One of the arguments for keeping private insurers in the healthcare system is that they will incentives to control costs. In Massachusetts, erm, not so much. First, some background:
Call it the best-kept secret in Massachusetts medicine: Health insurance companies pay a handful of hospitals far more for the same work even when there is no evidence that the higher-priced care produces healthier patients. In fact, sometimes the opposite is true: Massachusetts General Hospital, for example, earns 15 percent more than Beth Israel Deaconess Medical Center for treating heart-failure patients even though government figures show that Beth Israel has for years reported lower patient death rates.
And, yes, it has an effect:
This payment pattern has become a driving force in the state’s galloping healthcare costs, and it raises hard questions about why certain hospitals and physicians receive premium pay for care that is no better than that of their competitors. Until now, the growing pay gap has not been subject to public scrutiny because contracts between insurers and hospitals typically include confidentiality agreements…
“The same service delivered the same way with the same outcome can vary in cost from one provider to the next by as much as 300 percent,” said Charles Baker, president of the state’s second-largest health insurer, Harvard Pilgrim Health Care. “There is no other sector of the economy anywhere in this country in which that kind of price variability with no appreciable difference in service or product quality can sustain itself over time.”
Health insurance premiums paid by the average Massachusetts family have jumped 78 percent since 2000, and Baker believes that a significant portion of the rise has been driven by hefty insurance payment increases to dominant providers, who use the extra income to install the latest technology and expand, often on rivals’ turf.
These spiraling costs aren’t due to an increasing patient population–in fact, patients have decreased:
Most patients don’t think about the payments their insurance company makes to hospitals and doctors, but they should: Inflation of those payments is the main reason insurance premiums increased by an average of $1,800 per family during this decade. More than 85 cents of every dollar in insurance premiums goes to pay the bills in hospitals, doctors’ offices, and other medical facilities. Five years ago, those bills were rising mainly because of growing patient demand for care, Blue Cross data shows, but now the escalating prices that hospitals and doctors charge is far more important. A recent Massachusetts study concludes that the price of inpatient care at hospitals is rising by 10 percent a year, while overall use of hospital beds is declining.
Why does this happen? Bargaining power:
The hospitals that are paid at the highest rates all share one trait: They have the bargaining clout to demand higher insurance payments. Often, that clout is based on a powerful brand name and elite reputation. Children’s Hospital has negotiated the highest insurance payments in the state, arguing that its work with children is uniquely expensive. The high rates have allowed the hospital to consistently report profit rates three times the median for Massachusetts hospitals; still, insurers pay to keep Children’s happy because they know parents won’t buy insurance that doesn’t include access to one of the world’s most prominent pediatric hospitals….
Partners’ dominance became clear in 2000, when executives of Tufts Health Plan had the temerity to refuse Partners’ demand for a substantial rate increase. Partners countered by declaring it would no longer accept Tufts insurance at its hospitals. Within days, as thousands of Tufts customers threatened to change insurance rather than lose the right to treatment at the two famous hospitals, Tufts gave in to Partners’ demands. Since then, Partners has negotiated one big pay increase after another from insurance companies fearful of a similar humiliation.
Today, the Brigham and Mass. General are paid an average of 30 percent more than similar nonpediatric hospitals statewide for each procedure, based on payment rates of Blue Cross obtained by the Spotlight Team.
In other words, quality of care doesn’t enter into the equation. In fact, some prestigious–and well compensated–hospitals perform worse than hospitals that don’t receive large reimbursements. For instance:
Cape Cod Hospital in Hyannis, for example, reported no deaths among 741 angioplasty patients from July 2007 to June 2008, an extraordinary feat that hospital officials attribute partly to the fact that theirs is not a teaching hospital. The care also costs less: $20,020 for angioplasty, on average, compared with $27,242 – 36 percent more – at Mass. General, according to the insurance records collected by the state.
In short, the only way to get prices under control–and to reflect medical outcomes–would be to have massive regulation. Price does not reflect quality of care:
At a Federal Trade Commission workshop on healthcare in April, the moderator asked a panel of healthcare leaders, “Is price a signal of quality in healthcare markets?”
A professor quickly offered a one-word answer: “No.”
There was a pause. Then someone else chimed in, “There’s a universal no on that.”
The moderator concluded, “That was pretty easy,” and moved on to the next question.
Once we start heavily regulating healthcare billing, I’m not sure what the point of having profit-seeking middlemen involved is, except to make things more expensive.
So, quality of care, it seems, doesn’t affect insurance reimbursement rates. But private insurance is needed to maintain quality of care. Or something.