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AG’s Health-Cost Mystery Release is Must Reading for Employers

Posted on June 22, 2011

Looking for a blockbuster to read at the beach this summer? Attorney General Martha Coakley and the Mystery of Spiraling Health Care Costs should be at the top of every employer’s reading list.

CoakleyOK, it may not have quite the suspense of Stieg Larsson, but the attorney general’s newest release has some eye-popping lessons both for employers looking to reduce their health costs and policymakers seeking to overhaul the entire health care system.

Read the Report

Coakley released the report, her second major investigation of medical costs in Massachusetts, this morning.

Her report finds that:

  • Doctors and hospitals charge widely different prices for the same medical services.
  • The quality of medical care has no correlation to the price of that care.
  • Globally paid doctors (those who accept a set annual payment to care for each patient) do not have a lower total medical expense than fee-for-service providers. The finding is important because most state policymakers believe that global payments hold the key to reducing health care costs.
  • Wealthy people spend more on health care than less affluent people.
  • The number of consumers choosing limited, or tiered, networks is increasing. These networks offer consumers access to high-quality medical care at reasonable prices.
  • Preferred Provider Organizations (PPOs), where patients do not have a primary care physician, create significant impediments to the coordination of care.
  • Primary care physicians provide the most coordinated care, regardless of the payment methods used. Primary-care doctors are expected to play a central role in the pending overhaul of the health care finance system.

The report is based upon data from private health insurance plans for the year 2009.

What are the lessons for Massachusetts employers struggling to manage health care premium increases of up to 40 percent annually?

  • Consider purchasing a health insurance product that offers tiered networks that rank doctors and hospitals based on cost and quality.
  • Purchase a product that requires your employees to use a primary care physician.

The relatively inexpensive medical care provided by tiered networks does not equal bad medical care. The attorney general’s finding that the quality of health care has nothing to do with the sticker price may shock a commonwealth filled with world-renowned medical institutions, but it should be a wake-up call for employers.

What are the lessons for Massachusetts policymakers?

  • The government may need to step in to fix the price variations in the market place by temporarily restricting the amount of money doctors and hospitals may charge for their services. AIM advocated for such an approach last year and testified again in favor of the concept this year.
  • “Global payments” are not a panacea. Legislators and the Patrick Administration cannot simply change the way medical providers are paid without also addressing the persistent issues of market power and reputational pricing that the attorney general says drive up the cost of health care.

Coakley’s report is a sequel to her ground-breaking report last year that found prices paid by health insurers to hospitals and physician groups vary significantly within the same geographic area and among providers offering similar levels of service. 

The 2010 found that price variations were not caused by:

• The sickness of the population served or complexity of the services provided;
• The extent to which a provider cares for a large portion of patients on Medicare or Medicaid;
• Whether a provider is an academic teaching or research facility; and
•  Differences in hospital costs of delivering similar services at similar facilities.

In other words, purchasers have been overpaying some health care providers for years for no apparent reason. 

AIM and the Employer’s Campaign for Affordable Health strongly urge Massachusetts employers to read the attorney general’s report. Here’s the simple truth – we cannot lower health insurance costs unless employers are engaged and informed.  Please post your comments and questions about the report in the comment section below.

Looking for a summary of potential solutions to rising health care costs? Join AIM for a free Webinar on July 6 from 9-10 a.m. We’ll explain the issue in plain English and outline what it all means to your company.