One of the most familiar criticisms of the new national health care law is that it doesn’t do much to contain costs. And that’s true: The primary goal is to provide universal access to health insurance. Cost controls are supposed to come later.  

“Later” has arrived now for Massachusetts’ statewide plan, enacted in 2006 and similar in many ways to the federal one. Some 98 percent of all adults and nearly 100 percent of all children are covered, but costs have spiraled out of control. Massachusetts spends 40 percent of its budget on health care and median-income families are expected to spend one-third of their paychecks on health care by 2016.

Now, after five years, Massachusetts is getting very serious about the cost problem. Democratic Governor Deval Patrick has proposed a sweeping bill designed to rein in health care expenses that are among the highest in the country. “Massachusetts led the nation on health care reform,” Patrick boasted the day he unveiled the bill, “and is poised to lead again on health care cost containment.” Patrick said he understands why his predecessors “decided to put cost control off to another day — because if you think access was hard, wait until you take on cost control.”

 

Patrick’s bill encourages voluntary adoption of medical pricing practices that stress quality of care over the number of procedures performed. But at its heart are strict price restrictions on hospitals and other medical providers. The health industry does not like those. Although it has pledged cooperation with the governor on the cost-control problem, passage of the legislation is far from assured.

Market clout

Any meaningful reform would have to do two things at once, says health care policy expert Robert Berenson, of the Urban Institute. It’s important to move to a more cost-effective payment model, he says, but the savings won’t get passed along to consumers unless the state restrains the fees doctors and hospitals are able to negotiate. “Everyone has a big stake in making this work,” Berenson adds. “If it doesn’t, the whole thing could fall apart.”

In addition to cost increases because of new technologies and disease treatments, a major cause of what experts call “market failure” in the Massachusetts and U.S. health care industries is the ability of prestigious hospitals and large medical practices to command just about any price they want from insurers. The same is true for hospitals in some monopoly markets in rural areas.

“It’s very hard to sell an insurance policy in the Boston area, for example, if your network doesn’t include Mass General, Children’s Hospital and Brigham and Women’s,” says David Shore, an independent insurance broker. “Price reforms won’t work unless we address the issue of market clout.”

Last year, Massachusetts Attorney General Martha Coakley used her office’s subpoena power to do just that. An investigation of otherwise confidential contracts between medical providers and insurers found wide disparities in price among providers working in the same geographic areas and offering the same types of services. According to Coakley’s report, price variations correlated to “market leverage,” not quality of care or the nature of the population served. The U.S. Department of Justice also investigated possible antitrust violations by Partners HealthCare, the parent of Massachusetts General Hospital and Brigham and Women’s Hospital.

Health care politics

Meanwhile, Patrick raised the ire of the health care industry — the largest component of the state’s economy — when he directed insurance regulators to reject 235 out of 274 proposed increases in health insurance premiums, which averaged 8 percent to 32 percent more than the previous year. Insurance companies sued the state because they said they had binding contracts with medical providers that required them to raise rates. The case was settled out of court with insurers agreeing to accept lower rates temporarily.

All this happened in a year when health care dominated a close gubernatorial contest. Patrick’s chief opponent for reelection in 2010 was Republican Charles D. Baker Jr., a former top executive of major insurer Harvard Pilgrim Health Care. Baker vowed to be tougher than Patrick and demand that hospitals and doctors disclose their prices. A third candidate, Timothy P. Cahill, who was state treasurer, claimed health care reform was bankrupting the state.

This time, Patrick is taking a more collaborative approach. Applauding the health care industry’s voluntary efforts to keep rates down over the past year, he pointed to a new Blue Cross Blue Shield payment plan based on quality of care, not quantity, and a cost-cutting pilot program at Massachusetts General Hospital that provides intensive care coordination for its sickest patients. Still, he said, “It’s time to scale these efforts up.”

If enacted, Patrick’s current plan would give the state more authority to reject insurance increases based on existing medical contracts and would provide incentives for doctors and hospitals to base their fees on quality of care. The state could reject rates if they exceed the increase in the state’s gross domestic product or total medical expenses in the region. Medical providers that move from a fee-for-service system to an alternative payment structure aimed at improved efficiency and patient care would be given favorable consideration.

Partners HealthCare, owner of Massachusetts General, issued a short statement agreeing to work with the governor to “craft real solutions when it comes to health care affordability.” Dr. Alice Coombs, president of the Massachusetts Medical Society, also agreed to work with the Patrick administration, but cautioned that a “one-size-fits all solution would be a mistake right now, when the landscape of health care is changing so rapidly.”

Consumer advocate Amy Whitcomb Slemmer, executive director of Health Care for All, is confident that significant cost controls will be enacted. “Political interests,” she says, “have really aligned in deciding that the status quo is not sustainable.”

(c) 2009. The Pew Charitable Trusts. All rights reserved.