Massachusetts AG Finds System-wide Insurer Payment Discrepancies

A Massachusetts attorney general's investigation into contracting between healthcare insurers and providers reveals "serious system-wide failings" that "threatens access to affordable, quality healthcare," according to a preliminary state report released today.

"Our review shows that the current system of healthcare payment is not always value-based and health care providers throughout the state are compensated at widely different rates for providing similar quality and complexity of services," said Attorney General Martha Coakley, who last week lost a widely followed U.S. Senate race to Republican Scott Brown in Massachusetts.

The report showed that insurance companies pay some doctors and hospitals twice as much as others for similar care.

The report "raises concerns that existing systemic disparities in reimbursement may, over time, create a provider marketplace dominated by very expensive 'haves' as the lower and more moderately priced 'have nots' are forced to close or consolidate with higher paid systems," Coakley said following the yearlong investigation.

Coakley said the report outlines six key findings that have "powerful implications for the healthcare marketplace in Massachusetts":

• Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and among providers offering similar levels of service.


• Price variations for hospitals and physicians offering services are not explained by quality of care, sickness or complexity of the population being served; proportion of patients on Medicare or Medicaid; or whether the hospital is a teaching or research facility.


• Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.


• Variations in providers' per month expenses are not correlated to the methodology used to pay for healthcare, with expenses sometimes higher for globally paid providers paid on a fee-for-service basis.


• Price increases, not increases in utilization, caused most of the healthcare cost increases during the past few years in Massachusetts.


• The commercial healthcare marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.

"The findings have powerful implications for ongoing policy discussions about ways to contain healthcare costs, reform payment methodologies, and control health insurance premiums while maintaining or improving quality and access," Coakley said.

Coakley made five recommendations to promote value-based purchasing:

• Discourage or prohibit insurer/provider contract provisions that perpetuate market disparities.


• Increase transparency and standardization in healthcare payment


• Improve market function by adopting payment reform measures that do not worsen existing market dynamics


• Develop regulations or legislation to mitigate health market dysfunction


• Engage all participants in development of value-based healthcare market by promoting creation of products and tools that allow and encourage employers and consumers to make prudent healthcare decisions.