Sunday, July 06, 2014


An editorial in the New York Times prompts me to take a moment to present some arithmetic to that editorial board, our Attorney General, the Boston Globe, and the businesses and individuals who will pay for health care in Massachusetts under the terms of the recently announced deal between the AG and Partners Healthcare System. The deal allows PHS to have rate increases "only" equal to the rate of inflation for ten years.  The Times mistakenly characterizes this provision by stating that the agreement "would at least slow the increases in Partners’ prices." Well, maybe so and maybe not, but it is not the absolute level of the PHS rate increases that matters:  It is the wide disparity between its rates and that of other providers.

Some of us have argued that this agreement is a nullity because it will cement in the current rate disparity for years to come.  This, combined with other features of the agreement, virtually guarantees PHS a continued revenue windfall for years to come.

To illustrate, let's take the case of 1% annual inflation.  Assume that PHS rates are currently 20% above its competitors. (That is conservative in many cases.  For example, it reportedly receives over 40% more than Massachusetts Eye and Ear Infirmary to carry out the exact same procedures.)  Let's present a chart showing what happens to the rate differential against other doctors and hospitals under three cases: They all get a 1% increase (red), 2% increase (gray), or a 3% increase (yellow).

Here's the chart:

Let's now assume inflation is 2% for the ten years, and the other hospitals and doctors get raises of 2% (red), 3% (gray) or 4% (yellow).  Here's that chart:

Hmm, in the best of cases, where the percentage rate increase granted to others is two or three times that received by Partners, the catch-up takes 10 years.

But recall that insurance companies have no requirement to give others more than they have given Partners.  In fact, their pattern has been to give less. (Also, please recall that all hospitals are subject to legislation that keeps rate increases below the rate of GDP growth in the state.)

Check my numbers.  Use your own assumptions if you don't like mine.

BU professor of health care Alan Sager said it exactly right:

"The harm to the public will accrue more slowly under this deal, but the harm will occur."


Haider Javed Warraich said...

From Facebook:

It's funny how even the simplest of arithmetic can be so elusive. I think the AG deal is just an eye opener with regards to the power of the smoke screen that has been created to thinly veil the hypocrisy that somehow patients will benefit from this.

Chris Gregory said...

I think this illustrates an excellent case in point about the damage caused by such egregious leverage in a local market. It is indicative of what has occurred and is occurring around the country. In Boise, the St Luke's system got to be such a black hole that the Federal Trade
Commission, which has had success enjoining large hospital mergers in the past, made this the first case in which the FTC, along with the Idaho Attorney General and private plaintiffs, successfully blocked a large hospital group’s acquisition of a specialty
physician group.

Here in Texas, a state where there is no certificate of need, hospital growth is rampant, and hospital systems sprout facilities everywhere. Physician practices are being rapidly absorbed by systems. As Bostonians and, to a larger degree, the people of Massachussetts see the black hole of the Partners Health System, we in Texas must regard the Texas-sized black hole forming around the nucleus of the Baylor Scott & White merger, and the potential tentacles spreading throughout Texas under the auspices of an "affiliation" with other systems.