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The Massachusetts Experiment Analyzed: Provider Payments Based On Their Negotiating Strength, Not Quality Of Care

Massachusetts Attorney General Martha Coakley released her office’s second annual report, An Examination of Health Care Cost Trends and Drivers (PDF; see also press release), which contains a wealth of critical data analysis — and also highlights how little we know about certain things — providing some important context for the discussion of the proposed Part III of Massachusetts health reform, a bill filed by Governor Patrick which would create all-payor ACOs and a system of global payments.

At this late date, few would argue against a move a way from fee-for-service reimbursement for health care, or adding quality metrics to the mix, and tying financial rewards to providers to their performance measured against these metrics.  (Consider the Massachusetts Blue Cross Blue Shield ACQ (alternative quality contract) experience.)  The AG’s report, however, highlights the wide disparities in payments to providers based on negotiating strength, rather than quality or cost of care (as noted in last year’s AG report; check out the 2009 special commission report, too).

From the presser:

This year’s six key findings are:

  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. Total medical spending is on average higher for the care of health plan members with higher incomes.
  4. Tiered and limited network products have increased consumer engagement in value-based purchasing decisions.
  5. Preferred Provider Organization (PPO) health plans, unlike Health Maintenance Organization (HMO) health plans, create significant impediments for providers to coordinate patient care because PPO plans are not designed around primary care providers who have the information and authority necessary to coordinate the provision of health care effectively.
  6. Health care provider organizations designed around primary care can coordinate care effectively (1) through a variety of organizational models, (2) provided they have appropriate data and resources, and (3) while global payments may encourage care coordination, they pose significant challenges.

The Attorney General makes six (6) recommendations to promote value-based purchasing and ensure consumer access to high quality, affordable health care:

  • Promote tiered and limited network products to increase value-based purchasing decisions.
  • Reduce health care price distortions through temporary statutory restrictions until tiered and limited network products and commercial market transparency can improve market function.
  • Encourage consumers to select a primary care provider who can assist consumers in coordinating care based on each consumer’s needs and best interests.
  • Promote coordination of patient care through primary care providers by recognizing the need to improve funding of care coordination, including the infrastructure necessary to coordinate care, and by giving providers timely access to relevant patient data regardless of their size or payment methodology.
  • Consider steps to improve the use of the all payer claims database (APCD) by:  (i) developing reports for providers and the public to guide development of patient care coordination improvements and system accountability, and (ii) increasing the standardization of claim level submissions by reducing differences in how payers report payment level information.
  • Develop appropriate regulations, solvency standards, and oversight for providers who contract to manage the risk of insured and self-insured populations.

The full report is well worth the read.  Nuggets include the following through-the-looking-glass experience of looking at data produced in response to civil investigative demands from the AG’s office and realizing that it is basically impossible to tell if negotiated rates and deals bear any relationship to quality and outcomes:

The complicated structure of risk contracts currently in place in the Massachusetts market makes it difficult to compare payments made under those contracts. Each risk contract has multiple components, such as infrastructure payments, quality payments, service carve-outs, unit price adjusters, mandated benefit adjusters, individual stop-loss provisions, and other factors that are each negotiated and vary significantly across provider contracts. These components confound efforts to understand and compare how health insurers pay providers. None of the three major health insurers could provide us with health status adjusted budget information comparing the providers in their networks that they pay under a global contract. In other words, none of the health insurers routinely and systematically evaluates how the global payment contracts that they have with various provider organizations compare to each other. This convoluted payment methodology makes it difficult for regulators, market participants, or others to make valid comparisons of provider rates or valid conclusions about the effects of global payment contracts, and further complicates the ability of providers to contract for value-based, market appropriate prices. Health insurers should pay providers using standardized payment methodologies that allow providers to value the risk that they hold and so stakeholders can make valid comparisons of provider global rates. (Emphasis supplied.)

Meanwhile, Governor Deval Patrick was in DC, testifying before the Senate Finance Committee (PDF of testimony).  He seems to have a more optimistic perspective on the system’s ability to implement cost containment and quality improvement strategies in the commercial sector:

Rising costs in the health care system across the Nation are a serious national problem.  In fact, Medicaid spending has been growing more slowly than the dramatic health care cost increases in the rest of the economy.  For that reason, we have turned our attention there, to the broader question.  Everyone has a stake in that solution. And just as Massachusetts is the home of the nation’s most successful universal health care law, we are poised to crack the code on cost containment.  To get there, we are doing more to encourage integrated, whole person care: paying providers for the quality of health care they deliver, not just the quantity.  There are many good models being tried in the market today.  We are working on scaling them up and making sure the savings are passed along to businesses, families and government in the form of lower premiums.  (Footnotes omitted.)

(The unspoken subtext in the Governor’s testimony, which focused on the Massachusetts Medicaid experience, is: Don’t Tread On Me.  In other words, please let Massachusetts continue to go its own way instead of shifting gears to comply with the federales’ vision of a health insurance exchange for years 1-3 of health reform implementation.  Cf. the Brown-Wyden bill, discussed in an earlier HealthBlawg post on Medicaid matters.)

The Governor’s bill won’t become law this year (or so I would think — see the Governor’s prediction, below), so we have a bit of a reprieve during which the actors on this stage can go off and learn their lines, so to speak — i.e., get a better handle on a data-driven approach to pricing care.  The AG clearly doesn’t think we can get there on our own: a big surprise in the AG’s recommendations is the suggestion that we step into government price controls — at least on a temporary basis (a return to rate setting for nongovernmental payors) — in order to sweep out the market-based negotiated inequities that now pervade the system.

Update 6/28/2011: In response to questions from the HealthBlawger following his keynote address at the American Health Lawyers Association Annual Meeting yesterday, Governor Patrick averred that his views and the AG’s are not as divergent as the popular press would have us believe (doth he protest too much?); and, notably, he predicted that the legislature will take up his bill in the fall, with action expected by the end of the calendar year.

Stay tuned for more news from the front lines of health reform here in Massachusetts.

*This blog post was originally published at HealthBlawg :: David Harlow's Health Care Law Blog*


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