Stuart Altman: Health care watchdog

Chair of Health Policy Commission has lots of experience squeezing health costs

Photographs by Frank Curran

STUART ALTMAN IS 78, an age when most people are taking the foot off life’s gas pedal. But Altman isn’t pulling over to the side of the road yet. The economist lectures on health policy at Brandeis University in Waltham and is playing an active role in trying to rein in the cost of health care as chairman of the Massachusetts Health Policy Commission.

The commission is one of those oddities in state government, an agency with very little real power but broad influence because of its staff resources and the intellectual firepower of its board. The commission, created by legislation establishing benchmarks for health care spending growth, garnered some visibility last year by raising concerns about Partners HealthCare’s proposed acquisition of South Shore Hospital, which was shot down by a judge in January. But most of the time the commission operates out of the limelight, gathering data and trying to find ways to reduce the cost of health care.

The challenge is daunting, since health care costs in Massachusetts rank among the highest in the nation and the health care industry itself is so important to the state’s economy. In 2014, Massachusetts spent $54 billion on health care, an increase of 4.8 percent from the previous year, which was double the 2.4 percent rate of 2013 and well above the state’s 3.6 percent benchmark goal. Data indicate commercial health care costs rose just 2.9 percent in 2014, but the tabs for Medicaid, implementation of the Affordable Care Act, and pharmaceutical drugs grew much faster.

The growth in pharmaceutical spending was particularly alarming, showcasing the tradeoffs for policymakers trying to cut costs. The commission says Massachusetts in 2014 spent $7.3 billion on drugs, an increase of 13 percent over the previous year. The increase was driven by the soaring cost of expensive yet effective antiviral drugs to treat and in many cases cure patients with hepatitis C. According to the commission, spending on those drugs rose nearly $349 million in 2014, an increase of 352 percent.

The commission held three days of hearings on cost trends in October, taking testimony from most of the industry’s key players and the state’s top politicians. There was uneasiness in the room about the rising costs and whether market forces alone would be enough to rein them in. Attorney General Maura Healey hinted regulatory action might be necessary.

Altman says Massachusetts health care costs are high because the state has too many academic medical centers (which, by their very nature, charge more for health care) and too many patients who get their routine treatment from them. As an economist, Altman prefers to address the problem using market incentives rather than regulatory fixes. Tiered networks, for example, charge patients more if they obtain routine care in high-cost settings. Accountable care reimbursement targets health care systems, compensating them based on how well they provide quality care within a fixed budget.

An economist by training (at UCLA), Altman has been studying and teaching about health care for much of his adult life. He has spent nearly 40 years at Brandeis at the Heller School of Social Policy and Management, including several stints as dean. He served as interim president of the university in 1990.

As the pictures that adorn his office at Brandeis can attest, Altman also has plenty of hands-on, practical experience at the state and national level. One picture shows him in a meeting with Richard Nixon, for whom he helped implement health care price controls in the 1970s. Another shows him along with a group of colleagues who worked on reforms to the Medicare payment system in the 1980s and early 1990s. There’s one with Bill Clinton, who appointed him to a commission on the future of Medicare in 1997. And he’s been active on a number of state task forces dealing with health care policy. Former governor Deval Patrick appointed Altman to the chairmanship of the Health Policy Commission in 2012, and he has longstanding and very close ties to Gov. Charlie Baker.

Altman has a point of view on most health care issues, but he’s no ideologue. He says the commission’s role is to gather facts and identify policy choices for elected officials. When Baker and more recently Partners CEO David Torchiana suggested the cost of health care in Massachusetts wasn’t that high, he said he was surprised. But he quickly concedes that Baker and Torchiana make valid arguments that, as a percentage of income, health care costs in Massachusetts are not as high as they might seem.

Altman also acknowledges he’s part of the state’s health care problem as someone who tends to use academic medical centers more than he should. “Part of me says I’m on Medicare, Medicare pays for all this stuff, so I’m just going to use the system,” he says. “I tell people I’m 78 years old. I don’t give a damn.”

We talked in his office at the Heller School in Waltham. What follows is an edited transcript of our conversation.


COMMONWEALTH: Are we making progress in controlling health care costs in Massachusetts?

