Thursday, March 18, 2010

Health Care Cost Trend Hearings

They don't get much media coverage, but the Health Care Cost Trend Hearings being held by the state government right now offer a variety of opinions about the current health care situation in Massachusetts. The prepared statements of the witnesses are available here.

If you only have time to read one thing, look at this statement from the Attorney General. It is as thoughtful and comprehensive a view of the Massachusetts market as can be imagined. Excerpts:

Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.

Variations in providers’ per member per month expenses are
not correlated to the methodology used to pay for health care, with expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis....

These findings have powerful implications for ongoing policy discussions about ways to contain health care costs, reform payment methodologies, and control health insurance premiums while maintaining or improving quality and access. The report raises concerns that existing systemic disparities in prices may, over time, create a provider marketplace dominated by very expensive “haves” as the lower and more moderately priced “have nots” are forced to close or consolidate with higher paid systems.


Anonymous said...

I do not believe this situation of one or a few dominant providers enjoying large reimbursement disparities is unique to Massachusetts. In my Washington metropolitan area, there are similar 800 lb gorillas such as Inova Health System (Va),Johns Hopkins and its subsidiaries(Baltimore/md. suburbs), and Medstar (D.C./Md suburbs). Inova's CEO has even been quoted as saying that there SHOULD be one dominant system, to improve economies of scale and continuity of care (e.g.,wherever you go in NVa., you'll be in one of their hospitals with their own computer system!)
I am no student of this game, but it appears to be a deliberate strategy of hegemony with roots in the old HMO conversion years ago, where the HMO's held all the cards and dictated prices and networks. The providers (hospitals more successfully than physicians, but both tried) responded by becoming large enough to gain market clout by dominating their markets. The strong survived; the weak did not.
So once again, the players are responding to the incentives. This is the rule of the marketplace. Change the incentives, you change behavior - for better, or worse.
If Mass. wants to level the reimbursement playing field, then do so, but beware of unintended consequences.

nonlocal MD

Paolo said...

Paul, yesterday you mentioned that price controls do not work. That statement is of course true for the perfectly free and competitive marketplace.

This post shows that the health care market in the Boston area is far from competitive. Some providers have so much market power that they can price their services like quasi-monopolies.

So if the state is not capable or willing to break down the quasi-monopolies, it seems to me that the only other solution is to place price caps, just like it does with other monopolies (e.g., utilities).

Is there any other mechanism to stop the consolidation process you are describing?

Barry Carol said...

I think the AG’s recommendations are exactly on target. I also think employers and labor unions need to step up and show more interest in limited network and tiered insurance products. To help referring doctors guide patients toward more cost-effective providers, we will need disclosure of contract reimbursement rates and medical outcomes data to the extent they can be appropriately measured.

Care delivered under emergency conditions including ER visits, inpatient admissions through the ER and surgery that needs to occur within, say, two days of diagnosing the problem probably needs to be handled differently from a billing and payment standpoint because price and quality shopping are not possible under these circumstances. I suggest a regulation that would prohibit a hospital or doctor from charging a commercially insured or uninsured patient more than the lowest rate they accept as full payment (including patient coinsurance) from any commercial insurer with whom they do business.

Hildebrand, The Insurance Warden said...

Another excerpt of significance to me: "Higher priced hospitals are gaining market share at the expense of lower priced hospitals that are losing volume."

Speaking against my own industry for a moment, as long as we as a nation rely on health insurance to for almost all (or all) healthcare expenses, we're going to see mega-hospitals nosing out more affordable but smaller competitors. How? Because insurance plans inherently favor large healthcare networks, and insurance plans have become an inextricable part of obtaining healthcare.

For the consumers' sake, a better use of health insurance would be to reserve its use for high-cost disasters. (High deductible plans are the way to go.) Otherwise, we're just trading dollars: buying insurance to pay for healthcare expenses which we expect, rather than buying insurance to protect us against contingent health expenses which we can't cover ourselves.

So we've created a monster out of the health insurance industry, a monster which has insinuated itself between us and healthcare, created artificial value, and contributed to the rising cost of actually providing healthcare.

Anonymous said...


Your comments are always well considered and thoughtful. I wish someone would listen to you. (:
I only wish to point out that some hospitals obtain 50% or so of their admissions through their ED's, so that cuts out a large chunk of inpatients from your suggestions.
As for charging all comers the same price, as you know Md. has such a law. I must say it is reassuring as a patient with a $10,000 deductible to know I am not being charged some fictional "list price" to cover someone else; I like that idea.
The problem with incentivizing docs to refer patients to the most cost effective providers is that in Boston, as I understand it, many of those docs are already affiliated with certain high cost hospitals and therefore have no such incentive. Either we have to provide them such an incentive,or make them share risk with their hospitals so that both have incentive to cut costs together. If I am "getting" the Atrius/BIDMC relationship correctly, there is such an incentive.

Barry Carol said...

