The Soon-to-Emerge Price War in Massachusetts Health Care

Massachusetts Attorney General Martha Coakley, fresh from her disastrous campaign for Ted Kennedy's senate seat, is back on the job. Last week her office released an important report - "Investigation of Health Care Cost Trends and Cost Drivers."

Federal health reform may be in hospice care, but Massachusetts reform is alive and kicking. Here are the key findings from the report:

• "Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.
  

  Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.
  

  Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.
  

  The commercial health care marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing."
  

The AG concludes that approximately 75% of the overall cost increase in the past four years is driven by unit prices. The rest is utilization.

The report is defined as a work in progress. But official acknowledgement that the prices insurers pay are not linked to outcomes is likely to rile up the legislature and perhaps the public as well.

The AG's findings should not be surprising. Ten years ago Tufts Health Plan went to the mat with Partners HealthCare (a system that includes the Brigham and Womens' and Massachusetts General Hospitals) in contract negotiations. Partners threatened to drop Tufts and the health plan capitulated. It had to. Without those prestigious hospitals in its network Tufts would not have been competitive.

Without naming names, the report refers to contracting practices that drive costs up, such as this one: "providers with market leverage are able to obtain contractual provisions that prohibit or inhibit insurers from creating limited network products and/or tiered products that might steer patients away from them." In other words, a health plan that wanted to give consumers a choice - pay more for access to "highly branded" providers or forgo that access - could not do so.

The AG's report is the opening salvo in what will be a widening conversation. A new round of hearings on health costs will begin in March. And the gubernatorial campaign will heat up soon after that.

Nothing in the report will be new to folks who are at all informed about health care and the health system. But what's needed to move the reform process is a more informed public, not more expertise among the wonk community. What has scuttled the federal effort at reform is the absence of a coherent public voice pressing for meaningful reform. The AG's report may help Massachusetts have a more reality-based political proces.

In particular, the AG's clear statement that the prices we pay through our insurance system are not linked to value - which is obvious to those who work in health care - may prod us (the Massachsetts public) to a deeper consideration of (a) what we value in health care, (b) how to assess it, and (c) how to make our payment system serve the values we care about. That consideration will stir a lot of conflict. But there's a chance that the conflict in Massachusetts will have more to do with the real issues than the "death panel" and "government takeover" nonsense that's swamped the federal effort.