Wednesday, August 14, 2013

Well, duh.

The Boston Globe prints as news a story that Partners HealthCare collects a lot of the dollars spent on medical care in Massaachusetts.  It's not news, but I guess later is better than never.  The lede:

Nearly one-third of all the money that Massachusetts insurers spent on acute hospital care last year went to Partners HealthCare, according to a new Patrick administration analysis that underscores the dominance of the state’s largest medical provider.

In addition, Partners-affiliated doctors received 25 percent of the money paid to physicians in 2011. In both cases, Partners received two to three times as much as the providers receiving the next most in payments.

The statements above are rendered less informative without some kind of metric that indicates what percentage of the hospital beds, or discharges, or whatever are owned by Partners.  Or, what percent of  the state's doctors (by specialty) are in the Partners network.  That is nowhere to be seen in the story. (Maybe some of these charts would have been helpful.)

Absent that information, too, the story's reported assertion by the head of the state's Health Policy Commission has no basis.  The story quotes him as saying that the report underlines “why we are the most expensive state in the US. It’s because of the structure of our system,’’ which leads residents to “use expensive teaching hospitals,” including those owned by Partners, more often than people in other states.

What if the explanation, instead, is that the amount Partners' hospitals and doctors receive for patient care--in its academic centers, in its community hospitals, and its physician office practices--has been substantially above the rest of the market for two decades? What if the percentage rate increases granted by the state's largest insurer to Partners exceeded the average rate increases given to other networks, even though the base on which those increases was applied was already well above the state average?

Both of those statements are true but are not part of the news story.  The underlying issue, with due respect, is not that people in Massachusetts use academic centers more than in other states (although that can certainly be a contributing cost factor.)  It's that the dominant provider--which is about to expand its holdings--is paid hundreds of millions of dollars in excess revenue relative to the market.  It's that the dominant insurer has displayed no capacity for taking on that behemoth.

Fortunately, buried in the story is the conclusion by the Center for Health Information and Analysis "that cutting spending on medical care will depend in part on controlling payments" to Partners and other systems that have used market power to extract high prices. You can't control health care costs in Massachusetts without equalizing the rates of pay among the health providers by basing the amounts paid on clinical value received, irrespective of market power.  However, there is no appetite in this state to make that happen.  Since it will not happen, we will simply see periodic reports and news stories about ever rising costs while the industry giants demand more. Meanwhile, hospitals and doctor groups outside of the market drivers will be left with the scraps.  As those latter hospitals slowly decapitalize and those doctors lose income, they will be inevitably drawn into the big systems, allowing those systems to exert still more influence over payment rates. It will not matter if those payment rates are based on fee-for-service or bundling or capitation.  Regardless of payment design, the rates of the monopolistic systems will generate supernormal returns.  Their income is our costs.


Neville Sarkari MD, FACP said...

I'm not in Mass, but I've read your coverage on this issue for a while. What do you think should be done? Bust up the monopoly?


Anonymous said...

Even better would be to make the monopoly compete on price. Currently high "Partners Healthcare" prices are mostly shielded from consumers.

Most consumers are in "universal systems" where all hospitals are part an insurance carriers network. With limited networks Partners hospitals can be cut out, but the state insurance commission has restricted how large of a discount can be provided to consumers.

It would be as if, the Federal Government had told Toyota they could only discount say 10 to 15% below Chevy, Ford or olds even though its costs were much lower. The state government is protecting the gorilla in the market because government officials are afraid of effects on job creation by Partners hospitals and other high cost hospitals systems.

Make Partners compete on price.

And advertise in the market that Partners Hospitals are "average" on quality.

Consumers don't need to pay a large premium for an average product with an unwarranted reputation.

Richard said...

Do we dare talk about their leadership compensation, personnel cost that provides no patient care whatsoever?

Anonymous said...

as a consumer, both my husband and I are pleased with the care we have gotten from Partners doctors, better than some of the care from Caritas (haven't been to Steward). what primary doctors do you suggest we should go (living in greater boston area)

how do you know the quality is the same? the measures in the chia report are not good measures of quality

Paul Levy said...

As things stand, it is hard to know about relative quality. Therefore, there is even less basis for price differentials.

Anonymous said...

Because of the limitations of health quality data, the only quality differentiator in the in the Massachusetts hospital market (and I suspect the same is true nationally) is reputation.

MGH, B&W and Childrens all benefits from Harvard Med Schools success in research. But research success isn't the same as clinical. If research was automatically transferable to the market then Xerox and Xerox park would dominate the computer market, not Apple , Microsoft and others. As you may remember Xerox developed the mouse, graphical interfaces and other "then" new technologies that defined the computer industry, and are still important today. So good research isn't the same as good products, services or clinical success for hospitals and doctors. But if there is no other way to evaluate quality, people latch onto anything they can find especially if they don't have to pay for it directly out of pocket. In fact it even goes further.

One important way people seem to decide health care quality is price. You should pay more if something is better, seems logical. So if the Partners hospitals cost much more they must be better, right? That is the thinking of consumers especially if they don't have to pay for the differential. It is buried in their insurers total network cost.

