First published on [Not] Running A Hospital
If you ever needed an indication of why the public remains confused about the issue of health care costs and insurance premiums, look no further than a story in today’s Boston Globe entitled, “Insurers seeking smaller rate hikes.” It is not that the reporter has done a poor job. Quite the contrary. The structure of the piece is good, and the story is fair and accurately reported. It is just that the current exigencies of newspaper production make it impossible to devote sufficient space in a daily story to portray the whole picture. So, in an understandable effort to give equal time to divergent viewpoints, the story ends up as a “he said-she said” exposition, leaving out underlying facts and context that might help the public understand why we are where we are.
So, let’s deconstruct and expand the story to give more insights.
When the undersecretary of consumer affairs and business regulation sets forth her view of the rightness of the Governor’s intervention in the rate-setting process, she neglects to mention that the intervention was arbitrary and found to be legally deficient by appellate boards in the state government. In essence, she attempts to proclaim economic and regulatory virtue in actions that fundamentally had a political origin during the last gubernatorial campaign.
She fails to mention that the underlying costs of providing health care have not changed very much. So insurance companies, bowing to political pressure, have been forced to come down hard on those providers whose contracts happen to have come up for renewal. These have often not been those with higher reimbursement rates. In essence, the administration’s intervention succeeded in increasing the payment differential between the have’s and have not’s among the providers, contributing to the very factors disclosed by the Attorney General that lead to higher, not lower, health care costs.
When she says that the answer to the world’s problems is to move to global payments, she makes no commitment to the idea that payment disparities among providers will be eliminated as part of this move.
When the Blue Cross Blue Shield spokesperson says that the proposed premiums are inadequate to cover costs, he leaves out the fact that this insurer has systematically overpaid certain providers, relative to other providers, for their services. These divergent payments are reflective of market power, as opposed to higher quality or other measurable factors, and, as noted, are a major contributor to the cost of health care in the state. He also leaves out the fact that early contracts to persuade or reward providers to sign the company’s new global contract regime were particularly generous, especially in the early years of those contracts, increasing the company’s costs.
When the head of the association of health plans (which does not include BCBS) continues her long-standing practice of blaming providers for all the problems, she not only neglects the contribution of the inefficient administration of her members, but she too fails to distinguish between those providers who enjoy above-market rates and those who are paid less. Why? Because her members, too, have been forced by market power concerns into paying some providers more for no net benefit to society.
In short, the entire story consists of each party passing blame to another or inappropriately taking credit for something that deserves no credit. Over the nine years I was running a hospital, I came to see the debate often set forth in this manner. It has some cathartic value for the insiders, but it offers little to the public that is helpful. It suggests to the medical profession, too, that the people who move money around to pay for health care have little or no understanding of the underlying demographic and societal factors that are determinative of health care costs, or of the manner in which process improvement and transparency could help bend the cost curve and improve clinical outcomes and the public health.
Aside: Some recent developments in which insurers are attempting to introduce products based on tiered networks, or charging different copay’s rates based on which provider you visit, are good news. But without publicly available date on clinical outcomes, these efforts run the risk of failure because the (undeserved) reputational advantages enjoyed by certain providers will trump the price differential in people’s minds. You can get a sense of that in many of the comments on this story.
It took years after the introduction of low-cost long distance service by MCI and others in competition with AT&T for the latter’s market share to drop below the 60th percentile, and the service provided was identical. People’s habits die hard, even in the face of accurate information. How much more so when no information is offered to demonstrate that a move to a lower cost provider will result in service of equal or better quality.
Paul Levy is the former CEO of Beth Israel Deaconess Medical Center in Boston, and writes at [Not] Running A Hospital.