MA Healthcare Cost Containment Law Comes with Teeth

The reason, the 2011 report notes, is that "the commercial healthcare system does not pay for care based on value. That is, wide disparities in prices are not explained by differences in quality, complexity of services, or other characteristics that might justify variations in prices paid to providers. Instead, prices reflect the relative market leverage of health insurers and health providers."

"In significant measure," the report adds, "this market dysfunction resulted from historic negotiating and contracting practices that were not challenged because the system lacked the transparent, reliable information needed to identify, measure, and correct the dysfunction."  

When S 2400 passed, Coakley released a statement saying, "Any meaningful effort to control costs must address the market leverage of providers, and this legislation ensures that our office will pay a critical role in those efforts. The bill sets forth a strong role for our office to carefully scrutinize market conduct, and then use our 93A authority [Principles of Unfairness or Deception] and other tools when appropriate to address negative impacts on the marketplace. This is a role we will continue to play in a serious and meaningful way."

Sadowski notes that this law has the potential to hurt larger hospitals' pocketbooks, as they will be losing leverage and negotiating power just as Medicare reimbursement rates decline, and many of these hospitals have a high Medicare patient mix.

"That's a double whammy and it will affect their ability to manage revenue increases per unit of service. I imagine [with this law] we'll continue to see great consolidation across the state, which is one way to drive revenue, thought not on a per-person unit increase," says Sadowski.

Already the credit rating agencies are taking notice. Last week, Moody's Investors Service noted, "The legislation is credit-negative for Massachusetts hospitals because it will limit their revenue growth and reduce their operating flexibility." Moreover, Moody's noted that while the law requires alternative reimbursement models for at least 50% of Medicaid beneficiaries (by 2014), "no specifics are provided."