Friday, May 28, 2010


The current political debate in Massachusetts about rising health care costs and insurance company premiums is a striking case of denial. The most thorough evaluation of the underlying causes of inflation was presented by the state's Attorney General this past winter. She found that the long-standing and current disparities in pricing in the Massachusetts market contribute mightily to the growth in health care costs and insurance premiums in the state. As noted in this Boston Globe story, her staff put in thousands of hours studying the issue:

The report, the result of legislation that directed Coakley to investigate why medical costs are rising so rapidly, is based on tens of thousands of contracts and other documents subpoenaed from insurers and providers and depositions from more than 30 key health care executives.

In light of the AG's conclusions, you would think that policymakers would be spending their time to design measures to reduce the disparities in reimbursement rates. But, as noted below, the policies being ordered by the Administration and the actions being taken by the insurers tend to do just the opposite.

In this kind of situation, where does one find the leadership to deal with these problems? The insurers have been willing or forced participants in creating the current situation. Can we expect them to change their stripes and take firm action against dominant providers?

During the hearings on these matters held by the state's Division of Health Care Finance, the witness from Blue Cross Blue Shield said that even his company, the largest in the state, did not have the market power to offset that of the dominant provider group and individual hospitals with special geographical advantages. That such was the case with smaller insurers was demonstrated years ago when Partners Health Care forced Tufts Health Plan to bend, but whether the same would apply to the dominant insurer remains an untested proposition.

We certainly cannot expect those providers who have benefited from higher rates to voluntarily accept cuts that would take them to the statewide average in a timely fashion. For one thing, their cost structures have been built on the expectation of greater revenues.

I believe the leadership has to come from the business community, those firms whose payments of insurance premiums -- or whose self-insurance arrangements -- validate the current reimbursement patterns. Their goal has to be to support market shifts to higher value providers. The business community needs to demand that the state government use its existing authority to expand upon the AG's work and present a clear picture of the current situation.

The "moral outrage" that would support value-driven market shifts will not come until the state chooses to publish actual rates paid to hospitals for commonly used services, and until the state also publishes clinical outcome data in a clear and up-to-date manner. Once these numbers are seen, employers and individual subscribers will discover that they are paying way too much to certain providers for services than can be delivered just as well by lower priced providers.

Once this information is freely available, the market will respond, with employers demanding and offering tiered products that more people would find acceptable. Consumers would then turn to providers who offer greater value, just like they do in other service industries.

For reasons I do not understand, neither the Administration nor the insurers have endorsed this kind of transparency, much less implemented it. Instead of being honest brokers in a transition to a more value-based health care system, they remain in steadfast denial of the AG's well researched and thoughtful conclusions.

Over the coming weeks, we should measure parties' commitment to change by the degree to which they advocate and adopt the kind of transparency that exists in virtually every other segment of the economy. If they do not, we will have to assume that they are motivated instead by self-protection of their owned perceived political and economic interests.


Anonymous said...

As an out of stater, I can't remember what proportion of covered lives is attributable to Mass BCBS, but frankly I am skeptical of their whine that they can't challenge Partners, particularly with the data now in hand from the AG. They want someone else to be the heavy. Insurers in other states have had more courage to challenge dominant providers, and in many cases have won concessions. You never know till you try, do you?

As for business leaders, this lassitude seems to be a national phenomenon - but they are quick to attribute lack of profits to their high health care costs. This is another paradox which makes me wonder what their true priorities are. What underlying motivations are we missing here?

nonlocal MD

Anonymous said...

BCBS saying that they cannot challenge Partners is not based on Partner's market share, as best I can tell, as evidenced by (and correct me if I'm wrong), they folded to Ellen Zane at Tufts/NEMC when they closed down BCBS there, and Tufts certainly does not have the market share of Partners.

As a frequent reader of this blog, I note that you have generally been, well, transparent. But I must say, I couldn't help but thinking as I was reading, that this speech sounds a lot like Charlie Baker and if you're going to go ahead and campaign for him, you should do so transparently and not as part of this blog.

Anonymous said...

In a recent conversation with a small business CEO whose premium increases threaten his ability to provide employee health insurance, it was the 'government' that was pilloried, not the insurance provider. There is a seemingly irrational affinity of small businesses to over-powerful large ones. Do independent shops protest in Walmart parking lots? Social psychology suggests that the sympathy is similar to the tolerance of the middle for the extremely wealthy, no matter if the wealth is gained against their best interests. Businesses don't regulate each other. Opening the market to out-of-state giants to compete against BCBS might. It lies in the hands of government to balance the odds more fairly, but legislators seem to have their heads in the sand.

Keith said...

Amen, brother!

Can we extend this to value based payment for hospital CEOs as well (as well as CEOs in other buisinesses) who seem to be handsomely rewarded whether they do a good job or not? And how about tying hospital CEO performance and payment to improvements in helath outcomes and community benefit rather than to financial performance?

Barry Carol said...

One relatively simple thing that the legislature can and should do is to make it illegal for dominant provider organizations to refuse to sign contracts that allow payers to offer insurance policies with differentiated or tiered co-pays. While I would love to see actual contract reimbursement rates publicized, tiered plans could still be offered without rate disclosure. It’s one thing for a hospital to negotiate its payment rate but to limit how much of the cost the insurer can require the member to pay as compared to other providers is beyond the pale, in my opinion. As Paul suggests, tiering would probably be more quickly accepted by both employers and members if contract rates were disclosed. What do the MA legislative leaders have to say about this? Why the reluctance to embrace transparency? I wonder if the unions are a part of the behind the scenes opposition, along with the insurers.

