Analysis of Attorney General’s Report on Healthcare Cost Trends

Analysis of the Attorney General’s report:

Examination of Health Care Cost

Trends and Cost Drivers Pursuant to G.L. c. 118G, § 61?2(b)

Report for Annual Public Hearing June 22, 2011

 

• Wide disparities in healthcare payments exist that are not due to variations in quality
• Simply changing to global payments does not reduce costs
• More affluent areas have higher healthcare costs than less affluent ones
• Primary care can increase coordination of care and possibly reduce costs
• More standardized data are needed to understand these trends and for informed consumer decisions.

 

Healthcare cost trends and the causes for them have been the subject of much discussion recently.  The Department of Health Care Finance and Policy (DHCFP) held its annual hearings on the subject for four days this week at Bunker Hill Community College, and in preparation for that hearing, the Attorney General’s office released their second annual report on healthcare cost trends and cost drivers.  I will report on the DHCFP hearings themselves in a separate report.  Here I summarize the Attorney General’s findings.  Although the Attorney General’s report was a major subject at the hearings, the hearings covered so much ground that I think it best to report on them separately.

The Attorney General’s first report was issued last year.  This year’s report (being the second one) is the first that could begin to look at trends (for a full text of the report see http://www.mass.gov/Cago/docs/healthcare/2011_HCCTD.pdf ).  Many of the findings are somewhat unexpected and not easily explained.  This report, it should be noted, focuses exclusively on commercial health insurance; Medicaid and Medicare are not examined.  Also, the data in this report are from 2009.  This means that they do not reflect the standardization of reporting of provider total medical expenses, relative prices, quality performance, and hospital costs required by Chapter 288 of the Acts of 2010, which the legislature recently passed.  This standardization may make future cost trend analysis much easier.  Also the report focused on 6 health plans and 16 providers, so, although the finding are statistically significant, they may not be universally applicable.

The report has been criticized as not reflecting recent changes in the market. The Massachusetts Hospital Association told the Boston Globe, “It is far too early to judge their potential impact.” (“ Mass. finds new system not cutting health costs.” Liz Kowalczyk The Boston Globe June 23, 2011).  While this may be a valid criticism of the report, it presumably cannot be used to excuse the new systems from not reducing payments over time, and the lack of an initial cost reduction should be a warning regarding what expectations should be of the potential short-term impact of any healthcare cost legislation, even if the long-term impact is significant.  Having said all that, it is not at all clear, based on the report’s findings, that the recent changes could be expected to result in significant savings even over the long-term.

The report has six major findings:

1. There is wide variation in the payments made by health insurers to providers that is not adequately explained by differences in quality of care

2. Globally paid providers do not have consistently lower total medical expenses

3. Total medical spending is on average higher for the care of health plan members with higher incomes.

4. Tiered and limited network products have increased consumer engagement in value- based purchasing decisions

5. Health plans that do not require primary care providers (e.g., preferred provider plans (PPOs)) have significant impediments to effective coordination of care.

6. Health care provider organizations designed around primary care can coordinate care effectively.

There is wide variation in the payments made by health insurers to providers that is not adequately explained by differences in quality of care

Among the issues leading to this conclusion is the fact that even within one insurance provider, payment methodologies, amounts, and the ways that they are determined, are non-standardized.  This leads to large variations in the amounts paid to different providers for the same services.  These disparities are not related to any available measures of quality and exist under both traditional fee-for-service plans and global payment plans.

Globally paid providers do not have consistently lower total medical expenses

This was true even for those providers that have been paid for five years or more using global payments. A lot has been made of reducing costs by moving to global payments.  The Attorney general’s report shows that this shift, in and of itself, is not a ”panacea” for cost control.  Unless other changes are also made, shifting to global payments will change the way payments are made, but will not reduce the total amounts paid.

Blue Cross Blue Shield of Massachusetts recently introduced the Alternative Quality Contract into the Massachusetts market, which uses a global payment methodology. It is somewhat different from other global payment strategies in that it is designed to reduce costs over a five-year period.  Nonetheless, the Attorney General predicts that it will not reduce total medical expenses (TME) even by 2013.

Total medical spending is on average higher for the care of health plan members with higher incomes

This finding was also discussed at the DHCFP hearings.  Even when adjusted for the health status of members (since sicker people need more care), insurers spend more on members from high income zip codes than from lower income ones.  The amount of variation varies between insurers, but the trend is clear.  What is unclear is the cause of this disparity.  It could be that those in more affluent areas use more healthcare services and therefore have higher expenses, or they may use the same amount of services as those in less affluent areas, but choose higher paid providers.  More data is needed to understand the underlying issues here.

Tiered and limited network products have increased consumer engagement in value- based purchasing decisions

Both tiered and limited network plans give consumers large amounts of choice but charge consumers more if they choose out-of-network or higher level providers.  If consumers have access to good quality data and are not penalized when they must seek out-of-network care (e.g. in an emergency), such plans can be an effective way both to engage consumers in their own care and to allow some shift in cost in paying very highly paid providers from insurers to the consumers that choose to use those providers.  The Attorney General’s report points out, however, that these plans do not address the historical disparities in payments which have been found not to be due to variations in quality (see above).

Health plans that do not require primary care providers (e.g., preferred provider plans (PPOs)) have significant impediments to effective coordination of care

This is not exactly a surprising finding.  In the absence of a primary care provider, care is less likely to be well coordinated, since most patients really cannot coordinate their own care.  Coordinated care is critical if a shift to global payments is actually going to reduce costs.  Someone needs to be “minding the store,” so to speak.  If no one is in charge of a patient, then no one can work to make sure their care is efficient and cost effective.  In addition, uncoordinated care can be detrimental to patients.

Health care provider organizations designed around primary care can coordinate care effectively

This is essentially the inverse of previous point.

Based on these findings, the Attorney General makes several recommendations:

1. Promote tiered and limited network products.
This will increase value-based decision making and empower consumers to make their own value-based decisions.

2. Implement temporary legislative measures to decrease non-value-based market disparities until transparent reporting and tiered products can reduce (or eliminate) them.

3. Encourage the use of primary care providers

4. Fund the infrastructure and other changes necessary to promote coordinated care.

5. Improve the existing All Claims Database by standardizing reporting and increasing transparency.

6. Develop appropriate regulations, solvency standards, and oversight for providers that choose to become ACOs or otherwise take on risk.

The Attorney General’s report makes clear that our healthcare system is highly complex and that reducing costs will therefore of necessity be highly complex as well.  We have only begun to realize the disparities in healthcare payments and healthcare spending, and we do not yet have enough data to really understand their causes.  We desperately need standardized reporting of payments and of quality measures so that we can begin to understand how to create a value-based, effective and cost efficient healthcare system.

The DHCFP hearings addressed many of the same issues as the Attorney General did and also many other added layers of complexity.  They also addressed some of the factors that may be part of the solution.  I will report on those hearings shortly.  Together, the hearing and this report’s findings will inform the legislature’s response to the Governor’s healthcare cost containment bill.  It is already clear that his bill did not do enough to change the current system. It remains to be seen how much the legislature will in fact be able to do.