Massachusetts, pioneer of universal health care, now may try new approach to costs

Five years ago this week, Massachusetts became the first state to move toward universal health insurance, foreshadowing the 2010 federal health-care overhaul. Now, the commonwealth is debating whether to become a role model again — by replacing the fee-for-service system that has long defined U.S. medicine.

Massachusetts Gov. Deval L. Patrick (D) is trying to “shove,” as he put it, the health-care system here into a new era of cost control. He is proposing a new way of paying for care that would try to propel changes in the way it is delivered. It would give lump payments to teams of doctors responsible for almost all the care of a group of patients, with bonuses for saving money and dispensing high-caliber services that keep people healthy.

The governor’s plan — stirring an impassioned debate inside the gold-domed State House on Beacon Hill and among players in the state’s vaunted health-care industry — would make Massachusetts the only state to promote wholesale new arrangements of “integrated care.”

Massachusetts in 2006 created a health insurance exchange, a requirement that most residents carry coverage and subsidies to help them pay for it — central elements now in the federal law. As a result, 98 percent of the residents here are now insured, the highest rate in the nation. But the state’s first round of health-care changes devoted far less attention to medical costs.

“We did access first,” said state Senate President Therese Murray (D). “Now we have to figure out how we afford that.”

With that question widely regarded here as unavoidable, “Massachusetts is where the feds are going to be” in a few years, predicted Robert Laszewski, a health industry consultant. “It’s a time machine.”

The governor’s proposal builds on a surprising consensus among leaders from the state’s insurance and hospital industries, medical society, legislature and governor’s staff who served on a special state commission assigned to diagnose the culprit behind the soaring medical spending.

Fee-for-service medicine “is a primary contributor to escalating costs and pervasive problems of uneven quality,” the commission unanimously concluded in 2009.

Despite the consensus, huge questions loom: Who should be part of the new medical teams? How would the idea work for most doctors who practice alone or in small groups? How much clout should the state wield to blunt the ability of powerful local health systems to drive up costs? And, importantly, how heavy a hand should the government use to compel change?

“We are preparing ourselves to grapple with a certain amount of constructive disruption in the industry,” Patrick said in a lengthy interview. “It’s a journey.”

In the pressure-cooker of medical costs in the United States, Massachusetts offers a particularly vivid example. The spending per person on health care is 15 percent higher than the national average — even taking into account the comparatively high wages here and outsize role of medical research and training. The move to near-universal coverage, state figures show, accounts for a sliver of recent increases in insurance premiums, which have soared above inflation. The main reason has been a rapid escalation in prices.

“The growth is outstripping every single measure of society’s ability to keep up,” said Glen Shor, executive director of the Commonwealth Health Insurance Connector, which runs the insurance exchange.

Having committed to health care for almost everyone, Shor said, Massachusetts does not have the same “safety valve” as other states, which are carving services and sometimes people from public health and insurance programs. “As a result, we have to, more than anywhere else, stare squarely at cost containment.”

In this climate, the private health-care marketplace already is taking steps away from fee-for-service, the method by which doctors, hospitals and others who treat patients are paid for each service they provide. The rationale is that such a system rewards more care rather than coordinated treatment and upfront care that can lessen the need for more expensive services later on.

The biggest move is being made by Blue Cross Blue Shield of Massachusetts, the commonwealth’s largest insurer. In 2009 it began a new payment system called Alternative Quality Contracts with some of the doctors and hospitals in its network.

The arrangement is a version of the accountable care organizations that the federal government also is trying to encourage in Medicare. They pay teams of doctors or hospitals a lump sum or what is called a “global budget” for the patients assigned to them. If a team can provide care for less, it keeps some of the savings, assuming it also meets enough of 64 measures of quality that Blue Cross has defined. Today, about one-third of the primary care doctors in Blue Cross’s network are taking part. A half-million HMO patients have been put in them — but not told by the insurer.

The arrangement is voluntary, but Andrew Dreyfus, Blue Cross’s president and chief executive, said that if doctors and others stay with the old fee-for-service model, “we can no longer pay the kind of price increases we have . . . in the past.”

