For Immediate Release - June 22, 2011

AG Coakley Releases Second Report Examining Key Drivers of Rising Health Care Costs

A Shift To Global Payments Is Unlikely To Control Rising Costs Unless Provider Price Disparities are Addressed; Report Finds Higher Medical Spending for the Care of Higher Income Residents

BOSTON - A shift to global payments is unlikely to control rising costs without also addressing historic health care provider price disparities and encouraging consumers to make prudent health care purchasing decisions, according to a report issued today by Attorney General Martha Coakley's office. Coakley's report finds that providers who are globally paid in Massachusetts do not have consistently lower medical expenses. In addition, the report finds that medical spending is on average higher for the care of health plan members with higher incomes.

To reduce the growth in health care spending in Massachusetts, the report recommends taking steps to give consumers more options to make value-based purchasing decisions through tiered and limited network health plans. Because historic price disparities, not related to value or the quality of care, distort how the market functions, the Attorney General also recommends temporary restrictions on how much prices may vary for comparable services until tiered and limited network health plans, and market transparency, can improve market function. The report notes that global payments should ultimately result in better care coordination but won't lead to lower total medical spending unless underlying market disparities are addressed.

This is the second major report on health care cost trends and cost drivers by Coakley's Office. Over the past two years, the Attorney General's Health Care Division has conducted an extensive review of never before obtained data from Massachusetts health insurers and providers.

"The continued increase in health care costs is one of the most important issues confronting families and businesses," said Attorney General Coakley. "Our investigation shows that a move to global payments is not the panacea to controlling costs without first addressing provider price disparities that are not related to the quality or complexity of the services being provided."

The Attorney General's findings are based on information received from major Massachusetts health insurers and providers pursuant to a 2008 law enacted to promote cost containment, transparency, and efficiency in the delivery of quality health care. This year's six key findings are:

  1. There is wide variation in the payments made by health insurers to providers that is not adequately explained by differences in quality of care.
  2. Globally paid providers do not have consistently lower total medical expenses.
  3. Total medical spending is on average higher for the care of health plan members with higher incomes.
  4. Tiered and limited network products have increased consumer engagement in value-based purchasing decisions.
  5. Preferred Provider Organization (PPO) health plans, unlike Health Maintenance Organization (HMO) health plans, create significant impediments for providers to coordinate patient care because PPO plans are not designed around primary care providers who have the information and authority necessary to coordinate the provision of health care effectively.
  6. Health care provider organizations designed around primary care can coordinate care effectively (1) through a variety of organizational models, (2) provided they have appropriate data and resources, and (3) while global payments may encourage care coordination, they pose significant challenges.

The Attorney General makes six (6) recommendations to promote value-based purchasing and ensure consumer access to high quality, affordable health care:

  • Promote tiered and limited network products to increase value-based purchasing decisions.
  • Reduce health care price distortions through temporary statutory restrictions until tiered and limited network products and commercial market transparency can improve market function.
  • Encourage consumers to select a primary care provider who can assist consumers in coordinating care based on each consumer's needs and best interests.
  • Promote coordination of patient care through primary care providers by recognizing the need to improve funding of care coordination, including the infrastructure necessary to coordinate care, and by giving providers timely access to relevant patient data regardless of their size or payment methodology.
  • Consider steps to improve the use of the all payer claims database (APCD) by: (i) developing reports for providers and the public to guide development of patient care coordination improvements and system accountability, and (ii) increasing the standardization of claim level submissions by reducing differences in how payers report payment level information.
  • Develop appropriate regulations, solvency standards, and oversight for providers who contract to manage the risk of insured and self-insured populations.

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. Those actions 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 and board of director pay at major hospitals and insurers.

The final report is available at: pdf format of 2011 Health Care Cost Trends and Cost Drivers Report
file size 1MB

This examination and report was handled by Assistant Attorneys General Susan Brown, Lois Johnson, Karen Tseng, Division Chief Tom O'Brien, Legal Assistants Merritt Dattel McGowan and Marie Defer, and Financial Analyst Anthony Taylor of Attorney General Coakley's Health Care Division, with assistance from Kristen Metzger of the Civil Investigations Division. The Attorney General would also like to acknowledge the expert assistance of Damokosh Consulting, LLC, Freedman Healthcare, LLC, and Gorman Actuarial, LLC.