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AG finds clout of hospitals drives cost

State’s insurers pay twice as much to some providers

By Liz Kowalczyk and Scott Allen
Globe Staff / January 29, 2010

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Massachusetts insurance companies pay some hospitals and doctors twice as much money as others for essentially the same patient care, according to a preliminary report by Attorney General Martha Coakley. It points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

The yearlong investigation, set to be released today, found no evidence that the higher pay was a reward for better quality work or for treating sicker patients. In fact, eight of the 10 best-paid hospitals in one insurer’s network were community hospitals, which tend to have less complicated cases than teaching hospitals and do not bear the extra cost of training future physicians.

Coakley’s staff found that payments were most closely tied to market leverage, with the largest hospitals and physician groups, those with brand-name recognition, and those that are geographically isolated able to demand the most money.

“Everybody knows that there is dysfunction in the system, and nobody is happy with it,’’ Coakley said in an interview yesterday. “These rising costs are unsustainable. If we don’t do something about it, the only thing we’ll be able to afford is health care. No one will have money for food or housing.’’

The report did not identify insurers and providers by name, and Coakley declined to release the names of the highest-paid, saying she wanted to lay out systemwide problems, not blame individual organizations. More detailed information may come to light during Patrick administration hearings on how to control medical costs, scheduled to begin March 16.

A 2008 Globe Spotlight Team series focused on the Boston market found that hospitals such as Massachusetts General Hospital and Brigham and Women’s Hospital typically are paid 15 percent to 60 percent more for essentially the same work as other hospitals, even though the quality is not superior.

Coakley’s statewide investigation found that the payment gap was wider than the Globe determined. The report shows that a small group of about 10 hospitals statewide command significantly higher payments than the other 55, ranging from 10 to 100 percent more than their competitors for similar work.

While academic medical centers are widely thought to be the most costly, the report noted that one major teaching hospital that treats some of the state’s sickest patients was paid less than dozens of others with healthier patients.

The investigation also discovered that hospitals that treat large numbers of poor patients, who can be more expensive to care for, are as a group paid 10 percent to 25 percent less than average by commercial insurers.

The report, the result of legislation that directed Coakley to investigate why medical costs are rising so rapidly, is based on tens of thousands of contracts and other documents subpoenaed from insurers and providers and depositions from more than 30 key health care executives.

The attorney general concluded by raising concerns about some of the solutions being discussed to control health costs.

Last year, a state commission, with the backing of some key legislators and Patrick administration officials, proposed radical changes to the way providers are paid, with the goal of slowing the rise in the use of medical services. They urged scrapping the current fee-for-service system and paying providers a per-patient annual fee, called a global payment, to cover all of a patient’s medical care.

But Coakley’s investigators found that Massachusetts health care costs, which are growing by 7.5 percent annually, are mostly the result of rising prices, not patients getting more imaging tests, surgery, and other procedures. For one major insurer, provider price increases accounted for 80 percent of the total growth in medical expenses between 2006 and 2009.

A “shift to global payments may not control costs,’’ the attorney general concluded, “and may result in unintended consequences if it fails to address the dynamics and distortions of the current marketplace.’’

Coakley said in an interview that she supports payment reform, but that a switch to global payments should be accompanied by other measures, such as lessening price differences among providers and discouraging contract provisions that promote disparities.

Dr. JudyAnn Bigby, secretary of Health and Human Services, said switching to global payments could help control price increases if it is done right. One option is to have an oversight authority set parameters for the prices paid to providers.

“Everyone agrees there needs to be some sort of mechanism for addressing the disparities in the market right now,’’ Bigby said.

Officials at Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, acknowledged that insurers pay some hospitals and physician groups far more than others, mostly because they have to. Andrew Dreyfus, executive vice president for health care services, said hospitals in high demand or serving geographically isolated populations can hold out for higher payments.

“We need to change it,’’ said Dreyfus, who had not seen the report. “The deeper question is how do you do that? We think that the most promising way to moderate hospital costs is to improve care and then to guide our members’’ to the ones that do it most cost-effectively, he said.

A spokesman for Metrowest Medical Center in Framingham and Saint Vincent Hospital in Worcester said the two community hospitals have struggled for years with lower payments for the same quality services as nearby teaching hospitals.

“The fact that some hospitals are reportedly being reimbursed twice as much for services of comparable quality is outrageous,’’ said Dennis Irish, spokesman for the owner of the two hospitals, Vanguard Health Systems. “Not only is this grossly unfair to our hospitals and doctors, but it significantly drives up the cost of care.’’

Officials at Partners HealthCare, the parent organization of Mass. General and the Brigham, said they welcome Coakley’s report, though had yet to see it.

“We hope that this report helps to guide a meaningful discussion of the many factors contributing to the issue of cost increases both here and across the country,’’ said Partners spokesman Rich Copp.

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