Massachusetts: Cost-cutting strategies aren’t working

Massachusetts has been in the forefront of health reform. So it was dispiriting to learn in a Massachusetts health reform report issued June 22 that the state’s test of one of the most-hoped-for reforms changes has failed to cut costs.

In fact, most of the news in the report was relatively gloomy: it suggested that the poor subsidize the health care of the well-to-do; that there are big disparities in payments made to providers that are not easily explained by better care;  that higher-income insured people have higher medical costs than lower-income insured people do;  and that PPO (preferred provider organization) medical care plans do not encourage lower costs.

One startling discovery: a much-praised system of global payments that had been instituted to cut costs seems not to work. Global payment takes the pay-per-procedure model of medicine and stands it on its head, instead paying the provider by the patient. The doctrine has been that pay-per-procedure encourages more treatment, not necessarily better treatment, and that gl0bal payments would encourage better treatment, not necessarily more. (At the end of a year, if a global-payments provider stays within certain limits and meets quality conditions, that provider can win a bonus.)

The report, by Attorney General Martha Coakley of Massachusetts, found that when global payments were introduced, costs did not go down, they actually went up.

“In five medical groups in Blue Cross Blue Shield’s much-touted global payment plan, known as the Alternative Quality Contract, medical expenses rose by an average of 10 percent from 2008-9, in sharp contrast to non-global groups where expenses went up by less than 2 percent,” Carey Goldberg and Rachel Zimmerman write in an excellent analysis of the Coakley report on CommonHealth, the health-care blog from WBUR, the NPR station in Boston. “Among those five groups were two that were already among the   state’s better-paid before they joined the global-payment plan.”

At two global-payment groups, costs went up by more than 36 percent.

Because the health-care market is so dysfunctional, the report said, one solution would be to reduce distortions in health-care prices by temporary statutory restrictions (price regulation!).

Other recommendations included promoting good decision-making and value-based purchasing, and coordinating care better.

One of the most startling discoveries was that wealthier people use more health care than their middle- or lower-income counterparts.

This again turns common wisdom on its head: the thought had been that insured people use more health-care services because they don’t feel the pinch in their pocketbooks.

“The attorney general found the same pattern among the commercial members of all three big insurers: the total medical spending for higher-income patients tends to be far higher than the total medical spending for lower-income patients,” Zimmerman writes on the blog. For instance, a Blue Cross member living in a tonier area like Wellesley with a six figure income is spending $437 per member per month on health care. That’s compared to a member living in a neighborhood like Chelsea, where incomes are considerably lower, who is spending $320 per member per month, according to the report. And both consumers, the richer and the poorer, are likely paying comparable premiums.”

Below: the conclusions and the recommendations.