Alarming findings on the cost of healthcare in Massachusetts
Hospital charges in Massachusetts are out of control. I have long argued that the health care reform debate should have been about actual cost of care and not a broad indictment on the insurance industry. Close to 90% of every dollar of medical premiums paid in Massachusetts go towards paying hospitals and doctors and, until now, little attention has been given to how those rates are established. A recently released report by the Massachusetts Attorney Generals office should be raising the ire of every company who purchases health insurance for their employees in Massachusetts. The findings are troubling. And the report is a must read for every employer who purchases healthcare for their employees.
The AG investigation of Health Care Cost Trends and Cost Drivers concludes that there is virtually no correlation between the costs charged by hospitals/physicians and the quality of the care received by the patient. More alarming, however, is the fact that charge rates, what the carriers and therefore employers pay for care can vary by as much as 200% based on such vague factors as geography, hospital reputation and bargaining leverage with the insurers. Employers are footing the bill for a system where traditional market forces do not exist in keeping costs in line.
Perhaps the most interesting finding in the report is that the culprits are not necessarily the teaching hospitals, where one may expect to pay a premium. In fact 8 of the 10 hospitals ranked by severity adjusted charges were community hospitals. Ten hospitals in the study charged 10% to 100% more than the other 55 hospitals and those charges are not a result of higher cost structures at those facilities. In fact, the report points out that hospitals who receive more, use that money to fund capital investments, and other indirect costs. Think for a minute about the excessive advertising, sports team sponsorships, and unabated building and expansion of many Massachusetts hospitals. Our premium dollars are funding that growth.
The traditional economic model is broken. There are virtually no checks and balances working in our healthcare system to make certain that hospitals are charging appropriate market rates. Patients are making decisions on where to receive care with little access to information on the quality of the doctor or hospital. Members routinely seek care in facilities that may or may not provide better care, and those facilities are charging the health insurer under contracts that completely insulate them from any fiscal accountability.
Meanwhile, medical rates in Massachusetts continue to increase by double digits. Employers already burdened by increased surcharges from Mass health reform and its effects on costs, are now frustrated by few options to control cost increases. A recent trend towards high deductible plans, in hopes of patients being better economic consumers has failed to result in a reduction in the trend.
New products are being developed by a few of the local managed care companies that will steer members to more cost effective facilities. These plans vary in their approach, but the concept of hitting patients in the pocket book for choosing to use more expensive hospitals is long overdue. In 2009 I referenced this concept in a Boston Business Journal article on Health reform missing the mark.
Most covered employees in Massachusetts are spoiled. “Managed” care networks now include virtually every hospital in the state. Twenty years ago, carriers used tighter networks to leverage one hospital against another. Consumers often had to choose. Employers need to engage their members in making smart healthcare buying decisions. Perhaps this report will speed the process.