State Health Reform Dominates Boston Health Care Market

With Nearly Universal Coverage Achieved, Attention Shifts to Unrestrained Health Care Cost Growth

News Release
Sept. 2, 2010

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON , DC—Massachusetts’ 2006 landmark health reform law has reverberated throughout the Boston health care market as providers, insurers, employers and consumers adjust and adapt to a post-reform world of nearly universal health insurance coverage, according to a new Community Report released today by the Center for Studying Health System Change (HSC).

Political support for health reform has remained strong and broad-based, but reform opponents are more vocal—especially small employers whose premiums have increased substantially since the merger of the small group and individual health insurance markets, according to the report.

“With nearly universal health coverage attained, policy makers are now grappling with the more intractable problem of how to slow the growth of rapidly rising health care costs,” said HSC President Paul B. Ginsburg, Ph.D.

In March 2010, HSC researchers visited the Boston metropolitan area—Essex, Middlesex, Norfolk, Plymouth and Suffolk counties—to study how health care is organized, financed and delivered in the community. Researchers interviewed more than 50 Boston health care leaders, including representatives of major hospital systems, physician groups, insurers, employers, benefits consultants, community health centers, state and local health agencies, and others.

Boston is one of 12 communities across the country tracked intensively as part of the Community Tracking Study site visits, which are jointly funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform. HSC has been tracking these communities since 1996. Other key findings of the report, State Health Reform Dominates Boston Health Care Market Dynamics, which is available online at www.hschange.org/CONTENT/1145/ , include:

• With state policy makers deferring hard decisions in the reform law about slowing the growth of health care spending, costs have continued to increase rapidly, fueled in part by the ability of Boston’s renowned academic medical centers (AMCs) to command higher prices and attract more patients from community hospitals.
• State regulators and health plans have been embroiled in disputes over proposed rate increases for the small group market, even though the major plans faced operating losses as medical costs continued to increase.
• The fabric of Boston’s traditionally strong health care safety net is changing with most community health centers (CHCs) benefiting from coverage expansions and safety net hospitals struggling financially as the state shifts uncompensated care funding to subsidies to expand coverage.

As the national health reform debate unfolded, many viewed Massachusetts as a bellwether for implementation of national health reform. However, Massachusetts and the greater Boston area were better positioned to achieve universal coverage than other parts of the country, given their low uninsurance rates prior to health reform. In addition, Boston—an affluent community with better health and greater health care provider capacity than other metropolitan areas—has not experienced significant provider shortages and access issues as a result of coverage expansions.

Boston’s very affluence and the prominent standing of its AMCs have made cost containment a particular challenge. Historically, the Boston community has taken pride in its health care institutions, especially the flagship hospitals of Partners HealthCare—Massachusetts General Hospital and Brigham and Women’s Hospital—and Children’s Hospital Boston. But the market is characterized by a high proportion of medical care—even relatively routine care—provided in expensive advanced settings. This pattern has been accentuated in recent years as the AMCs extended their reach into the suburbs with the construction of satellite outpatient facilities and growing affiliations with community-based physicians.

While the state has focused on capping health insurance premium rates, health plans and market observers pointed to high and rapidly rising hospital prices as the primary factor underlying high premium increases. This point has been reinforced in the past year by a series of high-profile state reports and hearings, all pointing to hospital prices as key cost drivers.

Policy makers have proposed curbing provider rates—in particular, hospital rates.   Respondents were skeptical that strong measures to control hospital costs would be enacted. As one market observer commented, “The largest employers are all health care related…Anything anyone suggests to curb provider costs is labeled a ‘job killer’ bill immediately.”

Indeed, as many observers predicted, legislation enacted this August, known as the “small business cost containment bill” contains no provisions curbing provider rate increases. Instead, it calls for financially strong hospitals to make voluntary, one-time contributions aimed at easing premium increases for small groups. Partners volunteered to contribute $40 million, an offer that one market observer said “is regarded in the community as a pitifully small amount compared to what people believe [Partners] can afford…It has generated a tremendous amount of cynicism in the community.”
     
Proponents of the voluntary fund countered that it is intended only to provide short-term relief to small businesses until more substantial contracting and payment changes can be implemented for the medium and long term. With the new law increasing requirements for health plans to control expenses and premium increases, some observers expected to see financially strong providers face intensifying pressure to make significant rate concessions to plans.
     
Hospital respondents all viewed cost containment as the major challenge facing their organizations and acknowledged that current cost trends are unsustainable.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded in part by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.