Landmark Massachusetts health reforms showing cracks in access, coverage

Health system reform is hitting a few snags in Massachusetts at a time when many policymakers are eyeing the state for clues as to how federal reform efforts could play out.

A lawsuit by Boston Medical Center alleges that the state has significantly underfunded the safety net hospital to finance expansions of Massachusetts' 2006 universal coverage initiative. Meanwhile, budget shortfalls threaten coverage for legal immigrants and others insured under the reforms.

The BMC lawsuit, filed July 15 in Suffolk Superior Court, accuses the Executive Office of Health and Human Services of illegally cutting the hospital's Medicaid payments and redistributing the money. It also alleges that health officials inappropriately funded new coverage expansions by diverting a portion of money set aside to maintain safety net hospital funding levels during the transition to the universal program.

BMC serves the lion's share of the state's Medicaid patients, as well as a significant portion of the uninsured and those covered under Massachusetts' Commonwealth Care, the health insurance plan for low-income individuals. Commonwealth Care offers free coverage to residents earning up to 150% of the poverty level, and subsidized coverage to people earning between 151% and 299% of poverty. Those with incomes 300% of poverty and higher can purchase unsubsidized insurance through a private plan exchange.

The case serves as a warning for national health reformers, said Larry S. Gage, president of the National Assn. of Public Hospitals & Health Systems. "To the extent Congress is looking to achieve savings from Medicare and Medicaid to help pay for expanded coverage, they have to do it carefully and with clear attention to the relationship between payments and current services."

Systemic problems

Even if Massachusetts officials restored the $127 million in supplemental funding BMC says it is owed, systemic problems would remain with how the state is setting payment rates, said Donald K. Stern, a former U.S. attorney for Massachusetts who is representing BMC.

State law requires that disproportionate share hospitals be paid based on their actual financial needs. But Stern said health officials are illegally redistributing Medicaid funds based on statewide hospital cost averages.

The reform law promised to raise Medicaid rates, not cut them, he said. While some hospitals have seen increases, BMC estimates that the changes will cost the facility, the state's largest safety net hospital, $181 million by 2010.

"There has to be a fix for this, and we don't want it to take money out of [other hospitals'] pockets," Stern said. "But to the extent Medicaid rates are too low, that's something everyone can get behind."

Massachusetts Health and Human Services Secretary JudyAnn Bigby, MD, said in a statement that she was confident her office acted appropriately and would prevail in the lawsuit. "At a time when everyone funded and served by state government is being asked to do more with less, BMC has been treated no differently."

But Massachusetts' strong safety net system was a key to facilitating the 2006 reforms, said Nancy Turnbull, an associate dean in the Harvard School of Public Health's Dept. of Health Policy and Management. Historically, those facilities have required higher payment rates than other hospitals because they cannot balance costs with a high volume of privately insured patients.

Contemplating cuts

Tough economic times have led the state to seek some cuts to its health reform program.

Competition and direct negotiation with insurers have produced some savings, but a one-year state revenue decline of about $3.4 billion is prompting Massachusetts Gov. Deval Patrick and state lawmakers to consider more trims. The Legislature adopted a fiscal 2010 budget that would save $130 million by cutting Commonwealth Care coverage for 30,000 legal immigrants. Hospitals fear that ending coverage for legal immigrants likely would lead some to seek care in emergency departments, further straining their budgets.

Patrick vetoed the immigrant care cuts in the budget on June 29 and has been working with lawmakers and the Connector Authority -- which oversees the reforms -- on a compromise plan to maintain some basic coverage for immigrants. Commonwealth Care had 176,000 enrollees on June 30.

Other health care cuts have been finalized. The state expects to save $62 million in fiscal 2010 by ending automatic enrollment for residents eligible for fully subsidized health coverage, said Connector Authority spokesman Dick Powers.

The 2006 reforms included a promise to increase Medicaid pay for physicians to 90% of Medicare rates by 2010. But tough fiscal conditions already have prompted the Legislature to eliminate $33 million of the $540 million in physician pay hikes scheduled by 2010, said Jennifer Kritz, spokeswoman for the Massachusetts health office.

Gage, with the National Assn. of Public Hospitals and Health Systems, said state lawmakers' efforts to downsize coverage to close a budget deficit could place additional pressure on the safety net.

But despite bumps in the road, the state's reforms have cost it only an additional $100 million per year compared with pre-reform spending, said Andrew Bagley, the Massachusetts Taxpayers Foundation's director of research. "I think there is a sense that, generally speaking, they got most of this right."

Lessons for Congress

Massachusetts may offer a window into the future of national health reform. Democrats have incorporated key parts of the Massachusetts reforms into their legislation, including a health insurance exchange and an individual insurance mandate.

Jon Kingsdale, PhD, the Connector Authority's director, said Massachusetts has demonstrated that Congress cannot effectively change the entire nation's health system in just one bill. The state's reform measure delegated many of the key decisions to the Connector Authority.

Officials are still adjusting the Massachusetts program. The state is in the early stages, for example, of crafting a global payment system that considers quality and outcomes instead of just volume. Such changes are necessary to keep it sustainable in the long run, Kingsdale said, adding that the reforms will fail if the state cannot limit the growth of private plan premiums.

Congress should follow the example by adopting a strong framework for reform and giving federal agencies clear goals and the flexibility to meet them, he said. States also should have a say on the structure of local health insurance exchanges. "I would guess an exchange in Mississippi should be very different than an exchange in Massachusetts," Kingsdale said.