STUART ALTMAN: I’ve been at this for 40 years and I have watched a lot of changes, all of which were trumpeted as the magic bullet that would solve our problem. Many of them could have substantially lowered the cost of health care if we had let them play out. But, like any change, there are winners and losers, and losers scream a lot louder than winners. If you go back to the 1970s, we had health planning agencies all over the United States. We created new payment structures. We even had wage and price controls. In the 1990s, we had a major HMO movement and fundamentally changed the payment system along the lines we’re talking about now with accountable care. Now, when you hear these exciting new things that are coming, there are advocates who say this is exactly what we need, that we need to move away from fee-for-service, we need to create incentives for people to be concerned about how much care they use and reward them if they do the quote-unquote right thing, and penalize them if they do the wrong thing. Other people say we’ve been down this road before and we’re going to have blowback from the patients. It’s not going to work and it’s not going to work the way you planned. We’re in the middle of this yin and yang, and what’s unfortunate is that for many of our delivery systems they’re stuck in the middle. They’re getting part of their money from one set of incentives and part of their money from the other set of incentives and they’re just throwing their hands up.

CW: Do you think we should press ahead?

ALTMAN: I think we need to try it. The alternative is to keep doing what we were doing. Right now, over the last three or four years, we’ve had a slowdown in the growth of health care costs, partly because of the recession. But I do believe we will hit a patch where inflationary pressures will begin to grow. We’re already seeing it. The question is what percentage of our income should go to this one source. Let me give you some orders of magnitude. When I started in this field, we were spending 7.5 percent of our national income on health care and it amounted to $75 billion. We now spend close to 18 percent of our national income on health care and it’s somewhere close to $2.8 trillion. Between 1970 and 2015, we’ve gone from $75 billion to $2.5 trillion, from 7.5 percent of GDP to 18 percent of GDP.

CW: At your agency’s recent cost trend hearings, Gov. Baker pushed back against the notion that health care in Massachusetts is too expensive. As a percentage of income, he said, it wasn’t that bad. What did you make of his comments?

ALTMAN: I don’t think everyone agrees with him.


CW: That’s an understatement, isn’t it? Most people were surprised by his comments.

ALTMAN: I think everyone was surprised. I was a little surprised myself, OK? But to be fair to him, it’s partly true. Yes, we are the most expensive in absolute dollars but we also have among the highest income levels in the country. I think he’s correct that a fairer assessment of whether we can support that is our income. For example, if you look north to Maine or New Hampshire, their cost in dollars is less than ours, but because they are lower-income states they pay a higher percentage of their income for health care. So he’s correct about health care being less of a problem here as a percentage of income.

CW: Speaking of Baker, what’s your relationship with him?

ALTMAN: He wasn’t my student, but I’ve had a very long and positive relationship with the governor. I first knew his father. His father was the undersecretary of Health and Human Services under Reagan. A very nice man. I met him and then he moved back to Boston and he became a professor at Northeastern and I taught some of his classes. We just had a good relationship. I think I met Charlie the first time in 2000, when Harvard Pilgrim almost went bankrupt. That led to a major effort on the part of the Massachusetts government to find out what was going on in the health care system, and they appointed me to chair that group. Baker at that point became the head of Harvard Pilgrim and we spent a fair amount of time together. After that, we would just meet periodically to talk about health care. He actually became a member of the board of overseers of the Heller School. When he left, he became a consultant and he would come and chat about the health care system.

CW: What is the role of the Health Policy Commission in all of this?

ALTMAN: Our job is to monitor the health care system in Massachusetts, particularly with what’s happening with respect to its cost growth but also to look at access, quality, and availability in general. Most importantly, we monitor and inform the public on how our health care system is working and make recommendations on how our system can be improved. We have limited regulatory power. There are some places where we have some authority, but for the most part we are an organization that monitors how the system works and provides information to the public.

CW: Should the agency have more power?

ALTMAN: There is this constant tension about whether the so-called market should be allowed to function unfettered or whether government needs to play a more active role. At the federal level, you do have government playing a more active role because you have Medicare, the biggest program in our health care system, tightly regulated by government. But we don’t have an overarching regulatory system in the United States at either the state or federal level. So there is this constant tension about how active or how powerful government should be. This tension surfaced during the debate over Chapter 224 (the law that created the Health Policy Commission). The governor wanted a more aggressive state role. Many members of the House wanted a more aggressive role, and did recommend more regulatory oversight. The Senate was much more cautious and they came up with legislation that was a compromise, and we are the result of that compromise.

