House releases plan to cut growth of Massachusetts health spending in half

Massachusetts House leaders released a major proposal to control health care costs Friday, calling for creation of a new agency to monitor health spending and order reductions in hospital and doctor fees it finds excessive. The lawmakers project their plan would save families thousands of dollars over the next five years.

The long-awaited bill would require the medical industry to cut the rate of growth of health spending about in half, to roughly 3.6 percent a year, mirroring the overall growth in the Massachusetts economy.

A quasi-independent agency would oversee compliance with this goal, in part by investigating providers and insurers whose prices exceed the limit and in some cases requiring them to renegotiate fee increases.

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Another key provision would charge hospitals and insurers a one-time tax totaling about $200 million to help struggling hospitals that treat lots of poor patients. They would have to pay it by July 2013.

The legislation also takes aim at the extreme variation in prices that hospitals charge insurers and government payers for similar services. Investigations by the Globe Spotlight Team and Attorney General Martha Coakley’s office have documented that hospitals with market power --because of their reputation, location or specialized services—often charge much more than other hospitals for services of similar quality.

Under the legislation being filed Friday, hospitals that charge 20 percent or more above the median—and cannot link their hefty prices to above-average quality—must pay a 10 percent tax, similar to the luxury tax in baseball, which also will support struggling hospitals.

The House released its plan during a 2:30 p.m. press conference at the State House and is sure to find both people who feel it doesn’t come down hard enough on the health care industry—a proposal by Governor Deval Patrick would allow his administration to more directly scrutinize contracts between insurers and providers—and those who believe it intervenes too heavily into an important private industry.

Lynn Nicholas, president of the Massachusetts Hospital Association, said the bill’s spending goals are “unreasonable and will impinge on our ability to deliver care at the level people expect.’’ By 2016, the legislation calls for health care spending to shrink to the rate of growth of the gross state product—a measure of economic activity—minus a half-percent. The hospitals want more time to reach spending targets, and think it’s unfair to require health care to grow by less than the economy overall.

During an interview with the Globe, House Speaker Robert A. DeLeo said he tried to strike a balance because he did not want to stifle the research and innovation done by an industry that employs one of seven people in Massachusetts. He called his approach “a carrot more than a stick.’’

Hospitals, doctors, insurers, and government leaders have been debating for two years whether the industry can control costs on its own or whether the government has to intervene with some type of price controls. The industry points to a recent moderation of price increases to argue regulation is not needed, but consumer advocates attribute the slowdown to the recession and pressure from the Patrick administration.

Representative Steven Walsh, a Lynn Democrat and cochairman of the Committee on Health Care who is leading the House effort, said during an interview that the plan would save $160 billion over the next 15 years. Families would see their annual health insurance premium fall $2,000 on average below forecasts in the next five years.

David Cutler, a Harvard economist who advised the House on the proposal, said it is realistic to expect this level of savings. “We are spending $66 billion a year on health care,’’ he said. “There is a lot of money in that system.’’ Cutler also advised President Obama on health care.

The bill also contains provisions that would give consumers more information about the cost and quality of their care, and changes to the malpractice system, including a six-month cooling off period before a patient can file a lawsuit.

Senate leaders have said they will release their own cost-control legislation on Wednesday. Leaders of both chambers hope to pass final legislation this summer.