Targeting Health Care Costs: The Price for Services

Transcription

1 2011 Annual Report Targeting Health Care Costs: The Price for Services Solutions from Beacon Hill The Nation s Best Health Plans Working for Affordable Care

2 Table of Contents Let s Start with Some Facts 2 Where Does the Premium Dollar Go? 4 Where Do MA Residents Get Care? 5 Who s Making Money? 6 What s the Role of Price Variation? 8 What Does the Data Tell Us? 10 What Are the Solutions for Dealing with Price Variation? 12 What Our State Leaders Are Recommending 13 What You Need to Know About Market Power and Payment Reform 22 Committed to Cost Control 24 MAHP s Legislative Agenda 25 Do Higher Costs Buy Better Care? 26 NCQA: High Quality, High Satisfaction 27 Myths and Facts About Health Plans 28 MAHP Board of Directors and Staff 30 About MAHP 31 Philosophy of Care 32

3 Dear Friends: In 2011, we witnessed many changes in the Massachusetts marketplace: new partnerships by health plans and providers; a significant movement to alternative payment methods; and several provider groups chosen to participate in the federal accountable care organization (ACO) pilot. While these changes all hold the potential for delivering better quality care for patients, one factor remains the same prices for medical services charged by providers, while slowing, continue to rise. Controlling health care costs remains the critical challenge for preserving our state s landmark health reform law and helping employers create new jobs. MAHP member health plans continue to do their part and have brought millions of dollars in savings to small busineses through rate reductions and new products. The Legislature, through Chapter 288 of the Acts of 2010, imposed the nation s strictest health insurance premium standards, requiring that 90 percent of the premium be spent on medical care, while limiting insurers profits and increases in administrative spending. Still, premiums continue to rise. Why? Despite health plans efforts, the prices providers charge for their services continue to increase. Over the last three years, nearly half a dozen comprehensive state reports including from the Attorney General and the Division of Health Care Finance and Policy have examined the drivers of rising health care costs. In each case, provider price increases, not increases in utilization or health insurance practices, have been identified as the major drivers of health care cost increases. The studies have concluded that prices vary significantly, that they are not correlated to the quality of care, complexity of patient conditions, or government underpayment, and that higher priced providers are gaining market share at the expense of lower priced providers. Payment reform offers the promise of improving health care quality and bending the cost curve over time, but its ultimate success will require addressing unwarranted market disparities and closing the gap between lower-paid providers and higher-cost providers to ensure a properly functioning marketplace. Failure to act will simply memorialize high rates of payment for certain providers, regardless of how they are paid, and perpetuate provider consolidation that could lead to higher prices. Closing the gap between providers will not be easy, and it must not be accomplished by simply raising rates for the bottom tier of providers. The net result from addressing these price variations should translate into lower health care costs for employers and working families. This year s annual report, Targeting Health Care Costs: The Price for Services, examines several ways Massachusetts could repair the current dysfunctions in the provider market and provide relief to businesses and residents. We hope it will be a catalyst for thoughtful consideration of these and other proposals for addressing the underlying causes of rising health care costs. 1 Sincerely, Lora M. Pellegrini President & CEO mahp 2011 annual report

4 Let s Start with Some Facts The most significant driver of health care costs in Massachusetts is the amount paid for medical services at different institutions. Over the last several years, numerous state reports have highlighted the wide pricing variation that has become a fact of life in our health care system and the challenges this creates as we try to make health care more affordable and effective. As the Attorney General s 2010 report noted, price variations are correlated to the market leverage of providers and these variations are not correlated to quality of care, the sickness or complexity of the population served, the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or whether a provider is an academic teaching or research facility. The prices listed in the enclosed charts come from publicly available data, offering a glimpse of the price of common services based upon where care is delivered. 2 Teaching Hospitals: Typical Cost of a CT Scan of Abdomen Statewide Median: $575 St. Elizabeth s Medical Center $375 Cambridge Health Alliance $425 Boston Medical Center $500 Tufts Medical Center $550 Lahey Clinic $575 St. Vincent Hospital $600 UMass Memorial Med. Center $625 Baystate Medical Center $675 Beth Israel Deaconess Med. Center $675 Mount Auburn Hospital $675 Brigham and Women s Hospital $950 Mass. General Hospital $975 Children s Hospital Boston $1,475 source: Health Care Quality and Cost Council (HCQCC): 7/1/2008-6/30/2009 with claims paid through 12/31/2009. Community Hospitals: Typical Cost of a CT Scan of Abdomen Statewide Median: $575 Quincy Medical Center $400 Norwood Hospital $425 Health Alliance Hospitals $450 Anna Jaques Hospital $475 Lawrence General Hospital $475 Lowell General Hospital $475 MetroWest Medical Center $475 Marlborough Hospital $525 St. Luke s Hospital $525 South Shore Hospital $575 Winchester Hospital $575 North Adams Hospital $600 Newton-Wellesley Hospital $600 Milford Regional Medical Center $650 Harrington Memorial $850 Berkshire Medical Center $875 Cooley Dickinson Hospital $950 Sturdy Memorial Hospital $1,150 Cape Cod Hospital $1,400

