A healthcare system badly out of balance

Call it the 'Partners Effect:' Elite hospitals are paid much more for care that is often no better than average. It is the best kept secret in Massachusetts medicine

November 16, 2008
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This story was reported by Globe Spotlight Team members Scott Allen, Marcella Bombardieri, Michael Rezendes, and editor Thomas Farragher, as well as Liz Kowalczyk and Jeffrey Krasner of the Globe staff. It was written by Allen and Bombardieri.

As his patient lies waiting in an adjacent exam room, Dr. James D. Alderman watches while an assistant reaches into a white envelope and pulls out a piece of paper that will determine where the man will be treated. Big money is on the line.

Alderman, an interventional cardiologist, plans to open the patient's clogged coronary artery by inserting a flexible tube with a tiny balloon at the tip. Usually he does the procedure, called angioplasty, at MetroWest Medical Center in Framingham. But he sometimes operates in Boston as part of a research program. One time of every four, by the luck of the draw, Alderman and his patient go to a big teaching hospital in the city.

If the white slip of paper directs him to do the procedure in Framingham, the insurance company will pay the hospital about $17,000, not counting the physician's fee. If Alderman is sent to Brigham and Women's Hospital in Boston, that hospital will get about $24,500 - 44 percent more - even though the patient's care will be the same in both places.

"It's the exact same doctor doing the procedure," said Andrei Soran, MetroWest's chief executive. "But the cost? It's unjustifiably higher."

Call it the best-kept secret in Massachusetts medicine: Health insurance companies pay a handful of hospitals far more for the same work even when there is no evidence that the higher-priced care produces healthier patients. In fact, sometimes the opposite is true: Massachusetts General Hospital, for example, earns 15 percent more than Beth Israel Deaconess Medical Center for treating heart-failure patients even though government figures show that Beth Israel has for years reported lower patient death rates.

Private insurance data obtained by the Globe's Spotlight Team show that the Brigham, Mass. General, Children's Hospital, and a few others are, on average, paid about 15 percent to 60 percent more than their rivals by insurance companies such as Blue Cross Blue Shield of Massachusetts and Harvard Pilgrim Health Care. The gap is even more striking for many individual procedures, which can be two or three times more expensive in one hospital than in another.

This payment pattern has become a driving force in the state's galloping healthcare costs, and it raises hard questions about why certain hospitals and physicians receive premium pay for care that is no better than that of their competitors. Until now, the growing pay gap has not been subject to public scrutiny because contracts between insurers and hospitals typically include confidentiality agreements.

But an ongoing Spotlight Team investigation of healthcare in this state found scores of payment disparities for routine procedures in which there is no obvious difference in quality. Consider:

Children's Hospital typically gets about $1,100 for making an MRI of an ankle or a knee, not counting the physician's fee. Insurers pay Boston Medical Center $490 for the same procedure, using a similar high-tech machine.

The technician who makes a simple chest X-ray to help diagnose pain or an insistent cough brings in $75 at Anna Jaques Hospital in Newburyport. Mass. General earns more than twice as much, $160, for producing the same image.

The cost of Catherine Murphy's care was $5,309.15 for two days in Winchester Hospital to treat the pneumonia she contracted soon after her wedding earlier this year. Had she gone to Brigham and Women's instead, similar care would have cost more than $9,000, according to a Spotlight Team analysis of insurance records.

The dramatic payment gaps have emerged over the last decade as hospitals pushed, with varying levels of success, to offset federal budget cuts by boosting their income from insurance companies, health executives say. The resulting wide range of payments for the same services reflects a healthcare system in which deregulation and lax government oversight have allowed the hospitals with the most clout to extract big increases from insurers while everyone else falls behind.

"The same service delivered the same way with the same outcome can vary in cost from one provider to the next by as much as 300 percent," said Charles Baker, president of the state's second-largest health insurer, Harvard Pilgrim Health Care. "There is no other sector of the economy anywhere in this country in which that kind of price variability with no appreciable difference in service or product quality can sustain itself over time."

