Health care costs can be reduced.  Simply lowering the rate of inflation is not enough.

That’s the message AIM delivered this morning to a Beacon Hill committee considering perhaps the most important piece of legislation since the workers compensation reform of 1991 – Governor Deval Patrick’s proposal to change the financial model of health care in Massachusetts from the current fee-for-service system to one in which insurers pay doctors and hospitals flat fees for patient care.

AIM is strongly supports payment reform because it holds the promise of reducing costs and improving quality. If done correctly, payment reform is the means by which we transform our current health care delivery system.

The stakes for Massachusetts employers and citizens could not be higher. Relentless health insurance premium increases of up to 40 percent annually have become an impediment to job creation and threaten our economic recovery. The time is now for offering some relief and we cannot let the fact that the solutions are hard to implement or disruptive of the status quo be an excuse for not forging ahead to resolve the health care cost conundrum. Urgency is needed.

Eileen McAnneny, Senior Vice President and Associate General Counsel at AIM, said in written testimony to the Joint Committee on Health Care that payment reform will encourage doctors and hospitals to focus on keeping people healthy rather than treating illness. This change in care delivery through new Accountable Care Organizations will eliminate much of the current inefficiency and lead to better health outcomes.

But make no mistake, McAnneny wrote, the objective of the proposed legislation must be to lower health insurance premium costs.

“That will be the metric by which employers judge its success. We would therefore suggest that the cost reduction goal be more explicit in the legislation and that you add a clear metric for measuring our success at achieving that goal,” she said.

McAnneny outlined key principles that employers believe will make payment reform a success:

• Voluntary Transition. The path Massachusetts takes to become more integrated and efficient should be voluntary, though reaching well defined cost goals should not. If the legislative approach to global payments is overly prescriptive, it could stymie innovative approaches that are already underway. Legislatively dictating how the transformation occurs could also create expectations for public funding for the infrastructure changes that may be necessary to support this transformation.
• Baseline Definition of Accountable Care Organizations. Legislation should define core elements of an accountable care organization while ensuring that the market retain needed flexibility and critical innovation. To be an ACO, entities need to demonstrate an ability to: attract sufficient primary care practitioners; provide care across the entire spectrum; manage and coordinate care; measure utilization and evaluate its appropriateness; accept, compile, report and analyze data on cost and quality measures; and distribute global payments.
• Role of Government. The government plays two roles in payment reform – purchaser and regulator. As the largest purchaser of health care in the commonwealth, the government should lead the way. The Mass Health program, the Group Insurance Commission and the Commonwealth Connector can and should move away from fee-for-service toward global capitation or other alternative payment methodologies as soon as possible.

AIM’s belief that carefully implemented payment reform can reduce health costs is based upon extensive data from pilot programs that have used this integrated care/global payment approach. The goal seems within reach because:

• A significant share of medical care is unnecessary or inappropriate;
• Massachusetts residents receive a disproportionate amount of care in costly teaching hospitals than the national average (40 percent vs. 17 percent); and
•  A coordinated approach to care avoids costly inpatient episodes of care.

Employers cannot afford to be passive observers of changes to the health insurance system. In fact, payment reform legislation would not be necessary if employers brought the purchasing skills that they use in other aspects of their business to bear on the health care sector and demanded change.

AIM is committed to providing our members with the information they need to be that change. We are encouraging the purchase of tiered products, for example, as a way to reward efficient providers with volume and to correct the dysfunction in the market that allows higher cost providers to capture more and more of the health care patient volume with no discernible quality difference.

The Joint Committee on Health Care is scheduled to hold additional hearings on global payments on May 23 in Worcester and June 6 in Salem.