Patrick wants health cost veto

Bill targets rates that rise too fast; aims to ease way for small business

By Kay Lazar, Michael Levenson, and Robert Weisman, Globe Staff

February 11, 2010 - The Boston Globe

Governor Deval Patrick is seeking sweeping authority to review and reject rates charged by hospitals, physician groups, medical imaging centers, and insurers, in a broad new effort to make health care more affordable, particularly for smaller companies and their workers.

A 40-page bill filed by the governor yesterday proposes to give the insurance commissioner the power to essentially cap health care price increases.

Rates hospitals and other health providers charge insurers would be “presumptively disapproved as excessive’’ if they increased faster than the level of medical inflation, and they could be rejected after a public hearing.

Similarly, for health insurance plans sold to employers with 50 or fewer workers, premium increases that exceed one and a half times the level of medical inflation would be considered excessive and could be turned down.

The legislation would also impose a two-year moratorium on lawmakers’ mandating any new health benefits that must be covered by insurance plans, a practice that employers have said drives up their health insurance premiums. Small businesses have been hit with double-digit rate increases in recent years.

“Eighty-five percent of our economy is in small business, and they are drowning in these premium increases,’’ Patrick said in an interview with the Globe yesterday.

He said his legislative proposals would bring transparency to the current “impenetrable’’ contracting system between insurers and health care providers.

“One of the things those small businesses are saying is they can’t afford . . . new hires because they’re having to make choices on account of escalating premium increases,’’ Patrick said. “We’ve got to get at that.’’

Legislative leaders praised the intent of the governor’s plan but declined to promise a vote of support. Strong opposition is expected from medical provider groups.

With passage uncertain, Patrick yesterday also announced emergency regulations to take effect immediately that will require health insurers to submit proposed small business rate increases for review by the state 30 days before they take effect.

Current law allows the insurance commissioner to reject proposed rate increases for small companies, but Patrick acknowledged his administration has not previously exercised this authority because insurers have been required to submit their rate increases only as they took effect.

Reaction to Patrick’s legislative proposals was mixed, with small business groups expressing cautious optimism, insurers saying the measures do not go far enough, and health care providers worrying that smaller hospitals could be disproportionately harmed and that some might have to lay off caregivers.

“We are very grateful the governor took this step,’’ said Jon Hurst, president of the Retailers Association of Massachusetts, which has reported premium increases this year as high as 40 percent from some members.

“The emergency regulation will mitigate the double-digit increases small businesses are seeing this spring, but we have to get at the longer-term problem, which is the large premium increases for small business, versus their larger competitors,’’ he said.

Small business groups have been lobbying for legislation that would allow them to band together to buy insurance, arguing that doing so would increase their clout in bargaining for better prices with insurers.

Greg Bialecki, Patrick’s secretary of housing and economic development, said the administration wants to study that idea further because it fears it would result in insurers’ shifting costs to consumers who buy coverage on their own.

Patrick’s proposal includes several other provisions to control health insurance costs for small businesses. It would require most insurers to offer at least one coverage plan with a limited network of health care providers that costs at least 10 percent less than health plans with access to more physicians.

The proposal to impose a moratorium on new medical services insurers are required to cover addresses a thorny issue often raised by employers and insurers. A report by state regulators concluded that 6 cents of every dollar paid for health insurance in Massachusetts as of 2006 went toward benefits mandated by the Legislature, including maternity care and infertility and diabetes services.

A recent report by the office of Attorney General Martha Coakley concluded that a main driver of the state’s spiraling health care costs was the market clout of certain powerful hospitals and doctors, which are able to negotiate insurance reimbursements that are up to twice what other medical providers receive for essentially the same patient care. Those costs are then passed on to consumers. The report did not identify the hospitals by name.

Lora Pellegrini, acting president of the Massachusetts Association of Health Plans, a trade group representing most health insurance companies, said yesterday she supported the proposal to cap payments to hospitals and doctors. But she questioned whether it would provide relief for employers any time soon. “Filing legislation and getting legislation passed are two different things,’’ she said.

Instead, the association is lobbying for pending legislation that would create a new, cheaper health insurance product for small employers by capping payments to providers at a level just 10 percent above Medicare rates. The Massachusetts Medical Society is against that proposal.

Key lawmakers praised Patrick’s legislation but declined to take a position on it. House Speaker Robert A. DeLeo released a statement saying he welcomed the bill and “has heard loudly and clearly that health care costs for small businesses are one of the major obstacles to economic growth in Massachusetts.’’

Senate President Therese Murray said in a statement that she shares the governor’s goals, “but we must also remain committed to long-term systemwide payment reform that will benefit everyone.’’

Among hospitals, reaction to Patrick’s proposal fell into two camps.

Rich Copp, a spokesman for Partners HealthCare, the state’s largest health care system, said it is still studying the proposal but pointed out that insurers, not hospitals, set rates for small businesses.

“We negotiate contracts based on the cost of care to our patients, not whether they work at a large company or a small business,’’ Copp said.

Other hospital executives, without citing Partners or other hospitals that dominate their markets, faulted the governor’s plan for not tackling those hospitals’ power to influence rates.

“If it doesn’t seek to correct the disparities between providers and create balance, it could wind up hurting the lower-cost providers who won’t have the money to reinvest in themselves,’’ said Ellen M. Zane, president and chief executive of Tufts Medical Center.

Hospitals that are paid disproportionately lower amounts by government insurers such as Medicaid and Medicare also could suffer if the state caps costs across the board, warned Lynn Nicholas, president of the Massachusetts Hospital Association.

“This approach treats everyone the same,’’ she said. “Some hospitals may need higher increases to remain whole.’’

Casey Ross of the Globe staff contributed to this report. Kay Lazar can be reached at klazar@globe.com.