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It's The (Powerful) Providers, Stupid

Lora Pellegrini, President & CEO, MA Association of Health Plans, hammers home the point (made by the AG, academic researchers and Beth Israel CEO Paul Levy, on his blog today) that certain hospitals with leverage in the marketplace are the key drivers of spiralling health care costs:

How much evidence do we need?

This week, yet a third independent and authoritative source weighed in with the core reason for skyrocketing health care costs –escalating costs charged by hospitals and doctors.

The report by two leading researchers at Boston University follows investigative reports by the Division of Health Care Finance and Policy (DHCFP) and the state Attorney General. They are must reading for anyone concerned about the problem.

Pages 3 and 4 of the AG's report, an "Examination of Health Care Cost Trends and Cost Drivers," is a good place to start. They say:

Price variations are not correlated to quality, severity of services, the number of patients on Medicare or Medicaid or whether it is a teaching or community hospital;

Price variations are correlated to market leverage and higher priced hospitals are gaining market share at the expense of lower priced hospitals, which are losing volume; and

Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.

Put simply, the AG’s report states that bigger or more powerful hospitals aren’t always better, but they’re often a lot more expensive, and use their clout and member base to command much higher fees for even the most basic medical care.

Meanwhile, DHCFP, in advance of the hearings it’s holding this week on health care costs, issued a series of reports that came to similar conclusions about what’s driving costs up.

According to its reports, in just three years, medical spending on privately insured Massachusetts residents grew more than 15 percent, fueled in large part by outpatient care in expensive hospitals.

The DHCFP and AG reports are the foundation of the most important hearings that state government will hold this year. If you haven’t already, I encourage readers of this blog to head over to today’s hearing at UMass-Boston or check out the information from the hearings.

But there’s more. Earlier this week, researchers at Boston University’s School of Public Health issued a report stating that Massachusetts hospitals, as of 2007, were charging 55 percent more than the national average for a variety of services.

Nearly 90 cents of every premium dollar is spent on medical services, such as doctor visits, prescription drugs, and hospital stays. Making health care affordable needs to start with addressing the market clout issues and the prices providers charge; otherwise, the cost of health care will continue to rise.

A good place to start would be legislation filed by Rep. Harriett Stanley and Sen. Richard Moore known as the Affordable Health Plan – House Bill 4452. The bill would provide immediate and significant savings by requiring both health plans and providers to control their costs, and could cut premiums for small business by as much as 22% from comparable products. This would cut the cost of coverage for small businesses, providing them with more money to hire more employees, increase salaries, and make other investments that will help jumpstart the state's economy. It would also help to level the playing field for providers, correcting the market clout and pricing issues these reports have raised.

If you take the time to read these reports, what appears to be an intractable problem will become clearer – as will the right solutions.

(Here's what Thomas Glynn, COO, Partners HealthCare had to say about cost, according to The Boston Globe, and here's the testimony submitted by Partners CEO Gary Gottlieb.

This program aired on March 19, 2010. The audio for this program is not available.

Rachel Zimmerman Twitter Health Reporter
Rachel Zimmerman previously reported on health and the intersection of health and business for Bostonomix.

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