CW: How do you think the commission is doing in keeping medical cost under control?

ALTMAN: So far it’s working pretty well. I wouldn’t guarantee that if we hit another strong stretch of inflation that what we have in place is strong enough, but it’s worth a shot to see if we can make the system work better without imposing more rigorous and extensive government regulation. Regulation is hard. I’ve done regulation and I know what it takes. It’s worth a shot to see if we can find the right balance between an appropriate role of government and letting market forces have a shot at trying to develop a more efficient system.

CW: Why are you wary of government regulation?

ALTMAN: There are very few people in this country who have been involved in regulation more than I have and I can tell you, it’s not easy to get it right. The political pressure on you over time is really extraordinary. One of the concerns of economists is that regulators ultimately get taken over by the power. To stay independent, with all of the pressure on you, is tough. Am I against regulation? In principle, no. But I would be very cautious. If there’s another way to do it, I would do it before I would do regulation.

CW: At the recent cost trend hearings, Attorney General Maura Healey seemed to hint that government should take a more active role in the state health care market. What did you think of that?

ALTMAN: What the attorney general is focusing on is the very significant difference in how organizations are paid for what are essentially similar patients and whether we should be doing something about it.

CW: How big is the differential?

ALTMAN: Martha Coakley, the previous attorney general, issued the first report in 2006 that showed how much more institutions like Mass. General, and the Brigham, and Children’s Hospital were receiving from our biggest insurers than community hospitals or even other academic medical centers. I just looked at the numbers, because I’m giving a lecture on this. If you go to the Brigham or Mass. General, they will get 43 percent more for the average patient they treat versus the average in the state. At Beth Israel, it’s 27 percent more. At UMass, it’s 7 percent more. In other words, there’s a big difference in terms of what these big academic medical centers receive, particularly Partners.

CW: Why is the differential so big?

ALTMAN:They have strong brands and they also use their market power to say to insurance companies, you want to send your patients to us, this is what you will pay. If you don’t, your patients can’t come. That happened back in 2000, so this has been going on for a long time. There was a big fight and some of our insurance companies refused to pay the differential. Tufts, in particular, refused. On a Friday afternoon, there was a full-page ad in the Boston Globe that said if you’re insured by Tufts you can’t go to Mass. General or the Brigham. By Monday morning, the CEO of Tufts capitulated, because he couldn’t run his insurance company without them. That’s the background of all this stuff.

CW: Should academic medical centers receive some differential?

ALTMAN: Here’s my take, which isn’t shared by everybody. Academic medical centers in this country have a number of roles to play. They are a source of the most complicated, sophisticated patient care. They are also the main source of biomedical and clinical research. They are also asked to help train the next generation of health professionals—physicians, nurses, and the like. By their very nature, academic medical centers are very complicated organizations. I would say millions, if not billions, of dollars around the country are taken from patient care dollars and are subsidizing these other activities of the academic medical centers. It’s happening all over the United States, not just here in Massachusetts. The so-called teaching hospitals are being paid more for patient care to do these other things. The argument in favor of that is that these other things also generate a patient care delivery system of better quality. By the way, the same thing goes on at major universities. The money that people pay to send their kids to college is indirectly subsidizing a lot of research and a lot of activities that are not directly related to the education of the students. The belief is that we, as faculty members, by being involved in cutting-edge research, also provide a better education to students. The difference between universities and academic medical centers is that in most cases when you go for patient care you have an insurance company or a government standing behind you, so you as a patient don’t really sense any difference. You’re indifferent as to whether you get your primary care at a local physician’s office or local hospital or you go down to the academic medical center that charges 50 percent more. You don’t even know. Even if you did know, you might be willing to pay it because you believe you get better care.

CW: I have a confession. I’m probably one of those people you’re talking about. I use a doctor affiliated with Mass. General.

ALTMAN: I do the same thing. Absolutely. I’m changing somewhat, not because of the money but because it’s a pain in the neck going into Boston.

CW: So to some extent you and I are part of the problem.

ALTMAN: Remember who is paying for you to go there. Some of the people out in the suburbs are paying for you to do that. Is that fair? I’m not trying to stop you, but in other countries you couldn’t do that; you are obligated to go to your local community hospital. You really have to fight hard in London and France to arbitrarily decide you’re going to go into the middle of London because your ankle is swollen.


