Tuesday, September 16, 2014

The third golden handshake

Blue Cross Blue Shield has, in some respects, been a leader in Massachusetts in pursuing the agenda to bend the health care cost curve.  But the company has a blind spot when it comes to Partners Healthcare System.  Worse, it has a history of caving to the economic interests of the dominant provider, even when doing so undercuts the company's stated goal of bending the cost curve.  It has now engaged in three golden handshakes with the health care system:

The first golden handshake occurred years ago, when BCBS acceded to Sam Thier's statement that, "This is what good health care costs," and began a practice of paying the system above-market rates--for care at the academic medical centers, for care at the community hospitals, and for care in the PHS doctors' offices.  Every layer of the PHS system received prices above the comparable layer of other hospitals.  Year after year after year.  The Boston Globe's Thomas Farragher retold that story this week.

The second golden handshake occurred in 2011.  It was spun by BCBS as securing a renegotiation of PHS contracts, lowering the rate of increase compared "to what would otherwise happen."  But it was actually an above-market increase given to a system with rates that were already substantially above the market.

The third golden handshake occurred this week. In the face of the most important proposed anti-trust settlement of the decade, the one between the Attorney General and Partners, the one on which dozens of parties have filed comments with the Court, BCBS was silent. Absolutely silent.

The Massachusetts Association of Health Plans, representing all the other insurers in the state, filed comments against the deal.  As noted in Priyanka Dayal McCluskey's Globe story:

The deal, insurers said, “could have the unintended effect of exacerbating the market dysfunction issues it seeks to address."

The highly substantive (!) response from Partners: “It’s no surprise that a lobbying group for the insurance companies has submitted comments that serve their own self-interest."

BCBS, which has more subscribers than all of the rest of MAHP combined, was missing in action.

Its actions over the years and its silence now join it irrevocably with Partners as an advocate for higher health care costs in Massachusetts.


nonlocal MD said...

Partners' response is laughable. As if the takeovers they are seeking do not serve their own self-interest, despite their hypocritical (and patently false, given their costs are the highest in the state) insistence that it is in the interests of patient care.

As for BCBS, I have never known an insurance company to do anything that hurts their profits. If they are giving money to Partners, be assured it is coming out of your pocket.

Dennis Byron said...

Isn't there a major historical connection going back 80 years not just the period you covered? I'm assuming there were (still are?) interlocking boards, the Vault, all belong to the same country and yacht clubs, the Harvard connection, etc. etc. Hey at least they are not all Boston Brahmins any more.

Anonymous said...

Same thing - I have found BCBS here in Virginia to support the docs at all costs. Including your own health at times.

Whipple said...

It is not the doctors here but the healthcare management, insurers, pharma, device and services infrastructure who create the spiraling costs to maximize profits while minimizing patient care. Medicine and caring are lost in this.

Anonymous said...

Paul - What is BCBS of Mass going to say? We and Partners are a pair of monopolies that are looking to protect that status well into the future? Why would either complain while they are basically getting everything they want out of the current situation. Until a NEMC or Steward goes under you will not see any real outcry from politicians or the general public. That could be sooner than you think as Steward is out of their lock up period when they could now close down money losers like Quincy or Carney. That will drive home the impact of Partners crowding everybody else out.... especially a hospital like Quincy that is losing to Partners big target of South Shore Hospital (not to mention BIDMC Milton). I think your earlier suggestion of Steward being sold to NEMC for $1 and how about Tufts and HPHC joining to fight against BCBS of Mass..... consolidate into bigger entities, downsize staff to cut costs and try and compete against these two monopolies. The alternative is to die from a million stings as BCBS and Partners continue to gain market share in terms of patient volume and health care dollars spent. Even if Partners doesn't get South Shore they still get all of the volume out of there so not a lot of good options here. I think the death of health care competition here in eastern Mass was sealed with that first handshake you talked about.

M.E, said...

The ACA allows healthcare insurers to earn/retain a profit of upto 15% of collected premiums. A higher premium translates to higher total profits. It's not in the interests of any healthcare insurance provider to keep premiums low. If they can show increased costs, they can justify higher premiums, and we're off to the races. We're all (individual citizens and businesses) getting a bad deal on this one.

Anonymous said...

Partners is trying to take over two hospitals on the north shore, but plans to close two acute care hospitals in that region.

Partners taking over Melrose Wakefield, and Lawrence Memorial and turning Lawrence Memorial into a primary care site and short stay hospital with expansion of Melrose Wakefield, and turning Union Hospital(already owned by Partners) in Lynn into a primary care site and behavioral health hospital.