Some doctors are embracing the new way of working. David C. Pickul is the medical director of the physicians group affiliated with Lowell General Hospital, in an economically bruised community about 30 miles northwest of Boston. The group is in the third year of a five-year “alternative quality” contract with Blue Cross involving a hub of 70 primary care doctors and a looser group of 200 specialists who are responsible for 20,000 HMO patients. The team now has a financial incentive, Pickul said, to track down patients when it is time for their mammograms or for eye exams for those with diabetes. Under Blue Cross’s quality rating, Lowell has soared the past two years.

Blue Cross is not alone. At Partners HealthCare, the famous Boston-based medical system that dominates health care here, Massachusetts General Hospital has been conducting a Medicare experiment in which nurses are assigned to coordinate care for about 2,500 older patients with multiple ailments. The experiment, which began five years ago, so far has reduced hospital re-admissions by one-fifth and cut medical spending by 7 percent.

“Frankly, the market has already . . . responded,” said Gary Gottlieb, Partners’ president and chief executive. “There is enough momentum for us to do this without instrumental regulation” by the state.

The governor and some other officials disagree. The need to lower costs, they say, is urgent enough that the government should step in, and they have been laying groundwork.

A 2008 law that created the special commission also gave the state sweeping new powers to document the problems of medical costs. Attorney General Martha Coakley used new subpoena power to produce a report laying out large disparities in hospitals’ prices and concluding that they are unrelated to the quality of their care, the sickness of their patients or whether the institution is a teaching hospital. The only factor that drives prices was “market leverage,” Coakley wrote, singling out Partners as the greatest offender.

Then, in a February 2010 speech before the Greater Boston Chamber of Commerce, Patrick “just lost my patience,” he recalled. Unless insurers lower their prices, he told the audience, he would direct the insurance commissioner to take the unprecedented step of rejecting any rates the state viewed as excessive.

“I said, ‘Look, something has got to give,’ ” he said in the interview. “They didn’t think I would do it.” But on April 1 last year, the commissioner rejected 235 of 274 proposed increases for individuals and small businesses.

Some insurers sued. Eventually, many settled with the state for smaller increases. “I meant to get people’s attention, and we did,” Patrick said. This year, insurers returned with smaller increases.

The commonwealth has begun to use its large purchasing power — through Medicaid, subsidies for people to buy coverage in the exchange and insurance for state and municipal workers. For instance, in November, Massachusetts Health and Human Services Secretary JudyAnn Bigby said, Medicaid began an experiment with “medical homes” that coordinate care for the patients of about 200 doctors statewide.

The governor’s legislative proposal, introduced in February, would go further, setting changes in motion for both public and private insurance. In addition to the goals for a broad shift to global payments within four years, it would give the insurance commissioner authority to reject insurance rates based on the prices providers charge.

Such a plan has influential allies, including Murray, the state Senate president, who is urging fellow lawmakers to adopt the global payments plan this year.

“We’ve seen how patients in these integrated care organizations are much healthier and happier. . . . It has been a godsend,” said Brian Rosman, research director of a group called Health Care for All that is part of a new coalition pushing for the governor’s proposal.

Skeptics urge caution. House Majority Leader Ronald Mariano (D) says the state “ought to take more time. You turn the system upside down, you don’t educate people sufficiently, you are going to have a repeat of what we had in the ’90s with the [backlash against] HMOs.”

And Alice Coombs, president of the Massachusetts Medical Society, is especially concerned about physicians who work alone or in small groups, older physicians who might choose to retire rather than switch or new doctors who might leave for other states.

Among the biggest unresolved questions — for critics and supporters alike — is what the government would do if the shift to global payments and integrated care did not reach the goals by 2015. Patrick is admittedly vague on the question. “Yes, there should be accountabilities,” he said. “I am not persuaded that the market is going to get this right all by itself.”

But he said, “I don’t want to pre-suppose” the precise power the state should have to force changes. “The bill we filed,” the governor said, “is to provoke a debate, not to conclude it.”

Amy Goldstein is a national reporter for The Washington Post focused on health-care policy.
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