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Health cost bill may not attack key problem

Market clout of top doctors, hospitals drives up premiums

By Liz Kowalczyk
Globe Staff / July 15, 2012
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As legislative leaders close in on a major health care cost-control bill, key efforts to attack one of the most-cited reasons for rising medical spending — the market power of caregivers who demand high prices for their services — appear to be in jeopardy.

In a 2010 report, Attorney General Martha Coakley blamed the leverage of the best-paid providers as a main driver of health care costs. She found that insurers pay some hospitals and doctors twice as much money as others for similar care, because they have name-brand recognition or geographic dominance. Legislators, too, ­believed that provider market clout might be driving up premiums for small businesses, and they directed a commission to find solutions.

Now, the impact of two major proposals in the House plan that are ­intended to level the playing field — a one-time luxury tax on high-priced providers and restrictions on contract negotiations — is in doubt after lobbying by hospitals.

The Senate proposal, meanwhile, takes a more indirect approach to the problem, including establishing ­another commission to dig deeper for the reasons for price differences and requirements to publicly track price inequities.

House and Senate leaders will not comment on the status of negotiations aimed at producing a compromise bill ­before the legislative session ends this month. But Governor Deval Patrick and Senate President Therese Murray have made clear that they oppose the House plan to tax providers whose prices are at least 120 percent of the statewide median and redistribute the money to struggling hospitals, making approval in its current form ­unlikely.

A separate House provision would require hospitals in systems to negotiate prices with insurers individually, rather than as a more potent group, as is now commonly done. Hospitals say this would hurt their ability to coordinate patient care and add personnel costs. During debate, the House expanded exemptions, enough that the state’s largest insurer predicts that most provider networks would be able to continue negotiating as a group.

“This would not be a very ­effective tool,’’ said Patrick ­Gilligan, senior vice president for network innovation and management at Blue Cross Blue Shield of Massachusetts.

Nancy Turnbull, an associate dean in health policy at the Harvard School of Public Health, called provider market power and payment inequities among caregivers “the third rail of payment reform.”

“It’s a critical issue that is going to be largely unaddressed by the bill,’’ Turnbull said.

House and Senate leaders disagree, saying both bills ­include other provisions that could indirectly reduce price ­inequities among providers. “There are a number of tools in there,’’ said Representative ­Steven Walsh, a Lynn Democrat overseeing the House effort. “But there is no one silver bullet.’’

In a written statement to the Globe, Murray said: “A competitive health care industry is ­essential to controlling long-term cost growth. That’s why legislators are currently considering a number of new transparency and accountability measures that would help monitor the health care marketplace and shed new light on market dynamics.”

More expensive hospitals ­argue that they are voluntarily slowing the growth of their fees.

Partners HealthCare, with includes Brigham and Women’s and Massachusetts General hospitals, renegotiated its contract with Blue Cross last year to cut increases in payments to Partners by nearly a quarter of a billion dollars between 2012 and 2014. The network made similar concessions to Tufts Health Plan. Boston Children’s Hospital agreed this year to a three-year contract with Blue Cross that will not pay ­Children’s any more money this year, and will pay below-

inflation increases in the second and third years.

There are a number of reasons that politicians’ resolve to address provider market clout may be waning, said health care leaders. Hospitals have cautioned them that government overreaching could harm life-saving clinical programs, and no one wants to take the lead and then have their ­approach fail.

Patrick and Coakley have treated the issue like a hot potato, with the governor — whose own administration has reached similar conclusions to Coakley about unreasonable price disparities — calling on the attorney general to use her existing antitrust powers. The attorney general has fired back that the administration needs to use tools short of law ­enforcement, such as greater oversight of contracts between insurers and providers.

Even as leaders wrangle with the issue, Partners and Steward Health Care, the big for-profit network consisting mostly of formerly Catholic hospitals, are trying to expand by annexing more suburban hospitals.

“When all the data shows that high prices are the most important driver of premium increases in the private market . . . there ought to be something in the legislation that ties into this,’’ said Paul Hattis, a Tufts University School of Medicine professor and cochairman of the Greater Boston Interfaith Organization health care team.

The group met with legislators last week to propose changes in the health-cost bill that would put more scrutiny on high-cost providers if all medical spending in the state exceeds limits on growth.

By 2016, the House-passed plan calls for annual increases in medical spending to shrink to half a percentage point less than the rate of growth of the gross state product, a measure of economic activity. The Senate calls for slightly less restrictive limits.

The Legislature’s provider price reform commission recommended last year that a health system be prohibited from requiring insurers to contract with all its hospitals and from charging the same price for all of them regardless of their location. Neither measure made it into the final House and Senate bills.

Instead, the House included the separate-contracting provision, but exempted systems that have at least half of the primary care patients they are respon­sible for cared for under an “alternative payment arrange­ment’’ such as a global budget, under which providers are given a fixed amount for a group of patients.

Blue Cross and Associated Industries of Massachusetts, a leading business group, are pushing legislative leaders to strengthen the separate contracting provision. The Massachusetts Association of Health Plans, which represents other insurers, declined to comment on specifics of the bills.

Partners said “it’s unclear’’ if its hospitals would have to contract separately under the House plan; Steward declined to comment. But UMass Memorial Health Care president John O’Brien said he expects his five hospitals and medical group will be affected, “leading to ­additional costs and bureaucracy.’’ Joint contracting allows the UMass system to better coordinate care, he said, by requiring all the hospitals, for example, to treat heart attack patients under the same guidelines.

Paul Ginsburg, president of the Center for Studying Health System Change in Washington, D.C., pointed out that requiring providers to better coordinate care — believed to be a money saver because it will keep ­patients healthier and avoid ­unneeded tests — may actually raise prices.

Coordinating care “really means bringing providers ­together to work together, and that will in general lead to more market power. Maybe that’s going to push the system toward regulation sooner than it otherwise would,’’ he said.

Timothy Gens, executive vice president of the Massachusetts Hospital Association, said more information is needed about price differences. The legislative commission, he pointed out, did not fully understand how much variation is due to better quality and research costs and how much can be blamed on unacceptable factors such as market power and adver­tising spending.

In a statement to the Globe on Friday, Patrick indicated he will take a cautious approach.

“The effect of market power on costs is something we hope to see addressed in the final legislation,’’ said spokesman ­Brendan Ryan. “The governor prefers an approach that builds on existing authority and respon­sibility in state government. He’d prefer to strengthen and sharpen what we already do, rather than create new mechanisms. There is no silver bullet for this or any other issue.”

Liz Kowalczyk can be reached at kowalczyk@globe.com. Follow her on Twitter @GlobeLizK.

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