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Mass. physicians likely to see pay cuts

Health plans claim that rising health costs are affecting their ability to provide coverage and forcing them to lower payments to hospitals as well.

By Pamela Lewis Dolan — Posted June 21, 2010

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Major health plans in Massachusetts have put hospitals and physicians on alert that there will be rate freezes and decreases under new contracts.

The insurers say the changes are necessary to get a handle on health care costs and to ensure their ability to continue providing coverage to their members.

But physicians and hospitals say cutting their pay could affect their own ability to continue providing services and suggest that plans look internally for ways to save money.

The Massachusetts Assn. of Health Plans earlier this year filed suit on behalf of six insurers against the state's insurance division, which had rejected 235 of the 274 new premium rate increases the plans requested for small group plans. The requested increases ranged from 8% to 32%. The lawsuit is pending, although one plan -- Neighborhood Health Plan -- is dropping out after settling with the state. That deal, announced June 4, allows Neighborhood to increase premiums for its commercial offerings by 7.7%.

The other health plans, separately, are continuing through the appeal process with the state. Rulings on those appeals are expected to be issued beginning in July.

Despite the fight with the state, the plans believe they have the political backing necessary to cut physician and hospital pay.

A report published in March by the office of Massachusetts Attorney General Martha Coakley found that the rise in medical spending can partly be blamed on price increases by powerful hospital and physician groups, which can set higher fees because of their strong market presence.

Eric Linzer, spokesman for the Massachusetts Assn. of Health Plans, said once the proposed premium increases were rejected, Gov. Deval Patrick -- who in February issued an emergency order requiring insurers to submit documentation to justify rate increases -- encouraged health plans to revisit their contracts with health care entities as a way of cutting costs. But the hospital and physician communities expressed little interest in reopening negotiations of current contracts, so several insurers plan to address the issue when contracts come up for renewal, he said.

Hospitals are concerned about what a cut in pay would mean to their long-term ability to continue operating, said James Kirkpatrick, senior vice president of health care finance and managed care for the Massachusetts Hospital Assn.

"Everyone agrees we have to do what we can do to contain costs, but we also have to face reality as well," he said. "The majority of our hospitals are not making the kinds of operating margin that they need to in order to have access to capital. And that's really a question of long-term viability."

He referred to a study the MHA conducted earlier this year that found two-thirds of a hospital's expenses are for work force. Many of those expenses are fixed, as they are tied to union contracts. So any decrease in pay would mean an even smaller operating margin, Kirkpatrick said.

The Massachusetts Medical Society said it is concerned with the impact pay cuts to hospitals will have on physicians in the state, particularly with a large number of physicians employed by hospitals.

"This really could be drastic," said MMS President Alice Coombs, MD. "It could force hospitals to make decisions that will limit access."

Jay McQuaide, spokesman for Blue Cross Blue Shield of Massachusetts, said even though the company has concluded that rates need to be reduced, it doesn't plan to make cuts across the board. The hospitals or physician groups that it considers highly paid will be targeted for reductions, he said.

Dr. Coombs said instead of looking to hospitals for cost savings, the plans should be looking internally at ways they could cut costs.

The plans say they don't have much to work with when it comes to internal cost-cutting.

A report by the Massachusetts Health and Human Services' Division of Health Care Finance and Policy that looked at spending trends from 2006 to 2009 found more than 88% of premiums collected in Massachusetts are spent on medical expenses, compared with less than 84% nationally. The report also found that premiums increased 12.2% during that time frame, and the increase was caused almost entirely by growth in medical expenses.

After the state initially denied its premium increases, Harvard Pilgrim Health Care president and CEO Eric H. Schultz said, in a statement to members, that more than 90 cents of every dollar it collects is spent on medical costs. Tufts Health Plan and BCBSMA reported net losses in the first quarter of 2010 of $51.9 million and $65.2 million, respectively.

Both said the losses were from collecting 2009 premium rates and paying out 2010 medical costs. As companies appeal to the state for premium increases, they are required to keep charging at April 2009 rates.

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