Baker one of the experts consulted by Health Policy Commission

Agency looks for solutions to rising health care costs

THE STATE’S HEALTH POLICY COMMISSION on Monday began taking testimony from a variety of experts on health care cost trends, and one of them was Gov. Charlie Baker.

Baker, the former CEO of Harvard Pilgrim Health Care and a secretary of health and human services under former governor Bill Weld, went through the commission’s two-day agenda and offered his personal perspective on each area of focus. It was unusual to see a governor so well-versed in the nitty gritty of such a complex issue.

The challenges ahead in health care cost containment are immense. Massachusetts health care costs in 2014 grew at a rate of 4.8 percent, double the 2.4 percent rate of 2013 and well ahead of the state’s 3.6 percent benchmark. The commission is trying to get a handle on what the increase will be this year and whether there is anything that can be done to rein in costs.

What follows is a sampling of opinions from Monday’s hearing  on some of the major issues:

How bad is the problem? Stuart Altman, chairman of the commission, suggested last year’s results may not be as alarming as they appear. Officials said per capita spending on those covered by commercial health plans grew at a rate of 2.9 percent in Massachusetts, well below the national average of more than 5 percent.  The big problems last year appeared to be increased spending on Medicaid, the state and federally funded insurance program for the poor; higher costs associated with the implementation of the Affordable Care Act; and a 12.5 percent increase in spending on prescription drugs. Baker also downplayed health care cost concerns. He said Massachusetts has a world-class health system that is hugely expensive on a gross basis, but of average cost as a percent of personal income. “Most employers talk to me more about energy costs than health care costs,” Baker said. “It’s on the list [of major concerns], but it’s definitely not at the top.” Others disagreed. Paul Hattis, a member of the commission who teaches at the Tufts University Medical School, said employers may not talk about rising health care costs much, but their employees certainly do. Rick Lord, a commission member and the CEO of Associated Industries of Massachusetts, said employers may be talking about health care less because premiums have been rising slowly the last few years.

Are alternative payment systems working? Insurers have been moving away from a so-called fee-for-service payment system, where health care providers are paid for each service they provide, to alternative payment systems that offer them a lump sum for a patient’s care. Those providers that spend less than the lump sum turn a profit, while those that spend more have to eat the loss. Officials said 38 percent of commercial health care business is done using alternative payment methods. With Medicaid tossed into the mix, more than half of the Massachusetts market has gravitated to alternative payment systems. Baker said it doesn’t appear the new payment system is having a major impact on health care spending. “It’s important and it’s directionally correct, but it’s incremental,” he said. Amitabh Chandra, a professor at the Harvard Kennedy School of Government, said it makes sense to experiment with new payment methods but it will take a long time to find the right approach. “It may not pay off,” he said of the approach.

What about high users of health care?  The holy grail in health care reform is trimming the amount of services consumed by a relatively small group of patients who have multiple health issues. These patients are often described as dual eligibles, meaning they are eligible for Medicare because they are old or disabled and Medicaid because they are poor. There are about 200,000 of them in Massachusetts and they consume an inordinate amount of health care services. Health plans catering to this group have racked up enormous losses over the last year and a half. Baker said the jury is still out on whether the dual eligible plans will yield positive results. He said the problem is the health care system in general. He said the system is built for the 95 percent of patients who are healthy most of the time and not the 5 percent who are not. He said he also worried that the health care system is becoming more specialized and isolated at a time when it needs to become more general and team-oriented to deal with those who have profound health issues.

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.

What about the high cost of pharmaceuticals? It’s a real problem. The Health Policy Commission released data indicating spending in Massachusetts on certain types of drugs is growing rapidly, and likely to keep rising.  Spending on oncology drugs, for example, rose 12.3 percent to $696 million in 2014. The biggest growth was in antiviral drugs, led by spending on the hepatitis C drug Sovaldi, which costs $84,000 for a 12-week course of treatment. Spending in the antiviral drug category jumped from $96 million in 2013 to $436 million in 2014, an increase of 352 percent. Robert Coughlin, CEO of the Massachusetts Biotechnology Council, downplayed the cost of drugs, noting spending on pharmaceuticals represented 10 to 15 percent of all health care spending in the 1950s and remains at about that same percentage today.  As for Sovaldi, Coughlin said, health care providers and insurers shouldn’t have been caught off-guard by the drug because everyone knew it was coming. David Segal, CEO of Neighborhood Health Plan, which insures Medicaid patients and suffered huge losses partly because of Sovaldi, said he knew the drug was coming. “What surprised us was the cost of the drug,” he said. James Roosevelt Jr., CEO of Tufts Health Plan, said he was also caught off guard by the price. He noted the company that manufacturers Sovaldi  bought the firm that developed the drug for $11 billion in 2011 and recouped its investment in the first year Sovaldi hit the market.

What can we do to bring down the cost of health care? Baker said he would like to see greater transparency in health care pricing, improved use of technology, and a better understanding of what it takes to deliver quality care at a low price. He singled out Lowell General Hospital as a good example of a high-quality, low-cost provider, but said it’s difficult to pinpoint why the hospital has been successful. He said he believed the hospital’s culture was more important than anything else. “It’s just the way they go about what they do,” he said. Chandra urged commission members to resist hospital and health plan mergers, as they did earlier this year in opposing the merger of Partners HealthCare with South Shore Hospital. He said industry consolidation does not improve integration of services, but instead leads to higher prices. He also urged the commission to resist the “snake oil salesmen” who say greater transparency and wellness programs will reduce costs. He said transparency and wellness programs may be worth doing, but won’t generate any significant savings for the next decade. He said savings can only come about from saying no to health care technologies and approaches that offer little benefit. He cited proton beam therapy, a very expensive treatment for prostate cancer with little verified benefit. He suggested regulators may want to encourage health insurers to offer tiered health plans for technology, which would allow patients access to any technology but require them to pay the entire cost of technologies that have little or no proven value.