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Patrick proposes health fee overhaul

Seeks power to examine insurer contracts as part of shift to budgeted care

By Liz Kowalczyk
Globe Staff / February 17, 2011

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Governor Deval Patrick plans to file long-awaited legislation today that would give him authority to scrutinize the fees paid to hospitals and doctors, part of a proposal to transform how providers are compensated and to curb rising health care costs, according to high-level administration officials.

The legislation also underlines the administration’s plan to shift most Massachusetts employees, Medicaid recipients, and other residents with state-subsidized health insurance — about 1.7 million people, or 1 in 4 residents — to a new cost-conscious health care payment system, in which doctors and hospitals are put on a budget for each patient’s care. It indicates that the state plans to have the infrastructure and strategy in place by 2014 to make this transition.

The legislation would also establish standards for groups of hospitals and doctors called accountable care organizations, which are expected to become common as providers band together to treat patients and coordinate their care for a budgeted fee, splitting the payment. For example, the proposal requires all accountable care organizations to include preventive care and mental health care and to have the technology to manage and divvy up payments.

Patrick, whose administration has been wrestling for months with the best way to control health care costs, plans to announce the legislation this morning in a speech to the Greater Boston Chamber of Commerce at the InterContinental Hotel in Boston. Top administration officials who have reviewed the legislation, but who wanted to remain anonymous because the governor had not yet presented his plan, provided details to the Globe.

The plan — the culmination of two years of debate among health providers, insurers, consumer advocates, legislators, and the administration — appears to stop short of dismantling the traditional payment system used for the majority of privately insured patients.

That system, called fee for service, pays doctors and hospitals a negotiated fee for each procedure and visit, and it is widely viewed as lacking coordination and as driving up costs by encouraging unnecessary tests and procedures. The more treatment doctors and hospitals give, the more money they collect.

The governor, heeding pleas from providers, decided against pushing for authority to set the fees paid to hospitals and doctors. Administration officials said that the governor wants to keep pressure on insurers and providers to cut costs, but that he did not want to interfere so aggressively that it stifles innovation.

Patrick wants to give the insurance commissioner, who can already reject excessive premium increases for small businesses and individuals, the additional power to scrutinize insurers’ contracts with providers as part of this review and use that information to help decide whether to reject insurance rate hikes deemed excessive. An investigation by the attorney general’s office last year documented disparities of as much as 3 to 1 in how much providers were paid, especially hospitals and doctors with a strong brand name or geographical dominance that enabled them to demand big rate hikes.

Under the legislation, the insurance commissioner would be able to review insurers’ contracts when considering whether to reject or accept premium increases for large employers, too, administration officials said. The commissioner could also consider whether insurers and providers are moving toward innovative payment systems in their contracts.

“Insurers tell us that 90 percent of their dollars go to providers,’’ one official said. “We’ll be able to say, ‘What kind of increases are you agreeing to?’ This is a very important step.’’

Patrick has indicated that his administration’s aggressive rejection of insurers’ proposed premium increases last year was one of his most successful strategies to control health care costs and something he wants to expand on.

Earlier this week — one year after the state’s biggest health insurers requested premium increases averaging 12 percent to 25 percent for small businesses and individuals, touching off a five-month battle with the governor — the companies limited their proposed base rate hikes to less than 10 percent for the year starting April 1. Individual businesses, however, may get bigger increases depending on factors such as the age of their workers.

The governor’s legislation stops short of requiring providers to band into accountable care organizations or of requiring insurers to pay providers based on a budgeted amount. One official said, “We want to lead by example.’’

“At this point we really think providers are moving in that direction,’’ the official said. “We want to make sure there is room for innovation.’’

The administration had talked about wanting to move toward global payments, in which insurers provide a set amount that covers all of a patient’s care, no matter how much or how little treatment is given. But administration officials said yesterday that other types of alternative payment systems may also improve care and drive down costs.

“The biggest downside to requiring global payments is that this is an experiment that hasn’t been done before,’’ one official said. “We want to leave the field open as we learn what is effective.’’

Andrew Dreyfus, chief executive of Blue Cross Blue Shield of Massachusetts, said the legislation will “send an unmistakable signal that we must work even harder to make health care more affordable by changing the way we pay for care and improving the way we deliver care.’’

Other health care leaders said they wanted to see details of the governor’s proposal before deciding whether to get behind it. But they were hopeful that it would help slow the punishing increases in health care costs that have burdened the state, employers, and consumers.

“We’re pleased that the governor is throwing out the first pitch on comprehensive payment reform,’’ said Amy Whitcomb Slemmer, executive director of Health Care For All, a nonprofit consumer advocacy organization based in Boston. “We’ll be looking for the details to see what kind of incentives are included to make this change and what this will mean for consumers.’’

Liz Kowalczyk can be reached at kowalczyk@globe.com.