Hospitals oppose price disparity fixes
PHOTO/Matt VOLPINI
Patrick Muldoon, CEO of UMass Memorial Medical Center
Even though they may benefit financially, Central Massachusetts hospitals have joined together with their brethren from around the Bay State to oppose efforts to limit the pricing disparity between healthcare providers.
At the center of the hot-button issue for hospitals is one bill in the Massachusetts legislature and two 2016 ballot initiatives calling for a cap and a floor for how much high-cost and low-cost hospitals can collect in revenue. The movement is intended to rein in cost while keeping big hospitals from getting bigger at the expense of the little ones.
The board of the Massachusetts Hospital Association, which represents hospitals across Massachusetts, has opposed a capped payment system. On that board is Ed Kelly, president of Milford Regional Medical Center, a community hospital that proponents say would be helped by the change.
Kelly said the theory of a capped system sounds like it would benefit some smaller hospitals, but in practice it would only impede hospitals ability to do business, just like when a similar idea from the 1980s fizzled out in the 1990s.
“There were very good intentions … It just never worked out,” Kelly said. “It's like changing the tax code. Sometimes, people realize it doesn't achieve the wanted effect.”
With the Affordable Care Act changing the healthcare business model toward keeping patients healthy rather than treating them when they are sick, it is an ill-timed effort to put caps and floors on specific services, said Patrick Muldoon, CEO of UMass Memorial Medical Center in Worcester.
“I mean, we are all changing the way we do business to try to position ourselves for that world,” Muldoon said.
Proponents say a capped system remains the best step toward shrinking the disparity. The change to a global payment system hasn't stopped larger hospitals from getting richer, said David Seltz, executive director of the Massachusetts Health Policy Commission.
“The concern I would have about (the idea that) the market will sort this out is … we haven't seen it getting any better,” Seltz said.
Longstanding tradition
Information related to contracts between commercial insurance companies and hospitals and other providers remains largely confidential, except for data that payers are required to report to government agencies, such as the state Center for Health Information and Analysis (CHIA).
The 2012 Health Care Cost Containment law has led to an onslaught of data reporting from CHIA, which is required to produce meaningful analyses of healthcare cost trends.
Interestingly, those that get paid more don't necessarily beat their lower-priced counterparts in the quality arena. For instance, UMass Memorial Medical Center, which is in the top quarter of hospitals in terms of price, according to CHIA, this fall received a “C” grade for hospital safety while many smaller local that are in a lower price percentile received “A” grades.
Attorney General Maura Healey issued a report this summer which revealed that the state's high-priced providers (Partners-owned Brigham and Women's Hospital and Massachusetts General Hospital; Beth Israel Deaconess Medical Center; UMass Memorial Medical Center and South Shore Hospital had the most commercial discharges in the state last year) continue to grow their market share, creating market dysfunction that drives up healthcare spending.
“The effects of this market dysfunction, coupled with anticipated growth in pharmacy costs and utilization of health care services, raise serious concerns,” a statement from Healey's office said.
The union solution
Enter 1199SEIU United Health Care Workers East, the state's largest healthcare workers union. The union has backed a bill and two 2016 ballot initiatives that are aimed at capping revenue for the big players. The bill and one of the ballot initiatives also set a revenue floor for smaller hospitals.
The bill, filed by state Sen. Benjamin Downing (D-Pittsfield) would ban high-priced providers from receiving commercial payments in excess of 20 percent of the average prices paid to Bay State hospitals for comparable services, while setting a floor for small hospitals, many of which care for a large number of low-income patients and therefore generate less money, so that commercial payers would pay them no less than 10 percent lower than the average prices.
An ill-timed effort?
Muldoon said the union is addressing commercial contracts as they've been negotiated under a fee-for-service system. Hospitals are more frequently entering into risk-based contracts, or global payment contracts, with commercial insurers. Under these arrangements, they're paid on value, including quality and cost of delivering care.
Ultimately, Muldoon said this new global payment system will level the playing field for hospitals and doctor groups by giving organizations of all sizes the opportunity to make more money by providing high-value care.
This is the system that the Cost Containment Bill is designed to encourage, and capping providers at 20 percent above the state median average prices will undermine that, said Muldoon. He argued the law, which is still a few years away from being fully implemented, should be given time to mature.
Slow transition
It could be a slow transition, however. Muldoon said about 20 to 25 percent of UMass Memorial insurance contracts are risk-based.
In the coming year, the Health Policy Commission will examine a number of policy efforts to address price variation, Seltz said.
In particular, there is a pressing need for more transparency around price information for consumers.
The caps and floors for pricing could make the system more fair, and help more hospitals thrive since the shifting model to risk-based contracting has failed to demonstratively save money, said Alan Sager, a professor of healthcare policy at Boston University.
“We have to find a way to narrow the unfairness … of current hospital prices,” Sager said.
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