5 Teaching Hospitals: Typical Cost of a Mammogram Statewide Median: $225 Tufts Medical Center $125 UMass Memorial Med. Center $125 Baystate Medical Center $150 Cambridge Health Alliance $175 St. Elizabeth s Medical Center $200 St. Vincent Hospital $200 Boston Medical Center $225 Lahey Clinic $250 Beth Israel Deaconess Med. Center $300 Mount Auburn Hospital $300 Brigham and Women s Hospital $325 Mass. General Hospital $325 Teaching Hospitals: Typical Cost of a Chest X-Ray Statewide Median: $100 Cambridge Hospital $75 St. Vincent Hospital $75 Boston Medical Center $100 Lahey Clinic $100 St. Elizabeth s Medical Center $100 Tufts Medical Center $100 Baystate Medical Center $125 Beth Israel Deaconess Med. Center $125 Mount Auburn Hospital $125 UMass Memorial Medical Center $125 Brigham and Women s Hospital $175 Mass. General Hospital $175 Children s Hospital Boston $225 Community Hospitals: Typical Cost of a Mammogram Statewide Median: $225 Quincy Medical Center $75 Berkshire Medical Center $100 North Adams Hospital $125 Norwood Hospital $175 Anna Jaques Hospital $200 Cooley Dickinson Hospital $200 Health Alliance Hospital $200 MetroWest Medical Center $200 Cape Cod Hospital $225 Lawrence General Hospital $225 Lowell General Hospital $225 Marlborough Hospital $225 St. Luke s Hospital $225 South Shore Hospital $250 Sturdy Memorial Hospital $250 Winchester Hospital $250 Milford Regional Medical Center $275 Newton-Wellesley Hospital $275 Harrington Memorial Hospital $350 Community Hospitals: Typical Cost of a Chest X-Ray Statewide Median: $100 Anna Jaques Hospital $75 Health Alliance Hospital $75 Lawrence General Hospital $75 Lowell General Hospital $75 MetroWest Medical Center $75 Norwood Hospital $75 Quincy Medical Center $75 Marlborough Hospital $100 Newton-Wellesley Hospital $100 North Adams Hospital $100 St. Luke s Hospital $100 South Shore Hospital $100 Sturdy Memorial Hospital $100 Winchester Hospital $100 Cape Cod Hospital $125 Milford Regional Medical Center $125 Berkshire Medical Center $150 Harrington Memorial Hospital $150 Cooley Dickinson Hospital $175 mahp 2011 annual report 3

6 Where Does the Premium Dollar Go? Any serious discussion about keeping health care affordable needs to start with what we pay for medical care and why it costs so much, because an increasing portion of the premium dollar is directed to medical costs. In Massachusetts, nearly 90 cents of every health care dollar goes to pay for medical services, such as doctor visits, diagnostic tests, prescription drugs, and hospital stays. Health Plan Revenues and Expenses Medical Costs 87.65% Administrative Costs 11.15% Surplus 1.19% Medical Costs 88.99% Administrative Costs 10.06% Surplus 0.94% Medical Costs 90.90% Administrative Costs 9.73% Surplus -0.63% Medical Costs 89.79% Administrative Costs 9.74% Surplus 0.47% source: Data is based on statements filed by plans with the MA Division of Insurance for the five Massachusetts-based MAHP member commercial health plans.

7 Where Do MA Residents Get Care? The Division of Health Care Finance and Policy s 2010 Cost Trends Final Report cited the high concentration of physicians in academic medical centers compared to national averages as one of the major drivers of premium increases over the past several years. In fact, admissions to academic medical centers are more than double the national average and a higher proportion of outpatient care in Massachusetts also is delivered in academic medical centers compared to the rest of the U.S. Admissions to Academic Medical Centers: 19% National Average 45% Massachusetts The Division s 2011 Trends In Health Expenditures report noted that a majority of private inpatient spending was devoted to care delivered in tertiary care or specialty and teaching hospitals. In 2009, two-thirds of privately insured inpatient spending was for care obtained in tertiary care or specialty and teaching hospitals, either in the Boston metro area (52 percent) or elsewhere in Massachusetts (14 percent). Just 29 percent of private inpatient spending was for care obtained in community hospitals. 5 mahp 2011 annual report

8 Who s Making Money? Making health care affordable starts with a clear understanding of where our health care dollars go and requires those of us in the health care systems health plans, hospitals, and physicians to answer the questions: Why are your costs going up? and What are you going to do about it? MAHP and its member health plans have been strong proponents of sharing health care cost information with the public. We believe that consumers and employers have every right to know how their health care dollars are spent Total Margins: Top 10 Teaching Hospitals Mount Auburn Hospital 8.73% Baystate Medical Center 8.23% Massachusetts General Hospital 6.33% Beth Israel Deaconess Medical Center 6.25% 6 As the following charts indicate, recent data on the percentage of health care dollars that hospitals report as profit margin compared with the margins of MAHP member health plans offer a useful snapshot of where the money goes. Profit margins only tell part of the story, however. Massachusetts has established the most stringent standards in the country for how health plans use premium dollars. Chapter 288 of the Acts of 2010 requires that a minimum of 90 percent of the premium dollar must be spent on medical care. In addition, the law restricts the amount of funds that may be allocated to administrative expenses, limits health plan profits to no more than 1.9 percent, and requires significantly greater financial, membership, and utilization reporting by health plans. MAHP believes that, in order to increase transparency around the true cost of health care and to provide a more complete picture of how the health care dollar is spent, hospitals should be subject to similar reporting requirements. St. Elizabeth s Medical Center 5.99% Children s Hospital Boston 5.61% Saint Vincent Hospital 5.33% Lahey Clinic 5.25% Brigham and Women s Hospital 5.07% UMass Memorial Medical Center 4.08%

