Friday, December 03, 2010

Wrong sites, wrong costs

I heard an excellent presentation by David Morales, Commissioner of the Massachusetts Division of Health Care Finance and Policy, a few weeks ago. He presented these two charts, one (above) showing the spread in payments to hospitals for childbirth, and the other (below) showing the sites of service, differentiated by those same payments.

The perverse nature of the current utilization and reimbursement system is evident. Higher priced facilities have a larger market share than lower priced facilities.

Over the coming months, in accordance with an act passed last summer, the Division will be constructing an all-payer claims database (APCD). It will comprise medical claims, dental claims, pharmacy claims, and information from member eligibility files, provider files, and product files. It will include fully-insured, self-insured, Medicare, and Medicaid data. It will also include clear definitions of insurance coverage (covered services, group size, premiums, co-pays, deductibles) and carrier-supplied provider directories.

The Commissioner noted that the result will be "a dataset that allows a broad understanding of health care spending and utilization across organizations, population demographics, and geography." In my view, it will be a moving force in rationalizing payments to providers across the state, allowing policymakers and businesses to address the market-power driven system of reimbursements that has evolved over the years.


Jane Sherwin said...

It's not easy to use graphics to convey health care experience, of any kind. Thank you very much for sending this along.


Anonymous said...

Going beyond market power as a source of health care costs, here's an interesting analysis of government payments for health care in the U.S. vs other countries:


Anonymous said...

What the state needs to do is break up Partners and the Children's PPOC contracting networks. They use their PCP networks and membership numbers to force the insurers to pay them MUCH more than they deserve. The ONLY reason for these networks is to get more money from the insurers. Mass General and the Brigham are not integrated in any way.... in fact, shortly after Partners was formed MGH expanded their OB service to compete against the Brigham. They use their higher reimbursement rates to draw more and more PCPs into their high cost delivery systems. Break up Partners and Children's PCP networks and you go a long way to restoring contracting parity. How much community level Pediatric care is going to be delivered at that new Children's building? Seriously, most of Children's asthma, dehydration and other community level type care being fed into town by their PCP network has no business being delivered there for $5,000 per day. It makes no sense at all and is driving premiums ever higher. I look to the feds stepping in at some point, as they did recently in Michigan, to break up the sweetheart deals Partners and Children's have arranged with the local insurers as the state has shown no desire to investigate what is obvious to anyone in healthcare.

Amy Romano said...

Glad to see a post here on childbirth costs, since maternity care is the most common reason for hospitalization and the costliest condition for both private and public payers. There is huge variation in maternity care costs across facilities and regions, and by mode of birth (c-section or vaginal), which is driven largely by practice patterns rather than population characteristics.

You and your readers may be interested to know that Childbirth Connection is hosting a webinar on December 14 with payment reform expert Harold Miller looking at promising maternity care payment reform models. Readers can register here

76 Degrees in San Diego said...

Are you confident that the severity adjustments are correct for that DRG?
Do you think that downtown hospitals have to have more cost-shifting than suburban ones due to the population?

Rob and Jonathan said...

From Facebook:

Rob: I'm not an economist, I'm just a dumb pediatrician. Having said that, I believe I understand some simple economics. For example, when a consumer knows cost of the product or service he purchases, he tends to look for value. Here the consumer is oblivious (so is the provider, but that is another matter).

Frankly to me, Paul, "rationalizing payments to providers" sounds like a blunt instrument. Why not let the consumer see more of the cost, and choose providers accordingly?

Jonathan: I'm not an economist either, but it seems like there's a pretty simple answer to that: third-party payers. "Consumers" are price-insensitive at least in part because they don't pay directly for the service.

Barry Carol said...

I keep hearing from numerous sources that tiered in network insurance products have lots of potential to create countervailing power against hospitals that currently command high prices because of their market power and not their care quality.

So far, however, the powerful hospitals resist signing contracts that would subject patients who use them to higher co-pays and employers haven’t shown much interest either because they don’t want to alienate employees.

Regulators need to deal with the first issue if necessary. They also need to ensure that when hospitals deliver care under emergency conditions such as in the ER or in connection with an inpatient admission that came through the ER, they cannot charge more than some reasonable percentage of the Medicare rate if the hospital is not in the patient’s insurance network or if the patient is uninsured. Perhaps a ceiling of 120% of Medicare might be reasonable for care delivered under those circumstances.

I think, with some help from regulators, the hospitals that lack the market power to command well above average reimbursement rates should get together and work with the Massachusetts insurers to create a tiered in network insurance product that the hospitals could offer to their employees, presumably at a lower premium, alongside their existing insurance offering(s). Senior management, for their part, might consider providing leadership by signing themselves and their families up for the tiered product.

Keith said...

At last! Why insurance companies have not done this to date is a mystery.

While it may be that it is fear of alienating their customers, it seems very reasonable what they have done, which is to offer a tiered network at a lower price. This makes it more appealing to businesses looking to stop the constant double digit increases in health care premiums. It also stops rewarding high cost providers with no proven increase in value from being able to leverage their market clout to get higher reimbursement.

It is more likely that high cost providers will now begin rethinking their strategies as more information becomes availible to the consumer, and the consumer begins to directly feel the economic pain of these higher cost providers rather than cost shifting it to other providers or utilizers of more efficient health care services.