Health insurance premiums paid by the average Massachusetts family have jumped 78 percent since 2000, and Baker believes that a significant portion of the rise has been driven by hefty insurance payment increases to dominant providers, who use the extra income to install the latest technology and expand, often on rivals' turf.

At the same time, the pay gap undermines less powerful hospitals, whose officials say that they steadily lose doctors to those that can pay more, and that they constantly struggle to keep pace with advances in costly medical technology. For instance, while Mass. General is spending $686 million on the single most expensive hospital expansion in state history, the state's second-largest hospital chain, Caritas Christi, had to borrow money this year to pay for basics, like oxygen tanks.

"The playing field is dramatically unlevel," said Dr. John Chessare at a conference in June, when he was acting chief executive of Caritas Christi. He noted that nearly all Massachusetts hospitals are nonprofit charities - exempting them from having to pay millions in taxes - and argued that those that receive higher insurance payouts should not be in the business of snaring patients away from the less well paid.

"They are using that not-for-profit status to make a profit and to build more capacity for things we don't need," he said.

A powerful hand
Most patients don't think about the payments their insurance company makes to hospitals and doctors, but they should: Inflation of those payments is the main reason insurance premiums increased by an average of $1,800 per family during this decade. More than 85 cents of every dollar in insurance premiums goes to pay the bills in hospitals, doctors' offices, and other medical facilities. Five years ago, those bills were rising mainly because of growing patient demand for care, Blue Cross data shows, but now the escalating prices that hospitals and doctors charge is far more important. A recent Massachusetts study concludes that the price of inpatient care at hospitals is rising by 10 percent a year, while overall use of hospital beds is declining.

The hospitals that are paid at the highest rates all share one trait: They have the bargaining clout to demand higher insurance payments. Often, that clout is based on a powerful brand name and elite reputation. Children's Hospital has negotiated the highest insurance payments in the state, arguing that its work with children is uniquely expensive. The high rates have allowed the hospital to consistently report profit rates three times the median for Massachusetts hospitals; still, insurers pay to keep Children's happy because they know parents won't buy insurance that doesn't include access to one of the world's most prominent pediatric hospitals.

The other source of bargaining power is geographical isolation. Sturdy Memorial Hospital in Attleboro, for example, commands high insurance payments for outpatient procedures because local residents have no convenient alternative, insurance executives say.

But no company has thrived more in this sharply competitive world - or has had more impact on the cost of medicine here - than Partners HealthCare, a company formed in 1994 to fight back against what its founders saw as the stinginess and lopsided power of insurance companies, which had brought many hospitals to their knees. By bringing together two of the most prestigious hospitals in Boston - the Brigham and Mass. General - Partners became what some called the "800-pound gorilla" of Massachusetts healthcare, able to bend insurers to its will.

Almost from the start, Partners played its powerful hand with conspicuous - rivals would say relentless - aggression and skill. No other city can boast two of the top 10 hospitals on US News and World Report's honor roll, and every insurance company is vividly aware that its members want access to their famed halls.

Partners' dominance became clear in 2000, when executives of Tufts Health Plan had the temerity to refuse Partners' demand for a substantial rate increase. Partners countered by declaring it would no longer accept Tufts insurance at its hospitals. Within days, as thousands of Tufts customers threatened to change insurance rather than lose the right to treatment at the two famous hospitals, Tufts gave in to Partners' demands. Since then, Partners has negotiated one big pay increase after another from insurance companies fearful of a similar humiliation.

Today, the Brigham and Mass. General are paid an average of 30 percent more than similar nonpediatric hospitals statewide for each procedure, based on payment rates of Blue Cross obtained by the Spotlight Team. The health official who provided the information asked not to be identified for fear of professional retaliation. Though Partners' rates are not the highest - that would be Children's - Partners has more effect on statewide costs because its revenue is five times larger.

