Global payment alone won't solve Massachusetts' health market woes, report says

Health care price disparities and market dysfunctions in Massachusetts will confound the state's attempt to improve health care quality and reduce costs through a global payment system, according to a report by the state's attorney general.

The analysis, released June 22, is Massachusetts Attorney General Martha Coakley's second annual examination of health care cost drivers in the state. The first, released in March 2010, found that health care price increases in Massachusetts are affected largely by hospital and physician group market dominance and not always by their quality of care. A 2008 cost-containment law instructed Coakley's office to conduct the reviews.

The new report builds on the conclusions in last year's analysis and offers recommendations to control health care spending growth. For example, the latest report found that PPO health plans create barriers to care coordination. Consequently, it recommends the state should make patient records available across the health system, among other changes aimed at improving coordination.

"Eventually, we think global payments have to be part of the solution," Coakley said on June 27. Such a system would pay physicians and hospitals a fixed amount per month or per year to care for each patient. But the report also said the state first must address physician and hospital price disparities that are not related to the quality or complexity of the services being provided, even for those paid on a global basis.

Massachusetts adopted a universal health care program in 2006 that served as a model for the national health system reform law. Uninsured residents can purchase coverage in the state's health insurance exchange and receive subsidies based on income. In turn, the state requires individuals to have a minimum level of coverage and requires employers to offer it, with penalties for noncompliance. State officials estimate that up to 98% of residents are covered.

Health care cost increases have tested the state's ability to maintain near-universal coverage. In response, Massachusetts Gov. Deval Patrick unveiled a bill in February that encourages the formation of accountable care organizations, with savings also shared with consumers.

Patrick's measure would, among other changes, give the Massachusetts commissioner of insurance more authority to reject health plan premium increases, require patients and physicians to communicate openly before beginning litigation but limit the use of physician apologies in lawsuits, and mandate greater transparency and accuracy in health care pricing and quality.

The Legislature is holding hearings on the proposal, but it is not clear when it might reach the floor of either chamber or what kind of bill lawmakers might agree to, said Massachusetts Medical Society President Lynda Young, MD.

Aligning incentives

Reaction to the details of Coakley's latest analysis varied, but stakeholders in Massachusetts agreed that health care quality and prices need to be linked more closely and care coordination should be improved.

"I don't think there's been a clear demonstration that the more you pay, the better the outcomes," Dr. Young said. Coakley's report found wide price disparities for hospitals and physician practices paid on a global basis in 2009, even after adjusting for patients' health status.

Other state agencies have documented health care price disparities of up to sevenfold for the same hospital inpatient as well as physician and professional services, said Eric Linzer, spokesman for the Massachusetts Assn. of Health Plans. The association agreed with many of Coakley's conclusions.

However, Dr. Young said Coakley's office should examine more than a year's worth of pricing and payment data before concluding that global health care payments won't constrain health care cost growth.

Blue Cross Blue Shield of Massachusetts began using its version of global payments, known as alternative quality contracts, in 2009. This risk-adjusted payment system offers bonuses to physicians who achieve quality goals and encourages doctors to make house calls and implement electronic communications with patients. Although Coakley's office reviewed the insurer's payment data from 2009, the company said the effectiveness of alternative quality contracts should not be judged until they have been operating for at least five years.

The Massachusetts Medical Society agrees with Coakley that physician practices need more information about their patients if practices are going to take on the financial risks that accompany bundled or global payments.

But the society opposes Coakley's recommendation to enact statutory health care price restrictions until new payment systems and consumer transparency can restrain cost increases naturally.

"We're really concerned about that. There's too many unintended consequences," Dr. Young said.