Saturday, May 17, 2014

Selling out to Partners

If this newspaper story by Robert Weisman at the Boston Globe is correct, the Attorney General is about to sign an agreement with Partners Healthcare System that will lock in the system's dominance for years to come.

The main provision:

Under the deal, which has yet to be formally signed, Partners’ prices would be tied to the rate of inflation, currently about 1 to 1.5 percent. That is significantly less than the recent trend of health care cost increases.

Here's why. We are talking about a system that has used its market power to build up its rates levels to be substantially above the rest of the market, say 15%.  Then our remedy is to limit its increase to inflation?

Big deal. All other hospital systems are also limited in their rate increases by recent state legislation.  Sure, they might get to go up a bit faster than Partners, but if you look at the starting point, it will be decades--if ever--before PHS rates are equivalent to the rest of the market.

Here's the accurate comment:

Boston University professor of health policy Alan Sager called the settlement a “functional compromise” by Coakley, who is a Democratic candidate for governor.

“This strikes me as more of a political deal than a health care deal,” Sager said. “If we’re relying on competition to hold down health care costs, the more competitors the better. The harm to the public will accrue more slowly under this deal, but the harm will occur.”

The agreement is simply another way of codifying what PHS already won in the most recent state legislation, when it used its political influence to obtain a figment of cost control. As I pointed out then:

The bill would allow health spending to grow no faster than the state economy overall through 2017. For the five years after that, spending would slow further, to half a percentage point below the growth of the state’s economy, although leaders would have the power under certain circumstances to soften that target.

Providers and insurers that do not meet the spending targets would have to submit “performance improvement plans’’ to a new state commission. Failure to implement their plans could lead to a fine of up to $500,000.

The problem, of course, is that a provider network like Partners with costs well above the state average will find it easier to meet the governmental targets than those with lower costs.  Why?  Because each hospital or network will be judged on its percentage increases.  If you have a higher base, you can increase the absolute number of dollars being spent to a much greater extent than those with a lower base and still meet the percentage target.  Ironically, again, the state is acting to increase the disparity in costs between the have's and the have-not's.  It is enhancing Partners' market power.

You also need to understand that virtually every hospital system in the country has set an internal rate growth target equal to the expected rate of inflation. Partners is giving up nothing by codifying that.

By the way, here's the the comment in the Globe story given by a person who makes money by selling consulting services to hospitals.  How the newspaper could include this with no indication of his client list is beyond me.

“It strikes me as a very fair approach and a very smart approach. The AG’s office is saying they want to limit the risks around cost and forming a monopoly but recognize the benefits of a very high quality hospital system bringing services to a community that could benefit from it.” 

We have to admit that none of the Democratic candidates for Governor (including one I have supported) has shown any spine with regard to taking on this behemoth.  Not one.  But this is the first of the candidates who seems to be explicit about selling out.  Let's see if any of the others are willing to take on the issue.


Barry Carol said...

I wonder what the difference is in insurance premiums between health plans that include Partners in their network and those that don’t and to what extent are the plans that don’t include Partners gaining traction in the market.

I continue to think that disclosure of actual contract reimbursement rates would be helpful especially to help educate people about cost differences for similar services with no discernible difference in quality. Tiered networks and reference pricing would also be helpful tools to steer business away from expensive providers like Partners. Perhaps medical tourism could also play a role especially for expensive and high profit margin services like hip and knee replacement surgery and cardiac surgery.

If employers don’t want to take a more proactive role on this issue, they may find it in their interest to transition to a defined contribution model for health insurance and let their employees purchase a policy that best meets their needs through a private exchange run by the big benefits consulting firms like Towers Watson, Aon Hewitt, and Mercer among others. The evidence on the public exchanges so far, as I understand it, is that people are extremely price sensitive which suggests that narrow networks may become increasingly acceptable if the price discount vs. the broad network products is wide enough.

Paul Levy said...

Barty, what you say makes a lot of sense and might eventually be the case. But to date, there's not much evidence in Eastern MA that a limited network is seen as attractive by businesses or by individuals. There is a perception--of course not based on reality--of greater quality at the Partners' flagship hospitals. Therefore, many people consider them as must-have's.

Also, please remember that a clever monopolist is very good at profit maximizing. Even if there is some loss of business, income is based on quantity X price. You can bet that the PHS finance folks have figured out the price elasticity with regard to their services.

Barry Carol said...


I understand the market perception of quality regarding MGH and B&W. However, if there were some decent data regarding both contract reimbursement rates and quality, it should be possible to steer a considerable amount of routine outpatient business and even lower complexity inpatient business away from PHS, especially its community hospitals which, presumably, command much higher reimbursement rates than other community hospitals in the region.

Also, I think regulators could make it easier for insurers to contract with some hospitals within a hospital system but not others. In theory, insurers should be allowed to strike deals that include MGH and B&W where the most sophisticated care presumably takes place but not some or all of the PHS community hospitals as well as its stand-alone imaging centers, clinics and rehab facilities. PHS probably insists on all or none contracting now but I don’t know that for sure.

Tim said...

One issue too is the local municipalities around South Shore Hospital such as Braintree and Weymouth are all in favor of this deal despite the fact municipalities in general(not necessarily Braintree and Weymouth)were all crying poverty just a few years back regarding high healthcare costs.

Anonymous said...

I wonder where the root cause of this (probably) unique situation in Boston is, where all the residents think of the academic centers as their home hospitals. Way back before all these mergers started, Partners and others, was that the case? if so, the die may have been cast long ago and it was simply a case of which AMC got the biggest first who won the market. But, patient perceptions of high quality being limited to AMC's were apparently skewed very early on.

nonlocal MD

Anonymous said...

Perceptions about academic medical centers "high quality" for routine care can be rebutted if the facts are publicized.

Just make a point of publishing the quality of routine care "as public service announcements" in local newspapers, radio stations etc.

The Boston area has some of the best community hospitals in the country. The have superior quality, as good as MGH and B&W for routine matters, at literally half the cost in most cases.

If each local community had local papers, radio stations etc periodically [quarterly?] publish quality statistics for routine procedures it would help.

Just look at a given region, say the North Shore of boston, identify where patients have routine care done and publish the data for those hospitals. There is no point publishing the statistics for hospitals not often used by those in the region - say those in Worcester, Western Mass or the South Shore.

If the real differences in quality were understood [for routine care MGH and B&W quality is the same as average community hospitals], and especially if patients could pay far less for the care, that would shift the dynamic we see in Boston.

So what do you say?

Public Service announcements on quality of local care?

Peter said...

The "politization" of medicine has trampled virtually all the lines that once defined ethics, craftsmanship, and commitment. It's money-driven now-often under the guise of expanded care or improved delivery of care. Quality has become 'the appearance of quality.' Good enough for Government work!!

And somewhere, in quiet rooms, deals are made daily that begin before we knew they existed, and roll over us like a road-grader. When we discover them, there are too many snakes on Medusa's head to kill. And if we stare at her in disbelief, we are turned to stone.