CW: So are the academic medical centers the bad guys here?

ALTMAN: I don’t have a bias against academic medical centers, nor am I their champion. I think what they do is very important to this country. I understand better than most what goes on inside the guts of those organizations and the pressure on the top brass to take money from the patient and flow it into research and training. That doesn’t exist at a community hospital. So to tell me that a community hospital and an academic medical center are the same when it comes to patient care, I just don’t buy it. On the other hand, I don’t buy the idea that they can just make up numbers and decide how much they’re going to subsidize and then we’re going to have to pay for it. I do believe, given the nature of our system, care at the academic medical centers should be higher paid because I do believe society is using patient care dollars for research. The question is how much. That is a societal call. It should not be determined by the teaching hospitals themselves, or the insurance companies for that matter.

CW: Is the academic medical center differential the primary reason why health care costs are so high here?

ALTMAN: We use our academic medical centers much more than any other part of the US, and probably any part of the world. And we use them for fairly routine care, the kind of care for which you don’t need to go to an academic medical center. Since academic medical centers charge significantly higher prices, we pay more. One of the reasons why we’re more expensive is that issue, but we’re not unique. Most states pay more to their academic medical centers, but they don’t use them quite as much as we do and the medical centers don’t exist in the same magnitude as they do here in Massachusetts. The question is: Should that continue? If you don’t believe it should, how are you going to change it?

CW: So how do you answer that question?

ALTMAN: In order to change that, you can either use the market or regulation. One way to use the market is to strengthen the community hospital system. Another is to provide financial disincentives to use the most expensive care through what are called limited, or tiered, networks. If you want to have a baby at Brigham and Women’s versus a local community hospital, where it could cost 40 to 50 percent less, you’ll have to pay some of the difference. We are doing that right now. It’s limited and it’s not super-effective, but it’s having an impact. So if you’re insured by the state Group Insurance Commission, and you’re in one of these networks and you choose to go to one of our academic medical centers for fairly routine care, you will pay more for it. That’s using the market.

CW: You make it sound like individuals are making this decision, but in a lot of cases aren’t patients just doing what their physician is telling them to do?

ALTMAN: That’s exactly right. You need a CAT scan and your doctor at the academic medical center will say go upstairs and get the CAT scan. That CAT scan will cost $1,000. If you went around the corner, it would cost $500. If you did it in the community, it would cost $250.

CW: Are you having any luck changing that dynamic

ALTMAN: We’re changing the payment system and saying to Mass. General that we’re going to give you a fixed amount of money for all your patients. It’s sometimes called a global payment system. So if you end up using a lot of MRIs or pricing them at the most expensive rates, you’re going to have to eat that cost yourself. Understand, there are two very different dynamics. One set of dynamics puts the pressure on you the patient. The other set of dynamics puts the pressure on Mass. General. The pressure on you is to pay the difference for using the academic medical center for routine care. That’s what limited networks and high deductible health plans do. If we go to global payments, all the pressure is on them. Now your doctor, who probably is an employee of Mass. General, knows that if he orders that MRI on you, his system has to pay for it. We use MRIs like they’re water. I ask my class, which is made up of 19-and 20-year-olds, how many of you have had an MRI in your life. About a third raise their hands. If you look at the amount of MRIs in this country versus other countries, it’s three times more. There’s a reason we spend 18 percent of GDP on health care and in Germany and France it’s 11 percent. We use a lot of very expensive care.

CW: It seems like the market is a hodgepodge right now. Some health care is still on a fee-for-service basis. Some is on these global payment systems. And patients are also being pushed to change their ways with tiered networks and high deductibles.

ALTMAN: Yeah, we’re doing a little bit of everything.

CW: What’s the regulatory approach?

ALTMAN: It would be if we wanted to give power to some organization—the attorney general or the Health Policy Commission—to basically establish rates. There’s a piece of legislation that’s being proposed by the SEIU which would gradually limit the differential of hospitals. Over time, no hospital could receive 20 percent more or 10 percent less than the average. That’s a pretty blunt instrument, but essentially it would use the power of the state to force the insurance industry to change how it pays. (See John McDonough’s piece in Perspectives on p. 73 for more on the SEIU’s legislation/ballot question.)

CW: Prescription drug prices seem to be rising fast. How do you deal with that?

