Saturday, January 21, 2012

Thanks for nothing

I have been reading and listening to media reports about recent deals between Partners Healthcare System and insurers in Massachusetts and experiencing a case of cognitive dissonance.  From the reports, you would think that PHS is reducing the rates it gets from the payers.

Well, that just shows the power of PR spinmeisters.  Let's start by recalling that PHS has used its market power for well over a decade to extract payments from insurers that are dramatically above those received by other hospitals and physicians.  Those out-of-market rates were built into the contracts that were to extend a year or two into the future, and the annual increases included in those contracts were likewise out-of-market. 

So, what has happened is that PHS has agreed to lower the rate increase for the last year or two of those contracts and for the succeeding years to something in the 2-3 percent range.  It then claims to produce "savings" of $45 million over two years for Tufts Health Plan and $80 million annually for Blue Cross Blue Shield.

These "savings" mask two phenomena.  First, the base upon which those 2-3% rate increases will occur remains substantially above the rates paid to other hospitals and doctors.  Second, the rate increases that PHS has received are no lower, and sometimes higher, than those granted to other systems whose base rates were already lower.

In short, the disparity between the PHS rates and those of other providers will not drop an iota as a result of these deals, and is likely to increase.

The only good thing about these announcements is that they provide, for the first time, a sense of the tax imposed by PHS on the region's health care budget.  We now see that it can forgo what it has characterized as $345 million in future revenues and still maintain its financial health.  Looking back over the past decade, it is not unreasonable to posit that this system has added in the range of two billion dollars to the health care costs paid by the state's businesses and individuals.  The newly announced deals change little in that regard, extending that hidden tax for years to come.

Thanks for nothing.


Anonymous said...

Yes, its obvious that for PHS, FFS to ACO is a 3-card monte.

But then what is the solution for this state?

Is this the evidence to show that there first needs to be a level playing field before any "real" savings occur? Must Tufts-Caregroup-Lahey finally join forces on paper creating a new "Partner"ship without the pitfalls of combining hospitals to maintain margins? Where does Cerebrus now fit?

Anonymous said...

This is how a free marketplace works. Presumably higher fees mean better service. Payors have countered the higher fees at PHS Hospitals by charging a higher co-pay to subscribers. If subscribers don't want to pay the higher fees, they will go to other institutions for services. That is a free market. The alternative is to have the government regulate fees. Is that the solution? Perhaps?

Anonymous said...

Your characterization of Partners' impact as a tax is unexpected but thought-provoking; I never thought of it that way before. It is especially ironic, given that Partners is, of course, a 'nonprofit' and therefore pays no taxes. Talk about double taxation.


Mike Langlois said...

Paul, you are a rock star! Thanks for yet another expose. I learn so much from you, although granted little of it is pleasant. ;-)

Anonymous said...

You are exactly right. Their strategy is obviously to give up something near-term for two more years at guaranteed rates with a huge differential to the market. Then when pressure comes to equalize provider rates, they’ll dare the legislature to try to supersede existing contracts. Good strategy!

Anonymous said...

As to anon 9:27's remarks ,it's difficult to understand why, after the big hullabaloo over the Attorney General's findings and all the hearings, etc.; that the subject has dropped into a black hole. Surely the governor and legislators can do simple math also? Surely they are not unaware of Partners' strategy of painting them into a corner? One wonders what political connections must be preventing further action. And Bostonians don't help, confusing MGH with Mecca. Perhaps when their insurance plans eventually exclude them from such an expensive place, they will clamor for change.