9 2010 Total Margins: Top 10 Community Hospitals Sturdy Memorial Hospital 11.00% Signature Healthcare Brockton Hospital 8.98% 2010 Total Margins: Commercial Health Plans Harvard Pilgrim Health Care 1.90% Health New England 1.90% Saint Anne s Hospital 8.60% Tufts Health Plan 1.90% Martha s Vineyard Hospital 7.26% Neighborhood Health Plan 1.00% Hallmark Health 7.00% Blue Cross Blue Shield MA 0.20% Good Samaritan Medical Center 6.41% -0.20% CeltiCare Cape Cod Hospital Fallon Community Health Plan 5.75% -0.40% Newton-Wellesley Hospital UnitedHealthcare of New England % -3.60% Lowell General Hospital 4.88% New England Baptist Hospital 4.16% source: Division of Health Care Finance and Policy s May 2011 Key Indicators Report mahp 2011 annual report

10 What s the Role of Price Variation? As part of its 2011 Health Care Cost Trends hearings, the Division of Health Care Finance and Policy issued a series of reports examining health care costs and the major trends in health care spending. The Division s Trends in Health Expenditures report found that from 2007 to 2009 higher total private spending was predominately driven by price increases. In fact, higher prices explained virtually all of the increase in spending for inpatient, outpatient and professional services, as well as prescription drugs. Meanwhile, the Division s Price Variation in Health Care Services report examined the prices paid by private health plans for commercially insured members for a sample of high-volume health care services in three service categories inpatient hospital care, outpatient hospital care, and physician and other professional services. This report found that: Prices paid for the same hospital inpatient services and for physician and professional services vary significantly statewide for every service examined. There was at least a three-fold difference for every service and for most, a variation of six- or seven-fold. Comparing median prices, highest paid hospitals receive payments that are more than double the lowest paid hospitals. Data on the selected 14 routine inpatient services indicates that service volume tends to be concentrated in higher-paid hospitals. There is little measurable variation among Massachusetts hospitals based on the available quality metrics related specifically to the 14 selected inpatient services. There was no correlation between a hospital s share of Medicaid patients and the prices they received from private payers, with some of the lowest-paid hospitals having the highest proportion of Medicaid discharges. 8 The range in Medicare prices paid across hospitals is similar in breadth to the range found in this report s analysis of private payer prices. However, the relative rankings of hospitals are not similar across Medicare and private payers.

11 The report also analyzed the potential savings associated with reducing payment variation. Among the findings: If all private payer prices were paid at the 2009 median price, it would reduce spending for professional services by an estimated $640 million and by $112 million on inpatient hospital services for the selected services. Total savings: $752 million. If payments above the current 80th percentile were instead made at the 80th percentile, it would reduce spending for professional services by approximately $320 million. It would also reduce spending by $170 million in inpatient hospital services for the selected services. Total savings: $490 million. If the range of payments were narrowed to the existing 20th and 80th percentile (increasing the lowest prices and reducing the highest prices), it would potentially save $179 million for professional services. If the range of payments for inpatient hospital services for the selected services were narrowed to the existing 20th and 80th percentile, the potential savings would be $88 million. Total savings: $267 million. Payments paid at the 2009 median All payments above the 80 th percentile lowered to the 80 th percentile Lowering rates above the 80 th percentile & increasing rates below the 20 th percentile 9 $ 640MM $ 112MM $ 752MM $ 320MM $ 170MM $ 490MM $ 179MM $ 88MM $ 267MM Professional Services Inpatient Hospital Services Total Savings/ Increase Professional Services Inpatient Hospital Services Total Savings/ Increase Professional Services Inpatient Hospital Services Total Savings/ Increase note: The Division of Health Care Finance and Policy s analysis focused on a select set of services, examining 14 routine inpatient services and 20 current procedural terminology codes for professional services. mahp 2011 annual report

