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Investigation of Health Care CostTrends and Cost Drivers
Pursuant to G.L. c. 118G, § 6½(b)
Preliminary Report
January 29, 2010
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Office of Attorney General Martha Coakley
Investigation of Health Care Cost Trends and Cost DriversPursuant to G.L. c. 118G, § 6½(b)PRELIMINARY REPORTJanuary 29, 2010I.
OVERVIEW
The Office of the Attorney General (AGO) releases this preliminary report based on itsongoing investigation of health care cost trends and cost drivers pursuant to the authority grantedto the Attorney General by Section 24 of Chapter 305 of the Acts of 2008,
An Act to PromoteCost Containment, Transparency and Efficiency in the Delivery of Quality Health Care
. Inaccordance with the statutory mandate, the focus of our investigation and this preliminary reportis squarely on factors that contribute to cost growth within the Commonwealth’s health caresystem. This preliminary report identifies factors driving up health insurance premiums inMassachusetts to help policymakers in this state develop measures to control costs withoutsacrificing quality or access. It reflects current realities of the Massachusetts health care marketto inform policymakers focused on cost containment. This report does not address health carereform efforts in other states or at the national level. This preliminary report provides a broadanalysis of the Massachusetts health care marketplace and does not make any conclusions aboutspecific health care providers or insurers.Although our investigation is ongoing, our preliminary analysis indicates that currentcontracting practices by health insurance companies and health care providers have resulted insignificant differences in compensation rates among hospitals and physicians that do not appearto be based on the complexity or quality of the care provided. These market dynamics anddistortions should be considered by the Legislature and administration policymakers pursuinghealth care cost containment strategies.Health care costs are increasing much faster than the growth in the economy, grossdomestic production (GDP), and wages. Such increases, if unchecked, threaten the financialstability of individuals and businesses, and the future viability of our gains in health care access.Massachusetts is a national leader in health care. In the Commonwealth, we benefit from highlyranked health plans and hospitals, and we also have strong market reforms protecting access tohealth care that are a national model. As a result of Chapter 58, Massachusetts has expandedcoverage to 97% of the population through the shared responsibility of individuals andemployers. These landmark gains in access, however, are jeopardized by unsustainable increasesin health care costs in Massachusetts.To advance the discussion of cost containment and to help foster value-based systemredesign, the Attorney General used the civil investigative demand authority the Legislaturegranted in Chapter 305 to scrutinize the Massachusetts health care market. The AGO analyzedinformation and documents produced by five health insurance companies representing more than70% of the Massachusetts market, and fifteen health care providers from various regions of thestate and representing diverse hospitals and physician groups including community, teaching,
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We focused our investigation on contractingpractices and contract prices (i.e., the prices negotiated between health insurance companies andhospitals and physicians for hospital inpatient and outpatient care, and professional services) forcommercial health insurance for the period 2004 through 2008. While our investigationcontinues and our analysis is not final, our preliminary review has revealed serious system-widefailings in the commercial health care marketplace which, if unaddressed, imperil access toaffordable, quality health care. In brief, our investigation has shown:A.
Prices paid by health insurance companies to hospitals and physician groups varysignificantly within the same geographic area and amongst providers offering similarlevels of service.B.
Price variations are not correlated to (1) quality of care, (2) the sickness orcomplexity of the population being served, (3) the extent to which a provider isresponsible for caring for a large portion of patients on Medicare or Medicaid, or (4)whether a provider is an academic teaching or research facility. Moreover, (5) pricevariations are not adequately explained by differences in hospital costs of deliveringsimilar services at similar facilities.C.
Price variations are correlated to market leverage as measured by the relative marketposition of the hospital or provider group compared with other hospitals or providergroups within a geographic region or within a group of academic medical centers.D.
Variation in total medical expenses on a per member per month basis is not correlatedto the methodology used to pay for health care, with total medical expensessometimes higher for globally paid providers than for providers paid on a fee-for-service basis.E.
Price increases, not increases in utilization, caused most of the increases in healthcare costs during the past few years in Massachusetts.F.
The commercial health care marketplace has been distorted by contracting practicesthat reinforce and perpetuate disparities in pricing.The Attorney General expects to complete this analysis and present detailed findingsthrough the G.L. c. 118G, § 6½ health care cost containment hearings before the Division of Health Care Finance and Policy (DHCFP), scheduled to begin on March 16, 2010. The AttorneyGeneral plans to focus attention on the preliminary findings outlined in this report during theDHCFP hearings.
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The Division of Health Care Finance and Policy (DHCFP) defines “teaching hospitals” according to the MedicarePayment Advisory Commission’s (MedPAC) definition of a major teaching hospital: At least 25 fulltime equivalentmedical school residents per one hundred inpatient beds. DHCFP defines “disproportionate share hospitals” (DSHs)as those hospitals with a large percentage (63% or more) of patient charges attributed to Medicare, Medicaid, othergovernment payers, and free care.
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This cost containment investigation is the latest of several AGO initiatives to control health care costs and toprotect consumers and small businesses. The Attorney General’s efforts have included: (1) Medicaid fraudenforcement actions that yielded record recoveries for Massachusetts, (2) civil actions against drug companies and
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