Health Inc.

Mass. Hospitals With Big Names Bring In Bigger Fees

For many firms, selling a lot of something means lower prices for customers. Think of Wal-Mart's recent entry into the casket business, where big-box prices — made up for in volume and bulk discounts — could undercut small-town undertakers.

Martha Coakley i i

hide captionMassachusetts Attorney General Martha Coakley.

SAUL LOEB/AFP/Getty Images
Martha Coakley

Massachusetts Attorney General Martha Coakley.

SAUL LOEB/AFP/Getty Images

That brings us to another reason American health care is a strange business. This common-sense principle doesn't apply to health care, at least in Massachusetts, according to a report released today by that state's Attorney General, Martha Coakley. Yes, the same Coakley who lost last week's special Senate election to Republican Scott Brown, effectively stalling Congress's national health overhaul plans.

"Our review shows that the current system of health care payment is not always value-based and health care providers throughout the state are compensated at widely different rates for providing similar quality and complexity of service," Coakley said in a statement. Big-time hospitals and physician groups in Massachusetts are actually commanding higher prices for the same work than their low-profile counterparts - a "distortion," Coakley says. Read the whole report here.

The investigation concludes, "There is a strong correlation between the price insurers pay to providers and providers' market leverage." Translation: doctors and hospitals with a powerful brand name, specialty niche or prime location can force insurers to raise payments in order to "maintain stable, broad provider networks."

Meanwhile, many factors that are frequently cited for causing the variation in cost — such as the quality of care, the severity of patients' illnesses, or the number of uninsured or Medicaid patients treated — did not correspond with prices. Hospitals weren't rewarded for getting better results, either, Coakley said.

Though none of the hospitals with high-end prices were named in the report, the Boston Globe reminds us they reported a while back that the prestigious Massachusetts General and Brigham and Women's hospitals are often paid between 15 percent and 60 percent more than the competition for similar work.

The Globe called it the "Partners" effect, referring to the phenomenon of the elite hospitals — both operated by Partners HealthCare - getting paid more for the same work, and the same results. Partners "said they welcome Coakley's report," the Globe says today.

Coakley challenges a few other pieces of conventional wisdom, too. The Dartmouth Health Atlas has attracted a lot of attention lately for research concluding that changes in utilization — the number of health services used — drive total health spending more than changes in prices. Coakley's report says price changes, rather than utilization, accounted for 80 percent of the growth in Massachusetts's health spending from 2006 to 2009.

In 2006, the state passed comprehensive health overhaul legislation of its own, expanding insurance coverage to most residents and making other broad changes to the way health care is paid for and regulated. Because of the state's unique health system, it may be hard to apply the reports' conclusions to other parts of the country.

Still, the finding that price is driving costs more than utilization has another twist. The fee-for-service medical payment system — in which doctors are paid based on how many services they perform — turns out not to correlate with total medical expenses incurred by the average patient. A report published last summer by a state cost-cutting commission suggested replacing fee-for-service with a "global payment system in which providers would receive a payment per person, adjusted for patients' health status and other factors to ensure that they are compensated fairly for their patients' health care needs."

Coakley's finding today indicates that may not help much.

Weaver is a reporter for Kaiser Health News, a nonprofit news service.

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