5 takeaways from health cost trends hearings

Baker, Partners margins, and social determinants

HAVING ATTENDED the Health Policy Commission’s annual cost trend hearings earlier this month, I came away thinking about five interesting moments, which I present in the chronological order in which they occurred.

1. In his third time kicking off the hearings since his election as governor, Charlie Baker stayed consistent in the directional theme of his comments with the two prior years. Specifically, as he has stated in the past and made the primary focus for comments this year, the governor believes that the general direction for most health care payment policy—be it for Medicare, Medicaid, and even for the commercial market – is dictated more by Washington, DC, than anything that happens at the state level.  While he certainly seems to appreciate that state policy decisions and legislative action can matter in significant ways at times (for example, the governor is trying to find agreement with the Legislature on how to reign in Medicaid spending), his view seems to be that, especially with respect to provider payment policy, state government and private actors ultimately take their cues from the federal government.  Likely, he would also point to the necessity of federal government waivers for practically all of the major innovative efforts that state government has advanced over the years related to increasing coverage.

My other observation about the governor’s comments is that for the third year in a row, he avoided saying anything about the market dysfunction in commercial payments and pricing that exists in our state.  That sort of “radio silence” is certainly not consistent with the complaints he used to express about these issues when he was CEO of Harvard Pilgrim.  His silence is perhaps not surprising when you think about the powerful health care providers involved and the risks associated with taking on Partners Healthcare and Boston Children’s hospital and their doctors at a time when the governor is seeking reelection and advancing a health care legislative agenda focused primarily on finding Medicaid savings.

2. At an interesting moment at one of the first day’s panels, Massachusetts General Hospital CEO Peter Slavin told the commissioners that Partners HealthCare must earn a sufficient margin in its patient care mission in order to subsidize its other missions of research, teaching, and community benefit. This has been a common and consistent defense of Partner’s need to extract super-normal prices for its services from commercial insurers. At MGH, the commercial insurance operating margin last year was more than $466 million, with an overall operating margin of over $150 million, according to the hospital’s recent Health Policy Commission filing. We must remember that this latter profit figure comes after MGH has paid for teaching, research, and community benefit as described below, plus covering what are often referred to as Medicaid or Medicare shortfalls.

So, perhaps, a brief exploration of Slavin’s claim for a need for subsidies is in order.

On the need for a research subsidy to pay for what I estimate to be about $200 to $250 million of research expenses not covered by grants and contracts for Partners (MGH probably claims at least half of this subsidy), I refer the reader to my Commonwealth article from earlier this year. My sense is that there must be a better way to support additional unfunded research than our current regressive (call it reverse Robinhood) scheme using commercial insurance payments that only Partners, Dana-Farber, and Boston Children’s Hospital are able to exploit.

As for medical education, MGH received a total of over $94 million from Medicare for its graduate medical education mission in 2015, the most recent year of data that I could find. I wonder if Slavin is fully accounting for the indirect medical education portion of this total – a $64 million subsidy that Medicare adds for its beneficiaries’ inpatient stays at teaching hospitals.  Researchers have found that the subsidy pays teaching hospitals more than double the actual marginal expenses of care associated with the “teaching” function.  Given these figures, one has to really question whether or not hospitals such as MGH can fairly claim that they need a boost in commercial insurance payments  in order to afford their teaching mission.  And, if they do, why should they be able to extract such a commercial payment subsidy for activities such as teaching, while other hospitals in the medical education business such as Tufts Medical Center or Boston Medical Center are unable to do so?

In the community benefits realm—and here MGH should be proud of its commitment and accomplishments – we know very little about how the hospital’s nearly $60 million in reported spending on community benefits is allocated.  Most of the reported expenses on file at the attorney general’s office are most likely tied to its own organizational expenses at the hospital, as well as its health centers located in the target communities of Charlestown, Chelsea, and Revere—clinical sites that also generate patient care referrals and related income for MGH.  I would also bet that many of these community benefit dollars are also appropriately described as patient care expenses, not really geographic public health. I make this point not to criticize MGH community benefit efforts and activities,  but simply to underscore the question of how much of a subsidy from commercial patient care dollars does the hospital actually need to carry out this good work.  We ask other hospitals to make community benefit investments—and while there is variability here in commitment—many do make an appropriate effort proportionate to their resources and certainly without obtaining what I call the “Partners Premium.”

3. On the second day of the hearings, Attorney General Maura Healey called for our health care system, both providers and insurers, to take on the issue of “social determinants,” those social and economic factors (adequate housing, food security, etc.) tied to one’s living or environmental conditions that influence health status. The issue of social determinants came up for discussion a good number of times over the two days of the hearings. Healey also commented on how income inequality contributes to important health status differences, and referenced data that Assistant Attorney General Sandra Wolitzky shared a day earlier indicating significant variability in the economic status of patients that different hospitals serve—even within the commercially insured population.

What should we do about social inequality and its impact on people and communities?  A related question is what should our health care providers and insurers be expected to do to contribute to efforts to address inequities such as the unequal distribution of social determinant factors that affect health status?

