Monday, May 26, 2014

"This is what good health care costs."

As I reflect back on last week's announcement by the Massachusetts AG about her deal with Partners Healthcare System, I try to draw lessons from the manner in which such issues are covered by the major media.

Everyone in the know in the health care community knows that Gene Lindsey's characterization is correct:

What appears to be an impressive list of extracted concessions that a tough AG had demanded of a large and powerful system added up to nothing or perhaps were even advantageous gift-wrapping.

To steal a concept from Joel Chandler Harris and the tale of “Br’er Rabbit,” Partners has been thrown into a pretty comfortable “briar patch” with this deal.

Gene lays out one scenario:

While the AG’s office is monitoring price and preventing the acquisition of other hospitals or large medical groups, what will be really happening? What will be happening is that money will be flowing from the vast resources that already exist within Partners from their previous price and contract advantages to build and populate ambulatory care centers and practices in the communities of these new acquisitions. The paper talks about an additional 550 physicians. That is more than enough to take care of more than an additional 500,000 patients. Take the South Shore as an example. It is rumored that a new magnificent ambulatory facility will be built for 80 new PCPs. That would translate into at least 180,000 patients, if not more. The South Shore is growing but the population of the 16 towns that constitute its whole area from Quincy to Plymouth is less than 500,000. 

So where will the patients come from that will fill these new offices? My guess is that the patients will come from the existing practices of physicians on the South Shore. The deal prevents them from joining Partners as a group but it does not prevent them from individually relocating their employment and having their practices follow them. The future of finance in healthcare is not your price; it is the population that you serve. It will be very hard for existing practices on the South Shore to compete with the resources that will flow into the South Shore from Partners. About the time this transition is completed the prohibition on price increase will expire. By that time there will be little or no residual competition to balance the market. A five to ten year deal in healthcare is no deal at all.

In 2008, the Boston Globe published a multi-day, full-scale investigation into the degree of power achieved by Partners in the region.  It stands as an excellent example of journalism and shows what happens when the major newspaper decides to put its resources into a story of regional importance.  From that pinnacle, the paper now offers prosaic stories using the "on the one hand/on the other hand" approach.  It included a few comments from academics pointing out flaws in the deal to balance out the positive ones offered by the AG and a health care consultant.  What is striking about the coverage is the degree to which the newspaper did not draw on the knowledge and perspectives of other key players in the region, the expanded information available from state agencies like CHIA, or even on material from its own previous stories.  For example, I met with an executive of a major non-PHS downtown hospital that currently gets paid 45% less than MGH for doing the same clinical procedures.  That institution was recently told by a major insurer to expect a rate reduction in its contract renewal.  That same insurer gave Partners a rate increase in its last renewal.

If the current contingent of reporters were not well versed in health care, we could blame the shallow coverage on a lack of experience or a lack of contacts in the industry.  But my view is that the local newspaper tends to reflect the community's desire for information.  It is here that Partners has really won the battle.  The corporation has deftly managed not only the insurance market, it has persuaded the opinion leaders in the state -- government and business -- that, to use PHS CEO Sam Thier's words to the CEO of Blue Cross Blue Shield several years ago, "This is what good health care costs."

The state has become habituated to the idea that higher rates and market power are correlated with clinical expertise and advancement.  That is Partners' real accomplishment and it is a doozy.


Barry Carol said...

I think Massachusetts insurers should consider implementing reference pricing for procedures that can be scheduled in advance and best lend themselves to the concept like hip and knee replacements. One aspect of reference pricing that patients need to understand though and insurers need to make sure patients understand is that any payments by patients above the reference price to hospitals and other providers that charge more does NOT count toward the policy’s out-of-pocket maximum limit. Insurers might also want to inform patients how much their payment is as a percentage of the Medicare allowance which most hospitals routinely accept as full payment on behalf of Medicare eligible patients.

The limited acceptance in MA of insurance networks that don’t include PHS reminds me of resistance in NJ to regionalizing public services across our many small towns and school districts. People here generally resist this idea ferociously because they want to maintain their cherished concept of home rule. At the same time, they complain bitterly and loudly about our high property taxes which are the highest in the country. We can’t have it both ways.

Anonymous said...

Barry, while the ACA doesn't explicitly address reference pricing the interpretation of Section 1302(c) would not allow what your are suggesting

Barry Carol said...

The rules around reference pricing are evolving. See this article:

Anonymous said...

wasn't there recently (within the last week or two) and new ruling that reference pricing is now allowed -

see below an Associated Press article on new Obama Admin. allowance of reference pricing.

May 16th, 2014