12 What Does the Data Tell Us? Attorney General Martha Coakley s landmark 2010 Examination of Health Care Cost Trends and Cost Drivers report found that increases in provider prices, not increases in utilization, were the major driver of health care costs, that higher-priced hospitals have been gaining market share at the expense of lower priced hospitals, and that variations in prices resulted from the market clout a provider may have, not the quality or level of care or the type of institution. In the follow-up to that report, the Attorney General examined whether efforts to expand global payments have reduced health care costs or the payment disparities first identified in the 2010 report. A 2011 report examined risk contracting and care coordination both from the perspective of six commercial health plans and from the perspective of 16 provider groups of varying size, scope of services, geographic location, and payment methodology. Among the report s major findings: 1. There is wide variation in the payments made by health insurers to providers that is not adequately explained by differences in quality of care. 2. Globally paid providers do not have consistently lower total medical expenses. 3. Tiered and limited network products have increased consumer engagement in value-based purchasing decisions. The Attorney General went on to note that the wide variation in provider payments and the significant pace of market consolidation taking place in Massachusetts demonstrate the need for immediate action to restrict and reverse distortion of the competitive market. 10 While payment reform should result in better coordination of care, a shift of payment methodology by itself is not the panacea to controlling costs. As the charts on the following page indicate, globally-paid providers do not have lower total medical expenses and provider price increases, regardless of payment method, have been the major factor for increases in health care costs. The Attorney General s 2011 report also acknowledged the benefits of tiered or limited network products, but noted that these products are unlikely to counteract, on their own, the historic price disparities that threaten many health care providers. The report noted that the state should impose temporary statutory restrictions on how much prices may vary for comparable services to improve market function until these products can correct the market distortions.

13 Globally Paid Providers Do Not Have Consistently Lower Total Medical Expenses Variation by Payment Method in one Major Health Plan s Status Adjusted Total Medical Expenses (2009) Provider Groups from Low to High TME Marlborough/Assabet East Boston Neighborhood Health Ctr. Neponset Valley Healthcare Assoc. Nashoba IPA HCPA BMC Management Services Metro West - LMH Holyoke PHO Anna Jaques/Merrimack/Whittier Caregroup - NE Baptist Lowell General PHO Signature Healthcare Brockton Lawrence General IPA Fallon Clinic New England Quality Care Alliance Henry Heywood Morton Hospital Caritas Christi Baystate Health Winchester/Highland Health Alliance Atrius Health Beth Israel Deaconess Southcoast Mount Auburn Cambridge IPA Valley Medical Group Northeast Health Systems Lahey Clinic Central Massachusetts IPA Acton Medical Associates UMass Memorial Med. Ctr. Cooley - Dickinson PHO Sturdy Memorial Hospital South Shore PHO Partners Harrington PHO Childrens ,100 1,200 1,300 1,400 1,500 1,600 Relative Health Status Adjusted TME 5+ Globally Paid/Risk Sharing 5+ FFS/Upside Only % 90% 80% 70% 60% 50% 40% 30% 20% 10% Price Increases Caused the Majority of the Increases in Health Care Costs in the Last Six Years % of Increase in Costs Due to Changes in Price v. Mix v. Utilization Utilization Provider Mix and Service Mix Unit Price 0% source: Office of Attorney General Martha Coakley, Presentation at the 2011 MAHP annual conference. mahp 2011 annual report 11

14 What Are the Solutions for Dealing with Price Variation? 12 The Division of Health Care Finance and Policy s June 2011 report on provider rate variation and the Attorney General s reports on health cost trends and cost drivers have highlighted unwarranted variation in provider prices as the main factor driving increases in the cost of health care. Simply put, the kinds of objective factors that would be expected to result in higher prices especially higher quality and better outcomes are absent in our health care system. Instead, market clout is the primary deciding factor in many cases. So, now that we know what the facts tell us, what can be done to address market power and unwarranted price variation? Several promising approaches to correcting this costly flaw in the health care market were put forward in 2011, including legislation filed by House Majority Leader Ronald Mariano, recommendations for statutory changes offered by Attorney General Martha Coakley, and the recommendations of the Special Commission on Provider Price Reform.

15 What Our State Leaders Are Recommending mahp 2011 annual report

16 The PEER Act: An Act Promoting Equity & Representative Ronald Mariano of Quincy House Majority Leader Q: Do you think Massachusetts is making progress in controlling health care costs? I think we ve made some progress. Moving people into products with tiered or limited networks has shown some promise because it makes consumers aware of the cost of their treatments and gives them a role in controlling some of those costs. People want the most expensive treatment, which they think is the best treatment, because the insurer will pick up the cost. We have to help people understand that their treatment decisions are reflected in the cost of insurance. In the big picture, we ve seen payment reform moving doctors and hospitals away from fee-forservice where there is no incentive to control costs. State government can speed things up and get them moving in the right direction faster. Q: How would your proposed legislation address the high cost of health care in our state? 14 The Attorney General and others found that the prices being paid to doctors and hospitals were the major drivers of high health care costs in Massachusetts, and that there were wide differences in what insurers paid that had nothing to do with quality. The legislature tried to tackle this problem in 2010 when we passed a small business health care cost control bill (now Chapter 288 of the Acts of 2010), but we couldn t reach agreement, so we waited to see how the market would react. The projected total savings - $267 million... can be used between now and 2015 to provide an impetus to keep moving the system in the right direction. I didn t feel like there was nearly enough progress, so I filed a proposal that would lower reimbursement rates for hospitals charging above the 80th percentile and increase rates for hospitals below the 20th percentile. What I m trying to do is close the gap between the haves and the have-nots, specifically community hospitals. If you re going to have a tiered system that offers alternatives for low-cost quality care, the marketplace needs community hospitals to provide that care. Many of them are struggling because they get lower reimbursements than

