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The Massachusetts Debacle

By March 30, 2010Commentary

In connection with hearings held last week regarding the continued rapid escalation of health spending following Massachusetts health “reform”, the state Attorney General released a final report into the causes of those ongoing increases.  (AG Report) The report reaffirms that health plans pay significantly different amounts to the same types of providers in the same geographic area for the same services.  These price differences are not explained by quality of care, complexity of care, health status of the patients or having a lot of Medicare or Medicaid patients.  They do appear to be correlated with market power of providers.  Price increases, not utilization increases, have caused most of the rise in health spending in the state.  Global payments do not address or fix the price increase problem.

The Attorney General suggests increasing transparency on pricing, costs and quality; payment reform and correction of dysfunctional market dynamics;  more use of value-based health designs, and banning certain contract provisions that may perpetuate or exacerbate providers’ ability to raise prices.  If the market has become as distorted as the report suggests, these remedies won’t fix the problem.  All-payer rates set by the state might be considered, or structural remedies which force disbanding of hospital and physician systems which have gained out-sized market power.

At about the same time, researchers at Boston University released a study of health cost increases in the state.  (BU Report) The report examined why Massachusetts’ spending on hospital care was 55% above the United States average, with a focus on actual costs of the hospitals to provide care.   They found that most of the cost differential is linked to higher spending by hospitals because they have more revenue and by the presence of several expensive teaching hospitals that have both market and political power.  But the study finds that the extra costs the state bears are not justified by the supposed return on these extra costs.  In total, they believe about $5 billion a year is spent on hospital care in excess of what would be paid for the value delivered.

The evidence continues to mount that provider price increases account for the ongoing total health spending rise in this country.  Yet the just-passed reform bill does absolutely nothing to address this problem.  If the cause isn’t fixed, the problem will remain and costs will rise much faster than anticipated under the President and Congress’ projections.

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