Anonymous 2:36 PM / non-local,

First, thanks for the kind words. You make a good point about some hospitals garnering 50% of their inpatient admissions through the ED. As I understand current insurance rules, however, if a member winds up as a patient in a hospital which does not have a contract with the member’s insurer, the insurer could be required to pay full charges (list price) less, perhaps, a 10% prompt pay discount. If this happens too many times and the patient can’t be easily diverted or transferred to a network hospital, claims costs can mount up quickly beyond what was budgeted. On the positive side, the revenue mix of most hospitals is gradually shifting toward outpatient care which, by definition, can be scheduled in advance except for ER visits. Also, newer drugs are helping to keep patients out of the hospital or at least shorten their stay. On the negative side, a lot more seems to happen to patients during each day as an inpatient as compared to patients in other countries. I’m not sure what the answer is. However, if hospitals can’t bring about convergence in their pricing based on cost and quality as opposed to market power, a Maryland style all payer system would at least be a superior approach to 110% of Medicare.

Bruce Bullen recently suggested that he thought tiered products could be effective as they already are in the prescription drug space. While we need much more complete price and quality transparency to help referring doctors guide their patients toward more cost-effective healthcare choices, so far, customers have shown little interest in such products. I wonder what the price difference would be vs. more traditional broad network products with uniform coinsurance requirements and how big the premium differential would have to be to pique employer and union interest. Small and medium size employers without union contracts to renegotiate should be especially interested in narrow network and tiered products. What’s holding them back? I have no idea.

76 Degrees in San Diego said...

Barry - think of it from a physician's perspective...If I were a neurosurgeon, and I were to be forced to disclose my lowest contracted rate, I would be creating an unfair playing field between myself and payors; ie. they would know my "lowest price". Soon, all of my contracts could be at the "lowest price". Community hospitals rely on such physicians to provide emergency services to those requiring specialized care that have no physician. Why would I want to take ER backup, be paid at the lowest rate, for a group of patients that are the sickest and at greatest risk, in the middle of the night, for 30 years? After a couple of years, I would get tired of it(now the hospital has a problem). Asymmetric negotiating relationships cause change. I could stop being a private practice physician, join a very large group, and then only see patients at predetermined rates, negotiated by my group. So, your unintended consequence could be to no longer have neurosurgical backup 24/365 for the emergency room at your community fact, hasn't that happened in New England already?

Barry Carol said...

76 Degrees,

I think your neurosurgeon on call example could be handled adequately with a bundled payment model. The hospital would strike an agreement with the surgeon as to what he would be paid for both scheduled in advance surgeries and those performed on short notice under emergency conditions.

More broadly, in the commercial payer world, I never understood why different payers pay different rates. It’s even more perplexing when the same payer pays the same provider different rates for the same procedure depending on which of its insurance plans the member has. In the rest of the business world, discounts are negotiated based on specific volume guarantees, high volume facilitating long production runs and other economies of scale and generally being less costly to serve than other customers. Mere access to insured lives doesn’t guarantee any specific level of volume. Some years back, my employer had a contract with one of the major airlines that gave us an 8% discount from its normal rate if we guaranteed them a specific minimum amount of annual revenue. If we missed that target by even one dollar, we lost the discount on the entire base of business.

The hospital and the physician world would be a lot simpler from a business standpoint if you could, in effect, gravitate toward an all payer system on your own. If you could document your costs to the payers’ satisfaction, it could be done, I think. Those with lower costs and comparable or better (measurable) quality should be rewarded with more patients and greater market share if they charge less than their competitors and that information can be clearly and credibly communicated to both patients and referring doctors. Insurers, for their part, should compete on price, quality of their service, breadth of their networks, scope of coverage, deductibles and coinsurance. With some effort, the whole system might someday even function like a normal market. There is no insurmountable reason why it can’t.

Anonymous said...


Thanks for, once again, making sense! (yes that was me above; I forgot to sign). One of the reasons that mere price transparency and "empowered consumers" won't work is your observation that this market does not function in any way like a normal market. I like your idea in the last paragraph, although Medicare would have to get on board with that theory too.

76 degrees is being a bit disingenuous since a) hospitals have had shortages of ER neurosurgical coverage for years and years already; b) there is a strong trend toward docs demanding pay from the hospital for ER call which would supplement whatever they get for surgery and c) the trend toward "surgical hospitalists" is in interesting one and may, eventually, supplant outside docs taking call, although it is starting with general surgery first.

I believe this uncertainty over covering their ERs will help drive hospitals away from private providers and toward their own employed physicians. As more docs get tired of this mess and are willing to work shifts for salary (driven by current residency hours which encourage a "shift mentality"), this will set up an interesting dynamic with those who want to remain independent.
"May you live in interesting times" is coming true.


76 Degrees in San Diego said...

Barry - What you said about the bundled payment model could work. There are Medicare pilot projects (Bridges to Excellence) that seem auspicious. To expedite progress with this type of model, there needs to be a history of trust and collaboration between medical staff and hospital. Also, some states allow financial relationships between physicians and hospitals; some do not.

Anonymous said...

I rest my case - even if there's no one to see. ):