Massachusetts Providers’ Costs

Massachusetts has attempted a number of reforms to rein in health spending, but in a different manner than the Maryland program we reported on yesterday.  Massachusetts focused on insurance costs and an insurance exchange with public subsidies, which of course turned out to cost the state a lot more than was projected.  Along the way the state has released much interesting data and analysis of where its health care dollars go and recently issued a report comparing costs across its major provider groups.   (Mass. Report)   Like many states, Massachusetts has experienced significant consolidation among providers and has only a very limited competitive market.  The report is outstanding in the way the online version allows you to see a variety of information by provider group and payer.  You can see the variation in patient population incomes and health risk, among other things, as well as the number of patients each provider organization has with various plans.  There are 14 provider organizations across the state and they are the major groups and serve almost all the patients, and they tend to have large market shares in their regions.  And there only 3 really relevant health plans in the state, whose patients are the data source for the report and which also have large market shares.  A perfect environment for mutually beneficial oligopolistic behavior.

And the data reflect that.  The highest-cost provider group has a risk-adjusted average annual spend on patients of $6061 versus the lowest-one, at only $5015.  That is a 32% difference.  The highest cost group is Partners, supposedly a quality trend setter, but looks like they are more of a cost trend-setter.  The academic medical center-led provider organizations tend to have the highest costs and the physician-led IPAs the lowest.  Reliant and Central Mass Independent Physicians Association had the lowest costs.  There was variation across all major categories of care, but the most variation was in hospital outpatient spending.  There again, Partners was the highest at $1963 per patient per year and Reliant was the lowest at $974.  The variation in total spending flows through to patients.  Those who were cared for by Partners had the highest average annual spending, at $448, while those at Boston Medical Center, paid only $349.  Some of that may reflect relative numbers of Medicaid patients and/or government employees, who tend to have no or minimal cost-sharing.  The overall picture is supportive of the idea that allowing provider consolidation has done nothing to control costs, in fact likely has encouraged use of market power to push up spending.