Back to Massachusetts: Legislating health costs

Massachusetts is trying to change the way doctors, hospitals and other providers are paid, according to an article in The New York Times.

The state legislature is working on bills that would make flat “global payments” to providers to keep patients well. This would replace the current system, which charges fees for every service provided,  a practice many people feel encourages more procedures, even unnecessary ones.

The article about the Massachusetts effort to cut health costs, on the front page of The New York Times, points out that the number of procedures and the way prices are set both encourage growth in health costs.

Prices set by providers rarely correspond with the payments from insurance companies; instead, insurance companies negotiate payment rates with providers in  yearly or every-other-year contract talks that include factors like where the provider is situated, how many procedures it performs a year, its prestige and such.

The result: in-network providers can get very different reimbursements from insurers. A small radiology clinic in Queens  probably gets paid less for an MRI than the highly prestigious Hospital for Special Surgery in Manhattan, one of the nation’s top orthopedic facilities. (Check out our ClearHealthCosts list of what an MRI costs  for cash customers in the New York area.)

“Because medical spending is driven not just by volume but also by pricing, a major question has been whether global payments alone will have much effect,” says the article in The Times, written by Abby Goodnough and Kevin Sack. “It may be equally important, Mr. Patrick and others argue, to rein in the ability of the state’s most prestigious teaching hospitals and physicians’ groups to negotiate high rates of reimbursement.

“A series of news media and government investigations have revealed that large, high-status providers, like Partners HealthCare System, which owns the Harvard-affiliated Massachusetts General and Brigham & Women’s hospitals, command substantially higher reimbursement from insurers than other entities.

“In reports the last two years, Attorney General Martha Coakley, a Democrat, has concluded that differences in payments to hospitals cannot be explained by variations in their quality, the mix of their patients or the costs of academic medicine. Last month, the House majority leader, Representative Ronald Mariano, introduced a bill that would force insurers to narrow the inequities in payments.”

Massachusetts is a particularly interesting place, partly because it was the home of the nation’s first mandatory coverage law, which Mitt Romney spearheaded as governor in 2006. That law didn’t address the rise in health-care costs.

Careful readers will notice that the Obama health-care legislation is under heavy criticism for its stipulation of mandatory coverage. That law has a few stipulations to encourage cost control, but not a great deal.

As The Times story points out, in the arena of cost control, “the politics would pit doctors, hospitals, insurers, employers and consumers against one another.”

So while Massachusetts has nearly universal coverage — 2 percent of residents and a fraction of 1 percent of children are uninsured — the cost issue is still a problem.