FINDINGS FROM ATTORNEY GENERAL’S EXAMINATIONS OF HEALTH CARE COST TRENDS AND COST DRIVERS PURSUANT TO G.L. c. 118G, § 6½(b)

OFFICE OF ATTORNEY GENERAL MARTHA COAKLEYONE ASHBURTON PLACE • BOSTON, MA 02108

February 13, 2012

Massachusetts: Health Care ReformYear Massachusetts Health Care Reform Federal Reform

1990’s Insurance Market Reforms•Guaranteed Issue•Modified Community Rating•Pre-existing Condition Limitations

2006 Expansion of Insurance Coverage•Individual Mandate•Employer responsibility•Medicaid Expansion•Insurance exchange (Connector)

2008 Chapter 305 – Cost Containment I•AG Authority to Examine Cost Trends

2010 Chapter 288 – Cost Containment II •Transparency, Rate review, and Tiered Products

22/13/2012

EXAMINATION APPROACH • We issued dozens of subpoenas for data, documents, and

testimony to major health plans and many different types of providers.

• We conducted dozens of interviews and meetings with providers, insurers, health care experts, consumer advocates, employers, and other key stakeholders.

• We engaged experts with extensive experience in the Massachusetts health care market.

• We greatly appreciate the courtesy and cooperation of payers and providers who provided information for these examinations.

32/13/2012

MEASURING HEALTH CARE COSTS

• TOTAL MEDICAL EXPENSES (TME): The total cost of all the care that a patient receives, including the payments by the health plan for the care of the patient, and any copayment or deductible for which the patient is responsible. TME reflects both price of services and volume of services.

• PRICE: The contractually negotiated amount that an insurance company pays a health care provider for providing health care services; we reviewed relative price information, which shows the prices paid by health plans to providers for all services in aggregate as compared to other providers in the health plan network.

42/13/2012

2010 and 2011 EXAMINATION HIGHLIGHTS1. Prices paid by health insurers to hospitals and

physician groups vary significantly.

2. Variations in prices are not adequately explained by value-based differences in the services provided.

3. Variations in prices are correlated to provider and insurer market leverage.

4. Global budgets vary significantly and globally paid providers do not have consistently lower TME.

5. Variations in prices impact the increase in overall health care costs.

52/13/2012

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Rela

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Pay

men

ts to

Hos

pita

ls

Hospitals from Low to High Payments

HIGHER PRICES ARE NOT TIED TO INCREASED COMPLEXITY OF SERVICES

HIGHER PRICES ARE NOT TIED TO TEACHING STATUS

6

0.00

0.20

0.40

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tal 5

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tal 6

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1

MA Hospital Performance on CMS Process MeasuresCompared to National Average Performance

DIFFERENCES IN PRICES ARE NOT ADEQUATELY EXPLAINED BY VALUE-BASED FACTORS

72/13/2012

$0

$50

$100

$150

$200

$250

$300

0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50

Aca

dem

ic M

edic

al C

ente

r's S

yste

m-W

ide

Hos

pita

l Rev

enue

from

Hea

lth

Plan

(in

mill

ions

)

Health Plan's Relative Payment to Academic Medical Center

MGH (1.35)BWH (1.31)

BIDMC(1.21)

UMMC(1.17)

TMC(1.41)

BMC(1.06)

HIGHER PRICES ARE EXPLAINED BY MARKET LEVERAGE

82/13/2012

Hospital Commercial Payer Margin

Government Payer Margin

Other Margin

Academic Medical Center 1

3.7% -3% -20.1%

Academic Medical Center 2

15% -6.9% -7.6%

Academic Medical Center 3

21.4% -33% -10.7

9

TESTIMONY IN DHCFP HEARINGS SHOW SIGNIFICANT DIFFERENCES IN HOSPITAL REPORTED MARGINS

“[U]nusually high hospital margins on private-payor patients can lead to more construction, higher hospital cost, and lower Medicare margins. The data suggest that when non-Medicare margins are high, hospitals face less pressure to constrain costs, costs rise, and Medicare margins tend to be low.”- MedPAC, Report to Congress, March 2009, page xiv.

