AS STATE policymakers look for ways to rein in health care costs, the first question they must decide is whether they want to nudge the market toward greater cost sensitivity - or to resort to the heavier hand of rate regulation by the state. Already, the threat of regulation has prompted the state’s largest health care provider, Partners HealthCare System Inc., to reopen its contract with Blue Cross Blue Shield of Massachusetts and agree to changes that will save the state’s largest insurer significant sums. It’s an important move, and the Legislature should draw two lessons from it: Government pressure is useful and effective, but private-sector efforts to cut costs are quicker than, and preferable to, a government rate-setting scheme.
In charting its next move, the Legislature should aim at applying enough pressure to bring about more cost cutting, while leaving the possibility of rate-setting as remedy of last resort.
The need for further efficiencies should be clear to everyone. The seemingly inexorable rise in premiums over the last half-decade has understandably sapped confidence in the current market-based system, which in theory relies on insurers’ negotiating power to hold down what hospitals and doctors charge. In practice, some providers have outmuscled the insurers. Two reports detailing the large disparities in what different hospitals are paid for the same procedures have added to the call for direct government intervention, and last week House Majority Leader Ronald Mariano leapt into the fray with a bill that would force insurers to cut payments to high-cost hospitals and increase them for low-cost ones.
Mariano’s impatience is understandable. He represents Quincy, where the Quincy Medical Center recently declared bankruptcy and agreed to be acquired by the for-profit Steward Health Care System. And his blunt-instrument intervention may be less of a policy prescription than an effort to steer the legislative debate toward greater regulation. But change may already be underway.
In December, Partners agreed to reopen its existing contract with Blue Cross Blue Shield; the new pact, which will be announced soon, is said to call for Partners to treat at least 25 percent of Blue Cross Blue Shield plan members under a so-called “global payments’’ system, meaning that Partners will be paid a set amount for treating the patient rather than a separate fee for each procedure. Some experts maintain that moving to a global payments system is essential to keeping health care costs in check.
Further, people familiar with the negotiations say the new contract will cut Partners’s previously negotiated 2012 increase of about 6 percent to less than half that. For 2013 and 2014, which weren’t covered by the old contract, the new deal would aim at keeping increases to no greater than the rise in the cost of living. Over its three-year duration, the new contract should save Blue Cross $240 million compared with what it would otherwise have paid Partners. It is also expected to set the tone for Partners’ contracts with other insurers.
Partners obviously hopes to forestall further rate regulation by showing that the existing system can deliver. Rate-setting advocates counter that this contract was negotiated under the threat of Governor Patrick’s push for more regulatory authority. Ultimately, though, rate regulation does little to address the reasons for the upward pressure on costs: Individual doctors, hospitals, and even insured patients have often had few incentives to hold costs down; insurers have passed their costs onto employers; and individual employers and consumers have had little ability to tamp down the insurance premiums they pay.
If the Partners/Blue Cross pact lives up to its early billing, it’s a sign that the dynamics are shifting. Thus, the state government should focus first on promoting more transparency in health care costs, and enlisting consumers in the effort to keep costs down. That, not direct regulation, should be the preferred approach as the health care debate moves forward.