Anonymous said...

Q: When does anyone consistently cave to unsubstantiated price increase demands from suppliers/service providers that ramps up costs in a core business at a pace that greatly exceeds inflation/GDP growth?

A: Trick question. When a "core business" has stopped being the core business. More like when you're doing things like gaming "the float" generated by accidental-on-purpose delays in provider and member reimbursement to play in the stock market.

Most folks don't understand the business model of insurance companies as financial intermediaries and what they do with their premiums and where the bulk of their actual revenue comes from. Providers have the upper hand on insurance companies? That's rich. The big bad Partners negotiators browbeating overmatched BCBSMA and HPCH negotiators into ridiculous concessions. Please.

Better look under the other walnut shells for the pea because none of this passes the sniff test.

Anonymous said...

Dear Anon 10:20,

That Charlie Baker and I might agree on this or any other issue has nothing to do with my purpose in writing it.

And whether or not I support him or any other candidate also has nothing to do with what I put on the blog.

If and when I campaign for anybody, it will be quite evident that I am doing so.

wrinkledman said...

Paul, a few months back, I sent you this Atlantic Monthly article written by David Goldhill which articulates a plan to ELIMINATE all but catastrophic health care insurance. It's a long article and requires serious consideration, but I think we ought to be taking proposals like this seriously and it is certainly worth reading. Ideas like Goldhill's are the only way we can get the health care industry to act like other service industries. The insurance business must be decoupled from their monopoly and its secrets.

76 Degrees in San Diego said...

Remember, there is an FTC investigation going on now. Do you think that they might order a breakup of Partners and/or BlueCross/BlueShield of Massachusetts?

Roy M. Poses MD said...

I submit that one problem is that the top leadership of the organizations that are supposed to be negotiating at arms length may identify more with each other than with the organizations they are supposed to be leading.

Note that van Faasen is again running Mass BCBS.

First of all, there were overlaps among the boards of Partners Healthcare and Massachusetts Blue Cross Blue Shield.

Second, the organizations' boards tend to be populated by finance and marketing executives who may feel more affinity with each other than with their organizations.

Asking other business leaders, who often have similar ties, and whose companies' boards have similar ties, to step in aggressively may not be realistic.

The underlying problem may be who gets selected to be on for-profit and not-for-profit boards, the perverse incentives given top executives, and the general lack of transparent, accountable, and explicitly ethical governance of big organizations.

Final note: Mr Levy seems to be the unusual sort of CEO with fewer such ties and a much larger commitment to transparency and accountability. But you won't see many health care CEOs blogging, much less with his sort of openness.

Anonymous said...

Speaking of healthcare, please tell me how the 'rate' quoted on the CommonWealth Care site is legal?

I quote: "The premium rate shown for this plan is temporary. This insurer is appealing the Division of Insurance's disapproval of rates. Once the appeals process is complete, the premium rate for this plan may increase retroactively."

Then, the Terms and Conditions under which I enroll in Commonwealth Care say that once enroll in a plan, you can't change it for 12 months.

How is it legal to lock me into a 12-month contract, and then retroactively raise the rates? Inquiring minds want to know...

Anonymous said...

I think it is important to note that attempts at tiering costs for services with the idea of steering members towards lower cost providers has been tried by insurers in MA.

Tufts Health Plan had their "Liberty" product that tiered member copayments based upon the provider that they saw. Unfortunately the product was pulled in 2007 and I do not know business rationale behind it. A small blip but one worth noting.

MOS said...

I should have named myself the Insurance Girl.

Anyway, although I did not work for Tufts during the show-down of Tufts and Partners, it did have a significant impact on other insurers in MA. Not only did Partners have a monopoly, but members believed that they were the highest quality provider. Tufts still lost members even though they ended up settling with Partners. Partners sent a clear message and it was backed by the membership community. Afterall, members didn't care about the costs b/c insurance companies charge the same copays regardless of quality, cost, or effectiveness.

Now introduce Tiering. This may make members realize that paying 30-40% more for care at Partners is not justified. As an insurance company, I love Tiering. I think it provides the transparency that everyone is screaming for.

However, I have one issue. Will Tiering create a class society for Healthcare? If I have $, then I can buy the best care? What happens if I can barely afford the $10 copay and need a liver transplant? Do I go to a community hospital?

Luckily, there are other high quality, efficient teritary hospitals such as Beth Israel, Tufts Medical Center, and Boston Medical Center to name a few. What has to happen is the public has to be educated that there are other options. There are times when care is needed at a teritary (teaching)hospital and times when it is not necessary.

After being in the HC insurance business for 17 years, I think the time has finally come when Partners no longer rules. The insurers, other hospitals, and the AG office know Partners' game. What is left is to educate the member community that there are options. If you want to fix the problem, fix it one member at a time.

Unknown said...

MOS said
"However, I have one issue. Will Tiering create a class society for Healthcare? If I have $, then I can buy the best care? What happens if I can barely afford the $10 copay and need a liver transplant? Do I go to a community hospital? "

Valid concerns but I believe that smart design of tiering policies (read: complicated) can alleviate most of these issues.

Tiering does not need to take affect over all procedures. In fact it is most effective in situations where quality is equal across providers but costs are not. In situations where a certain provider is experienced and few others are then an insurer could easily want to have the patient go to the high cost/high quality option to avoid post-operative complications, member dissatisfaction, etc. Tiering should focus on cost effectiveness, not just costs.