2/13/2012

VARIATIONS IN PRICES PAID TO PROVIDERS EXIST IN GLOBAL RISK BUDGETS AS WELL AS IN FEE-FOR-SERVICE ARRANGEMENTS

• We found wide variations in the health status adjusted global payments made by health plans to at-risk providers.

• For example, in one health plan’s network in 2009, one globally paid provider had a health status adjusted budget of approximately $428 per member, per month, while another had a health status adjusted budget of only $276 per member per month.

102/13/2012

GLOBALLY PAID PROVIDERS DO NOT HAVE CONSISTENTLY LOWER TOTAL MEDICAL EXPENSES

0.800

0.900

1.000

1.100

1.200

1.300

1.400

1.500

1.600

MAR

LBO

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d H

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ance

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ness

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nt A

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mbr

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EDIC

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ROU

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assa

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PA

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ssoc

iate

s

UM

ASS

MEM

ORI

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ED. C

TR.

COO

LEY

-DIC

KIN

SON

PH

O

STU

RDY

MEM

ORI

AL H

OSP

ITAL

Sout

h Sh

ore

PHO

Part

ners

HAR

RIN

GTO

N P

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Child

rens

Rela

tive

Hea

lth St

atus

Adj

uste

d TM

E

Provider Groups from Low to High TME

Variation by Payment Method in one Major Health Plan's Health Status Adjusted Total Medical Expenses (2009)

112/13/2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010

% o

f Inc

reas

e in

Cos

ts D

ue to

∆ in

Pri

ce v.

Mix

v. U

tiliz

ation

BCBS'S COST DRIVERS FROM 2005-2010

UTILIZATION

PROVIDER MIX AND SERVICE MIX

UNIT PRICE

PRICE INCREASES CAUSED THE MAJORITY OF THE INCREASES IN HEALTH CARE COSTS IN THE LAST SIX YEARS

122/13/2012

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

$335 $367 $388 $410 $448

1st 2nd 3rd 4th 5th

Prop

orti

on o

f Mem

bers

at E

ach

Spen

ding

Lev

el w

ith

Low

v. H

igh

Inco

me

Members of Major Health Plan by Spending Quintile (As Measured by PMPM Health Status Adjusted TME)

$120,149

$54,827

$42,850

$36,390

$27,802

TOTAL MEDICAL SPENDING IS HIGHER FOR THE CARE OF COMMERCIAL PATIENTS FROM HIGHER-INCOME COMMUNITIES

132/13/2012

TIERED AND LIMITED NETWORK PRODUCTS HAVE INCREASED CONSUMER ENGAGEMENT IN VALUE-BASED PURCHASING

• Health insurance products that do not differentiate among providers based on value do not give consumers an incentive to seek out more efficient providers, because consumers are not rewarded with the cost savings associated with that choice.

• As a result: (1) consumers are de-sensitized from value-based purchasing decisions and (2) providers are not rewarded for competing on value.

• There have been recent developments in tiered and limited network products; these types of innovative products should be encouraged.

142/13/2012

1. Price transparency and consumer health care literacy: consumers should be able to get accurate information on coverage and costs from both providers and health plans.

2. Ensure a more effective and competitive market: employers and consumers should have viable competitive options for health care coverage and delivery.

3. Balanced approach to address historic market disparities: we need to set goals to control future growth and to reduce unwarranted price variations, and we should give the market time to meet those goals before temporary market corrections are made.

Three Pillars to Shore Up the Market

152/13/2012

RESOURCES & CONTACT INFORMATION

16

• Report of MA Attorney General’s Examination of Health Care Cost Trends and Cost Drivers: http://www.mass.gov/Cago/docs/healthcare/final_report_w_cover_appendices_glossary.pdf• MA legislation (Chapter 288 of Acts of 2010) to control costs and increase transparency in health care market:http://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter288• MA Division of Health Care Finance and Policy cost trend hearing materials:http://www.mass.gov/dhcfp/costtrends

2/13/2012