From what I have read in the press, Coakley is likely to be the next governor is likely to allow the take over of \Hallmark (Mel-wake, Law-Mem) in some form with a modified agreement.

Maybe part of that settlement could be divestiture of Union Hospital and Lawrence Memorial to ensure robust competition on the North Shore.

I am assuming part of the reason for cost increases if Partners takes over is not only Partners negotiating power (though is substantial in its own right), but also the reduction in acute care hospital sites and competition.

Also patients in Lynn, Saugus and contiguous regions especially are losing a good quality, local site to travel substantially further for care.

To be clear I would like to see Partners blocked from taking over South Shore and Hallmark. But that doesn't appear likely to happen with Coakley as governor. She would lose too much "face", if the deal she negotiated was blocked ocmpletely.

So make part of the settlement, diverstiture of Union and Lawrence Memorial.

Something similar could be done on the South Shore. The primary beneficiary of the take over of South Shore is Brigham and Womens. Maybe as part of Partners takeover South Shore Brigham and Womens divests Faulkner

Just a thought.

Anonymous said...

The logic for divesting Faulkner even though in Boston is compelling. [As partial compensation for Partners taking over South Shore.]

Most of the staffed hospital beds in Boston, are academic medical center based.

[Note all data is from 2012 CHIA data for hospital profiles.]

STAFFED Beds at academic medical centers:

MGH 993
B&W 845
BMC 504
BID 499
TMC 292

Total 3133

plus Boston Childrens, an academic medical center has an additional 395 staffed beds.

all the community hospitals beds are at teaching hospitals

St. Eliz 266
Carney 118
Faulkner 92

Total 476

also note that St. Elizabeth's does research and has been trying for years to become an academic medical center.

So only approximately one seventh of staffed beds is community hospital based and even less if Boston Childrens is included.

Under the leadership of Partners, Faulkner has become the highest cost community hospital in massachusetts on a case mix adjusted basis. Cost per patient discharge(case mix adusted) at Faulkner was $13K, higher than all academic medical centers in Boston except Brigham and Womens, which manages Faulkner [rank B&W 13.6, MGH 12.3, BMC 12.0, BID 9.8, TMC 9.0] and also higher than Saint Elizabeth's 10.3, and Carney 10.5K

With only a limited number of community hospitals beds everything should be done to ensure these beds are low cost.

Partners [MGH & B&W] has 1900 beds in Boston without Faulkner. If Faulkner could be managed by another network - BID or TUFTS come to mind that focused on trying to be lower cost, Boston patients and massachusetts tax payers would benefit.

So if South Shore is allowed to become part of Partners, make part of the compensation giving up Faulkner to a lower cost network.

Barry Carol said...

Sorry I’m late to this but I’m just back from vacation.

I’m told that there is a new rule about to take effect in MA if it hasn’t already that would require hospitals to provide patients binding estimates of their out-of-pocket costs for services that can be scheduled in advance. To the extent that there is an opportunity for comparison shopping, this could enhance competition in the marketplace especially for the increasing number of people with high deductible and tiered network insurance plans.

Separately, as a prior commenter noted, a disproportionate number of hospital beds in the Boston area are controlled by academic medical centers which have inherently high costs due to their research and education missions. Perhaps there is an opportunity to divert some of this care to stand alone, non-hospital owned ambulatory surgical centers or even to medical centers outside of the Boston region that might be willing to provide comparable quality care for considerably less money. Finally, anything that could be done to steer more routine care away from the AMC’s to less costly facilities would be helpful in bending the healthcare cost growth curve.

Anonymous said...

Hi Barry

Boston does have many good health clinics to provide primary care and even some outpatient procedures.

What is missing is that step in between when a hospital procedure is needed but not tertiary level care. Most of that is done at some of the most expensive tertiary care hospitals in the country especially - Partners two academic medical centers (B&W and MGH) make up over half the beds in Boston.

As was mentioned in a comment above, most community hospitals in the Boston city limits have closed with a few exceptions, and even those community hospitals that remain a not fully utilized. All three community hospitals that remain - Carney, Faulkner and Saint Elizabeth's, leave idle 30% to 50% of their potential beds for lack of use.

The magnetic effect for patients of AMC's and expansion of Bostons teaching hospitals [specifically MGH and B&W have been adding beds] has resulted in the closure, over many years, of community hospitals and the idling of beds in the community hospitals that remain in the city. The same is mostly true of those community hospitals near Boston

Other than Faulkner, which under Partners leadership is the highest cost community hospital in the state, there is no community hospital to the west of the city within the borders of Boston.

If you look beyond Boston's borders to the west no hospital is easily accessible by public transportation and the closest Newton Wellesley Hospital (situated in the aforementioned town) is also owned by Partners and also not a "low cost" hospital.

