Market forces and reimbursement rates

The Boston Globe’s Spotlight Team is accustomed to having an impact. In the case of the priest sex abuse scandal the impact was a shakeup in the Catholic Church and the resignation of the archbishop of Boston (not to mention a Pulitzer Prize). Now the team has turned its attention to health care, where the issues are just as important but good and evil are a great deal harder to separate.

The Globe’s lead story on Sunday documented the premium reimbursement rates achieved by Partners Healthcare in particular and teaching hospital systems in general. Essentially, leading health plans in Massachusetts agree to pay these entities more than what they pay others. Now a Spotlight Follow-up article describes a movement to have the state government review reimbursement practices. Secretary of Health and Human Services Secretary Dr. JudyAnn Bigby was asked about the role of the market in price setting:

…Bigby… said… that unlike many other industries, market forces will not automatically drive down costs for healthcare.

Asked whether she was concerned about the role of market power in driving payment disparities between hospitals, Bigby said, “I don’t have any basis to suggest that the reasons why you see the differences has to do with market power. . . . I think what it represents is people want to go to the Brigham, they want to go to Mass. General, they want to go to Children’s Hospital, they want to go to the BI.”

There are market forces involved here, but the main troubles are that the end users (patients) are too removed from the suppliers and there is insufficient information in the market for patients to make good decisions. Private employers, who are the main purchasers of commercial health insurance, are too passive.
What’s happened in the Boston area –as elsewhere– is that insurance companies respond to feedback from their employer customers indicating a preference for certain providers. In Boston, that means everyone wants to offer a plan that includes Massachusetts General Hospital and the Brigham and Women’s Hospital. MGH and BWH are pretty savvy, so they got together in the mid-90s to create one entity: Partners Healthcare. The logic for the combination, and for the addition of other facilities and physician organizations to it, has always been more about reimbursement than about clinical integration. That’s not exactly a secret. And from Partners’ perspective, the entity has been an enlightened force. In fact, while primary care physicians in general have been suffering from underpayment, Partners has managed to boost primary care salaries to reasonable levels.

Patients are pretty far removed from this equation. Sure, all else being equal they prefer going to Partners facilities and doctors, but they are almost completely disconnected from the price and quality tradeoffs. Health plans in Massachusetts are typically structured so that there is no difference in the patient’s out-of-pocket cost as long as they stay in-network –and Partners is always in network. Information on quality is hard to find and difficult to use. So naturally people gravitate to organizations with sterling credentials and excellent resources.

Employer leadership is a missing and often overlooked element of the health insurance situation in Massachusetts. Where are the employer customers who are demanding insurance products that offer value as opposed to access? Except for the state’s Group Insurance Commission, I don’t see it.

November 20, 2008

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