For Immediate Release - March 16, 2010

Attorney General Coakley Testifies and Releases Report Regarding Health Care Cost Drivers at DHCFP Hearing

BOSTON - Today, Massachusetts Attorney General Martha Coakley and members of her Health Care Division presented the findings of the office's year-long examination of the factors that contribute to health care cost increases in Massachusetts at a hearing today before the Division of Health Care Finance and Policy (DHCFP). Over the past year, Attorney General Coakley's Health Care Division has conducted an extensive review and analysis of the contracting practices between commercial health care insurers and health care providers (hospitals and physicians), specifically examining health care prices and how those prices are negotiated. The findings of the Attorney General's examination are detailed in a report released at the hearing today.

The Attorney General's findings are based on information received from major Massachusetts health plans and providers pursuant to a 2008 law enacted to promote cost containment, transparency, and efficiency in the delivery of quality health care. The Attorney General's Office issued a preliminary report outlining its findings in January 2010, and presented a final report and expert testimony at today's hearing.

"The information gathered through this process about how health care is paid for is unprecendented in Massachusetts, and unique in the nation," said Attorney General Coakley. "Access to this information has allowed us to identify what factors contribute to the ever-rising cost of health care in Massachusetts. We found that health care costs most closely correlated to the market leverage of hospitals and physician groups, rather than other issues that we would expect - like quality of care or patient population. Full transparency into how our health care market works will enable all stakeholders to craft practical solutions to contain skyrocketing costs, and ensure access to affordable, quality care for all Massachusetts residents."

In a presentation at the hearing, Attorney General Coakley, with the assistance of staff from her Health Care Division and two expert witnesses, outlined seven key findings that have powerful implications for the health care marketplace in Massachusetts:

  1. Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and amongst providers offering similar levels of service;
  2. Price variations for hospitals and physicians offering similar services are not explained by
    • quality of care,
    • the complexity of services or the sickness of the population being served,
    • the extent to which a hospital cares for a large portion of patients on Medicare or Medicaid , or
    • whether the hospital is an academic teaching or research facility;
  3. 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;
  4. Variations in providers' per member per month expenses are not correlated to the methodology used to pay for health care, with expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis;
  5. Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts;
  6. Higher priced hospitals are gaining market share at the expense of lower priced hospitals that are losing volume;
  7. The commercial health care marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.

These findings have powerful implications for ongoing policy discussions about ways to contain health care costs, reform payment methodologies, and control health insurance premiums while maintaining or improving quality and access. The report raises concerns that existing systemic disparities in prices may, over time, create a provider marketplace dominated by very expensive "haves" as the lower and more moderately priced "have nots" are forced to close or consolidate with higher paid systems.

"The continued increase in health care costs is one of the most urgent and complex issues in Massachusetts. Health care costs are increasing much faster than the growth of the economy, creating serious hardships for many individuals, families and businesses that are unable to keep pace with these rising costs," said Attorney General Coakley.

The Attorney General makes four (4) recommendations to promote value-based purchasing and ensure consumer access to high quality, affordable health care:

  • Increase transparency and standardization in both health care payment and quality measurements to promote market effectiveness and value-based purchasing by employers and consumers;
  • Improve market function by (i) adopting payment reform measures that account for and do not exacerbate existing market dynamics and distortions; and (ii) Develop legislative or regulatory proposals to mitigate health market dysfunction and rate disparities to promote prices that correlate to value, such as quality of care or complexity of services;
  • Engage all participants in the development of a value-based health care market by promoting creation of insurance products and decision-making tools that allow and encourage employers and consumers to make prudent health care decisions; and
  • Discourage or prohibit insurer/provider contract provisions that perpetuate market disparities and inhibit product innovation;

In addition to the examination described in today's report, the Attorney General's Office has used its authority to control health care costs and to protect consumers and small businesses facing escalating premiums through actions that include:

  • Record recoveries for Massachusetts in Medicaid fraud enforcement actions;
  • Consumer protection cases against numerous drug and insurance companies;
  • Ongoing anti-trust review and monitoring;
  • Promulgation of new community benefits guidelines;
  • Review of non-profit executive compensation at major hospitals and insurers.

The final report is available on the Attorney General's website pdf format of 2010 Health Care Cost Trends and Cost Drivers Report
file size 1MB.

This examination and report was handled by Assistant Attorneys General Lois Johnson, Karen Tseng, Susan Brown, Financial Analyst Anthony Taylor, and Division Chief Tom O'Brien of Attorney General Coakley's Health Care Division.