital investments in medical technology are over.

Anonymous said...

Anon 1:07 is missing the point entirely.

Yes, the market isn't yielding good "price discovery." The AG issued a report some 50 pages long that made that perfectly clear. They also made it clear that a handful of hospitals and doctor associated with them are the bandits we need to address.

Low cost hospitals are getting their lunch money stolen from the playground bully. Worse still, that playground bully is sitting on Billions in reserves for insurance risk he is rapidly transferring to those low cost doctors and hospitals. Doctors and hospitals now hold the risk for hundreds of thousands of Blue Cross members. So does why should Blue Cross need reserves for them anymore? And since a huge portion of their business is with the self-insured, they don't need reserves for that either.

Paul Levy said...

Transferred from Facebook:

Theresa: Oh please start advocating to take the insurers out of the equation altogether! share the pie among the providers.....and the people who cannot afford every increasing rates......

John: It all seems like a political play on the part of the Patrick administration. Tell the insurance companies no to rate increases and then let them be the bad guys to providers. The insurers will paint with an indiscriminately broad brush and the consumers will win, and the governor will get reelected.

I wish it were so simple. Once the insurers have burned through their reserves and the providers razor thin margins have evaporated we"ll be back where we started, and the payment disparity issue will remain unresolved.

Anonymous said...

Anon 7:10, Anon 1:07 here. :-)

I don't think I'm missing the point. I think folks who view the economics of the healthcare industry in a vacuum are missing the point. Minimum reserves are set by insurance regulations. Recall that a number of insurers received TARP money due to exposure to "toxic" MBS. I'm skeptical that their balance sheets are that healthy and suspect that off balance-sheet liabilities are driving their rate increase requests.

Member numbers and risk are the basis for bond ratings. The insurers' addict-like dependence on revenue from playing in the market and the ongoing liquidity crisis threatening their ability to roll debt is jeopardizing reserves. Thus the demand for double-digit increases in a time of deflation. I've read the AG's report and I respectfully disagree with its treatment of pricing in a vacuum. Forgive me (because I find your comment thoughtful) and Martha forgive me, but it is naive to think that the negotiations between providers and insurers are what is really driving the pricing action in this industry.

Full disclosure: my pipe dream is to see Massachusetts hold the line and watch these parasitical entities go into insolvency. I would love to see a single-payer system in my lifetime, or at least my children's lifetime.

Engineer on Medicare said...

The principle that has applied to health care expenses, labor rates, and capital investment is that the major providers spend whatever they think will make them bigger with the prospect that they will be able to charge whatever it takes to cover the costs and "profit". The insurance carriers have no incentive to control costs and payments because the more they pay, the more they can rake off to make themselves bigger and their salaries higher.

The only way that I can see to stop the geometric cost growth is for someone representing a very large fraction of the payers to demand an audit of costs and to determine what will be covered and what they will pay.

The standard should be to deliver quality health care while controlling costs. One way may be to have a single payer for a majority of the health care economy. The current situation in Massachusetts and the rest of the country doesn't seem to be working. If there is another system that would deliver the care while controlling costs, I would like to know what it is.