PAYING FOR health care on a fee-for-service basis is an engine for inflation. Last year, a state reform commission came up with a better proposal: pay doctors and hospitals a fixed annual amount for treating each patient’s particular condition, with quality safeguards. But for such a “global’’ system to hold down costs, that annual amount has to go on a diet, with each year’s increase ratcheted downward. Only in this way will patients and the doctors supervising their treatment have incentives to provide high-quality care in cost-efficient settings.
A recent report by state Attorney General Martha Coakley suggests that global payments without a stepdown schedule will not shrink runaway medical costs. While the report finds that the more coordinated care of existing global payment networks in the state might provide health benefits, it says total medical expenses reach higher levels for some globally paid providers than for those working on fee for service. Guaranteeing that global payments will reduce cost escalation requires putting a declining year-by-year cap on their increases. Some of the newest plans on the market do exactly this.
The attorney general’s report is a scorching indictment of how the state’s health care market is operating. Not only does Massachusetts have the highest health costs in the country, but according to the report the higher-cost hospitals do not necessarily provide the best care or treat the most complicated cases. Instead, the high rates often reflect the special advantage of a hospital’s brand name, its inclusion in a large provider network, or its location in an isolated geographic area.
Mirroring the market clout of the Yankees or Red Sox in baseball, high-rate hospitals can invest in new buildings or special equipment, driving up their cost structure while drawing doctors and patients away from lower-cost facilities.
Changing this dynamic won’t be easy. Echoing national data, Coakley’s report found that the rising fees paid to doctors and hospitals are a bigger factor in health cost inflation than excessive utilization of services. Global payments with shrinking caps on spending increases could be the Rx for health care’s chronic cost hypertension.