FINDINGS FROM ATTORNEY GENERAL’S EXAMINATIONS OF HEALTH CARE COST
TRENDS AND COST DRIVERS PURSUANT TO G.L. c. 118G, § 6½(b)
OFFICE OF ATTORNEY GENERAL MARTHA COAKLEY
ONE ASHBURTON PLACE • BOSTON, MA 02108
February 13, 2012
Massachusetts: Health Care Reform
Year
Massachusetts Health Care Reform
1990’s
Insurance Market Reforms
•Guaranteed Issue
•Modified Community Rating
•Pre-existing Condition Limitations
2006
Expansion of Insurance Coverage
•Individual Mandate
•Employer responsibility
•Medicaid Expansion
•Insurance exchange (Connector)
2008
Chapter 305 – Cost Containment I
•AG Authority to Examine Cost Trends
2010
Chapter 288 – Cost Containment II
•Transparency, Rate review, and Tiered Products
2/13/2012
Federal Reform


2
EXAMINATION APPROACH
• We issued dozens of subpoenas for data, documents, and
testimony to major health plans and many different types of
providers.
• We conducted dozens of interviews and meetings with
providers, insurers, health care experts, consumer advocates,
employers, and other key stakeholders.
• We engaged experts with extensive experience in the
Massachusetts health care market.
• We greatly appreciate the courtesy and cooperation of payers
and providers who provided information for these
examinations.
2/13/2012
3
MEASURING HEALTH CARE COSTS
• TOTAL MEDICAL EXPENSES (TME): The total cost of all
the care that a patient receives, including the payments
by the health plan for the care of the patient, and any
copayment or deductible for which the patient is
responsible. TME reflects both price of services and
volume of services.
• PRICE: The contractually negotiated amount that an
insurance company pays a health care provider for
providing health care services; we reviewed relative price
information, which shows the prices paid by health plans
to providers for all services in aggregate as compared to
other providers in the health plan network.
2/13/2012
4
2010 and 2011 EXAMINATION HIGHLIGHTS
1.
Prices paid by health insurers to hospitals and
physician groups vary significantly.
2.
Variations in prices are not adequately explained by
value-based differences in the services provided.
3.
Variations in prices are correlated to provider and
insurer market leverage.
4.
Global budgets vary significantly and globally paid
providers do not have consistently lower TME.
5.
Variations in prices impact the increase in overall
health care costs.
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5
Athol Memorial Hospital
Saints Medical Center
Cambridge Health Alliance
New England Baptist Hospital
Lawrence General Hospital
Essent - Merrimack Valley
Quincy Medical Center
North Adams Regional Hospital
Vanguard - Saint Vincent Hospital
Morton Hospital and Medical Center
UMASS - Health Alliance
Noble Hospital
Milton Hospital
Signature HC - Brockton Hospital
Caritas - Carney Hospital
Anna Jaques Hospital
UMASS - Marlborough Hospital
Caritas Holy Family Hospital
Lowell General Hospital
Partners - Faulkner Hospital
Boston Medical Center
Mount Auburn Hospital
Massachusetts Eye and Ear Infirmary
Mercy Medical Center
Caritas - Good Samaritan
Holyoke Medical Center
CCHS - Cape Cod Hospital
Caritas - Norwood Hospital
Essent - Nashoba Valley
PHS - Emerson Hospital
Vanguard - MetroWest MedCtr
Heywood Hospital
Baystate Medical Center
Jordan Hospital
Southcoast - Tobey Hospital
Milford Regional Medical Center
Southcoast - Charlton Memorial
Tufts Medical Center
Baystate - Mary Lane Hospital
Winchester Hospital
Southcoast - St. Luke's
CCHS - Falmouth Hospital
BI Deaconess Medical Center
Northeast Health System
BID - Needham/Glover
UMASS - Clinton Hospital
