Thursday, May 05, 2011

The Inspector General expresses concerns

Most people think about the state's Inspector General in terms of preventing and detecting fraud, waste, and abuse in government. But Inspector General Gregory Sullivan is also a member of the state's Health Care Quality and Cost Council.

The Health Care Quality and Cost Council is mandated:

  • To establish statewide goals for improving health care quality, containing health care costs, and reducing racial and ethnic disparities in health care;
  • To demonstrate progress toward achieving those goals; and
  • To disseminate, through a consumer-friendly website and other media, comparative health care cost, quality, and related information for consumers, health care providers, health plans, employers, policy-makers, and the general public.
So, in this capacity, the IG has certainly had a chance to become informed about many aspects of the health care system and to make policy judgments about the health care marketplace. For example, he has reached the conclusion that the dominant provider group in Massachusetts probably does not want its next insurance payment contract renewals -- scheduled for next year -- to be subject to recently proposed legislation that would control reimbursement rates. Recognizing that a retroactive review would be legally prohibited, he says, the company's goal would to be to beat the legislative calendar and sign new contracts ahead of schedule. He posits that these contracts would be inflationary.

This was all set forth in a letter to the Governor this week. I include excerpts below:

It is my understanding that while existing contracts . . . are not set to expire in the next 12 months, negotiations regarding new contracts are taking place now. There is a strong possibility that these new contracts would become effective well before the expiration of the contracts that they would replace, and, in any case, would almost certainly be signed before the implementation of any payment restrictions following the passage of reform legislation.

... New inflationary long-term contracts between insurers and providers would end any hope of controlling health care costs in the next five years.

It is very interesting that we live in a state in which most providers and insurers say that state rate-setting is anathema. But, the Governor has endorsed it in his proposed legislation; and now the Inspector General says that current authority exists within the Division of Insurance to control premiums and, indirectly, reimbursement rates.

To address this crisis, our state government must use all relevant existing authority to control costs prior to the implementation of reform legislation. As you are aware, the Office of the Inspector General has long advocated that the Division of Insurance already has authority to restrict provider payments through the review in insurance rate cases of the reasonableness of the underlying costs that make up the premiums proposed by insurers. Specifically, the Division can examine an individual insurer’s current contracts with particular providers and make a determination that certain contracts will produce excessive and unreasonable payments to providers. The excessive amounts would then not be passed along to premium payers, thereby lowering their premiums.

The approach I am recommending applies to insurers on a case-by-case basis. In contrast, your proposed legislation would apply generally to all insurers and could be determined in one regulatory proceeding. But the case-by-case approach would bridge the gap until the time that a more general approach could be adopted. If we simply wait until legislation is passed, we will likely be unable to control health care costs for many years.

While their tactics might be slightly different, both the Governor and the Inspector General seem to be saying that the current rate-setting process is broken, that it does not provide enough transparency and accountability to the public.

If a few more elected officials step up and concur publicly, in the words of Arlo Guthrie, we "may think it's a movement."


Barry Carol said...

I still don’t understand why regulators don’t require public disclosure of actual provider contract reimbursement rates, especially for hospitals. Let referring doctors, patients, the media and the general public see how big the payment disparity is due to differences in local or regional market power and not, at least for the most part, care quality.

Anonymous said...

Hmmm, this is a good strategy - do things like offering 40 million to 'help' (remember that?) while you negotiate to beat the system behind everyone's backs. I believe the term for that - at least the nicest term I can think of - is 'two-faced."

Is it any wonder people want to regulate these things? The prevailing attitude is identical to that of Wall St. leading up to 2008. "Let's get ours - now."


Paul Levy said...

Barry, the state has the authority to do that and has even collected an all-payer, all-claims data base which they have said they would make widely available. To date, though, they have dragged their feet on that.

Anonymous said...

Well, it's not all on the hospital system's side, either. Looking at this from a strictly business standpoint, what is the insurance company's business motivation to agree to open early contract talks? It can only cost them more money than waiting for the legislation to take effect, and therefore could be seen as contrary to their company's best interests. So are they truly as devoted to reducing costs as they say they are, and why would they do something contrary to their own interests?

I agree with you, Paul and Barry; some sunshine would explain a great number of things here.


Barry Carol said...

Non-local –

Insurers historically opposed disclosure of contract rates mainly because they claim it will drive rates up as those who are paid less demand more while providers who get paid more won’t readily agree to reduce their rates. Also, the insurers with the larger market shares think they can negotiate better deals than their smaller competitors. This is why they would oppose the Swiss approach where all insurers negotiate with providers as a group so each pays the same price for a given service, test or procedure in a given canton. To try something like that here would, of course, require an anti-trust exemption.

I don’t have a problem with so-called most favored nation clauses which preclude providers from offering lower rates to any other insurer. I have a big problem, though, with clauses that require providers to charge higher rates than the insurer with the largest market share pays.

76 Degrees in San Diego said...

How can you have free markets and robust competition without privacy of contracts?

Paul Levy said...

Ah ha! The point is that we do not have free markets and robust competition here.

76 Degrees in San Diego said...

Employers choose what health plans to offer. The health plans compete with each other for the employers' business. If there is no privacy in presenting competitive contracts, how can healthplans differentiate themselves to the employers?
I would think that no private contracts would mean less healthplans being offered in Massachusetts. Less competitors means higher prices (the goal of monopoly), or less covered benefits. You still have not caught that other mafioso yet, have you?

Anonymous said...

76, the problem in Mass (Boston) is that there already is a monopoly and higher prices even with a supposedly competitive system. In other areas, like mine, where this occurs, the feds have been impotent in preventing it. Once the monopoly develops it is self-sustaining by cooperation of both the hospital system and the insurance company (see my comments above) In these cases secrecy works against fair competition.
What is your solution for this problem?


76 Degrees in San Diego said...

Nothing not previously mentioned: pricing of premiums, copayments, and out of pocket expenses, perception of quality, convenient access to service...

I am not sure that you can say that there is a "monopoly" in healthcare in Boston.

Laura said...

Very interesting points. I agree with both the Governor & the Inspector General. Here's to hoping more officials do make moves with this.