Editorial, Letter Address Boston Globe Investigation of Insurance Payment Discrepancies

The Boston Globe recently published an editorial and a letter to the editor addressing an ongoing investigation by a Globe Spotlight Team that found some hospitals in Massachusetts receive higher payments from insurers, even though there are no obvious differences in the quality of care that those hospitals provide -- especially for the most common procedures. The hospitals receive payments from insurers that on average are about 15% to 60% more than payments for the same procedure at competing hospitals. The hospitals that receive the highest rates are those that have the bargaining clout -- often based on a powerful brand name and elite reputation or geographical location -- to demand higher insurance payments (Kaiser Daily Health Policy Report, 11/21). Summaries of the pieces appear below.

Editorial
The investigation found that since "Massachusetts shifted from hospital reimbursement rates set by a state agency to a deregulated system in which insurers and hospitals negotiated with each other," the "two big winners have been Partners HealthCare's Massachusetts General Hospital and [Brigham and Women's Hospital]," a Globe editorial states. According to the editorial, the two hospitals "command disproportionately high reimbursements partly because they are highly regarded teaching hospitals that subsidize unique and costly facilities like their burn units, and partly because of sheer market muscle," adding, "No health insurer would dare to offer a plan that did not include them."

The Globe continues, "The deregulated system creates problems of equity and affordability," adding that Massachusetts "needs a better rate-setting system to ensure that the [2006 health insurance law] does not become the Big Dig of health insurance." An "alternative is to shift from the private dealing between insurers and hospitals to a more transparent system of performance-based reimbursements," or "the state could set an allowable range for the cost of each procedure," the editorial states. "Ideally, rate-setting would move toward a single-payment system ... by a private insurer, Medicaid, or Medicare," adding, "A saner rate-setting system would also pay more for primary care and less for the interventions by specialists that inflate overall costs and lure medical students away from basic care."

The editorial concludes, "A state health-cost bill this year set up a payment commission that will report next fall" and it "should recognize that the present system is not working, and devise a new one that controls cost and treats providers fairly" (Boston Globe, 11/26).

Letter to the Editor
The Spotlight Team's findings "are, to an economist, a straightforward problem with a simple solution," Philip Saunders, principal of Philip Saunders Associates, writes in a Globe letter to the editor. "This type of problem occurs whenever the decision maker is different from the payer," he writes. According to Saunders, "In this case, the decision maker is the patient, whose out-of-pocket costs are the same regardless of where the treatment is provided," adding, "The insurer or the government is the payer." He continues, "The solution is to charge significant [copayments] generally and to charge even higher copays for the more expensive hospitals." In addition, "[e]mployers, public and private, need to insist on health care plans with copays that represent significantly higher out-of-pocket costs to the patients at the high-end hospitals," Saunders writes, adding, "This would align the economic interests of the decision maker and the payer" (Saunders, Boston Globe, 12/2).