Friday, April 9, 2010

Can Massachusetts Control the Cost of Health Reform?

In the course of 20 years of studying and writing about health system ethics and health reform I've gotten progressively more humble about the impact of academic analysis and progressively more interested in understanding how democratic systems actually learn and change. Massachusetts gives a window on this process.

As I've discussed in my last two posts (here and here), Governor Deval Patrick has applied a two by four to the health system by rejecting the rate increases proposed by Massachusetts insurers. The insurers are suing the state. The Governor's flagging reelection campaign has perked up - attacking insurers is a good tactic, especially if your strongest rival is a former insurance company CEO!

Yesterday's Boston Globe editorial points to how the Governor's electioneering move could potentially catalyze social learning. I've copied the editorial below, interspersed with my comments in italics:
After Health-insurance companies covering individuals and small businesses demanded rate hikes of up to 32 percent earlier this year, the state stepped in and rejected the great majority of them. Today, six big insurers are going to court to block the state action. The judge should let the rejections stand — and the state’s action could finally compel all involved in the unsustainable inflation of health costs to slow it down.

The Globe understands that the cost of health insurance reflects the bills they pay to hospitals, physicians, and other providers. But they endorse the Governor's actions anyway - not as wise economic policy (it isn't) but as a political brickbat that might drive all the key players to the negotiating table.

The insurers point to data from a recent report by the attorney general showing that prime drivers of premium increases are not their own costs but the increasing rates for hospital stays and doctors’ visits, and a tendency among patients to seek treatment at higher-cost facilities.

Fear of price controls could motivate providers to join with insurers to take hold of the cost trend in new ways rather than choosing to point fingers at each other.

The same data also show, however, that insurers have agreed to pay higher reimbursements to hospitals based on their geographic location or market clout as big teaching hospitals. The Patrick administration is right to fault insurers for not doing a better job of using their own clout to demand lower rates from such providers. If anything, the possibility that the state might reject excessive rate increases gives insurers more leverage in negotiations with hospitals.

This is complicated. The backlash against managed care - orchestrated in large part by providers - led insurers to back off from aggressive efforts to contain costs. Having the rate increases rejected does give insurers more leverage. But in Massachusetts, whose not-for-profit insurance companies are nationally recognized as the best in the country, it would be possible in principle for the Governor say: "We in Massachusetts are lucky. Our Massachusetts-based health insurers are not owned by out-of-staters! They're well managed, ethically guided, not-for-profits. On behalf of the citizens of Massachusetts I'm asking them to join with our superb doctors and hospitals to find ways to bring down our costs. This will involve sacrifices for everyone, but that's what let us launch the reform process four years ago. This is a Massachusetts process - not a Republican or Democratic one. Governor Romney [a Republican] got us off to a good start and I [a Democrat] want to build on the foundation he and the legislature created."

Still, insurers can’t carry the entire burden of containing medical costs. The crisis brought on by the state’s rejection of the premium hikes for small businesses should spur the Legislature to give the governor and insurers new tools to control costs. Governor Patrick is seeking the power to regulate not just insurers’ rates but the reimbursements that providers get — a reasonable proposal. The insurers want to limit the freedom of individuals to jump into the market when they need a costly procedure and then opt out again once the insurer has paid for it — a justifiable request.

With those new tools, the state and insurers can work together to ensure that doctors and hospitals get paid reasonable, but not excessive, rates, and that small businesses aren’t throttled by unbearably large premium hikes.

These are reasonable ideas, but guess who's still not being talked about? It's us, the public, "consumers" of health care. As patients we have to ask our doctors and hospitals to take care of us in an efficient, frugal manner. As employees we have to ask our employers to make sure the insurers they contract with for us manage care actively - directly or via provider groups that accept financial risk.

This spring is crunch time for Massachusetts health reform. If the brickbat the Governor has launched leads to innovative action by insurers and providers, and new learning for the public, the other 49 states will be able to learn from us. If we regress into finger pointing and sloganeering, our promising health reform process will go down the tubes.

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