Wednesday, June 22, 2011

Twice-told tale

Back in 2008, Charlie Baker, then CEO of Harvard Pilgrim Health Care, and I, then head of a hospital, claimed that the market power displayed by the dominant provider system in the state and supported by the state's largest insurer resulted in a large disparity in health care payments. We argued that this disparity contributed to unnecessarily high health care costs in the state. We both did this publicly, willing to put our assertions to the test. The quotes in response to this in a Boston Globe story were notable, but they did little to undercut our premises.

About a year later, the Attorney General of the Commonwealth published an investigation of this situation, which had the effect of validating our assertions.

Then, the largest insurer in the state said that the solution to the problem was to move towards a capitated, or global, payment regime. This would control the cost trend.

Again, knowledgeable observers, like the Inspector General, raised concerns. What if the global payment regime also created disparities and locked in higher rates? He noted, "[M]oving to an ACO global payment system, if not done properly, also has the potential to inflate health care costs dramatically."

I pointed out that, while a global payment plan might have certain theoretical advantages, without a transparent exposition of its effects, how could we know if it had been successful?

Well, the latest chapter has just been written. The Attorney General has issued a follow-up report saying, “Our examination found that paying providers on a global basis has not resulted in lower total medical expenses.” Further, "Wide price disparities unrelated to the quality of care still persist from one Massachusetts hospital to another, largely dependent on the providers’ clout in the marketplace."

The whole country is watching the Massachusetts experiment of providing universal health care coverage and is wondering how we will deal with the cost issues inherent in providing that coverage. The Attorney General has now offered, twice, a cogent and thoughtful review of the situation. The Inspector General has done likewise. How will the other parts of the government respond? When will the business community get engaged? What about the patient advocacy organizations?


Anonymous said...

Reading the various links makes me feel like the blind man feeling the elephant and trying to discern its shape - to wit, it is unclear to an outsider whether Massachusetts' global payment idea is fundamentally flawed, or whether the abnormally high starting set points are distorting the picture of what it will look like at equilibrium. I am gathering that the latter is the case. If so, the AG's idea of a temporary state mandate to equalize the rates may be a good one - otherwise, you are just immortalizing the existing advantage of overpaid systems such as Partners and Children's.
But, as you point out Paul, it is too bad that this was not foreseen ahead of time, because it is always harder to go back and fix something than do it right in the first place.

As for why the business community has remained on the sidelines in the national health care debate (never mind Massachusetts), this is a real head-scratcher. I don't see how they can whine about how health care costs are hurting their profits and yet take zero action to change the situation - especially when they can exert significant leverage if they only had the will to do so.

nonlocal MD

Barry Carol said...

nonlocal –

Employers are starting to take more interest in the medical cost issue. At least in some markets, we’re seeing increasing interest in tiered network and narrow network insurance products. More recently, with the encouragement of some of the larger self-funded plans, insurers are starting to reimburse out-of-network providers at a flat 110% of Medicare which, as a by-product, greatly improves price transparency for the member as well.

It will be interesting to see just how aggressively powerful hospitals attempt to collect the difference between reimbursement of 110% of Medicare and charges that can often be 300% of Medicare or more from individual patients. If collection tactics are heavy handed, the media could have a field day in exposing them.

The same is true in the case of out-of-network surgeons and the so-called RAPE doctors (radiologists, anesthesiologists, pathologists, and emergency medicine doctors) which the patient usually doesn’t know and has no role in choosing. If these providers accept Medicare rates from Medicare patients, how can they justify charging younger patients more than a modest premium above those rates? As I’ve said many times, good price and quality transparency tools could be enormously helpful to both referring doctors and patients in choosing the most cost-effective providers.

Keith said...

Agree with non local that the big problem has been that insurers have done little to fight back against those institutions that leverage their name and reputation (or location) to charge a premium. Only now are they starting to design tiered systems that give the patient the responsibility of choosing a lower cost/value added provider or hospital. Clearly there needs to be more price transparancy for this to work effectively. Currently patients are totally insulated from these cost differences (which is why we have this problem to begin with) and it may be quite a shock for these folks to get these big bills from the higher cost institutions. But maybe this is what is needed to put the clamps on ever expanding costs.