"We were willing to take the risk of challenging payers," said Partners chief financial officer Peter Markell, adding that Partners should not have to apologize for a successful strategy. "If you are never willing to challenge them, of course they are going to jam it down your throat."

That willingness to get tough turned Partners' main insurance contracts from money losers a decade ago to the company's largest source of profit, Partners officials say. Extrapolating from Partners' internal tally of its insurance revenues, the Brigham and Mass. General receive at least $500 million a year more from the three biggest insurers than if they were paid at the lower rates typical of their rivals. Likewise, Partners' 6,000 physicians are paid 15 percent to 40 percent more than most other Massachusetts doctors, based on Blue Cross rates, while the company's community hospitals earn at least 10 percent more than their peers.

Altogether, those higher rates add up to at least $800 million more for Partners hospitals and doctors than if they were paid at rates similar to competitors, based on Partners' insurance income. That is the equivalent of $170 a year for every member of the three leading insurers - Blue Cross, Tufts, and Harvard Pilgrim.

Partners officials reject the idea that their insurance payments have driven up healthcare costs significantly, arguing that costs in Massachusetts are part of a national problem and not caused by any one company. They note that insurance premiums here are rising at about the same rate as the national average.

"Boston is experiencing the same premium increases as the rest of the country," Partners said in a prepared statement to the Globe.

Likewise, the state's insurers are divided on Partners' responsibility for the current price run-up. Blue Cross officials discount Partners' role, while Baker at Harvard Pilgrim says there is a meaningful but hard-to-measure "Partners effect" on statewide insurance costs. And Partners officials themselves have said in the past that their goal was to "reset the prices" paid to hospitals even if it drives up insurance premiums.

Partners' favorable insurance contracts have helped the company to reap $1.7 billion in profits since 2004, reflecting a profit rate that is average compared with the nationally known hospitals the company considers its peers. But it's high by Massachusetts standards: Partners collected 35 percent of statewide hospital profits last year, even though it owns only 16 percent of the beds.

Those earnings have allowed Partners to launch a five-year $4 billion construction program that includes the addition at least 180 new hospital beds and several outpatient facilities. Though the current recession is expected to slow expansion considerably, Partners officials say it won't affect projects already underway.

While Partners prospers, 24 Massachusetts hospitals are losing money. Many of them would be profitable if they had even a fraction of Partners' contract clout. Caritas Norwood Hospital, for instance, could erase the $242,347 deficit it reported through the third quarter of this fiscal year if the hospital were paid Partners rates for the babies it delivers. Instead, the hospital is losing money and bracing to lose more next year, when Partners opens a new outpatient center at Gillette Stadium in Foxborough.

"Some are able to spend more than others," said Jack Connors, Partners' longtime chairman of the board. "It's our fortune that we're probably in the lead on those investments. And several hospitals aren't able to keep that pace. And that's what I, as a businessman, call market forces, if you will."

But market forces don't do much for some other highly regarded hospitals. A few years ago, when an executive for Beth Israel Deaconess Medical Center asked then-Tufts HMO boss Harris Berman why Beth Israel, a Harvard teaching hospital, wasn't paid as well as Partners, Berman said he had a simple response: "You are not Partners."

One influential researcher found that Beth Israel's overall mortality rate was lower in 2005 than the mortality rates at both the Brigham and Mass. General, but the hospital and its doctors still earn 15 percent to 20 percent less for the same work, according to the Blue Cross rates obtained by the Globe.

"Shouldn't there be some correlation between what you get paid for doing something and the quality of what you do?" asked Beth Israel chief executive Paul Levy last month in remarks at the Massachusetts Medical Society.

Curtain of secrecy
Michelle Faulkner got lucky.

The self-employed marketing consultant sprained her right ankle last Memorial Day weekend for the second time, and in August, when she still felt pain while running, she went to see an orthopedist. Fortunately for her, the doctor, affiliated with Winchester Hospital, did not send her into Boston for an MRI. That choice saved her about $500.

