Today the Division of Health Care Finance and Policy issued critical two reports in preparation for the grueling “health policy boot camp” scheduled for the last 4 days in June (see DHCFP press release).
The reports highlight the value of transparency and concrete analysis, and they point even more strongly to the need for smart, comprehensive reforms of our health care payment and delivery system. Governor Patrick’s statement said it well:
“These reports must serve as an alarm bell sounding the need for urgent action to control rising health care costs in the Commonwealth,” said Governor Deval Patrick. “If passed by the Legislature, the health care cost containment bill I filed earlier this year will make significant strides in helping to achieve needed relief for consumers and businesses who are paying far too much for health care.”
The first report looks at premium levels and trends in private health plans from 2007 to 2009 (full report and executive summary). The findings are not particularly newsworthy, as they confirm what we all know. From 2007 to 2009, private group premiums in Massachusetts increased roughly 5 to 10 percent annually, when adjusted for benefits. This compares to consumer price index increases averaging 2.0 percent annually over the same time period in the Northeast.
While prices went up, benefits went down, particularly for small groups. Among small groups, average benefits decreased 3.6 percent from 2007 to 2008 and 6.6 percent from 2008 to 2009.
The report ends with a stark warning:
The findings of this analysis indicate that health insurance premium increases in Massachusetts continue to outpace inflation. This trend presents a multitude of challenges to nearly every facet of the Commonwealth’s health and economy. If health care costs and health premiums continue to rise faster than wage growth, employees may struggle with increased premium contributions and cost-sharing responsibilities. Furthermore, with ever-higher premiums being quoted by carriers to local businesses, many employers will continue to “buy down” benefits, potentially leaving employees and their families more exposed to cost and less likely to access needed care because of additional copayments, co-insurance, or deductibles. The continued growth in health insurance premiums threatens the welfare of the Massachusetts economy.
The second report will be more politically explosive (report, summary and appendices). It looks at price variations paid by insurers for both hospital and physician services. Expanding substantially on the analysis done last year by Attorney General Coakley, the report finds dramatic disparities in prices. For example, prices paid for an appendectomy varied by more than 11-fold for a low-severity stay and 16-fold for a moderate-severity stay. Prices paid for each of the other selected diagnoses varied less significantly, but in every case they varied by more than 300 percent statewide. Less extensive variations were found in physician prices.
When looking at individual hospitals, the disparities are stark. For a cesarean delivery, Cambridge Health Alliance is paid 30 percent below the state median, while Mass General Hospital is paid 49 percent above the median. For heart attacks, the highest paid hospital (U Mass Memorial Medical Center) received 97 percent more than the lowest paid hospital (South Shore Hospital).
These differences in prices were not based on quality, as most hospitals in Massachusetts have very good quality scores on the standard measures.
The study also compared MassHealth rates to private insurance rates. Not surprisingly, MassHealth pays on average substantially less than private payers, though the discrepancy varies depending on service. Two important exceptions are that in many hospitals cesarean and vaginal deliveries Medicaid prices exceed private payer prices.
The comparison of MassHealth and private rates led to a key take-away. As the report says, “Providers occasionally cite Medicaid’s lower payments for services as a key factor underlying private payer price variation, arguing that hospitals must negotiate higher private payments to offset low public payer payments.” Yet this connection was not found. Higher rates of MassHealth patients do not correlate with higher private insurance prices.
The report also simulated the impact of lowering the top 20% of rates down to the 80% level, and increasing the bottom 20% up to the 20% level. The net impact would be a 3.6% reduction in hospital costs.
For us, the reports provide stronger evidence of the need for comprehensive reforms focused on affordable, patient-centered care. The Governor’s payment reform proposal would allow the Division of Insurance to reject insurer premium increases if the underlying disparities in provider payments go beyond acceptable levels. These kinds of controls must be imposed if we are to rationalize our health payment system. The most important change would be to re-align incentives to promote health and wellness, moving to more of health care system, and less of sick care system.