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Children’s zeroes in on its costs

Under pressure, hospital tackles pricey reputation

By Liz Kowalczyk and Robert Weisman
Globe Staff / March 6, 2011

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Tagged by the attorney general and insurers as one of the state’s most expensive hospitals, Children’s Hospital Boston is moving aggressively to cut health care costs while seeking to sustain its elite reputation for pediatric care.

Children’s has reduced its fees to private insurers and to Medicaid-managed care programs by $90 million over the last year and a half, hospital executives said, by focusing on charges for lab tests, doctors’ appointments, imaging, surgery, and hospital admissions. Children’s also recently slashed imaging and outpatient surgery prices by 20 percent at the hospital’s three suburban sites.

Hospital president Sandra Fenwick said Children’s is responding to pressure to reduce costs “coming from everywhere’’ — government, insurers, employers, and patients.

“We are trying to change institutional culture,’’ said Fenwick, noting that the hospital also is investing heavily in innovative programs to reduce expensive imaging and overnight stays for children who don’t really need that level of testing and care.

The reductions come amid intense scrutiny of hospital prices by state government, with Governor Deval Patrick’s administration looking to wield regulatory power to restrain soaring health costs — unpersuaded that market forces such as those Fenwick cites will work by themselves.

Two weeks ago, the governor proposed legislation to change how hospitals and doctors are paid and to create incentives for providers to reduce costs — though the bill also would give the administration authority to limit provider rate hikes, a provision aimed at high-cost hospitals and doctors’ groups that charge twice as much as the lowest-cost ones.

Legislative leaders said last week that they expect a year of hearings and vigorous debate on the governor’s proposal before they reach agreement on a final bill.

“The disparities in cost are enormous,’’ said Representative Steven Walsh, a Lynn Democrat who will oversee the review of Patrick’s legislation in the House. “We need to address that. . . . We will review all the options.’’

Fenwick and other Children’s executives have been briefing legislative leaders, Patrick administration officials, and health care executives on their initiatives. Several of those briefed, including state Senator Richard Moore, the Uxbridge Democrat who is chairman of the Senate Committee on Health Care Financing, and Stuart Altman, professor of national health policy at Brandeis University in Waltham, said Children’s appears to be making some progress at curbing costs.

Andrew Dreyfus, chief executive of Blue Cross Blue Shield of Massachusetts, the state’s largest insurer, commended Children’s as one of only a few academic medical centers that have reduced prices. Blue Cross officials said the cuts have saved the plan $29 million so far, allowing it to shave 0.2 percent off of customers’ premiums — the equivalent of reducing a $100-a-week payment by 20 cents.

Dreyfus said the price cuts are “modest’’ given that the hospital starts “from a very high payment level.’’

An investigation by Attorney General Martha Coakley’s staff released last year found that in 2008, Children’s Hospital and its physicians’ network were among the four highest-paid providers in the state.

Fenwick argues that comparing Children’s to hospitals that treat both adults and children or just adults is unfair, because kids are more expensive to treat. When compared with 28 US pediatric hospitals, costs at Children’s Hospital Boston were only about 10 percent higher than the average payment for inpatient admissions in 2009, she said.

She said the hospital made up for the $90 million in price reductions by scaling back hiring, negotiating better prices for drugs, and other measures. As it has cut costs, the Children’s gain from operations — what would be called a profit outside the nonprofit sector — also fell from $71 million in fiscal 2009 to $52 million last fiscal year.

Dreyfus pointed out that lowering prices doesn’t get at underlying issues such as the overuse of medical tests and treatments — insurers may be paying less for imaging but in some cases they shouldn’t be paying for MRIs and CT scans at all.

“Children’s has committed to working on this,’’ he said. “They understand they need to fundamentally change how they deliver care.’’

Fenwick said the hospital has begun addressing these issues by, for example, keeping hundreds of heart patients for one-day observation rather than admitting them to the hospital.

Under an agreement with insurers, Children’s is keeping $10 million of the $90 million in cuts for two years to pay for developing programs to cut down on unnecessary care, and to improve quality. One such program is an experiment to reduce the number of children with routine headaches referred to the Harvard teaching hospital for expensive MRIs and CT scans.

Headaches are one of the most common complaints pediatricians hear. And they send many of these patients to Children’s Hospital — even though the most worrisome condition, a brain tumor, is relatively rare, affecting 5 children per 100,000, or about 2,500 children annually in the United States.

“A lot of kids come in for unnecessary CT scans and MRIs,’’ said Dr. Scott Pomeroy, chief neurologist at Children’s and one of the leaders of its new headache collaborative.

And many who are diagnosed with migraines and prescribed medication continue to consult with Children’s doctors when they could be talking to their primary-care doctors, he said.

Concerned parents often want their children checked out at Children’s; that understandable anxiety can result in needless and costly hospital care. “The parents figure in a big way,’’ Pomeroy said.

So Pomeroy’s team began meeting with pediatrician groups, starting with Harvard Vanguard Medical Associates, to develop referral criteria. They created a software program so doctors could ask patients the right questions, based on an algorithm for determining when tests are required.

“We were in a lose-lose situation,’’ said Dr. Anita Feins, chief of pediatrics at the Kenmore practice of Harvard Vanguard. “Children’s neurologists were frustrated. They were seeing people who should have been in primary-care settings. We were frustrated because we had seen the kids a lot and parents were worried they could have a brain tumor.’’

Fenwick said it is too early to see savings from these types of programs.

Liz Kowalczyk can be reached at kowalczyk@globe.com; Robert Weisman can be reached at weisman@globe.com.

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