Sensible Approaches To Reducing Health Care Costs

Liz Kowalczyk of the Boston Globe reports on troubling new health data out of Massachusetts which finds that insurance companies are paying some hospitals “significantly more than others for providing similar care,” even though the higher paid hospitals are not producing better outcomes:

Cambridge Health Alliance was paid less than $5,000 each for 55 caesarean sections performed in 2009, while Massachusetts General Hospital was paid more than $10,000 each for 483 caesarean deliveries that year, state officials found.

They said it was unclear why insurers paid some hospitals dramatically more, since officials found no obvious differences in quality of care, and their analysis allowed for instances in which hospitals treat sicker patients.

Disparities in payments were first documented by Attorney General Martha Coakley’s staff last year, which concluded after an investigation that the highest paid hospitals had more market clout, some because of their brand names, but that they were not necessarily providing better care. The new report, which the governor’s office planned to release to the public today, mirrors Coakley’s initial findings.

It’s hard to know exactly how to counter this kind of waste, but the Independent Payment Advisory Board (IPAB) in the Affordable Care Act and some of the payment reform demonstration projects could provide a good starting point by changing the way Medicare pays providers and thereby nudging private insurers to adopt similar reforms. The budget the Center for American Progress released yesterday would get even more to the point by empowering the board to modify payment practices across the entire health system:

In our plan, aggressive implementation of the new health reform law, along with some enhancements to its existing cost-control mechanisms, will result in dramatically lower health expenditures, both for the federal government and overall. But predicting the exact effect of the myriad test programs and reforms in the new health law is fraught with uncertainty. Thus we also include a failsafe mechanism that would ensure significant savings.

Our failsafe would be triggered if, starting in 2020, total economywide health care expenditures grow at a rate faster than the economy. Should that happen then we would empower the Independent Payment Advisory Board to extend successful reforms in Medicare and other public programs to insurance plans offered in the health care exchanges and then potentially to all health care plans, such that the target is met. This will ensure that costs are constrained across the health care sector, preventing cost-shifting and maintaining access for all.

In that model you can see how reforms like pay-for-performance (if successful) could begin to ratchet down the overpayments some hospitals are now enjoying.