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Partners plan puts a model for cost controls to test

By Robert Weisman
Globe Staff / July 31, 2011

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As Massachusetts lawmakers consider tougher measures to curb rising health care costs, a 15-month-old money-saving promise by the state’s largest hospital-and-physicians’ group looms as a test of whether premium-rate relief is feasible.

Partners HealthCare System Inc. has yet to make good on the pledge it made in April of last year to pay $40 million to help reduce health insurance premiums for small businesses. Its executives say Partners hopes to do so in the next few months - not by writing a check, but by renegotiating existing contracts with insurers. Those contracts, which don’t expire until next year, give its hospitals some of the state’s highest reimbursements for medical care.

By accepting smaller payments from insurance companies - possibly through so-called global payments that put its hospitals on annual budgets for patient care - Partners could then ask insurers to refund their savings to customers in the form of reduced premiums.

The details are being worked out in talks between Partners and three health plans: Blue Cross Blue Shield of Massachusetts, Harvard Pilgrim Health Care, and Tufts Health Plan.

Partners, which runs nine area hospitals, including Harvard-affiliated Massachusetts General and Brigham and Women’s hospitals in Boston, has no legal obligation to reopen its contracts. Some health care professionals see its willingness to do so as a potential trigger for other cost-cutting efforts.

But critics and legislative leaders question whether the Boston-based health care system, with $11.5 billion in assets, is moving fast enough or reaching deep enough, and whether its approach of bargaining with health plans is fulfilling the spirit of its pledge. The $40 million offer came from Partners chief executive Gary L. Gottlieb as state leaders pressed health care providers to help struggling businesses and families.

“They did make a commitment,’’ said state House majority leader Ronald Mariano, one of those who had called on Partners and other medical care providers to make sacrifices to reduce insurance premiums. “I would hope they would honor that commitment.’’

State Senate President Therese Murray, another strong advocate for lower premiums, said the Partners move to reopen insurance contracts at its member hospitals could be beneficial. But it won’t be enough to stem double-digit annual premium increases, she cautioned.

Because of that, lawmakers have called on other hospitals to make similar concessions. They are also crafting legislation that could include everything from price controls to changes in how insurers pay hospitals and doctors. But the pledge by Partners - which took a $40 million charge against its earnings late last year to reflect its planned contribution - is considered key to jump-starting broader cost-cutting efforts.

“I would have been happy if they had just given us the money and we could have given it back to the small businesses to lower their premiums,’’ Murray said. “By opening up their contracts, which they didn’t have to do, I’m hoping that the savings will exceed $100 million. And there’s no reason that other healthy providers in the state - hospitals and doctors groups - shouldn’t also step up once the Partners hospitals do.’’

Eric Linzer, senior vice president at the Massachusetts Association of Health Plans, said health insurers, widely blamed for higher rates, are disappointed by the delay. He also said the method Partners has chosen for honoring its pledge - negotiating new contracts and having insurers pass on the savings - will be difficult for insurers to administer, not least because it will be hard for health plans to allocate savings specifically to small businesses.

“There was never the suggestion the $40 million was going to be subject to renegotiations,’’ Linzer said. “The expectation was that this was to help small businesses last year. There’s no reason why the contribution shouldn’t be made by Partners immediately.’’

Partners spokesman Rich Copp declined to respond to the criticism. But he cited a letter sent late last year by Peter K. Markell, the company’s vice president of finance, to state Insurance Commissioner Joseph G. Murphy reaffirming Gottlieb’s $40 million pledge.

Markell said in May that he hoped talks with insurers could be wrapped in the next few months. “We are in pretty intense negotiations with the payers right now,’’ he said. If the contracts can’t be renegotiated, Markell said, Partners would make a lump-sum payment to insurers with the expectation they would refund small employers.

In the spring of last year, when Gottlieb made his pledge, Massachusetts lawmakers were preparing legislation that would have levied one-time assessments on hospitals and physicians practices to bring down small business premiums. But the assessments, which Murray and others had hoped would total $100 million, were dropped from the final bill.

Instead, the legislation encouraged health care providers to voluntarily contribute to rate reduction and required insurance regulators to monitor those efforts. As of this month, however, no providers have made any direct contributions, said Jason Lefferts, a spokesman for the Division of Insurance.

Because Partners’ current insurance contracts don’t expire until next year at the earliest, financially weaker hospitals, which already collect smaller reimbursements for the care they deliver, can point to the disparity in bargaining with insurers over contracts that must be renewed sooner. The longer the Partners commitment remains unmet, the less likely other hospitals will follow suit.

“Our rates need to be brought back up to the [level of] teaching hospitals in Boston,’’ said Donald J. Thieme, executive director of the Massachusetts Council of Community Hospitals, noting that more than a dozen community hospitals are losing money. “There’s steady, steady pressure. I can’t contemplate any of our hospitals even considering putting their rates down.’’

The wait for the Partners payment is also trying the patience of some insurance companies.

“Partners HealthCare made a $40 million public commitment to small businesses,’’ said Sharon Torgerson, spokeswoman for Harvard Pilgrim. “We call on them to make good on that promise without further negotiation. That said, Partners has expressed interest in a new multi-year contract beginning in 2012. We hope that Partners will negotiate a new contract that will bring meaningful, long-term relief to all Massachusetts employers and consumers.’’

And many small businesses believe Partners should be doing even more to rein in costs.

“The longer this goes on, you wonder if anything will come from it,’’ said Jon B. Hurst, president of the Retailers Association of Massachusetts, which represents 3,100 merchants and restaurants. But, he added, if Partners is willing “to take a 10 percent cut in reimbursement, that will be great thing for employers and consumers.’’

Robert Weisman can be reached at weisman@globe.com.