For Immediate Release - January 29, 2010

Attorney General Martha Coakley's Office Releases Report on Health Care Cost Drivers

BOSTON - Today, Attorney General Martha Coakley's Office released a report outlining the preliminary findings of the office's ongoing investigation into the factors that contribute to health care cost increases. During the past year, Attorney General Coakley's Health Care Division has conducted an extensive investigation into 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. According to the report, there are serious system-wide failings in our commercial health care marketplace that threaten access to affordable, quality healthcare.

The Attorney General's preliminary report is 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 will finish its current investigation and develop a more complete factual record through cost containment hearings to be held by the Division of Health Care Finance and Policy starting March 16, 2010.

"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 who are unable to keep pace with these rising costs," said Attorney General Coakley. "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 services. We hope this report will initiate a serious conversation among all the stakeholders and lead to practical solutions for cost containment in the Commonwealth."

The preliminary report outlines six (6) 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 sickness or complexity of the population being served,
    • the extent to which the hospital is responsible for caring 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. 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 reimbursement 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 Attorney General makes four (4) specific recommendations to promote value-based purchasing and ensure consumer access to high quality, affordable health care:

  • Discourage or prohibit insurer/provider contract provisions that perpetuate market disparities and inhibit product innovation;
  • Increase transparency and standardization in both health care payment and quality 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 convergence of provider rates where there are no differences in quality or other value-based factors; and
  • 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.

In addition to the investigation outlined 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; anti-trust review and monitoring; promulgation of new community benefits guidelines; and review of non-profit executive compensation at major hospitals and insurers.

The preliminary report is available on our website.

This matter 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.