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Mass. finds new system not cutting health costs

By Liz Kowalczyk
Globe Staff / June 23, 2011

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Early results show that putting doctors and hospitals on a budget — a payment method promoted as a way to curb health costs — has not saved money in Massachusetts, Attorney General Martha Coakley concluded in a report released yesterday.

One reason, an investigation by her staff found, is that providers with market clout still appear able to negotiate high payments, just as they do under the traditional system that pays them a separate fee for each procedure or visit.

The yearlong review of what six large Massachusetts insurers paid providers in 2009 found that doctors working under the new “global payment’’ system — which puts them on a per-patient monthly budget — generally did not cost less than doctors paid the standard way. And in some cases, large doctors groups such as Atrius Health and Mount Auburn Cambridge were far more expensive than physicians paid under the fee-for-service system, despite being put on a budget.

In an interview yesterday, Coakley said that unless the state corrects this “dysfunctional health care market’’ where some providers are paid better than others for providing similar quality care, insurers will be building a new house on a “flawed foundation.’’

But insurers and hospital groups said it is unfair to criticize global payments based on just one year of results because they will take more time to bring down costs. “It is far too early to judge their potential impact,’’ the Massachusetts Hospital Association said in a statement.

Coakley recommended that the state adopt “temporary statutory restrictions on how much prices may vary for similar services.’’ She said this would “reduce health care price distortions’’ until insurance plans that direct consumers toward less expensive providers, and other measures have time to work.

In the interview, she declined to outline how the state should intervene. But she said Governor Deval Patrick’s proposal to have the insurance commissioner review premiums and disapprove increases based on excessive fees for providers is one option.

If insurers and providers “can’t solve it on their own or are not moving fast enough,’’ then the state needs to move to bring down excessive rates, Coakley said.

Coakley’s report sets the stage for four days of hearings by the Patrick administration starting Monday to discuss the reasons for rising health care costs and debate solutions. It also builds on a similar investigation done by Coakley’s staff last year, which revealed widespread disparities in payments to providers. Some like Children’s Hospital Boston, UMass Memorial Medical Center, and Partners HealthCare — the parent organization of Massachusetts General and Brigham and Women’s hospitals and the state’s largest provider network — have market leverage due to reputation or location and were paid up to twice as much as others without similar clout.

In the report released yesterday, Coakley’s staff scrutinized Blue Cross Blue Shield of Massachusetts’ “alternative quality contract,’’ which Patrick has held up as a potential model for controlling health care costs. It gives doctors a fixed amount for each patient regardless of how much care the patient requires, and includes incentives for meeting quality measures. These types of global payment systems are supposed to encourage coordination of care and lessen unnecessary treatment because physicians are at risk if they exceed the budget — and can keep some of the extra if they come in below budget.

While the attorney general’s report said the contract is a step in the right direction because it rewards quality, it questioned whether it saves money.

During the first year of the contract, from 2008 to 2009, Blue Cross’s payments to five physicians’ groups grew an average of 10 percent, compared with 1.7 percent for doctors not in the contract, the report said. Atrius, for example, was paid about 9 percent more in 2009 by Blue Cross than in the previous year.

State Inspector General Gregory Sullivan also raised questions about the Blue Cross contract in a report earlier this year. He said that the alternative quality contract has “mesmerized people on Beacon Hill’’ and that in order to “entice physicians groups to join the plan, Blue Cross had to guarantee lucrative rate increases.’’

Blue Cross executives said it is unfair to focus on one year, when the contract is designed to reduce spending on these physician groups and their patients over five years. By the end of the contract, the insurer said, it expects increases to these groups will be closer to 5 percent annually, essentially half as much as they were getting the first year. Blue Cross executives were also skeptical that for physicians not enrolled in the contract, costs increased just 1.7 percent in 2009, given that cost increases in the insurer’s network generally were 10 to 12 percent.

“Our goal was not just to limit the disparities, it was to reduce the trend,’’ said Patrick Gilligan, Blue Cross senior vice president for health care services. “We do push harder on those providers who start high and ask them to come down over the life of the agreement.’’

But, he said, “there will be some providers who will have leverage. We are watching the consolidation [of hospitals and doctors groups]. We have concerns about that too. Market clout could be an issue even in a global payment environment.’’

Atrius chief executive Dr. Gene Lindsey said in a statement that Blue Cross’s initial payments to the doctors’ group under the alternative quality contract included investments to help it “retool the factory’’ and become more efficient. He said in a recent interview that the group is bringing down its costs to prepare for smaller increases in future years of the contract, in part by switching referrals of its patients to less expensive hospitals.

In the investigation, Coakley’s staff also found that total medical spending in 2009 was higher on average for the care of health plan members with higher incomes. She said this requires further investigation, but it could be because wealthier people tend to use higher-cost hospitals and doctors. It raises concerns, the report said, about whether lower-income people are subsidizing these high-cost users through their premiums, and highlights the importance of giving premium discounts to people who use lower-cost providers.

The report also concluded that a type of health plan called a preferred provider organization — which most Massachusetts residents participate in — creates significant impediments for providers to coordinate patient care because these plans are not designed around primary care providers who have the information and authority necessary to oversee care. People should get discounts for enrolling in plans that promote care coordination, the report said.

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

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