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Control of costs a test for overhaul

Mass. experience foresees challenge in US health care law

By Tracy Jan and Liz Kowalczyk
Globe Staff / July 1, 2012
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Just as the health care overhaul in Massachusetts is widely accepted as the model for the national bill upheld as constitutional Thursday by the US Supreme Court, it is also seen by many as a model and a caution for the necessary sequel to much broader insurance coverage: cost control.

Bringing almost everyone under the umbrella of health insurance is considered by advocates of the 2006 Massachusetts law, and of President Obama’s 2010 plan, as the essential precondition for reining in medical expenses. All consumers, employers, hospitals, and insurers now abruptly, with the law’s implementation, have a major stake in that goal.

But nothing about the journey is easy — as six years’ experience in Massachusetts shows.

Consumers should not expect to see Obama’s plan lead to lower medical bills, at least not anytime soon. What they can expect is a vigorous clash of interests, leading eventually, the hope is, toward accommodation and compromise.

That has been the Massachusetts story so far. With Governor Deval Patrick threatening the state’s robust health care industry with aggressive intervention, a patchwork coalition of hospitals, insurers, businesses, doctors, and lawmakers has been working to come up with ways to make care more affordable.

Some large teaching hospitals have signed contracts with insurers that call for lower fee increases than in the past. More than 1.2 million people — about 1 in 5 residents — are already covered by plans that put providers on a budget in an effort to restrain health spending. And insurers are offering more tiered plans that limit consumers’ choice of hospitals.

House and Senate leaders are privately negotiating over their two competing plans to control medical spending by tying it to the growth of the state economy. They hope to reach an agreement by the end of July, an agreement that Patrick must also sign on to.

“Massachusetts, more than any other state, is having an aggressive dialogue about how to reduce the rate of growth in health care spending,” said John McDonough, director of Harvard’s Center for Public Health Leadership, who helped craft the federal legislation. “The health reform law created such a spotlight on the state’s health care system and right away, everybody – business and insurers – recognized the most destabilizing thing that could happen to undermine reform was if health care costs continued to spiral out of control.”

To its advantage, Massachusetts already had the preexisting network of often competing interests that worked together in 2006 to bring about health reform, a coalition that does not exist on the national stage or in many other states.

The state also faced acute pressure to tackle the cost containment problem, which predated the 2006 reform law championed by then-governor Mitt Romney (although he has since renounced it as a flawed template for national legislation, and says he will repeal it, if elected). Massachusetts individual insurance premiums are the highest in the country, more than double the national average in 2010, according to the Kaiser Family Foundation, which tracks the data.

It also ranks first among the states in total health spending per capita, at $9,278 compared with the national average of $6,815. It is also ninth in terms of the average family premium for employer-based plans, after topping the charts for many years.

Still, it took a push from Patrick to get concerted action. Two years ago, on the heels of a recession and with small businesses complaining that rising premiums inhibited their ability to hire, the governor gathered stakeholders around a table and asked why premiums were going up so dramatically .

“The insurers would point to the providers, the providers would point to the docs, and the docs would point to the imaging lab down the street. Nobody was taking any responsibility for it. I felt like I was at my wits’ end,” said Patrick, who invoked a rarely used statute and used the authority of the insurance commissioner to shoot down rate increases he considered excessive. “Folks understood we were serious, came back to the table, and started working together in the same brilliant way they did to invent health care reform in the beginning.”

The meeting with Patrick led to a series of secret meetings among industry players, which seeded the legislation now being hashed out in the Legislature, said Lynn Nicholas, president of the Massachusetts Hospital Association.

The House plan calls for health spending to shrink, by 2016, to half a percentage point less than the rate of growth of the overall Massachusetts economy. The Senate believes the industry should not be forced to grow more slowly than the economy overall. In general, the Senate bill allows doctors and hospitals more leeway to find their own solutions to soaring costs, while the House appears to want more oversight.

The plans contain similarities too. They aim to expand primary care, the use of electronic health records, and information for consumers on the cost and quality of treatments – all believed to be important components in controlling the growth of health care spending.

The proposals also encourage insurers to adopt new payment methods that move away from the current fee for service system, which pays doctors and hospitals a separate fee for every office visit and procedure and is seen as promoting unnecessary care.

But critics of the plans say the changes will do little to actually control costs, given aggressive lobbying by powerful provider networks to remove the most onerous regulations that they claim could devastate such a vital sector of the state economy. The proposed bills, many say, also lack a meaningful accountability mechanism, with no real penalty if the spending target is not met.

“The bills may provide better quality care, but in my opinion, it will not guarantee less expensive care,” said Joshua Archambault, director of health care policy at Pioneer Institute of Public Policy and Research, who advocates more consumer choice including high-deductible plans. “Until you have consumers engaged and have the incentive to pick the low-cost, high-quality provider, we’re going to be unsuccessful in the long term in controlling health care costs. That is the key to this equation that we’ve missed in Massachusetts and that the federal law misses as well.”

Unlike the Massachusetts bill, the federal law includes some provisions designed to restrain cost growth. It requires states to review insurance premiums and consider denying unreasonable increases. It restricts Medicare payments for hospital readmissions that occur within 30 days and prohibits payments for provider errors such as operating on the wrong limb. And an independent advisory board has been set up to recommend cuts if Medicare spending reaches a certain level.

A Medicare and Medicaid innovation center is supposed to rethink how providers are paid, such as moving away from fee-per-service toward outcome-based payments, similar to what Massachusetts is now trying to do.

“If you try to get a lot more people covered, you are going to have to get per capita costs down or it will strain the budgets of the governments that are providing the subsidies,” said Len Nichols, professor of health policy and director of the Center for Health Policy Research and Ethics at George Mason University.

But Obama is unlikely to put the same amount of pressure on the country as Patrick did on Massachusetts, Nichols said.

“No one believes Obama has the power to do what Deval Patrick has, threatening plans and providers, but the pressure to reduce costs will still be powerful,’’ he said.

Like the Massachusetts law, the federal Affordable Care Act uses Medicaid expansion and subsidies for private insurance to cover the uninsured.

“Both will rapidly become unaffordable if health care costs grow as rapidly as they have in the past decade,’’ said Andrew Dreyfus, chief executive of Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer. “When you require people to buy insurance there’s almost a related promise you have to make that the coverage will be affordable. If not, then support for the law will fade.’’

Blue Cross Blue Shield of Massachusetts’ alternative quality contract puts providers on a budget to care for groups of patients.

Under this type of contract, considered a promising arrangement for improving quality while reducing costs, the insurer gives doctors and hospitals fixed budgets to cover patient care rather than being reimbursed for every visit and procedure. The arrangement encourages doctors to coordinate care and therefore improve patients’ health.

Obama’s law is pushing the same solutions through Medicare that are already occurring in the private market in Massachusetts.

An example of this is the 32 Accountable Care Organizations already established under the federal law. In this payment model, large groups of providers are put on the hook if the cost of caring for Medicare patients is more than expected, and it allows them to reap some benefit if they come in under budget.

However, Dreyfus said, national adoption of these new models could be somewhat slower than in Massachusetts because Massachusetts is headed toward passing a law that limits the amount by which health care spending can grow – an aggressive approach.

Tracy Jan can be reached at tjan@globe.com. Liz Kowalczyk can be reached at kowalczyk@globe.com.

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