Health Cost Issue in Massachusetts Requires Intensive Care
What happens when the crown jewel of your economy simultaneously threatens the health of your economy?
That’s the conundrum facing politicians, employers, doctors, insurers and hospitals as Massachusetts begins the work of reforming the financial underpinnings of the health care system.
Four years after the passage of the landmark Health Reform Act and two weeks after Governor Deval Patrick signed a health cost control law, virtually everyone agrees that the Massachusetts health care market is unsustainable without fundamental changes to the way companies and consumers purchase medical services.
No one knows that better than the Massachusetts employers struggling to provide decent health insurance coverage to their workers in the face of 20 percent, 30 percent and 40 percent annual premium increases. You don’t have to be a Nobel laureate to know that the health care market will collapse of its own weight if the companies that foot the bill for insurance are no longer able to pay.
“…We must continue our work on long-term payment reform and cost-control measures,” Senate President Therese Murray said last week. “Long-term reform is an absolute necessity for the future stability of health care and our economy.”
But reforming health care is complex in Massachusetts. Health care delivery is the largest sector of the Massachusetts economy with more than 600,000 jobs and $35 billion in annual output. That doesn't include related industries such as biotechnology, medical devices and research. Add in a unique population of gold-plated medical brand names located in Massachusetts and any initiative to control costs risks derailing one of our primary engines of economic growth.
The problem is that the more the health care sector grows, the more life it drains out of the rest of the Massachusetts economy, where 2.5 million people go to work each day and create $300 billion each year worth of jet engines, computer software and fine art. Health care costs in Massachusetts are the highest in the country. Those costs stunt job growth, drive up the amount of money employees must take out of their pockets for health insurance and create ancillary problems such as the status of employees versus independent contractors.
What’s the solution?
A series of state hearings in March indicated that there is consensus around the need for medical payment reform that replaces the current fee-for-service system with an integrated approach that rewards efficiency and value.
The bill signed by Governor Patrick allows the Division of Health Care Finance and Policy to establish a pilot program on bundled payments, creating building blocks on the way to payment reform. For example, providers and payers could be required to develop and implement new payment methodologies for at least two acute conditions/procedures by January 2011 and at least two chronic conditions by July 2011.
But make no mistake: Disagreements remain around how to control costs through payment reform, the time frame for doing so, who will be responsible for implementation and whether savings will make their way back to employers.
A second key element of reform will be resolving the staggering rate disparity among doctors and hospitals within Massachusetts. The attorney general's office recently found that a major driver of health costs is the variation in rates that certain hospitals and physician groups are able to charge relative to their peers. The report states:
"Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the populations being served, (3) the extent to which a provider is responsible for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or medical facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities . . . Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers."
Health insurers are turning up the pressure on medical providers to address the cost disparity.
Allen Maltz, Chief Financial Officer of Blue Cross Blue Shield of Massachusetts, said recently, "With the distraction of premium rate caps behind us, we're committed to working with doctors and hospitals to reduce the rising cost of medical care, the main driver of premium increases.
"We are asking highly paid hospitals and physicians' practices and those who earn a healthy margin on caring for BCBSMA members to reduce their prices in order to provide real and lasting premium relief to employers and consumers," he said.
The final element of health cost reform must be results. Reform must ultimately solve the cost problem.
We will know the reform works when the same employers who supported a 2006 reform that expanded coverage but did not control costs no longer suffer a sick feeling in the stomach every time they sit down to review premium increases with their health plans. We will know the reform works when employees no longer wonder whether they can afford rising co-pays and deductibles. And we will know the reform works when cost of health insurance ceases to be a structural impediment to job growth and economic recovery in Massachusetts.
The good news is that we know what has to be done. The issue is whether we have the wherewithal to do it. AIM and Massachusetts employers are ready to roll up our sleeves and get to work.