Massachusetts Providers Earn Higher Rates from MCOs

In another "signal that managed care's power to hold down medical costs and insurance premiums is waning," hospital networks in cities such as New York, Seattle and Boston are winning double-digit rate increases from HMOs, the Boston Globe reports. One provider system seeking higher rates is Partners HealthCare, formed in 1994 by Brigham and Women's and Massachusetts General hospitals and now the largest hospital and doctor group in Massachusetts. Last year, the network "won significant increases" from Blue Cross and Blue Shield of Massachusetts and Tufts Health Plan, and this year it could win a 25%-30% rate hike over four years from Harvard Pilgrim Health Care. Partners CEO Dr. Samuel Thier said Partners is trying "to reset the prices in this marketplace," adding, "We want to be able to climb out of the hole and get a little extra for inflation. To the extent that pushes up premiums, that should help other providers as well." According to Tufts CEO Dr. Harris Berman, Partners is not the only provider network that has been seeking rate increases. He said, "It's every hospital system. ... They're pushing harder. But we're trying to balance the needs of providers, so they're adequately paid, with keeping premiums under control." Besides wining higher rates, some networks are passing on a larger portion of risk to HMOs, so that when care costs exceed budgeted amounts, health plans are responsible for more of the "overrun" than hospitals.

The Harvard Pilgrim 'Risk'
The Globe reports that Partners' "public and tough tactics" for contract negotiations could prove "politically risky" in the case of Harvard Pilgrim, which nearly went bankrupt last year and now is under state supervision. As Partners positions itself to receive higher rates from Harvard Pilgrim, "sources" say that state Attorney General Thomas Reilly (D) is "reviewing all major proposals in the negotiations and is concerned that huge rate increases will disrupt the HMO's aggressive turnaround plan." Thus, Partners is trying to find ways to help Harvard Pilgrim pay higher rates, including buying some or all of the HMO's seven health centers or allowing the HMO to pay a larger portion of the increases in the contract's later years.

Increased Premiums?
The Globe reports that as health plans agree to larger reimbursement rates, the rising payments join prescription drug costs to "push up" insurance premiums. Tufts' Berman said, "If we raise [premiums] too much more, employers will drop health insurance coverage and then there will be more uninsured people." HMOs no longer can promise premium increases of 1%-5% per year, "as was common during the mid-1990s," the Globe reports. In Massachusetts this year, premiums rose between 7% and 17% and are expected to increase at least that much in the next year. David D'Alessandro, CEO of John Hancock Financial Services and a Partners board member, said employers previously "forced" HMOs to keep premiums low even as health care costs "exploded." He added, "There's no question in my mind that employers have taken advantage of the HMO and hospital wars for a long time." Stuart Altman, health care economist at Brandeis University and co-chair of Massachusetts' health task force, said, "Given the cost structure here and the kind of care we seem to want, no one was in good shape financially. The HMOs weren't and the hospitals weren't. The only way both are going to survive is sizable -- and I mean sizable -- premium increases over the next few years. Partners is just the leading edge" (Kowalczyk, Boston Globe, 3/18).