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Legislator seeks cuts to highest health payments

Would shift funds to lowest-paid providers

By Liz Kowalczyk
Globe Staff / September 6, 2011

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Ronald Mariano, the House majority leader, planned to file legislation today that would force insurers to cut payments to the most expensive hospitals and doctors, a bold proposal that is likely to meet opposition from many providers.

The amount the insurers saved would be used to increase payments to the lowest-paid hospitals and doctors, and to reduce health insurance premiums for employers and consumers. Mariano, a Quincy Democrat, said his plan could shave roughly $267 million off premiums, based on a previous analysis by Governor Deval Patrick’s staff.

“There is a wide discrepancy between the ‘have’ hospitals and the ‘have-not’ hospitals,’’ Mariano said. “This is an attempt to focus that discussion.’’

Given the general resistance in Massachusetts to government regulation of the prices charged by medical providers, Mariano’s plan is assured to be controversial.

Lynn Nicholas, president of the Massachusetts Hospital Association, said her members acknowledge that price disparities exist in the state, as they do nationwide, but members do not believe the difference is severe enough to warrant aggressive government intervention into private contracts. She also said that cutting prices to higher-paid hospitals could force them to get rid of valuable but poorly paid services like psychiatric care.

“We believe the market is responding to new pressures [to control costs] and premiums are coming down on their own,’’ Nicholas said, citing “tiered networks’’ and other insurance plans that use premium discounts to steer patients to less-expensive hospitals and doctors.

But Mariano’s proposal is an indication of the growing impatience in some legislative circles over how long it is taking to curb rising health care costs, which government investigations have blamed in part on hospitals and doctors with market clout that demand top dollar because they can, not necessarily because they provide better care.

His plan would require insurers to reduce payments to providers with rates in the top fifth, and raise payments to those in the bottom fifth, using a methodology that compares hospitals and doctors within each of four regions of the state to one another.

Starting Jan. 1, 2012, insurers would not be able to enter new contracts with providers who fall into these two groups until their rates are brought closer to the average. The law would stay in effect until Dec. 31, 2015, when efforts to reform the state health care payment system are expected to be fully implemented.

The Patrick administration and Attorney General Martha Coakley’s staff have released separate reports documenting wide disparities in payments among providers for similar services. An investigation by the state Division of Health Care Finance and Policy found that for caesarean deliveries, for example, the highest-paid hospitals get almost double ($8,000 to $10,500) what the lowest-paid hospitals receive ($5,000 to $6,500), without a discernible difference in quality.

A special commission of Patrick administration officials, legislators, insurers, and providers has been debating how to reduce these inequities, but it is unclear whether the group will be able to agree on meaningful recommendations.

The governor proposed his cost-control legislation earlier this year, and House and Senate leaders are expected to file their own bill as early as this month. There is general agreement that the state should move to a system of “global payments,’’ in which providers are paid a monthly per-patient budget for care, rather than allowing them to bill for each separate service given to a patient, with few limits on the number of services.

But Mariano, a close confidant of House Speaker Robert DeLeo, said the legislation also needs to address the inequities in how much providers are paid. Quincy Medical Center, a lower-paid hospital in Mariano’s district, declared bankruptcy in July and agreed to be bought by Steward Health Care System.

Lora Pellegrini, president of the Massachusetts Association of Health Plans, said her members generally support the “80/20’’ approach proposed by Mariano.

“My members do understand there are some significant distortions in the marketplace, and as we move to payment reform we might need a modest correction,’’ she said.

James Roosevelt Jr., chief executive of Tufts Health Plan and chairman of the MAHP board, said that contrary to what some hospital leaders assert, “we have not seen voluntary movement that will produce significant short-term decreases in premiums.’’

Officials at Blue Cross Blue Shield of Massachusetts said they are troubled by the payment disparities, but they want to review Mariano’s bill before taking a position on it.

During a Patrick administration hearing in June on health care costs, the chief executives of three lower-paid hospitals said they support temporary government intervention, but Nicholas said that turned out to be a minority view during a hospital association board meeting in July.

Members are skeptical that price controls would be temporary. Nicholas also pointed out that lowering prices to some providers does not address another key driver of costs: Patients are receiving more procedures and tests. And, there is a basic fairness question about taking money away from higher-paid hospitals just because they are successful, she said.

Everyone agreed, she said, that if the state improved the inadequate rates for hospitals to care for Medicaid patients, those hospitals that are struggling would be better off.

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

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