Code blue on healthcare costs

IN THE EARLY 1990s, Massachusetts shifted from hospital reimbursement rates set by a state agency to a deregulated system in which insurers and hospitals negotiated with each other. As a recent Globe Spotlight report detailed, two big winners have been Partners HealthCare's Massachusetts General Hospital and Brigham and Women's. They command disproportionately high reimbursements partly because they are highly regarded teaching hospitals that subsidize unique and costly facilities like their burn units, and partly because of sheer market muscle. No health insurer would dare to offer a plan that did not include them.

The deregulated system creates problems of equity and affordability. In some specialties, other teaching hospitals with medical outcomes just as good as the Partners hospitals must make do with lower reimbursements. For example, the Spotlight team found Mass. General charged nearly twice as much for an MRI of the brain as Tufts Medical Center.

Since 2000, insurance premiums in the state have increased 78 percent, while the cost of living has gone up 28.3 percent. Over-generous payments to Partners have also helped fund its outpatient empire-building in the suburbs, which is likely to exacerbate the equity imbalance as these newly minted Partners facilities presumably will garner higher reimbursements than local competitiors.

Other states have also seen substantial premium increases, but only Massachusetts has a new universal-coverage law that requires individuals to purchase insurance. The state needs a better rate-setting system to ensure that the reform law does not become the Big Dig of health insurance.

One alternative is to shift from the private dealing between insurers and hospitals to a more transparent system of performance-based reimbursements. These would have to account for complicated medical procedures. Or the state could set an allowable range for the cost of each procedure.

Ideally, rate-setting would move toward a single payment system: a gallbladder removal would be reimbursed at the same rate by a private insurer, Medicaid, or Medicare. Currently, Medicare pays somewhat less than actual cost, Medicaid much less, and the insurers subsidize both programs. Ending this disparity would benefit the hospitals with disproportionate shares of Medicaid and Medicare patients. A saner rate-setting system would also pay more for primary care and less for the interventions by specialists that inflate overall costs and lure medical students away from basic care.

A state health-cost bill this year set up a payment commission that will report next fall. It should recognize that the present system is not working, and devise a new one that controls cost and treats providers fairly.