Many of the arguments regarding healthcare funding seem to boil down to whether we accept the capitilistic model that favors letting the marketplace set the price, or whether we take a more socialist bent of fixing prices accross the board for all providers. The medical care market is not one that conforms well to the standard ideal of capitalism, and this is why the market has such difficulty constraining cost increases. The answer, I suspect, lies somewhere in between with insureres setting a payment they feel is reasonable for the service, and having any extra charged by the provider become the patients responsibility. But then how well will this insulate the middle class from these potentially large expenditures for health care?

Anonymous said...


As a former RAPE provider, I can attest that my hospitals, at least, made it our contractural obligation (e.g. our contract with the hospital) that we participate with whatever insurers with which the hospital did, to protect the patients from being captives of overbilling. So we would have never been 'out of network' if the hospital was in-network. I know not all hospitals do this, but to me it's a no-brainer solution to the problem you describe.

Parenthetically, I find the label RAPE a bit offensive although I know you did not mean it so. RAPE works both ways; in return for an exclusive contract, our prize was to be essentially mandated to be one of the hospital's highest donors, with specific dollar amounts dictated and expected. It's a nasty business in more ways than one.


Barry Carol said...

nonlocal –

You’re right. The RAPE acronym is somewhat offensive though, as you note, I didn’t mean it that way. The network participation arrangement at your former hospitals makes perfect sense and I don’t know why all hospitals don’t operate that way. I suspect it may have something to do with the market power of doctors with scarce skills in certain markets. I can see where anesthesiologists especially and, perhaps, radiologists might demand to bill on an out-of-network basis or else refuse to work at any hospital that won’t agree to that arrangement. With surgical procedures among the most profitable services offered by hospitals, they need anesthesiologists. One alternative, I suppose, is to try to employ them directly for a very high salary plus bonus opportunity.

Anonymous said...

What about the doctors also advocating for their patients and for themselves? It's been almost twenty years, but I used to work in the same big hospital as you. Even back then, the insurers had everyone by the you-know-whats. It would take a Herculean effort, but if the docs in Boston would band together and mutiny against the dictatorship of the big insurers, things could change for the better. It would have been easier to do then, but it still shouldn't be impossible to restore sanity to the health care system. That said, who has the courage--or time--to slay this dragon?

Anonymous said...

Anon 9:34, I'm not sure it's the insurers holding the 'jewels'(both metaphorical and literal), vs. the dominant healthcare providers. From what I understand it is the latter.


Paul Levy said...

From Facebook:

Consolidation of hospitals and practices under umbrella groups provide very useful economies in administration and promise other benefits like reduced duplication of diagnostic procedures and more rational distribution of capacity.

But, as long as policy is based on the pretense that a market - where services are selected from competing providers by rational and informed consumers - exists the consolidation will add to expense which will go to profits, executive salaries, and other non-productive costs.

The business side of healthcare, like other businesses, is attempting to hold the divergent ideas that competition is good (when talking to regulators) and bad (when dealing with operations). This is the environment in which healthcare policy decisions are made and Partners has merely taken advantage of it.

Jerry: I recall that the business community, although low profile at the time, was a potent watchdog in rate cases before the DPU. If the old DPH rate-setting commission were still in place, that would be an important forum, too.

Anonymous said...

As long as medicine practices as individual and competitive business propositions rather than public health systems, the incentives will be misaligned to the most narrow product (insurance, industry, and clinical) for the greatest monopoly. But this need not warrant capitalism v. socialism dichotomies for the emerging healthcare ecosystem.

If health, rather than care, is the 'value proposition,' then policies would actually favor even broader market innovations than government or business have proposed. We wouldn't think of patients as isolated from the public, nor could providers remain isolated from communities. We can keep betting on the prettiest horse in the race. But we shouldn't expect them to deliver the mail in a blizzard. (Or be surprised at what they charge to do so).