ALTMAN: The prescription drug world is complicated, clearly. With respect to pricing, it’s a national or an international issue. With respect to patents, it’s a national issue. It’s very difficult for a state to do much about it. Your best option at the local level is to make sure that health systems have incentives to use drugs efficiently and not overuse them. We’re one of the few countries that allow direct-to-consumer advertising for drugs and there’s a lot of concern about that. People hear about these drugs and see them on television and they want them, even if they’re not ideal. A lot of physicians get tired of fighting with their patients, so they just prescribe them, no skin off their nose. When health systems receive fixed amounts for patient care, doctors are more likely to say you don’t need a particular drug or you can use something else first before moving on to the most expensive option.

CW: Isn’t there some legislation pending to give the Health Policy Commission more power?

ALTMAN: Yes, but I would call that a very technical change. Only lawyers can really understand this thing, which I am not. You’ve got the Health Policy Commission and you’ve got the attorney general. Right now we issue our reports, like we did with respect to Partners, where we said there’s a real possibility that if you allow Partners to merge with South Shore it’s going to lead to higher prices. The attorney general could accept that report or choose to ignore it. The new legislation would require the attorney general to take it seriously and allow that report to be used as prima facie evidence that there is a problem, which would allow her to move more aggressively. It doesn’t give the commission the power to stop a merger; the power still rests with the attorney general. It just strengthens a little bit the recommendation we provide.

CW: Do you think the Health Policy Commission will recommend a course of action on controlling health care costs?

ALTMAN: We are not going to tell legislators what to do about it. That’s not our role. Our role is to educate the Legislature, the public, on what’s going on and why. I think there’s a legitimate issue on how much patient care dollars should flow to these other activities. At one extreme it’s nothing, basically saying patient care dollars should be for patient care, and if you want to fund research we have the National Institutes of Health and the National Science Foundation and private philanthropy. At the other extreme, you leave it to the market and leave it to the academic medical centers to decide how much they want to cross-subsidize and let them see how much money they can get from the insurance companies and from us. That’s where we are now. In the middle is a potential regulatory structure that would allocate health care dollars. Right now there is only one state that does that. The state of Maryland has what is called an all-payer system, where they have a government agency at the state level that determines what each hospital is paid for patient care. And they explicitly put into that amount of money a differential for their academic medical centers. Johns Hopkins is located in Maryland. So just because you have regulation doesn’t mean that it destroys the quality of the health care system.

CW: Let’s talk about Partners and its bid to acquire South Shore Hospital. The commission raised concerns about the merger, but former attorney general Martha Coakley thought the best approach was to allow the merger to go through as long as Partners agreed to certain conditions. What did you think of that?

ALTMAN: For me, the question was what’s the right balance? I had no problem with our analysis that the potential was there for Partners to get bigger and more powerful. The attorney general then tried to come up with a very complicated set of demands on Partners to change the way they did business in return for the merger being allowed. That was tricky for me. In other words, was she finding the right balance? People had different opinions. There is a body of thought that basically says the only thing an antitrust person can do is say no or yes. The attorney general tried to be right in the middle of that, allowing them to merge but only if they promised to treat customers OK and not raise rates. The courts say those agreements are difficult to monitor. There’s a big body of antitrust people that say don’t do that. I ultimately came down, like most of the people on the commission, that the deal the attorney general struck was a little too weak. But I was willing to give her somewhat more opening in the beginning. She was trying to grapple with the right issues. I gave her more credit than some.

CW: Do you feel much pressure on the Health Policy Commission?

ALTMAN: A little, but not that much yet. This battle with Partners was unexpected but it turned out to be an interesting issue because, actually, if there was any pressure, it was the other way around. There was so much antagonism to Partners by others in the delivery system and the community and everybody else—the consumer advocates, the other teaching hospitals, and the community hospitals. If anything, the pressure on us was to be tougher on Partners. It was easy to be independent. Up until now, we haven’t faced too much pressure. If we were to get into the rate regulation business, the pressure would really grow.

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.

CW: How much time do you spend doing the job?

ALTMAN: It’s so wrapped up in what I do here. For example, I was here all weekend preparing my lectures for a graduate class of 15 medical students about the role of states in controlling the health care system. So I’m making extensive use in that lecture of what I do on this commission, just what we’ve been talking about. Personally, it comes at the right time in my career. I’m in the right place to do this.