Panel crafts plan to cut medical spending

Proposal would save at least $50b by slowing growth rate of health care costs

By Liz Kowalczyk
Globe Staff / September 12, 2009

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A state committee has drafted an ambitious plan to reduce medical spending in Massachusetts by at least $50 billion over the next 10 years, slowing the increase in health care costs to the growth rate of the overall economy.

The panel, which includes state officials and influential health care executives, wants to stop runaway medical costs by reducing both the prices paid to hospitals and doctors and the amount of ineffective medical care given to patients. Most of the savings would come from changing how providers are paid, but billions of dollars could also be saved if all hospitals and doctors used computerized medical records, the group estimates.

The draft recommendations, which the committee plans to finalize later this month, come at a time when President Obama is proposing an overhaul of the nation’s health care system that is strikingly similar to Massachusetts’ model insurance program, which has extended coverage to nearly all residents. But the plan also highlights the state’s failure, at least so far, to achieve another key goal: stopping soaring medical costs that are squeezing businesses and individuals, and could threaten the landmark health insurance law.

“It’s very clear that nationwide and in Massachusetts, health care costs are rising much faster than anything else,’’ said Dr. JudyAnn Bigby, state secretary of Health and Human Services. “The costs, [most of which] are borne by employers who pay for the coverage, means they cannot give additional wages or other benefits to employees and makes us less competitive in the global market. And individuals increasingly have to assume a greater percent of the cost of health care.’’

Bigby heads the state’s Health Care Quality and Cost Council, which was created by the 2006 insurance law to establish statewide goals for improving quality and cutting costs. Some members of that council have developed the draft recommendations, on which the entire council plans to vote Sept. 30.

Most everyone agrees that the state needs to control the cost of medical care. Health care spending in Massachusetts is expected to rise at least 6 percent a year, to $123 billion in 2020, driven largely by the high price and heavy use of hospitals. However, hospitals and doctors are extremely nervous about how the state plans to proceed, since almost any dramatic change to the payment system would involve less money going to providers.

Another group of legislators and members of Governor Deval Patrick’s administration - the Special Commission on the Health Care Payment System, created by law a year ago - recommended in July that Massachusetts largely scrap its current system of paying hospitals and doctors. In this system, commonly called fee-for-service, insurers typically pay a negotiated fee for each individual procedure or visit. The arrangement is widely seen as leading to unneeded tests and procedures, because the more providers do, the more they get paid.

Instead, the commission wants private insurers and the state and federal Medicaid program to put providers on a budget, paying them a set fee for each patient that covers all that person’s care for an entire year, and to make the radical shift within five years. Legislators are meeting this fall to decide whether and how to implement this system of global payments and what types of new laws are needed.

Members of the Health Care Quality and Cost Council also appear to endorse global payments in the draft report, but acknowledge interim steps may be needed, like paying a set fee for procedures such as hip replacement surgery and all related care.

Bigby stressed that the report is a draft and could change by the time the full council votes later this month. The state removed the draft recommendations from its website after the Globe inquired about them. If they are approved, some of the recommendations could not be implemented without new laws.

Karen Nelson, senior vice president for clinical affairs at the Massachusetts Hospital Association, said hospital executives know that the current method for paying providers has to change but that “the transition has to happen in a fair way.’’

Teaching hospitals, in particular, are worried that global payments won’t take into consideration their role in training residents, or their need to have trauma centers and emergency rooms fully staffed 24 hours a day - both of which introduce extra costs into the system. “There are many unresolved issues,’’ she said.

Liz Kowalczyk can be reached at