Caritas - St. Elizabeth's
Hubbard Regional Hospital
PHS - Hallmark Health
Wing Memorial Hospital
Partners - BWH
Partners - Newton-Wellesley Hospital
UMass Memorial Medical Center
South Shore Hospital
Lahey Clinic
Partners - North Shore Med Ctr
Partners - MGH
Baystate - Franklin Medical Center
Harrington Memorial Hospital
Sturdy Memorial Hospital
Cooley Dickinson Hospital
Caritas - Saint Anne's Hospital
BkHS - Berkshire Medical Center
Partners - Martha's Vineyard
Children's Hospital Boston
Partners - Nantucket Cottage
Dana-Farber Cancer Institute
BkHS - Fairview Hospital
0.77
0.95
0.83
1.54
0.73
0.94
0.95
0.95
1.06
0.87
0.84
1.03
0.92
0.83
1.02
0.86
0.99
0.88
0.74
0.89
1.06
0.90
1.07
0.93
0.80
0.94
1.04
0.90
0.85
0.78
0.87
0.84
1.10
0.81
0.79
0.82
1.00
1.41
0.75
0.75
0.86
0.89
1.21
0.82
0.82
0.87
1.04
0.80
0.85
0.86
1.31
0.77
1.17
0.83
1.33
0.98
1.35
0.81
0.75
0.82
0.87
0.84
1.00
0.71
1.33
0.56
1.96
0.71
Relative Payments to Hospitals
HIGHER PRICES ARE NOT TIED TO TEACHING STATUS
HIGHER PRICES ARE NOT TIED TO INCREASED COMPLEXITY OF SERVICES
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Hospitals from Low to High Payments
6
MA Hospital 1
MA Hospital 2
MA Hospital 3
MA Hospital 4
MA Hospital 5
MA Hospital 6
MA Hospital 7
MA Hospital 8
MA Hospital 9
MA Hospital 10
MA Hospital 11
MA Hospital 12
MA Hospital 13
MA Hospital 14
MA Hospital 15
MA Hospital 16
MA Hospital 17
MA Hospital 18
MA Hospital 19
MA Hospital 20
MA Hospital 21
MA Hospital 22
MA Hospital 23
MA Hospital 24
MA Hospital 25
MA Hospital 26
MA Hospital 27
MA Hospital 28
MA Hospital 29
MA Hospital 30
MA Hospital 31
MA Hospital 32
MA Hospital 33
MA Hospital 34
MA Hospital 35
MA Hospital 36
MA Hospital 37
MA Hospital 38
MA Hospital 39
MA Hospital 40
MA Hospital 41
MA Hospital 42
MA Hospital 43
MA Hospital 44
MA Hospital 45
MA Hospital 46
MA Hospital 47
MA Hospital 48
MA Hospital 49
MA Hospital 50
MA Hospital 51
MA Hospital 52
MA Hospital 53
MA Hospital 54
MA Hospital 55
MA Hospital 56
MA Hospital 57
MA Hospital 58
MA Hospital 59
MA Hospital 60
MA Hospital 61
DIFFERENCES IN PRICES ARE NOT ADEQUATELY EXPLAINED BY
VALUE-BASED FACTORS
1.20
MA Hospital Performance on CMS Process Measures
Compared to National Average Performance
1.00
0.80
0.60
0.40
0.20
0.00
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HIGHER PRICES ARE EXPLAINED BY MARKET LEVERAGE
Academic Medical Center's System-Wide Hospital Revenue from Health Plan
(in millions)
$300
$250
MGH (1.35)
BWH (1.31)
$200
$150
$100
UMMC BIDMC
(1.17) (1.21)
$50
TMC
(1.41)
BMC
(1.06)
$0
0.60
2/13/2012
0.70
0.80
0.90
1.00
1.10
1.20
Health Plan's Relative Payment to Academic Medical Center
1.30
1.40
1.50
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TESTIMONY IN DHCFP HEARINGS SHOW SIGNIFICANT DIFFERENCES IN
HOSPITAL REPORTED MARGINS
Hospital
Commercial Payer
Margin
Government Payer
Margin
Other Margin
Academic Medical
Center 1
3.7%
-3%
-20.1%
Academic Medical
Center 2
15%
-6.9%
-7.6%
Academic Medical
Center 3
21.4%
-33%
-10.7
“[U]nusually high hospital margins on private-payor patients can lead to more
construction, higher hospital cost, and lower Medicare margins. The data suggest
that when non-Medicare margins are high, hospitals face less pressure to constrain
costs, costs rise, and Medicare margins tend to be low.”
- MedPAC, Report to Congress, March 2009, page xiv.
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VARIATIONS IN PRICES PAID TO PROVIDERS EXIST IN GLOBAL RISK
BUDGETS AS WELL AS IN FEE-FOR-SERVICE ARRANGEMENTS
• We found wide variations in the health status adjusted
global payments made by health plans to at-risk
providers.
