Wednesday, January 27, 2010

Comments to Division of Insurance

The MA Division of Insurance is conducting a review of why health care premiums in the state continue to rise. Some observers complained about the lack of participation by providers in the public hearings on this matter, ignoring the fact that the Division had provided very little advance notice of the specific dates.

Meanwhile, a number of us in the provider community have submitted written testimony. In the absence of news coverage of those comments, I offer mine for your review and thoughts. As you will note, it is within the power of the state government to take steps right now that could help "bend the cost curve," but it has been unwilling to date to exercise that authority.

Mr. Kevin Beagan
Deputy Commissioner
Division of Insurance
One South Station
Boston, MA 02110

Dear Mr. Beagan:

On behalf of our physicians, nurses, volunteer Boards of Directors and Trustees, and the entire Beth Israel Deaconess Medical Center (BIDMC) community, I want to thank you for the opportunity to submit written comments to the Division. I understand that your goal is to examine the reasons for significant increases in small business health insurance premiums and to explore how we -- policy makers, hospitals, health insurers, physician practices, community health centers, employers, employees, consumers and others -- can work together to address these rising premiums.

I am grateful to the Division for posing this question directly. Our ability to address these issues will have profound implications for the Commonwealth’s job growth and economic future as well as the sustainability of providing universal access to health care coverage in Massachusetts.

We have been pleased over the last year to have worked with many stakeholders on key components of this effort, including our hospital colleagues in Massachusetts and throughout the country, the Massachusetts Special Commission on the Health Care Payment System, policy makers, Legislative leaders, and others.

I have four major sets of recommendations and observations to share with you, based on the eight years I have served as President and Chief Executive Officer of BIDMC:

Make Quality and Transparency Count. There is simply no substitute for transparency of data on the quality and safety of patient care. Thus far, this information is of limited use by consumers and purchasers, although that is likely to change over time. In the meantime, and perhaps more importantly, the value of transparency is as a management and process improvement tool. As I said in an article in Business Week in September of 2007:

There are often misconceptions as people talk about "transparency" in the health-care field. They say the main societal value is to provide information so patients can make decisions about which hospital to visit for a given diagnosis or treatment. As for hospitals, people believe the main strategic value of transparency is to create a competitive advantage vis-à-vis other hospitals in the same city or region. Both these impressions are misguided.

Transparency's major societal and strategic imperative is to provide creative tension within hospitals so that they hold themselves accountable. This accountability is what will drive doctors, nurses, and administrators to seek constant improvements in the quality and safety of patient care.

At BIDMC, we have been publishing quality information for several years. During this same period, we have steadily improved our performance. We know that we are saving hundreds of lives and millions of dollars in health care costs as a result of the quality and safety initiatives we have carried out. An indication of our institutional commitment to this direction is that the governing bodies of our hospital -- the Board of Directors and Board of Trustees -- took audacious votes last year to eliminate all preventable harm at BIDMC by 2012 and to be transparent about our progress and results. This information is published quarterly on our website at

Improve Public Payer Reimbursement and Rationalize Payment for all Health Care Services. Levels of public reimbursement are a contributing factor to higher-than-necessary private insurance premiums. Medicaid, Medicare, and the Health Safety Net Trust Fund reimburse hospitals – on average -- at significantly below the cost of providing care. These payment inequities are particularly acute for services to some of our most vulnerable patients, such as for inpatient mental health care. Because of this, we are forced to identify alternative revenue sources to cover our operating costs. One such source is our reimbursement from private insurers. The overall reimbursement we receive from private health insurers ultimately subsidizes our losses from public payer contracts that fail to cover our costs. State budget reductions for academic medical centers over the last two fiscal years have had a sustained, significant negative impact on our fiscal health. But these two years have been different only in degree, not in direction. For years, public payer losses have also damaged our ability to keep up with the capital investments needed to maintain our facilities on an annual and long-term basis.

In addition, for many key services that are central to our non-profit mission, private health insurer reimbursement also fails to cover our costs. This means we are forced to invest in higher cost services that command higher reimbursements and cross-subsidize services for which we are drastically underpaid. The Division should work with health insurers and other stakeholders on strategies to improve public payer reimbursement, rationalize payment for health care services, and eliminate the need for cross-subsidization.

Correct Market Dysfunctions. We have to acknowledge that the manner in which reimbursement rates are established in this state is not related to the quality of medical service provided. Instead, market power seems to be the predominant factor in the rate-setting environment. Thus, we have the odd result that, for example, the reimbursement rate for the very same colonoscopy performed on exactly the same type of patient will vary by large percentages depending in which contracting network a doctor happens to be situated. I will tell you frankly that BIDMC and our physician contracting organization, BIDPO, is sometimes a beneficiary of this process. At other times, we are put at a competitive disadvantage. In both cases, this is a result counter to sound public policy.

There are two solutions to this problem. The first would be to return to a rate-setting environment, in which the Commonwealth would establish the reimbursement rates for each insurance company and each provider organization. I personally would not have a problem with such an approach, in that health care can viewed as a “utility-like” function, in which reliance on competitive forces is unlikely to produce economic efficiency and equity.