Faulkner is one of thousands of Massachusetts residents who save money on insurance by purchasing lower-cost plans that require patients to pay a higher deductible before insurance kicks in. Faulkner had to pay the $526.84 MRI bill herself, which hurt, but the bill at Winchester Hospital was far more affordable than what she would have paid for care at the Brigham ($987) or Mass. General ($1,091), insurance claims data show.

"People don't shop around," said Faulkner, 39. "That's why insurance is so high."

One reason patients don't shop for care is that, as a practical matter, they can't. The pay rates of different caregivers have long been treated as confidential data, veiled by nondisclosure agreements between insurers and hospitals. As a result, there has been no public notice or debate as an insurance system that a decade ago paid hospitals and doctors similar amounts for the same work has grown into one that disproportionately rewards a few.

The insurance data obtained by the Globe, drawn from millions of medical claims collected by the state Health Care Quality and Cost Council, is a byproduct of the state's sweeping healthcare reform law of 2006. Because some hospitals treat sicker people, the data has been adjusted to reflect the cost of care for an average patient.

The law calls for the council to post insurance claim information on the web so that the public can see the disparities. But a year and a half after the law was passed, the council has still not published its findings because of disputes with medical groups about how the numbers should be presented and whether they are accurate in every detail.

"Apparently, this subject is the equivalent of the third rail," said Gregory W. Sullivan, the state's inspector general and a member of the Quality and Cost Council.

However, council officials say privately that the data, after months of review by the hospitals, is generally accurate. Partners said it has raised concerns "about the data and methodology" with the council. But other hospitals contacted by the Globe either confirmed the data's accuracy or would not comment on it.

The Globe also checked the state numbers against detailed payment rates for Blue Cross; the two closely track. The Blue Cross data show that about 10 hospitals - four Boston teaching hospitals and six community hospitals - are paid at least 30 percent above the state average, while 12 hospitals make at least 20 percent below average, including Cambridge Hospital, which earns about half as much per procedure as the Brigham and Mass. General.

Partners officials say that they don't know exactly how their pay compares to others, though they know they are paid more. That added revenue is going for good purposes, they say, such as research and doctor training. Insurance profits also subsidize unprofitable lines of business, such as psychiatric care and the burn units at the Brigham and Mass. General. In addition, Partners employs 50,000 people, more than any other private company in Massachusetts.

Partners officials also say they are building a massive integrated system that could become a model for how to reduce errors and waste. The company's computer networks, for example, will eventually be used to bar-code every single pill, so that each can be double-checked at bedside.

"We are different," said Dr. Thomas H. Lee, chief executive of Partners' physicians network, "I would say it is like 70 percent potential and 30 percent reality in terms of how different. But we have the pieces of a system that are increasingly actually working together."

Lee, however, admits that existing measures of quality do not prove Partners is consistently better. In fact, he argues that the science of measuring medical quality remains so limited that it can't determine which is the best among Massachusetts' very good hospitals. He offers an analogy: If the Boston marathon were judged using tools as imperfect as current medical quality measures, researchers could identify the Kenyan runners at the front of the pack, but they could not predict the winner.

Partners hospitals, he said, "are running with the pack of Kenyans at the front of the country. And it's great to be one of those Kenyans, but there's a fair amount of angst about us because we are being paid more than the other Kenyans, and they aren't particularly happy about it."

Brand name medicine
Karen Dahl, 31, lives less than 2 miles from Mount Auburn Hospital in Cambridge, but when she became pregnant with her first baby last year, she decided to go to a Boston teaching hospital to deliver.

"I talked to women in the area who had babies in Boston," said Dahl, a self-described nervous patient who gave birth to son Henry by Cesarean section at the Brigham last November. "I also looked at the US News rankings for female care. The Brigham was rated very high."