17 Efficiency in Rates academic medical centers for the same services and for equal quality. I wanted to do something to make sure they were treated fairly and they were in a financially sustainable position. Q: Does this mean you think the market can t solve the problem? My proposal expands government involvement, but it sunsets after This is not meant to be a long-term solution; it s an attempt to fix a problem that s immediate while moving the marketplace in a direction that will allow for the sustainability of our state s low-cost hospitals. There are safeguards that ensure that the savings are real and that they are reflected in reduced premiums and not as surplus for insurers. And the projected total savings $267 million, according to the Division of Health Care Finance and Policy for a limited number of procedures can be used between now and 2015 to provide an impetus to keep moving the system in the right direction. Q: There s been a huge drop in premium increases this year and hospitals and health plans have been renegotiating contracts for lower rates. Aren t those signs the market is working? To some extent it shows the market is working, but it also shows there s been a reaction to what I ve proposed. Reopening contracts and reducing payments is a much better alternative for hospitals and insurers than my plan, so I m not surprised that they re moving in the direction we d like them to move. Q: What else should the health care community focus on? There s a huge learning curve that has to begin with educating consumers about their role in making health care choices. We need to do a better job in establishing quality measurements so that people understand that you re just as well off getting your gallbladder removed at a community hospital as at a teaching hospital. 15 Q: Do you think Massachusetts can lead the nation in managing costs as we did on health reform? The folks on the national level are watching us, waiting to see how we approach the cost containment issue and what kind of results we get. The Governor has made it his priority; he s been very forceful in trying to get the legislature to take action and we will take action. mahp 2011 annual report

18 Fixing a Flawed Foundation Martha Coakley Massachusetts Attorney General At MAHP s 2011 annual health policy conference, Attorney General Martha Coakley outlined her recommendations for dealing with price variations due to market dysfunction. Excerpts from her speech follow. One of the most significant ways our office has been engaged in cost containment is through the two examinations we have done on the cost drivers of health care. We explained that a shift to global payments is certainly not a panacea because it ignores the flawed foundation of the dysfunctional health care market. That dysfunction is a market where costs are not based on value or quality, but on the market leverage of providers. I d like to offer some specific solutions to address that dysfunction three pillars to shore up that foundation and reduce costs. Greater Transparency For Consumers 16 Consumers are feeling the impact of rising health care prices without necessarily having more choices or control over those costs. When consumers go to buy a car, for instance, they can shop for the lowest price at the quality they want. When they go to repair a car, they can even get estimates from mechanics before they authorize the repair. In the same way, consumers need information about their health costs so they can make decisions about the most cost-effective choices. We still need to address this entrenched dysfunction in order to create a level playing field for competition. We are considering requirements that providers disclose the full amount that consumers could be liable to pay, so that patients know in advance what they are agreeing to.

19 Ensuring A More Effective, Competitive Marketplace Providers in the market are consolidating, merging, and affiliating at an increased rate. With increased focus on payment and delivery system reform, we should anticipate even more consolidation in the future. But how big is too big? Right now, there is no reporting mechanism in place to effectively monitor provider market size or clout. There should be an administrative review process in place in which updated information is provided to a regulatory agency. When a provider does reach a certain level of market clout, it should trigger a market impact review to determine whether the provider s size is having a negative impact on consumer choice, access, or healthy market function. The agency must then have authority to restrict certain types of provider activity to protect consumers and the market. A Balanced Approach To Addressing Price Disparities We still need to address this entrenched dysfunction in order to create a level playing field for competition. We believe that the market should be given a chance to correct itself. If those market efforts fail, then we need to set the stage for limited and temporary government intervention to bring the market into alignment and reduce costs. First, we already have rules in place prohibiting excessive or unreasonable health plan premiums. We need to have similar rules for health care providers. The administration should have specific authority to ensure that provider contract rates are not unreasonable neither excessive nor inadequate. We then should give the market a chance to correct the unwarranted price variations, but set reasonable and firm markers to guide market corrections over the next few years. Starting in 2015, if the market has not corrected unwarranted price variation, the administration should be able to reject health plan contracts with excessive or inadequate provider price variations. 17 Health plans should be prohibited from paying provider rates that differ beyond a certain band. One example would be 20 percent above or 20 percent below the plan s average price for the previous year. Any savings would then be directed to consumers in the form of lower premiums. We should include a sunset provision to re-evaluate this system and determine whether this regulatory mechanism should be continued in 2018 or mahp 2011 annual report

