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'Vicious Cycle' Flagged in MA Hospital Financing Disparities

 |  By John Commins  
   March 21, 2014

Lobbying efforts by community hospital chain Steward and a labor union take on the Boston-based teaching hospitals.

A new report out this week details a "vicious cycle" of inequality in healthcare financing in Massachusetts that has created a "rich get richer" caste of prosperous Boston-based teaching hospitals that drive up costs at the expense of community hospitals and low- and middle-income families.

The report, Healthcare inequality in Massachusetts: Breaking the Vicious Cycle, was commissioned by Steward Health Care System LLC, which operates 11 community hospitals in Massachusetts, and 1199 SEIU United Healthcare Workers East. The labor-management pair founded a lobbying organization, Healthcare Equality and Affordability League (HEAL), to press their argument.

"There tends to be a fairly high usage of teaching hospitals for more routine services in Massachusetts than in other states. That is partly one of the reasons why the costs are fairly high in Massachusetts," says lead author David E. Williams, a consultant with Health Business Group.

"We have some world-famous and renowned hospitals and physicians in Massachusetts and they are rightly seen as key economic drivers for the whole state economy. Patients like to go to these providers, and traditionally the health plans have supported that. It's just a matter of those larger famous institutions using their brand to be able to do the kind of business they want and people wanting to go there."

Williams says many of his findings have already been well-documented by state government and the news media. He says the fact that the points raised in the report support the views of Steward and other community hospitals does not invalidate the findings.

"What the report really does in terms of new ground is ask 'what are the real implications of this for the Commonwealth?' If you look at from the hospitals' and hospital workers' standpoint, it relates to them. But also we are focusing now in Massachusetts on the idea of cost containment and trying to grow the costs at the rate of the overall growth of the economy. This starts toward forming the debate about how you do that. Do you just accept the status quo or is there a change in the mix that needs to be considered?"

The report found that:

  • "The rich get richer" because the highest-cost hospitals attract a greater proportion of patients with commercial insurance and the higher reimbursement rates than Medicare and Medicaid.
  • Medicaid managed care organizations that contract with the state are perpetuating the hospital reimbursement inequities seen with commercial payers. Public data show that Medicaid MCOs reimbursements for Boston teaching hospitals are more than 40% higher than for community hospitals.
  • "Patient migration" for routine care from community hospitals to high-cost Boston teaching hospitals increases total medical costs and contributes to higher premiums for all people with commercial plans.
  • "The poor get poorer" as community-based hospitals are disadvantaged by larger numbers of inadequately reimbursed Medicaid patients and lower commercial payment rates for their remaining commercially insured patients.
  • Middle- and low-income communities subsidize the healthcare of people in wealthier towns. Higher-income communities generate greater medical expenses per person than lower-income communities but these costs are spread across geographies in the form of higher premiums for everyone.

Adam Powell, a healthcare economist and president of Boston-based Payer+Provider Syndicate, says the report's findings are "unsurprising" considering who paid for it. Nonetheless, he says community hospitals have a legitimate beef.

"Teaching hospitals and community hospitals have different cost structures, as teaching hospitals engage in activities which are not revenue-generating, which they must fund through both higher payments and grants," he says. "That being said, Chapter 224 does lock in maximum growth rates for institutions, reducing the ability of community hospitals to grow their reimbursement rates faster than teaching hospitals. Teaching hospitals are able to negotiate higher rates with insurers because patients often prefer them, and it can be difficult to sell a health plan without including them. In 2000, Tufts Health Plan attempted to discontinue providing access to Partners hospitals, and ultimately reversed its decision after a negative consumer reaction."

The report recommends:

  • Reducing disparities in hospital reimbursement. The state's cost growth benchmark should be adjusted to account for providers' relative price differentials, requiring high-cost providers to hold cost growth below the benchmark as a first step in addressing the wide variation in reimbursement.
  • Consider providers' payer mixes when setting Medicaid and commercial insurance reimbursement Rates. Healthcare providers that care for a high percentage of Medicaid patients should be compensated for Medicaid underpayment through higher Medicaid and/or commercial insurer reimbursement rates.
  • Implement a Medicaid accountable care organization. The state should use its $13 billion purchasing power to immediately implement a Medicaid ACO program, similar to the Medicare Pioneer ACO program, which rewards quality and cost containment.
  • Encourage insurance companies to design plans that reward using lower-cost community hospitals.

Powell says some of these recommendations may not be feasible. "Payers negotiate to serve their members' interests. It is unclear why a commercial payer would voluntarily increase reimbursement rates for institutions with many Medicaid patients unless compelled to do so," he says. "Furthermore, these rate increases would likely result in higher premiums for members of the health plan in question."

Other aims of the report and study sponsors may already be happening, however. "Health plans are already designing narrow network plans that offer limited provider choice in exchange for lower premiums. For instance, Fallon Community Health Plan offers a narrow network plan focused on Steward providers," Powell says. "As these plans are already on the market without additional government encouragement, I do not see an additional reason to advocate for them."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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