State health officials have tried to encourage women like Dahl to reconsider their flight to Boston, pointing out in a 2003 study that community hospitals are generally just as reliable as teaching hospitals for normal births. In fact, they had a slightly lower complication rate - and they're a lot cheaper. Dahl's care cost $8,282.14 at the Brigham, while the cost at Mount Auburn would have been about $5,700, according to state insurance data.

But Dahl, who had a complicated pregnancy, has no regrets: "I felt this was the safest place to be if anything happens."

Massachusetts patients love brand name medicine, going to teaching hospitals 2.5 times more often than patients across the country, according to a 2005 report for the Massachusetts Council of Community Hospitals. It is a habit that carries a heavy cost: We spend about $1.7 billion more per year than we would using community hospitals at the national rate.

Partners' Lee, a cardiologist who still sees patients in addition to his management job, argues that patients are voting with their feet.

"There's a very fair question of can we afford that as a society, but there's no question in our market that people want this," Lee said. "I have people come and see me from New Hampshire and Rhode Island for their blood pressure, and I tell them, 'You don't need to come here,' and they say, 'But I want to,' and I think they're sometimes offended because I'm trying to chase them away."

The growing dominance of Partners - and Children's Hospital for pediatrics - is a microcosm of the national trend in the last 15 years, as government has increasingly allowed the market to decide what healthcare will be available and at what price. Hundreds of unprofitable hospitals closed, while many others merged to gain more negotiating power with insurance companies, which, by the mid-1990s, were aggressively denying claims and shortening hospital stays to hold down costs.

The balance of power between insurers and providers did need to shift. But the realignment has had costly side effects: After a decade of stable insurance rates in the 1990s, medical inflation began to soar across the country, something economists attributed partly to the increased clout of merged healthcare systems like Partners. And healthcare specialists agree that the price run-up did not lead to a similar improvement in quality.

At a Federal Trade Commission workshop on healthcare in April, the moderator asked a panel of healthcare leaders, "Is price a signal of quality in healthcare markets?"

A professor quickly offered a one-word answer: "No."

There was a pause. Then someone else chimed in, "There's a universal no on that."

The moderator concluded, "That was pretty easy," and moved on to the next question.

Behind the rankings
To walk the gleaming corridors of Partners' flagship hospitals is to tour a Hippocratic Hall of Fame: Dr. William Morton first demonstrated the use of anesthesia in surgery at Mass. General in 1846. Dr. Joseph Murray carried out the first successful organ transplant at the Brigham in 1954. Today, the two hospitals manage one of the largest biomedical research budgets in the country, carrying out cutting-edge studies on everything from AIDS to arthritis and attracting patients from all over the world.

But the high-end procedures that make the Brigham and Mass. General so famous are not their bread and butter. Eighty-five percent of the time their doctors are performing the same less glamorous medicine that occupies most other hospitals: delivering babies, repairing hernias, treating pneumonia.

And it is there, in the workaday world of hospital care, that the hospitals' reputation for unmatched excellence fades - and with it much of the rationale for the higher payments they receive for such treatments. The growing, if still inadequate, body of data available about hospital quality paints a fairly consistent picture of the care at the Brigham and Mass. General: often good, but rarely extraordinary, and sometimes inferior to the care available at other hospitals.

The two hospitals have inconsistent performance on routine care, according to data collected from nearly all US hospitals by the Centers for Medicare & Medicaid Services on how often hospitals give the right drug or test on time. Using a method of comparison commonly employed by government officials and researchers, the Globe determined that the two hospitals finished ahead of the other Boston teaching hospitals overall for four areas of treatment in a recent 12-month period, but both scored lower on caring for pneumonia patients than half of American hospitals. A quarter of American hospitals outperformed Mass. General on heart failure care.