Short of rate-setting, I believe the Commonwealth should use its existing authority to make reimbursement contracts public. Allowing sunshine to reach the current reimbursement arrangements would provide moral and political pressure from subscribers, public officials, and the public on the insurance companies to equalize payments across provider groups. I believe this would result in rate-setting methodologies that are more tied to the quality of service provided.

Embrace Innovation in Health Care Delivery with Accountability to Consumers. At BIDMC, we recently teamed up with the state’s largest physician group practice, Atrius Health, to establish a new model for health care delivery in the Commonwealth. We are using shared electronic medical records to improve our efforts to provide the right care at the right time in the appropriate setting. We have also embarked on a robust agenda for quality improvement and cost-efficiency strategies. Our collaboration will be built around a strong emphasis on primary care, and a continuum of care from the ambulatory setting to the hospital and beyond. Among our strategies:

Putting primary care at the center of patient’s care;
Ensuring that physicians work together as a team with nurses, technicians and other allied health professionals;
Enhancing and further integrating electronic medical records;
Advancing health equity and ensuring a diverse, culturally competent interdisciplinary workforce;
Preventing and reducing medical errors and being transparent about results;
Improving the efficiency of health care delivery by continuous process improvement as exemplified by the LEAN methodology; and
Empowering patient involvement in the design of the health care delivery system through advisory councils, secret shoppers, patient satisfaction surveys, and other mechanisms.

We are confident that these innovative strategies – put into practice – will have a meaningful impact on quality, access and the cost of health care in Massachusetts.

I hope that the foregoing comments are helpful, and I would be glad to discuss these with you in the future.

Very truly yours,

Paul F. Levy


76 Degrees in San Diego said...

Paul -
OK, you are on a roll...but, "there are problems in River City". "Improve Public Payer Reimbursement and Rationalize Payment for all Health Care Services" - sounds good...but, no money! Your prescription for "rate setting" is incongruent with improving reimbursement in this fiscal environment. The paradox could work, though - remove "public rates", leave public reimbursement at what is fiscally justifiable for government solvency, and make charges transparent and reflective of market. Something like copayments could get to a level of reimbursement being closer to cost for service.

Anonymous said...

I agree with 76 degrees' first observation. I just don't see any of this being affordable until there is a massive "price reset" in health care, similar to what is going on in the housing industry today. Unfortunately, that probably will never happen given politicians' demonstrated inability to even enforce their own Medicare physician payment limits. So where will it all end? Badly, I fear.


Nirav Patel said...

One problem with physician self-governance is that physicians always feel underpaid regardless of how much they receive. I've seen it many times that their expenses fills the amount of surplus money they have so the rates will always be low for certain physicians. Can we blacklist them as outliers, probably not...

maggie mahar said...

You make an excellent point about transparency and quality.

Hospitals need to "count" -- and then measure where they are against where they have been, and where they want to be.

Information about quality is not that useful to the public--at least not now-- but it can be very useful to hospital administrators and professoinals who are trying to improve an institution.

I think it would make great sense for the Commonwealth to set rates, much as the state of Maryland does.

I've witten part one of a post about this at

Maryland made a deal with Medicare that Medicare would pay the rates that the state set for private insurers as long as the growth of
Medicare spending in Maryland remained below the national average.

It has--significantly below the national average.

Maryland has bent "the curve."

(These rates vary by hospital only to reflect the fact that some hopsitals serve more very sick patients, some hosptials have added expense of a medical schoool, etc. But their "leverage in the market place" does not count. As you say, hospitals are like utilities- they re providing a necessity, the consumer has little leverage, and market competition does not lift quality or reduce prices.

Meanwhile, Dartmouth's "utilization" information shows that when it comes to using medical resources Maryland is in the 60th percentile nationwide--in other words there doens't seem to be as much overtreatment in Maryland in general--and in the Baltimore area in particular-- as in many states..

I'll be posting part 2 of this post, comparing Maryland and Massachusetts on spending and utlization of medical resources today or tommorrow .

It's good to know that Mass. hospitals are responding ot the report in a positive way, and acknolweding the degree to which market clout is skewing reimbursements.

Would be very intersted to hear what Mass General has to say.

Anonymous said...

Does anyone else see a problem here?

The problems you mention on the payer side is all about third party payors. There is no true transparent market on healthcare costs as long as a third party using other peoples money is paid for services that are negotiated in private backdoor meetings.

It seems that the more secrecy and third party and government intervention we get in the system, the more expensive it gets.

Well Duh!!!!

How is this system any worse than a multi-level-marketing system, where everyone at different levels gets a cut of the profit, thereby raising the costs to the payer. This is compounded by the patient never really knowing what the true costs are.

Would you be OK with collecting payment direct from a patients own health savings account, that can be funded by anyone, including personal, employers, government agencies or charity?

Direct payment, lessening of bureaucracy, and everyone with a health savings account tied to a catastrophic policy would end the ever increasing bureaucracy and regulations that have killed our healthcare system.