Editor's note: This is first of a two-part series examining the ongoing struggle to curtail the rising cost of health care in the state. Today, we look at measures being taken by the insurance companies to control costs, including reduction in payments to hospitals. In the second part, we hear from Berkshire Medical Center and North Adams Regional Hospital about how those proposals could affect local health care.
NORTH ADAMS -- The way health care is paid for in Massachusetts could change over the next few months, as the state's largest health insurers move to freeze or cut payments to hospitals and physicians' groups.
It's a move that could force some Massachusetts residents to change doctors and hospitals in the near future, as providers are dropped from insurers' networks.
Select hospitals and physicians' groups around the state received letters earlier this month from Blue Cross Blue Shield of Massachusetts, the state's largest health insurance company, informing them everyone would be expected to "be part of the solution and to make some sacrifices."
"We have a growing affordability crisis in Massachusetts, said Andrew Dreyfus, executive vice president of health care services for Blue Cross Blue Shield of Massachusetts on Tuesday. "We're hearing from customers -- large and small employers, families and individuals -- that premiums are increasing too fast to be affordable. At the same time, Gov. Deval Patrick
Blue Cross Blue Shield and Blue Cross Blue Shield HMO recently announced its first quarter statutory financial results, reporting a combined after-tax net loss of $65.2 million. About $55 million is a required accounting treatment that reflects the decision by the state Division of Insurance to disapprove adequate premium rates in the individual and small group markets, according to a company press release.
Harvard Pilgrim Health Plan and Tufts Health Plan, the state's other two large insurance companies, issued similar letters this month, requesting rate rollbacks and the renegotiation of payment contracts.
While North Adams Regional Hospital and Berkshire Medical Center aren't expected to be affected immediately, what happens over the next year could dramatically impact how they receive payments from insurers in the future.
Blue Cross Blue Shield is in the process of negotiating with 25 of the state's 75 hospitals. Hospitals typically negotiate three-year contracts with the insurance companies.
"North Adams Regional Hospital renewed their contract with us last year," Dreyfus said. "Berkshire Medical Center is up for renewal this year, but is what we call a roll-over -- the current agreement automatically renewed for another three years."
But despite their new contracts, neither hospital is out of the woods.
"It's certainly possible that we'll be asking them to open their contracts," he said. "We have two sets of hospitals that are priorities for us right now -- the very high-paid hospitals identified in the attorney general's report and those up for renewal. Neither of the hospitals in Berkshire County is being asked to reopen their contracts or make concessions at this point. But once we are able to get some responsible rate concessions or flat rates, we'll be turning to the rest of the state and asking for the same considerations."
While it's still early in the negotiation process, there has been some initial resistance from the hospitals, but the general feeling is that executives are recognizing that the status quo is no longer acceptable, he said.
However, disruption of patient coverage and services could be a real outcome of the negotiation process if providers refuse to lower payment rates.
"It's a real possibility," Dreyfus said. "We're hoping that all the hospitals and physicians agree to work with us, but we understand that some many not want to collaborate and may decide to charge higher rates. We're willing to offer our members a network of hospitals and physicians that don't include those groups. There's the potential for disruption in services for our members or for those members of the other insurers."
He said the insurance companies are being left with few options, as pressure to reduce premium costs increases from the public and private sectors. A report, released by Attorney General Martha Coakley's office in March, showed the amount of payments made to hospitals and providers was not based on quality and type of care, but on market leverage and size. The size of those payments directly correlated to the increase in insurance premiums each year, the report stated.
"The pressure we have from customers, elected officials and state regulators has led us to ask the hospitals to reconsider the kinds of rate increases they're asking for," Dreyfus said. "For the last decade, they've been receiving payment increases of four to five percent. The price of care has increased nine to 10 percent each of those years. The prices paid to hospitals are one of the key drivers of premium costs. We can't provide relief to businesses without the hospitals giving us some relief."
One creative solution to the problem could be a shift to a capitation or global payment system, where providers receive pre-determined fixed payments for patients -- the payments are designed to cover all doctor's visits, hospitalizations, treatments and tests for a patient based on their gender, age and medical history. The payment amounts increase annually with inflation.
Currently, providers are paid on a fee-for-services basis, which critics say increases the use of unnecessary testing and procedures.
Critics of the global payment system say by pooling funds that are paid upfront, providers have an incentive to provide less care for their patients.
Blue Cross Blue Shield has had success converting nine hospitals and physicians groups to its Alternative Quality Care model -- a global payment system with the addition of incentives for quality care and reduced costs.
"The hospitals and physicians that have agreed to accept global payments for out members have agreed to reduce the total cost of care in half over the course of their contract, which is usually five years," Dreyfus said. "They've agreed to reduce that annual 10 percent increase in cost by half. Our system provides the same kind of relief that a traditional global payment system would, but the difference is that it includes substantial rewards and bonuses for improving the quality of care for our members."
Northeast Health Systems Physician Hospital Organization, representing some 278 physicians and close to 29,000 Blue Cross members affiliated with Beverly and Addison Gilbert hospitals and the New England Community Medical Group, became the latest group to sign up for a five-year Alternative Quality Care contract on Tuesday.
Other groups include Mount Auburn Hospital and the affiliated Mount Auburn Cambridge Independent Practice Organization Inc. in Cambridge; Hampden County Physician Associates; Tufts Medical Center and the affiliated New England Quality Care Alliance; Signature Healthcare Corp., which includes Brockton Hospital and Lowell General Hospital; South Shore Hospital, Atrius Health and Caritas Christi Health Care.
To reach Jennifer Huberdeau,
e-mail jhuberdeau@thetranscript.com.
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