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Massachusetts Report on Effect of Global Payments

By June 30, 2011Commentary

The Massachusetts Attorney General has released a report examining health care spending trends and drivers.  The report is one of a series flowing out of Massachusetts in the wake of its reform attempt and is designed to provide guidance for modifications to that reform.  While Massachusetts has succeeded in providing near universal coverage, spending has continued to rise at a rapid pace, driven by provider unit price increases.   (Mass. Report) The report is largely based on 2009 data and like the previous year’s report found substantial variation in payments by health plans for the same services to different providers, and that those differences in payment were unrelated  to variations in quality.  The earlier report had also found that price variation was related to hospital market leverage and that most of the increase in spending was due to unit price increases.

In this year’s report, the AG examined global payment strategies, which admittedly are in their infancy, and found that so far they had not lowered medical spending.  The report also found that total medical spending is higher for people with higher incomes, that tiered and limited network products increase consumer engagement and price sensitivity and that PPO-type plans tend to have less care coordination, compared to more pure HMO models, which focus on ensuring a primary care physician oversees a patient’s care.  The limited network finding is somewhat ironic because state any-willing provider laws have been a major impediment to health plan’s abilities to create high-quality, low-cost provider networks.  But the finding policy-makers should focus on is that global budget payments, on a risk-adjusted basis, vary just as widely as fee-for-service ones, and are similarly unrelated to quality outcomes and appear to be due to market forces.  In other words, whether you pay a provider on a fee-for-service or risk basis, if the provider has market power, it is going to get paid more and get higher increases every year.  Policymakers should also note that providers paid on a risk basis did not have lower medical spending, which was supposed to be one of the benefits of this payment method.

As fixes to the problem, the AG’s report focuses on short-term price variation regulation until better market solutions are implemented; and on actions to encourage better care coordination.  Encouraging limited and tiered provider networks is highlighted as a longer-term strategy that will force consumers to choose between less and more expensive hospitals or physicians.  The AG also recommends encouraging care coordination by requiring use of primary care physicians and paying doctors for their care coordination services.  It is apparent from this report’s findings, which are likely transferable to any geography in the US, that provider market power, especially that of hospitals, has to be addressed if we are to control health spending and its rate of growth.

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