HPC to tackle hospital pricing disparities

Via ballot or Legislature, political donnybrook likely

THE STATE’S HEALTH POLICY COMMISSION on Wednesday said it is time for Massachusetts policymakers to address the glaring disparity between what hospitals charge for services even when there is no measurable difference in quality, complexity, or other measures of value.

The commission, an agency created by the Legislature in 2012 to jawbone on health care cost containment, stopped short of making any formal recommendations to lawmakers but said it would address the issue in the next six months. The timing coincides with the potential emergence of a union-backed ballot question that would allow voters to set hospital prices unilaterally by requiring insurers to pay providers no more than 20 percent above or 10 percent below the average relative price for a service.

Whether via the ballot or through the Legislature, any effort to change the state’s hospital pricing structure could lead to a political donnybrook. Hospital systems employ huge numbers of workers in Massachusetts and wield enormous political clout on Beacon Hill. Several key political players, including Gov. Charlie Baker, bring lots of baggage to the issue.

While the Health Policy Commission indicated it was ready to tackle hospital price variation, there was some confusion about its legal standing to do so. Officials said the same 2012 law that created the Health Policy Commission also called for the creation of a special commission to address the price disparity issue. That special commission has never been formed, officials said.

The Health Policy Commission’s special report on provider price variation didn’t mention any hospitals by name, but accompanying slides made clear the chief beneficiary of the disparate pricing system is Partners HealthCare, the hospital system that includes Massachusetts General, Brigham & Women’s, and a host of other providers across the state. Slides indicated Mass General and the Brigham receive the highest relative prices among academic medical centers and the Partners-affiliated physician group has higher relative prices than all but one of its competitors. (The physician price comparison did not include doctors at Children’s Hospital, where prices were far and away the highest.)

Stuart Altman, the chairman of the Health Policy Commission, told CommonWealth earlier this year that Mass General and the Brigham charge 43 percent more for the average patient they treat versus the average in the state. Another chart accompanying the commission report noted wide disparities in the pricing of baby deliveries, with prices ranging from $18,500 at Mass General to $14,500 at Beth Israel Deaconess to $12,400 at Lowell General.

Members of the Health Policy Commission, from left: Don Berwick, David Cutler, and chairman Stuart Altman.

Members of the Health Policy Commission, from left: Don Berwick, David Cutler, and chairman Stuart Altman.

Rich Copp, a spokesman for Partners, issued a statement suggesting quality plays a key role in where patients decide to seek care. “We look forward to working with the HPC to examine the specific reasons that may cause warranted and unwarranted price variation,” he said. “Today’s report states that provider prices vary extensively for the delivery of similar health care services, but it is worth noting that the HPC has also cited Partners as a high quality health care provider relative to other Massachusetts providers.  Any perceived market power that Partners has comes from the public’s knowledge of our hospitals’ quality and the willingness of the public to recommend and return to our institutions.”

In its report, the commission said higher prices at some hospitals do not go hand in hand with higher quality or better outcomes. The commission said the “unwarranted price variation” among hospitals has been documented extensively since 2010 and is unlikely to disappear without government intervention, even with the shift to new payment methods that reward providers for treating patients economically.

The commission said the problem must be addressed because the price variation is a major contributor to rising health care costs. The agency said the higher prices at some hospitals have a cascading effect because a disproportionate number of patients seek care at those facilities. One chart compiled by the commission said higher-priced hospitals represent 27 percent of the market but account for 48 percent of inpatient stays and nearly 65 percent of inpatient revenue.

As might be expected, the commission’s analysis found that prices are higher at teaching hospitals, hospitals that provide more complex care, and hospitals that face less competition. Larger hospitals also tend to charge more, the report said.

Surprisingly, the analysis found that hospitals that treat more Medicare and Medicaid patients tend to charge lower prices. That finding runs counter to claims by many hospitals that they need to charge commercial customers more to make up for lower payments from public payers. Dr. Tasneem Chipty, a managing partner at the Analysis Group, which did the statistical work for the commission, said she could offer no clear answer for why prices would be lower at hospitals treating more Medicare and Medicaid patients.

David Seltz, executive director of the commission, offered four possible policy options to commission members for consideration, but acknowledged that anything and everything is on the table. He said consumers could be encouraged to use “high-value providers” for their care. He said lawmakers could restrict how much hospitals can charge for emergency out-of-network services. He said so-called global budgets for treating patients, which offer a lump sum for care, shouldn’t be based on historic spending levels because those levels tend to bake in the price variations. And he said the commission could recommend limiting price variation among hospitals to “value-based factors.”

The last point was an apparent reference to what is done in Maryland, which has been setting hospital prices for close to 20 years. A commission analysis comparing Massachusetts and Maryland found that Massachusetts prices varied more than those in Maryland for 36 out of 44 treatments for illnesses, ranging from pneumonia to obesity. In 24 of the treatments, the commission said, Massachusetts hospitals had twice as much price variation as hospitals in Maryland.

Marylou Sudders, a member of the Health Policy Commission and the state’s secretary of health and human services, said she would have to get back to a reporter on whether the Baker administration would be supportive of government intervention in hospital pricing. As state human service undersecretary under former governor William Weld, Baker pushed for deregulation of the state’s hospital rate-setting system.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Dr. Howard Grant, the CEO of Lahey Health in Burlington, said he welcomed the Health Policy Commission’s focus on hospital pricing disparities. “We need some help,” he said. Grant said he feared the ballot initiative could have “unintended consequences,” but wasn’t prepared to offer his own suggestion for addressing the problem. “We don’t know what the ‘it’ is that makes the most sense,” he said.