20 Special Commission: Provider Price Reform Jay Gonzalez Secretary, Executive Office for Administration and Finance Co-Chair, Special Commission on Provider Price Reform Q: How would you summarize the work of the special commission? My first observation about the commission was the high level of consensus on the need for government to play a role in helping to address unjustified variation in prices for health care services. Everyone recognized, based on the great work done by the Attorney General and the Division of Health Care Finance and Policy, that there is often a lack of any real correlation between higher cost and better quality or other outcomes that might explain the variation. Our #1 recommendation was that we need to change the way we pay for and deliver health care to bring down costs and get better results. We also had recommendations about improving transparency on quality and costs; we had a recommendation, involving the Attorney General and others, to make sure we have a competitive marketplace; and we had recommendations around analyzing the extent to which the new, limited-network and tiered products are playing a meaningful role in addressing price variation. Two recommendations were the most significant. One was unanimously approved by all members of the commission, acknowledging that there seems to be variation in prices that s hard to explain. We recommended creating a panel that consists of a number of experts to take an in-depth look at the data behind differences in price and to develop recommendations on whether and, if so, how the government could play a role when variations in prices are not justified. The final recommendation, which passed by a 9-1 vote, recognized the need for a short-term step to address unjustified price variation. The final recommendation, which passed by a 9-1 vote, recognized the need for a short-term step to address unjustified price variation until we get to a place where variation can be determined to be legitimate and we ve changed how we pay for and deliver health care services.

21 Q: What role would state government play in making that determination? This isn t government dictating prices. It would rely on insurer and provider negotiations to make sure there is a relationship between different prices and the quality of care. If the parties can t reach agreement, and the provider is asking for a price in excess of the median of what other providers are charging for those same services, the insurer could take the issue to an independent panel that would assess whether the provider s request is justified based on better quality of care. If the panel determined it was, then the provider would be entitled to that price. If the panel determined that it wasn t justified, then the provider would get either the lower of what they were paid in the prior year s contract or the median of what the plan pays other providers. Government would set up the process, but insurers and providers ultimately negotiate prices. Q: Isn t it likely that lower-paid hospitals would ask for larger increases, and if so, will there be net savings? The commission made it clear that implementation of these recommendations needs to result in overall cost reduction. That doesn t mean hospitals that aren t getting paid a fair amount for their services wouldn t have a chance to demonstrate that they re providing quality that justifies higher prices. All providers would have that opportunity if they couldn t reach agreement with the insurer through the regular negotiation process. But it would begin leveling the playing field, so when we move forward and work to control costs, we re doing so against a base that is more in line with the quality of care that s being provided and what the market generally is charging for those services. Q: Are you confident that future savings would be passed on to consumers? Addressing unjustified price variation and controlling health care costs in general is all about lowering costs for the consumer, whether it s government, businesses, families, or individuals. It s very important to Governor Patrick that we reduce health care costs for the purchasers so they have more of their resources to invest in everything else they need to and want to do. 19 mahp 2011 annual report

22 Will Reducing Payment Variation Simply Increase Cost-Shifting? 20 [N]egative Medicare margins do not necessarily mean that payments are too low but are due at least in part to the lack of private financial pressure for cost containment. MedPAC, Report to the Congress, March 2011, p. 37

23 There is a common assumption that hospitals need to charge private payers, like health plans, higher rates in order to offset lower rates they receive from public payers, such as Medicare. If that were true, high-payment hospitals, such as those in Massachusetts that have been identified as benefiting from their market power, might make the case that their rates are justified by low public payments. This argument only accounts for one side of the equation, however. Hospital profit margins are determined, not just by how much is paid for services, but by the cost of those services. An efficient hospital can accept lower rates of payment public or private and still maintain an adequate margin by controlling its costs. Researchers have found, in fact, that hospitals with higher market power had higher costs, higher private-pay margins, and lower Medicare margins. This contradicts the traditional theory of cost shifting, which rests on the assumption that hospitals will use market power to raise rates only if they face financial stress as a result of uncompensated care cost or inadequate payments from certain payers. * According to MedPAC s March 2001 Report to Congress, some hospitals have strong profits on non-medicare services and investments and are under little financial pressure to constrain their costs. As a result, negative Medicare margins do not necessarily mean that payments are too low but are due at least in part to the lack of private financial pressure for cost containment. ** The MedPAC report went on to examine institutions under high financial pressure those with smaller operations, a lower case-mix index, and a larger share of patients covered by Medicaid. The report noted that hospitals under financial pressure tend to have lower costs. Similarly, the Division of Health Care Finance and Policy s Price Variation in Health Care Services report refutes assertions by some providers that higher private payer prices are needed to compensate for losses incurred by serving Medicaid patients. The report found no correlation between a hospital s share of Medicaid patients and the prices they received from private payers, and pointed out that several hospitals with the highest proportion of Medicaid discharges are among the lowest paid for certain services. Implementing measures to deal with price variation would help to enhance competition, fairness, and cost-effectiveness in the health care market, leveling the playing field for providers to compete on quality rather than market clout and lowering the cost of care for employers and working families. *Stensland, J., Gaumer, Z. & Miller, M. (2010). Private-Payer Profits Can Induce Negative Medicare Margins. Health Affairs, 29:5, **Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy, March mahp 2011 annual report