It is certainly timely for Healey to put this question before the Health Policy Commission as her own staff members are currently trying to decide how to update community benefit guidelines for hospitals and health plans.  Though technically voluntary, these guidelines serve to create affirmative expectations for our provider and insurer stakeholders that over time have tended to serve as basic norms for appropriate behavior.  There are really very few policy tools to use to encourage more social determinant investments and activity.  Accordingly, public health advocates are wondering whether Healey’s staff is willing to up the ante for provider and insurer expectations in the revised guidelines, which should call on these organizations to dedicate sufficient staff and resources to address social determinant issues that affect the health of communities and vulnerable populations within them. It will be interesting to see if Healey’s office can translate her inspirational address into real action.

4. On the second day, a panel faced a number of questions tied to the issue of moving from “volume to value.” This is the idea that our payment system should not be based on fee-for-service, but tied to paying for quality, efficiency, and ultimately even health outcomes.  Members of the Health Policy Commission were at their best with this panel, challenging the group about both the slowness in moving away from traditional fee-for-service as well highlighting that even those payment systems that are labeled “global payment” are primarily fee-for-service “in drag.”

When the panelists were challenged about this sobering reality, there was not a lot shared that was particularly hopeful.  The commissioners kept asking the panel what is stopping more contracts from incorporating alternative payments and especially contracts that are truly global risk in nature.  Deb Devaux, chief operating officer of Blue Cross of Massachusetts, did not have a lot of answers, and seemed to fall back to noting that neither many employers nor providers seemed all that interested in moving toward such full-risk arrangements. She certainly avoided pointing to the reality that especially with full risk-capitated contracts, insurers would likely be less able to claim as high a proportion of the premium dollar as they do now.

Trish Hanna, CEO of New England Baptist Hospital, a high-value provider that the Health Policy Commission has singled out for offering lower prices and achieving better quality outcomes for many of the orthopedic services that it delivers, noted how difficult it has been for her hospital and doctors to gain market share using alternative contractual arrangements. Dr. Steven Strongwater, the CEO of Atrius Healthcare, noted how difficult it is for his organization, which has made substantial investments in being able to manage within a fully capitated environment, to operate primarily in a fee-for-service environment.

I did not leave this panel conversation very hopeful that we will someday soon be living in a world where payment incentives align with both better quality and reduced pressure for premium increases. I was hoping that there would be some discussion of what would happen if Massachusetts adopted a Maryland-style annual global budget payment policy for our hospitals, where institutions do not receive any increases for more patient days, admissions, or procedures.  But that was not part of this year’s conversation.

5. The final panel also had its interesting moments, with some talk about pharma pricing and related current and future challenges, including the possibility of facing some innovative gene therapy treatments costing over $1 million a year per patient treated. But the best moment for me was when Dr. Kevin Tabb, CEO of Beth Israel Deaconess, told the commissioners that the potentially market-disrupting model coming from Iora Health and its founder and co-panelist Dr. Rashika Fernandopulle was not likely to go to scale.

Here is what he was reacting to.

Dr. Fernandopulle, founder of Iora Health, started a health care provider organization that is going all-in on global risk capitation.  He has recruited a cadre of primary care doctors working on salary with few other contractual incentives, who then take on primary care or full-risk contracts for a group of covered lives. Thus far, their enrollees have been labor unions or groups of Medicare beneficiaries enrolled in Medicare Advantage.  With the ability to allocate more money for primary care and other kinds of expenditures tied to behavioral health or even for things that most insurers can’t cover under traditional rules, they have been very successful so far in advancing both quality and cost goals. Iora owns no hospitals and, for the most part, their primary care doctors refer patients to specialists whom they have vetted through experience as being both high quality and efficient in resource utilization. Iora reports that it has been able to reduce total medical expenditures substantially under its contracts, primarily by managing people and their medical and social issues in a way that reduces their need for hospitalization.

When Tabb was asked if he thought that Iora Health’s model could be replicated more broadly, he said no.  He said it would be difficult to get Iora-like results caring for the whole world of patients, including Medicaid populations and other vulnerable groups.  He implicitly seemed to be arguing that if you expect a health system to take all comers and provide a full range of needed service under Iora Health’s payment model, it would not work.

Meet the Author

Paul A. Hattis

Associate professor, Tufts University Medical School
Reading between the lines, I thought Tabb was more likely thinking that any CEO of a health system that owns hospitals and other fixed capital, and who must please specialists earning a lot of money from providing care and doing procedures at the hospital, probably won’t survive long in their job if they try to adopt Iora Health’s model.   You would either have many specialists calling for you to be fired as their income and demand for services declines, or the finance types on your board would be asking for your ouster because the Iora model would wreak havoc on a system which needs to fill beds and use the expensive equipment in order to generate revenues to cover overhead and debt payments from prior capital expenditures.  Sadly, this is the reality that our health system executives face, but can’t really talk about.

Dr. Paul Hattis is an associated professor of public health and community medicine at Tufts University Medical School.