The bottom line for most people on health care quality is "will they live longer", if they are treated in a particular place. We do collect some of that treatment data (admittedly not enough).

What it shows is quality for most hospitals is average. (or as the health care industry and Garrison Keillor might say - everyone is above I digress) There is little differentiation in death rates. There is some on health care process measures but those process measures haven't proven they translate in better clinical outcomes. Many of those process measures are linked to "inputs". Do you spend more: eg, spent more for I.T., have the latest wiz bang imaging equipment,have more nurses available. But having more isn't necessarily better. It depends how it is used. For instance having more nurses emptying bed pans (or other scut work) at $100k per year, isn't as efficient as a health aide doing it for much less cost.

Better quality data is needed. But it is clear from what is available, that MGH & B&W can not justify the huge premiums they are getting over other academic medical centers, especially BIDMC, which is also Harvard Med School affiliated but paid much less. Lets not even mention Cambridge health alliance which is an excellent community teaching hospital (mostly harvard affil) but paid much less than most community hospitals.

(continued on next text)

Anonymous said...

continued from previous anonymous

So what should we do? We need real markets in healthcare, that look at price and quality. Consumers need "skin in the game" so they care if they are paying more for care that is not measurably better. And good information about quality must be made available.

In some monopolistic markets like defense - technological development leads to higher and higher costs. The multi-billion dollar jet fighter.

In other markets with rapid technological development, we continually get better products are lower cost. We have all heard the old joke about cars advancing at the same rates as computers. They would be flying - to the moon - and cost a penny. But the analogies are real.

We invest huge sums in healthcare research. Those investments will pay off some day. We need a healthcare industry that uses that research to create service like the computer, smart phone and internet industries not like the multi-billion dollar airplane.

But the latter is where we are now. Do we want the best billion dollar heart transplants that money can buy? or do we want low cost AI available to help physician assistants evaluate complex symptoms and even help surgeons with complex operations?

For those with generous hearts, it is the unjustified high cost of healthcare - which is bankrupting our federal, state and local governments. I say unjustified because it is of much worse quality than most of the world (see link below) and costs 50% to 100% more than most of the industrialized world.

If we didn't have to spend so much on healthcare, we could spend more on other things to help people.

That is the biggest problem of the next twenty years. How to have low cost high quality healthcare.

Barry Carol said...

Where are the self-funded large employers? In California, CALPERS recently implemented reference pricing for hip and knee replacements limiting its payment to $30K per procedure. If members go to a more expensive facility, they pay the difference out-of-pocket. Nearly half of the hospitals in the region agreed to meet the reference price right away and a number of others signed on later. CALPERS’ payments for these promptly procedures fell 19%.

There is no reason why the concept can’t be expanded to all surgical procedures, outpatient procedures and inpatient procedures like routine childbirth. For medical cases where diagnostic testing is required to figure out what’s wrong with the patient, a modest premium above the Medicare rate might be appropriate. This is how to create countervailing power against large hospital systems with significant local or regional market power.

For care that must be delivered under emergency conditions when patients wind up in a non-network hospital, there needs to be a reasonable maximum price that hospitals can charge insurers. I would recommend 115% of Medicare for such care.

Finally, we need to break the cost plus mentality that pervades the hospital culture and force them to re-engineer their cost structure to fit the revenue that will likely be available in the future. This is how every other business outside of the defense industry operates and it works pretty well for them.

Paul Levy said...


Many of us remain surprised at the lack of attention to these matters paid by employers. Why that occurs remains a conundrum. Perhaps employers are concerned about backlash from valued employees. Who knows?

On your last point, the current rend towards consolidation will actually make it less likely that the hospital culture will change. The goal, straight and simple, is to create market power to have leverage over insurers and self-insured companies.

Anonymous said...

Barry's idea has great merit.

Maybe someone with healthcare bona fides - like Paul? - should approach business groups like the "chamber of commerce" and others.....I can get a good list if someone would like....

business groups have an enormous interest in controlling health costs. Like Paul, I am surprised nothing has really been done.

If I had to guess, business groups might fear being attacked as anti-health in an environment where healthcare is a highly charged issue.

Maybe a way to diffuse is to approach political leaders in both parties, since they both have an interest in controlling health costs, so it doesn't become another partisan issue.

Anonymous said...

For those not familiar, some interesting articles on reference pricing the second article in the NYT, mentions that 15% of firm plan to experiment with reference pricing this year up from 5%.

The third article provides a negative view from some physicians on reference pricing, since some hospitals or physicians might not meet the reference price and thereby be excluded from health insurance coverage. It extols single payer as a solution but neglects to mention that the medicare price could be even lower than the reference price and without the subsidy provided by higher insurance company payments wouldn't be viable for many health providers with their current cost structure.

Wonder if the big non-profit heath insurers in Mass. -- Blue Cross, Harvard Pilgrim and Tufts Health Plan will be offering this technique to its members especially in PPO's?