To the south, Quincy Hospital, owned by Steward and Milton Hospital, managed by BID, have geographic proximity but are again not easy to reach by public transport. Public transportation in Boston is primarily designed to take people into the city center and Longwood not to Boston's suburbs. Quincy Hospital is now also sitting much more than half empty losing lots of money and there are questions if it can even survive, though it is a lower cost alternative to Boston's AMC's - 8.5K per discharge. Milton breaks even and has a similar cost per discharge.

For many years Quincy and Milton have tried to draw patients south. Rather than being the high volume, low cost alternatives they should be, Quincy H. looks like it will close and Milton looks like it will be a boutique for BID to the south of Boston.

Hospitals to the north across the Charles River are not easily accessible by public transportation by poorer Boston residents (many "transfers")who primarily live south and west of downtown, Mt Auburn Hospital offers high quality relatively low cost care 9K per discharge (on a case adjusted basis) while Cambridge Hospital is not a low cost alternative is almost as expensive as Faultner 12.9K vs 13K per discharge on a case mix adjusted basis.

Barry you offer a good suggestion. Guess I just wish it was possible. Based on Boston's history with trying to develop low cost community hospitals, it is hard to be optimistic.

A good start might be forcing Partners to divest Faulkner as part of the agreement to acquire South Shore Hospital and trying potential beds in Boston's community hospitals.

Do you know how to slay the dragon called Partners? ....sorry couldn't resist.

Barry Carol said...

Anon 9:42 AM,

Thanks for your very informative comment which provides a lot of good color especially for those like me who do not live in the Boston area.

One idea that I’ve mentioned before is to require Partners to allow insurers to contract with either MGH or B&W rather than requiring the insurers to accept both hospitals into their network or neither. This could potentially help to increase competition between the two major AMC’s within the Partners system. Another idea that could work for specific procedures like surgeries is for insurers to pay for round trip car service transportation between the patient’s home and an outlying community hospital that could provide good quality care at a substantially lower cost. Such transportation could be included as part of a bundled pricing approach to surgical care and might be an option for oncology services as well.

It admittedly would not work so well for chronic disease management. For those cases, though, even moving care from a Partners AMC to a Partners owned community hospital would presumably help to lower costs for the overall healthcare system even if Partners continues to be paid more for similar services than similar hospitals across the region.

Anonymous said...

Barry Carol,

I agree with most of what you have said about reducing costs at Partners, but one comment about moving care from Partners AMC to Partners community hospital might not work at least for Faulkner.

As was mentioned earlier Faulker per patient discharge cost - $13K - on a case mix adjusted basis is higher than all AMC's except Brigham and Womens. See Anon Sept 19, 4:26 for details for Boston hospitals.

So shifting care to Faulkner mostly won't work, unless it was a B&W patient and even if the patient was treated at B&W, the highest cost AMC in the state, little money would be saved moving the patient to Faulkner since Faulkner is so expensive as well.

Faulkner is also 50% more expensive than Tufts Medical Center and over a third more expensive than BID. Both of the latter are academic medical centers.

It is sad to say, but money would be saved if patients were treated at any of the AMC's in Boston other than B&W, rather than at Faulkner as currently managed by Partners.

The best option for Boston residents and state tax payers is to lower costs at Faulkner to something much closer to other community hospitals.

That is why Partners should required to divest Faulkner if they take over south shore.

Note: all data comes from CHIA 2012, hospital profiles.

Barry Carol said...

I don’t know enough about how the case mix index is calculated. I do know that within the Medicare population, the most expensive cases are organ and bone marrow transplants and certain sophisticated heart operations. In the non-Medicare population, low birthrate premature babies, especially multiple births, can and often do incur costs than run into seven figures. To the extent that a given hospital has a disproportionate number of these extremely high cost cases, I suspect that the case mix index data doesn’t come close to capturing it.

I have no idea whether these sorts of issues are skewing the data at any of the Partners hospitals or not. However, just as the state of the art around risk adjustment for calculating insurance premiums is far from perfect, I’m not prepared to accept case mix adjustment data at face value without more information about the variance among hospitals in the number and aggregate cost of very expensive cases.

Anonymous said...

Hi Barry Carol,

You can judge for yourself whether Partners high cost are due to case mix or unreasonably high prices, or something else.

All data below is from CHIA, 2012, Hospital Profiles:

Case mix indices are for all patients not just the medicare population.

Case Mixes and cost per patient discharge adjusted for case mix.