Hospital accreditors faulted Mass. General after a surprise inspection in December 2006. They saw staff members fail to wash their hands after touching patients, and the hospital could not document that its staff had consistently followed routine safety checks that can prevent doctors from performing the wrong procedure on patients. At the Brigham earlier this year, the rate of one common - but dangerous - infection that sometimes enters the bloodstreams of intensive care patients was about twice as high as that at Beth Israel Deaconess. Brigham officials said their infection rate has since dropped.

When it comes to saving lives, the Brigham and Mass. General do not rate the highest even in Massachusetts. A review of 42 individual mortality ratings produced by the state and federal governments for Massachusetts hospitals from 2002 to 2007 found that three other hospitals - Beth Israel Deaconess, Partners' own Newton-Wellesley Hospital, and Beverly Hospital - had the highest average scores.

The mortality rankings - adjusted for the relative sickness of patients at different facilities - graded hospitals as either average, above average, or below average for ailments and procedures from pneumonia to coronary bypass surgery. The vast majority of the ratings for all hospitals were average, but Beth Israel earned a dozen above-average scores, and none below average. The Brigham received seven above-average scores and one below-average score. Beverly and Cape Cod hospitals each earned five top scores and no low scores. Mass. General had four high scores and one low score.

In sum: When all scores are averaged, the Brigham ranks high, though not among the very best; Mass. General was part of the broad middle, or average, tier.

Partners officials said some of the ratings are based on untrustworthy data that should not be used for scoring. In general, they said, the statistical methods used to adjust for the sickness of the patients at different hospitals are not sophisticated enough to recognize how much more vulnerable their patients are.

They also noted that even as governments are making more data public, many of the existing measures are controversial and often fairly crude.

"I think a consumer that relies on the cross-section of information that's out there and available to them, it's akin to being a cork floating in the ocean," said Dr. David F. Torchiana, head of the Massachusetts General Physicians Organization. "You'll be driven in random directions by the randomness of the information that you will obtain."

But Dr. Atul Gawande, a surgeon who juggles his practice at the Brigham with writing soul-searching books and magazine articles about his craft, said the reality is that no hospital, not even his own or Mass. General, can be good at everything.

"We aim to deliver more than 2,000 different kinds of surgical procedures, and there are more than 10,000 different diagnoses we take care of," Gawande said of the Brigham and Mass. General. "There is no way we are the best at all of them. I'd be surprised if you didn't find that there are particular areas of incredible excellence, but for the larger share of them we are probably floating around in the middle, and I would not be surprised if on a portion of them we are down toward the bottom."

And it is by no means clear that a big teaching hospital is safer or better than a well-run community hospital for a wide variety of procedures, including some that are fairly complex.

Cape Cod Hospital in Hyannis, for example, reported no deaths among 741 angioplasty patients from July 2007 to June 2008, an extraordinary feat that hospital officials attribute partly to the fact that theirs is not a teaching hospital. The care also costs less: $20,020 for angioplasty, on average, compared with $27,242 - 36 percent more - at Mass. General, according to the insurance records collected by the state.

"When you go to a teaching hospital you have residents and interns caring for you, which is different from our hospital," said Dr. Richard Zelman, the hospital's director of interventional cardiology, referring to doctors who have not completed medical training. "When you come into Cape Cod Hospital at three in the morning having a heart attack, you have an attending cardiologist with 20 years of experience that will take care of the patient every step of the way."

Many community hospitals say they are willing to cede some of the most complex, technology-assisted care to the large teaching hospitals. They can't compete in that arena. And they don't try to.

But for more ordinary procedures - the vast majority of care - community hospital officials say the existing data on quality supports what they've been arguing for years: They're as good. Or better. And considerably cheaper.

At Caritas Norwood Hospital, where he scrubbed floors as a teenager, Dr. Adam Glasgow said it's unfair that the Brigham and Mass. General make so much more for some procedures, even factoring in the expense of teaching and research.

"We're doing the same work," said Glasgow, a surgeon. "It doesn't make any sense for that institution and that physician to be paid more for doing the same work. It just drives up the cost of healthcare. It's unfair, and it's unnecessary."

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