Recapping and Handicapping the Massachusetts Health Insurance “Market”

Paul Levy

First published 4/13/11 on [Not] Running a Hospital

The fastest way to raise hackles among Massachusetts hospitals, doctors, insurance companies, and even businesses is to suggest that a state rate-setting body would do a better job in setting payment rates between insurance companies and providers than the marketplace. Well, let’s test the proposition about the efficacy of that “marketplace.” Here is a short synopsis of the experience with the dominant insurance company over the last decade.

First, as documented so clearly by the Attorney General, pay above-market rates to the dominant provider system in Eastern Massachusetts, and also to geographically monopolistic smaller hospitals in the state. Transfer hundreds of millions of dollars in extra revenue to the dominant provider, permitting it to become still more dominant by investing in huge regional ambulatory care centers and acquiring physician groups. In so doing, assure an increase in patient volumes away from lower cost facilities and doctors, helping to fuel the rapid increase in health care costs in the state.

Second, citing your concern for the rising cost of health care, propose a move towards capitated, or global, payments. As disclosed in Commonwealth Magazinepad the global rates you pay to the early adopters, to give them an incentive to take on the actuarial risk of those patients.

Third, in response to the state’s arbitrary limitation on premiums for small businesses and individuals, squeeze those hospitals whose contracts come up for renewal. This further aggravates the reimbursement disparity, as many of those providers are not the ones who are above-market in the first place. By squeeze, I mean that you start off by offering a negative or zero rate increase to those hospitals. After negotiation, maybe you settle for 2 or 3 percent. Meanwhile, the dominant provider has a built-in contractual rate increase far in excess of that.

That’s the recap. Now, on to the handicap. Both the dominant provider group and the dominant insurance company have an interest in portraying that their next contract renewal — scheduled for next year — is more in line with public and governmental expectations. Neither, though, wants that negotiation to be subject to recently proposed legislation. Recognizing the power of the US Constitution’s contract clause, which would prohibit a retroactive review upon passage, their goal has to be to beat the legislative calendar and sign a new contract ahead of schedule. So look for the following “victory” announcement in the coming months:

The parties agree to experiment with bundled payments for certain diseases and procedures, staying far away, though, from a full system of capitation. The parties agree to a general rate increase of just a few percent. Together, they will say, this will “bend the cost curve” for this large group of doctors and hospitals. There won’t be much talk about the fact that the base upon which the bundled payments and other fee-for-service payments is set remains far above market.

End result: Continued use of market power as the prime determinant in setting reimbursement rates.

But, for sure, rate-setting would be worse….

Paul Levy is the former CEO of a Boston hospital and an advocate for patient-centered care. He writes at [Not] Running A Hospital.

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