TMC 1.51 (CM) - $ 9.0K
MGH 1.50 (CM) - $12.3K
Lahey 1.47 (CM) - $ 8.5K
B&W 1.39 (CM) - $13.6K
BID 1.27 (CM) - $9.5K
BMC 1.15 (CM) - $12.0K

Carney0.93 (CM) - $10.5K
Faulk 0.80 (CM) - $13.0K
St E's1.09 (CM) - $10.3K

My reading of the data says, Tufts Medical Center had the highest case mix index in 2012, the last year this data was posted, and the lowest cost at $9K for academic medical centers.

Faulkner the Partners community hospital had a case mix index of 0.80 [the lowest in Boston] and the second highest cost per patient adjusted for case mix of $13.0K

Also note that Tufts Medical an academic medical center was also much less expensive than MGH and B&W with a case mix index higher than both.

Note: For more information how CHIA calculates the case mix adjusted cost per discharge see


Barry Carol said...

I fully understand and appreciate the fact that Partners hospitals are paid much more than other local hospitals for similar work. What I did not know previously was how high the percentage of inpatient beds in Boston is owned by academic medical centers. I suspect that the AMC’s share of beds in other cities including NYC, Philadelphia, Pittsburgh, DC, and others is also quite high. Boston is most likely an outlier.

As I noted previously, patients should become more amenable to lower cost treatment options as more and more of them wind up with high deductible health plans and interest in medical tourism could increase as well though we need price transparency to help that along. There could also be more that insurers could do to address the transportation issue to get patients who need it to lower cost community hospitals in the suburbs.

The late economist, Herb Stein told us that if a trend can’t continue, it will stop. There is a lot of potential resilience in our economic system. We need to find innovative ways to tap into that resilience to address high healthcare costs throughout the country, not just in MA. Even if the proposed agreement between Partners and AG Coakley ultimately stands, there are alternative approaches to skin this cat, in my opinion.

Anonymous said...

Hi Barry Carol,

I try to be optimistic. But this is a twenty year story, that began with with foundation of Partners in the early 1990's.

Back in the 1990's Tufts Health Plan was fighting to keep Partners pricing under control, but in a show down between Partners and Tufts Health Plan, Partners won and has been winning ever since.
[Note: Partners shut its patients out of Tufts Health Plan (the top ranked plan in the country)unless Tufts Health Plan accepted a huge price increase]

There are good low cost academic medical centers and teaching hospitals in Massachusetts, like Tufts Medical Center, BID and Lahey Hospital. But Partners continues to use its power to dominate its rivals.

An example is on the North Shore of Boston. Lahey Hospital (A Tufts teaching hospital) is lowest cost high acuity provider in Massachusetts. It's case mix index in 2012 was 1.47 which made it third in the state after Tufts Medical Center and MGH. It's cost per patient adjusted for case mix was $8.5K far lower than MGH $12.3K or Brigham and Womens $13.6K.

Lahey is building a network of referral hospitals. They include Beverly Hospital and Winchester Hospital. There is also behavioral health hospital in Lynn one of the few in the state part of an acute hospital network

Partners plans to buy Hallmark which has hospitals in Wakefield and Medford. Partners plan is to expand an existing hospital in Salem which is close Lahey's hospital in Beverly, convert another existing hospital in Lynn into a behavioral health hospital, expand its hospital in Wakefield which very close to Lahey's hospital in Winchester, and close its hospital in Medford (Lawrence Memorial) to make it primarily a huge outpatient facility for a growing volume outpatient procedures.

Am I being paranoid about Partners strategic intent or is Partners trying to continue a twenty year pattern of undermining low cost competitors and rivals just as it did to Tufts Health Plan twenty years ago. [To the Benefit of Blue Cross and Harvard Vanguard]

Tufts health plan had a strategic advantage over Blue Cross and Harvard Pilgrim, with a lower cost insurance network than its rivals. MGH and B&W told Tufts that the only way they would stay in its network was to have a huge price increase. which undermined Tufts Health Plan's strategic advantage.

If MGH and B&W, had remained separate Tufts Health Plan could have played them off of each other as it had in the past.

Like you I try to be optimistic about the future for controlling and lowering health care costs. I think high quality, low cost care is possible under the right circumstances - especially if real market competition can be fostered.

But I do not think it is possible as long as Partners is allowed to continue to dominate the local market.

Until the Partners dragon is slayed I am not sure real competition is possible. A regulatory approach is probably not going to work since Partners is powerful enough to control it's regulators. That is what we saw with the agreement with the attorney general earlier this summer

Real health care market competition could work but Partners keeps using its huge financial surpluses to undermine rivals as I think it is doing with Lahey and has repeatedly done to other rivals.

Barry Carol I hope you are right. But I literally have been waiting twenty years to see Partners power curbed. It has been a long wait.