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Martha Coakley has been in the news mostly for her upset loss to Scott Brown in the special election to fill Ted Kennedy’s Senate seat. Her office got only a little coverage when it released its report on medical cost increases in
last week. The 27-page report makes for good reading for those interested in what drives high medical costs here in Massachusetts . Massachusetts
The AG’s office, using civil investigative demands, obtained payment information from 5 insurers and 15 provider organizations, and came to the following conclusions:
1) Prices paid to different providers differed by a factor of more than two.
2) Higher prices were not associated with
a. Higher quality
b. Sicker patients
c. Portion of patients on Medicare and Medicaid
d. Teaching status
e. Hospital resource costs
3) Higher prices were associated with market leverage
4) Providers receiving global payment (capitation) were not less expensive than those being paid fee for service
5) Most of the increase in cost in
has been due to an increase in price per unit of service, not an increase in utilization. Massachusetts
Most of this is no surprise, and The Boston Globe did a series in Fall, 2008 demonstrating that payments are higher at Partners,
, and some other hospitals with reputational or geographic advantage. The Globe actually identified institutions, while the AG’s office blinds all providers in this report. Children's Hospital
Of course, in a free market – it makes sense for an organization with better reputation to get higher pay. The market grants higher prices to Bose for headphones compared to Sony – and it’s OK to pay more for the same gallbladder surgery at Mass General compared to a community hospital. But the amount of the difference has become staggering. Worse still, the highly-paid institutions can afford to make investments that lead to more future business – while the lower-paid institutions skimp on capital investment, and continue to lose patients, leading to still higher costs.
What can be done to address this?
One option is the
approach of regulating prices. Price regulation is a blunt instrument –and generally cannot keep up with changes in technology. We also see from the distortions in Medicare physician pricing that price regulation can lead to big winners and big losers. In the Maryland and across the world, price regulation also leads to shortages of services that are paid relatively poorly. US
Another approach is to move to bundled or global payments. However, Ellen Zane, CEO of Tufts Medical Center (which is one of the lower-paid academic medical centers in
Massachusetts) pointed out at a panel yesterday that capitation would likely lock in current high prices at the currently-advantaged institutions. Harvard Business School
A third approach is to give patients large deductibles, and count on them to do better comparison shopping when they have to pay their own dollars. There is evidence that this works for less-expensive elective medical care. However, most hospitalizations in
are so expensive that most patients who have any inpatient stay at any hospital – even the most cost effective one – will hit the out-of-pocket maximum. Massachusetts
It’s distressing to see that this report suggests that global payment was not associated with lower overall costs. There are only a few capitated groups included in this analysis – so perhaps the issue is a small sample size. There is substantial evidence that fee for service leads to much higher utilization (and costs) than global payment. Here’s some data on ophthalmology practice- showing that when fee for service ophthalmologists converted to a capitation payment (no incremental pay for extra cataract surgeries), their rate of cataract surgery plummeted (by half).
The AG’s office promises detailed findings for hearings by the Dept of Health Care Finance and Policy that begin in mid-March. The payment disparities are large – and they won’t be easy to change.