• For example, in one health plan’s network in 2009, one
globally paid provider had a health status adjusted
budget of approximately $428 per member, per month,
while another had a health status adjusted budget of
only $276 per member per month.
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2/13/2012
Provider Groups from Low to High TME
Childrens
HARRINGTON PHO
Partners
South Shore PHO
STURDY MEMORIAL HOSPITAL
COOLEY - DICKINSON PHO
UMASS MEMORIAL MED. CTR.
Acton Medical Associates
Central Massachusetts IPA
Lahey Clinic
Northeast Health Systems
VALLEY MEDICAL GROUP
Mount Auburn Cambridge IPA
Southcoast
Beth Israel Deaconess
Atrius Health
HEALTH ALLIANCE
WINCHESTER/HIGHLAND
Baystate Health
Caritas Christi
MORTON HOSPITAL
HENRY HEYWOOD
New England Quality Care Alliance
Fallon Clinic
Lawrence General IPA
Signature Healthcare Brockton
Lowell General PHO
CAREGROUP - N.E. BAPTIST
ANNA JAQUES/MERRIMACK/WHITTIER
HOLYOKE PHO
METRO WEST-LMH
BMC MANAGEMENT SERVICES
HCPA
NASHOBA IPA
Neponset Valley Healthcare Assoc
East Boston Neighborhood Health Ctr
MARLBOROUGH/ASSABET
Relative Health Status Adjusted TME
GLOBALLY PAID PROVIDERS DO NOT HAVE CONSISTENTLY LOWER
TOTAL MEDICAL EXPENSES
Variation by Payment Method in one Major Health Plan's Health Status Adjusted Total
Medical Expenses (2009)
1.600
1.500
1.400
1.300
1.200
1.100
1.000
0.900
0.800
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% of Increase in Costs Due to ∆ in Price v. Mix v. Utilization
PRICE INCREASES CAUSED THE MAJORITY OF THE INCREASES IN HEALTH
CARE
COSTS IN THE LAST SIX YEARS
BCBS'S COST DRIVERS FROM 2005-2010
100%
90%
UTILIZATION
80%
70%
PROVIDER MIX AND SERVICE MIX
60%
50%
40%
UNIT PRICE
30%
20%
10%
0%
2005
2/13/2012
2006
2007
2008
2009
2010
12
TOTAL MEDICAL SPENDING IS HIGHER FOR THE CARE OF
COMMERCIAL PATIENTS FROM HIGHER-INCOME COMMUNITIES
Proportion of Members at Each Spending Level with Low v. High Income
100.0%
90.0%
80.0%
70.0%
60.0%
$120,149
50.0%
$54,827
$42,850
40.0%
$36,390
30.0%
$27,802
20.0%
10.0%
0.0%
$335
$367
$388
$410
$448
1st
2nd
3rd
4th
5th
2/13/2012
Members of Major Health Plan by Spending Quintile (As Measured by PMPM Health Status Adjusted TME)
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TIERED AND LIMITED NETWORK PRODUCTS HAVE INCREASED CONSUMER
ENGAGEMENT IN VALUE-BASED PURCHASING
• Health insurance products that do not differentiate
among providers based on value do not give
consumers an incentive to seek out more efficient
providers, because consumers are not rewarded with
the cost savings associated with that choice.
• As a result: (1) consumers are de-sensitized from
value-based purchasing decisions and (2) providers
are not rewarded for competing on value.
• There have been recent developments in tiered and
limited network products; these types of innovative
products should be encouraged.
2/13/2012
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Three Pillars to Shore Up the Market
1. Price transparency and consumer health care literacy: consumers
should be able to get accurate information on coverage and costs
from both providers and health plans.
2. Ensure a more effective and competitive market: employers and
consumers should have viable competitive options for health care
coverage and delivery.
3. Balanced approach to address historic market disparities: we need
to set goals to control future growth and to reduce unwarranted
price variations, and we should give the market time to meet
those goals before temporary market corrections are made.
2/13/2012
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RESOURCES & CONTACT INFORMATION
• Report of MA Attorney General’s Examination of Health Care Cost Trends
and Cost Drivers:
http://www.mass.gov/Cago/docs/healthcare/final_report_w_cover_append
ices_glossary.pdf
• MA legislation (Chapter 288 of Acts of 2010) to control costs and increase
transparency in health care market:
http://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter288
• MA Division of Health Care Finance and Policy cost trend hearing
materials:
http://www.mass.gov/dhcfp/costtrends
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