24 What You Need to Know About Market Power and Payment Reform MAHP and its member health plans are committed to working with state policymakers and others in the health care sector to reform the payment system. Health plans have spent many years learning how to manage care across delivery settings and across diverse populations, and that experience will be critical to a successful transition of the health care payment and delivery systems. As measures are undertaken to develop payment reform legislation, it is important for policymakers to consider a few key questions. Will Payment Reform reduce health care costs? As the Attorney General s 2011 Examination of Health Care Cost Trends and Cost Drivers noted, a shift to global payments by itself is not the panacea to controlling health care costs. Price differences exist regardless of the way the provider is paid and any payment reform legislation should include efforts to mitigate these payment disparities. Efforts to reform the payment system and reduce health care costs for Massachusetts employers and working families will only be success by addressing the disparities brought about by the market power of certain providers. Once we address market distortions, how do we ensure that health care remains affordable? It is prudent to set goals for cost trend reduction that would be aggressive, yet attainable. Payment reform should establish metrics that the entire health care sector would be required to meet. 22 Will Payment Reform lead to further market consolidation and will greater consolidation lead to higher prices? Changes in the delivery system, such as the formation of ACOs in order to accelerate the adoption of alternative payment methods, have the potential to lead to increased consolidation, increased market power, and higher health care costs. State agencies should prevent and remedy any anticompetitive behavior, but existing antitrust enforcement is insufficient to be counted upon to catch and prevent every inappropriate accretion of market power. Payment reform legislation should include a process to screen for anti-competitive behavior and to determine whether such changes will result in further consolidation that will increase health care costs and are disadvantageous to consumers. Should ACOs and the adoption of global payments be mandatory? The worthy goals of accountable care can best be achieved by ensuring that the market retains needed flexibility for critical innovation while defining the core elements for ACOs. Massachusetts health plans and providers have already made significant progress in transitioning the market to one

25 that rewards high value and coordinated care. Rather than a prescribed one-size-fits-all approach, achieving payment reform s goals of better integration of care, better alignment of incentives, and lower costs is best accomplished through a voluntary, market-based approach with clearly defined goals aimed at improving care and lowering costs. What effect will payment reform have on employers and consumers health care coverage? Today, nearly 50 percent of individuals under the age of 65 are covered by self-insured plans. These plans are governed by the Federal Employee Retirement Income Security Act, which prevents the state from imposing specific requirements on how they operate. Additionally, nearly half of individuals enrolled in the private market are in a PPO product, which allows individuals broad access to providers without restrictive networks. Employers need flexibility in benefit design, and consumers want choice. Payment reform legislation should ensure sufficient product options so that employers and consumers have meaningful choice of products that meet their health care needs. What is the role of government? Government can accelerate the positive changes taking place in the health care market by changing its own policies and practices as an employer and as a major public payer. Government should not be a barrier to market innovation. Instead, it should monitor, facilitate, and guide the broader transition and ensure that the entire market is meeting established metrics. Further, the Attorney General s office should continue to play a role in ensuring that the integration of health care providers and payers does not lead to market consolidation disadvantageous to consumers. 23 mahp 2011 annual report

26 Committed to Cost Control Four years ago, MAHP and its member plans outlined a comprehensive cost control agenda designed to improve the affordability and quality of the health care system in the Commonwealth. Since that time, a number of proposals we outlined have been adopted, but we haven t stopped. We remain committed to doing everything we can to control the rising cost of care and make health care more affordable for employers and working families. 24 MAHP s 16-Point Proposal: 1. Requiring Health Plans and Providers to Participate in Public Hearings on Cost Drivers 2. Public Reporting of Preventable Errors and Prohibit Billing for Avoidable Mistakes Passed Passed 3. Strengthening the Determination of Passed Need Process 4. Medical Malpractice Reform Needs work 5. Require Electronic Transmission of Health Care Transactions 6. Repeal Mandated Benefits That Are No Longer Effective Needs work Needs work 7. Comparative Effectiveness Studies of Medical Services Needs work 8. Permit Mandate-Lite & Mandate- Free Products Needs work 9. Extending Moratorium on Mandated Benefits Needs work 10. Hospital Reporting to DPH on Measures to Reduce Duplicative Diagnostic Services 11. Hospital Reporting to DPH on Measures to Eliminate Emergency Room Overcrowding Through Improved Management Needs work Needs work 12. Make Greater Use of Managed Medicaid Needs work 13. Eliminate Duplicative Regulatory Requirements Needs work 14. Standardize Reporting Requirements Passed 15. Streamline Administrative Processes Passed 16. Standardize Physician Credentialing Passed

