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Health insurers slow rise in fees

Providers accepting moderate increases

By Robert Weisman
Globe Staff / December 26, 2011
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Massachusetts insurers, taking a tougher line in bargaining with health care providers under pressure from financially strained customers and government regulators, have held payment increases to the lowest level in years.

Contracts negotiated in 2011 gave hospitals and doctors groups average fee increases of 2 to 3 percent, roughly half those given in 2010 and less than in any year since 2005, according to estimates by executives of the state’s three largest health insurers.

“We’re going to continue to take a fairly aggressive posture on the increase in costs,’’ said Andrew Dreyfus, chief executive of Boston-based Blue Cross Blue Shield of Massachusetts, the state’s largest commercial health insurer.

The harder-line approach comes after two years of warnings by the administration of Governor Deval Patrick to rein in premiums that were crippling businesses and working families, and as state lawmakers prepare to take up a cost-control bill that would overhaul how health providers are paid.

In addition to their tougher negotiating stances, insurers have been prodding providers, including more expensive hospitals such as Massachusetts General and Brigham and Women’s, into global payment plans that give them a budget for all of a patient’s medical services rather than pay a separate fee for each visit and procedure.

Insurance companies also are offering customers, including employers and government groups, new programs ranging from wellness incentives at Tufts Health Plan to a Harvard Pilgrim Health Care service that rewards members for getting tests at lower-cost providers. Most important has been the growth of limited network plans that restrict where patients can get care and tiered networks higher payments for costlier providers.

“If you can choose a physician who is tops in quality and good on cost, it’s a good choice,’’ said James Roosevelt Jr., chief executive of Tufts Health Plan in Watertown, where every employee, including Roosevelt, will switch to a tiered plan Jan. 1.

But critics say the moves do not go far enough to ease the burden on cash-strapped small businesses and municipalities, which struggle to pay health insurance premiums that have climbed at double-digit rates for most of the past decade. They also say this year’s more modest reimbursement increases were largely driven by a decline in the use of medical care, and to employers shifting some insurance costs to their workers through higher copayments and deductibles.

“The increases are moderating,’’ conceded Bill Vernon, state director of the National Federation of Independent Business. “Do I think that’s good enough? No. Health insurance is the number one issue for small businesses. They know they have to provide it, but it’s a big expense. And it’s been going up faster than any other expense they have.’’

Last month, the Commonwealth Fund, a private health care foundation, reported that Massachusetts no longer had the nation’s most expensive health insurance premiums in 2010, falling to ninth place, behind Connecticut, New Hampshire, Rhode Island, and other states, after ranking the highest in 2008 and 2009.

But skeptics questioned whether the report, based on data from a federal survey of employers, fully reflected the extent of benefit changes under which employers have kept their premiums stable by asking employees to pay more. They also believe costs were held down last year partly because many employees postponed elective surgery, fearful of missing work and losing their jobs in a weak economy.

“We are making substantial progress, but we have a long way to go,’’ said Dreyfus. “There still is an important role for government in holding us accountable and making sure the whole state is moving toward new payment models.’’

Legislators are drafting a bill, expected to be ready early next year, that would require changes like those already occurring in the commercial insurance market. It would shift health providers to a system of global payments, in which hospitals and doctors would be given a monthly per-patient budget for all care. Critics say the fee-for-service system, which still dominates much of the state’s market, creates incentives to provide excessive care and lacks coordination.

After clashing with state insurance officials over rate caps in 2010 and warned this year to keep premium increases down, the insurers are now stressing affordability. Blue Cross in October reached a new three-year pact with Partners, the state’s largest health care provider, under which annual rate increases that were projected at 5 to 6 percent for the next three years will be lowered to between 2 and 3 percent. Partners hospitals will also join the Blue Cross “alternative quality contract,’’ a pioneering global payment plan that will reimburse them based on cost and quality measures.

After a rancorous bargaining standoff with Tufts Medical Center this fall, Blue Cross struck a three-year agreement earlier this month that gave Tufts and its New England Quality Care Alliance doctors group an average increase of 3 percent. “It took a lot of pushing and pulling,’’ Dreyfus said of the talks with Tufts, the first Boston teaching hospital to accept global payments. “But we’ve seen an unprecedented level of collaboration between hospitals, physicians, and health plans in Massachusetts.’’

In January, Dreyfus sent a letter to more than 400 leaders of hospitals and doctors practices, calling on them to step up efforts to contain costs.

Since then, Blue Cross has negotiated new contracts with nearly half of its provider network - not counting Partners, which renegotiated an existing contract - and held average increases to under 2 percent, Dreyfus said. Some hospitals, such as St. Anne’s in Fall River and Cooley Dickinson in Northampton, have accepted payment cuts that will put them on lower-priced levels in tiered network plans so they can draw more patients.

For employers, base premium increases, which also include factors such as rising drug prices, will be about 2.5 percent next year, roughly half the size of annual increases in recent years, Dreyfus said. Some customers will pay more, however, because of their location, type of business, or the age of their workforce.

Other insurers, including Tufts Health Plan and Harvard Pilgrim, report similar success in holding down payments. Both are engaged in their own negotiations to bring Partners hospitals into global payment plans. Those talks are expected to be concluded early in 2012. Even hospitals not yet accepting global payments, such as Boston’s Beth Israel Deaconess Medical Center, are getting the message on costs.

“Everybody in the country is feeling pressure on prices,’’ said Dr. Kevin Tabb, the new Beth Israel Deaconess chief executive, who indicated his medical center is preparing for new payment models. “Here in Massachusetts, everybody feels it more,’’ he said.

Robert Weisman can be reached at

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