The PEER Act An Act Promoting Equity and Efficiency in Rates Rising health care costs are crippling

g our economy but not producing better care. Continued cost increases are squeezing employers, particularly small businesses, taking away resources they could use to hire more workers, fund capital expenditures and make other investments to grow our economy. At the same time, many community hospitals are struggling with less reimbursement than many other hospitals without regard to the quality or level of care they provide. Over the last three years, nearly half a dozen comprehensive reports from various state agencies including the Division of Insurance, the Division of Health Care Finance and Policy (DHCFP) and the Attorney General have examined what's driving the cost of health care and have pointed to increases in the prices paid to providers for medical services. The June 2011 DHCFP report on provider rate variation and last year's Attorney General's report that highlighted the market clout of certain providers as the main factor driving increases in the cost of health care, demonstrate the need to address the issue of market power on health care costs in order to make health care more affordable. The PEER Act would require health plans to reduce the rates they pay to certain high-cost providers and increase rates to some of the lowest-paid providers. It would affect a limited number of hospitals and physician groups to help level the playing field, lower costs for employers and consumers by requiring that the savings are reflected in premiums, and would expire in 2015 when efforts to reform the state's health care payment system are expected to be fully implemented. Key Elements Beginning January 1, 2012, health plans and high-cost providers (those whose rates are above the health plan's 80th percentile) would be prohibited from entering or renewing a contract until those rates are lowered below the 80th percentile. Health plans and lower-cost providers (those reimbursed below the health plan's 20th percentile) would be prohibited from entering or renewing a contract until those rates are increased above the 20th percentile. Health plans would identify these providers by utilizing DHCFP's Relative Price methodology, so that the methodology for identifying providers is consistent across carriers. The calculation would examine providers according to four geographic regions: Western Massachusetts Boston and Northeastern Massachusetts Central Massachusetts and MetroWest Southern Massachusetts and Cape Cod Providers that currently utilize alternative payment methods that are at or below the statewide median Total Medical Expense (TME) level, as reported by DHCFP, would be exempt to ensure that efficient providers are not penalized. Includes a default rate for covered out-of-network services equal to the health plans' median relative price for providers that chose not to contract with a health plan. Every provider as a condition of licensure would be required to accept payment by health plans according to this proposal. Balance billing patients in excess of the amount reimbursed by the carrier would be prohibited. For contracts entered into prior to 1/1/12, the provisions would take effect on the contract anniversary date. Any savings realized by the carrier would have to be reflected in premiums charged to health plan members. Prohibits cost-shifting and would make it a 93A violation. Sunsets on December 31, 2015. The Division of Insurance would be charged with promulgating regulations to monitor and ensure compliance and would conduct a study in conjunction with DHCFP on the impact on carrier provider networks, network adequacy, rates paid to non-participating providers, and the overall impact on carrier member premiums by January 1, 2014. Potential Savings As part of its recent health care cost reports on price variation, DHCFP examined the potential savings associated with reducing payment variation, including lowering rates to high-cost providers and increasing them to lower-paid providers and estimated that the system would save more than a quarter of a billion dollars. Depending upon the full implementation and any exemptions for TME, the PEER Act could generate similar savings. Professional Services Inpatient Hospital Services Projected Total Savings Lowering rates above the 80th $179MM $88MM $267MM percentile & increasing rates below the 20th percentile
* DHCFP conducted a limited analysis of price variation among hospital outpatient services, examining four service types.