27 MAHP s Legislative Agenda MAHP s legislative priorities focus on improving the affordability and quality of the health care system and simplifying the administration of health care. Controlling Health Care Costs The Affordable Health Plan: limits provider rates and health plan profits to provide a low-cost, affordable option for small businesses. Quality Improvement Reduce Preventable Hospital Readmissions: limits reimbursement to hospitals that have recurring preventable readmissions. Limits on Out-of-Network Rates: controls the amount out-of-network providers may charge for services and prohibits balance billing consumers. Limits on Hospital Margins: subjects hospitals with operating margins above 5% to a public hearing on the measures they are taking to reduce the cost and improve the quality of care they provide. Prohibition on Public-Private Cost Shift: prohibits providers from cost shifting from public programs to commercial carriers. Hospital Billing and Licensure: requires hospitals that provide services at a new facility to obtain a new license and national provider identification number for that facility. Strengthening the DON: establishes a statewide planning process to ensure services are located only where they are needed when evaluating proposed new facilities or service expansions. Mandated Benefit Reform: imposes a moratorium on new mandated benefits, allows consumers and employers to choose mandate-free and mandate-lite products, and requires an analysis of the cost of new mandated benefits on municipalities and small businesses. All-Medicaid Managed Care Model for MassHealth: enrolls all Medicaid recipients in a Medicaid health plan, improving the quality and continuity of care while significantly reducing the Commonwealth s cost growth within Medicaid. Reduce Duplicate Diagnostic Testing: seeks to eliminate duplicating diagnostic services performed on a patient in one facility by another hospital or diagnostic facility. Emergency Room Overcrowding: requires all hospitals with ERs to file annually a written operating plan to eliminate ER overcrowding. Administrative Simplification A Central Repository for Claims Data: establishes the Division of Health Care Finance and Policy as the sole entity of the Commonwealth s health care data and requires all state agencies utilize this information for their health care data needs. Electronic Transmission of Health Care Transactions: requires health care providers and group purchasers to exchange health care administrative transactions in electronic formats. Electronic Submission of Claims: encourages greater use of electronic claims submission by limiting the state s prompt payment law to claims sent electronically. mahp 2011 annual report 25

28 Do Higher Costs Buy Better Care? Despite the continued growth in spending, the Massachusetts health care system remains widely inconsistent and is not yielding the highest quality or safety. The Commonwealth Fund s 2009 State Scorecard and the Agency for Healthcare Research and Quality s (AHRQ) 2010 National Healthcare Quality Report ranked each state on the overall performance of its health care system and clearly shows the areas where improvements are needed. While the state ranked well on access, Massachusetts continues to rank towards the bottom on avoidable costs and there remains wide variation in the quality of care. Measure Massachusetts Rank out of 50 States How National Scorecards Rank Massachusetts on Health Care Quality Adult Preventive Care 7th * Percentage of adults age 50 and older who received recommended screening and preventive care Pneumonia Recommended Care Receive 25th ** Percentage of hospital patients with pneumonia who received recommended hospital care Heart Failure 26th * Percentage of heart failure patients given written instructions at discharge 26 Hospital Readmissions 37th * Medicare 30-day hospital readmissions as a percentage of admissions End Stage Renal Disease - Adequate Dialysis 38th ** Percentage of adult hemodialysis patients with adequate dialysis Preventable Hospital Admissions 39th * Medicare hospital admissions for ambulatory care sensitive conditions per 100,000 beneficiaries Heart Attack ACE or ARB at Discharge 42nd ** Percentage of hospital patients with heart attack and left ventricular systolic dysfunction who were prescribed ACE inhibitor or ARB at discharge *The Commonwealth Fund, 2009 State Scorecard. **AHRQ, 2010 National Healthcare Quality Report.

29 NCQA: High Quality, High Satisfaction MAHP member health plans are consistently rated the best in the nation. In its annual report card ranking the clinical quality and member satisfaction of health plans across the country, the National Committee for Quality Assurance (NCQA) 1 rated members of MAHP among the top health plans in the country for all three categories commercial, Medicare and Medicaid including the top two health plans for commercial coverage and the #1 Medicaid plan. The rankings are based on data evaluating 483 private health plans, ranking 390 of those based on clinical performance, member satisfaction, and NCQA Accreditation. Additionally, NCQA evaluated over 200 Medicaid health plans and ranked 99 of those based on the same criteria on issues such as access to care, prevention efforts and treatment of diseases, such as diabetes and heart disease. NCQA analyzed the information, and found: 6 of the nation s top 13 commercial health plans 2 were based in Massachusetts 2 of the top 12 Medicare plans 3 were based in Massachusetts 4 of the top 7 Medicaid plans 4 were based in Massachusetts 27 1 NCQA is an independent, non-profit organization dedicated to improving health care quality. NCQA accredits and certifies health plans and a wide range of other health care organizations, recognizes physicians and physician groups in key clinical areas, and manages the Health Plan Employer Data and Information Set (HEDIS ), the tool health plans use to measure and report on their performance. 2 MAHP member health plans that were ranked among the top 13 commercial health plans in 2011 and have received the NCQA accreditation designation of Excellent include Fallon Community Health Plan (HMO/POS), Harvard Pilgrim Health Care (HMO/POS & PPO), Health New England (HMO/POS), and Tufts Health Plan (HMO/POS & PPO). 3 MAHP member health plans that were ranked among the top 12 Medicare plans in 2011 and have received the NCQA accreditation designation of Excellent include Fallon Community Health Plan and Tufts Health Plan. 4 MAHP member health plans that were ranked among the top 7 Medicaid health plans in 2011 and have received the NCQA accreditation designation of Excellent include BMC HealthNet Plan, Fallon Community Health Plan, Neighborhood Health Plan, and Network Health. mahp 2011 annual report