Health System Change in Boston, Massachusetts

Round One Site Visit

Case Study
June 1997
Janet M. Corrigan, Robert E. Mechanic, Loel S. Solomon, Claudia Williams

oston is in a state of rapid change, with virtually every major health care organization building new capabilities and alliances. For most, this transformation involves some break from tradition and past corporate values; for some, a change in leadership and management; and for others, the painful process of downsizing. The economic importance of health care institutions to the local economy and their links to other major education technology-related institutions buffer them from a single-minded focus on health care costs by public and private employers. Despite relatively high costs and an abundance of physician and hospital resources, there is little evidence that either purchasers or health plans are bringing significant cost pressure to bear on the system.

The Boston health care community is unlike any other in the United States. It is the home of numerous world-renowned academic medical centers and clinical programs, including the Massachusetts General Hospital, Brigham and Women’s Hospital, Beth Israel Hospital, New England Medical Center and Boston University Medical Center. It is the training site for many medical students, residents and nurses who are affiliated with the medical and nursing schools of Harvard, Tufts and Boston University and the many teaching hospitals. The area’s institutions also sponsor prestigious clinical research programs and receive many lucrative public and private research grants and awards.

The health care industry is at the core of Boston’s local economy, accounting for a sizable proportion of the local work force and revenues. Boston’s health care institutions are major purchasers of goods and services produced by other local industries, such as banking, information technology and insurance.

The high-quality reputation of Boston’s health care institutions, combined with local economic dependence on the health care sector, have produced a community that is proud and protective of its health care traditions and organizations -- and, not surprisingly -- somewhat reluctant to confront the task of containing health care expenditures.

In recent years, as rates of increase in health care premiums and expenditures for other communities have declined, pressures have mounted on the Boston health care community to keep local health care premiums reasonably in step with those of other regions. Although private and public employers in the Boston region under the auspices of the Massachusetts HealthCare Purchaser Group have issued price challenges to insurers and health plans, they have not aggressively pursued reductions in premiums.

Both the privately insured and Medicaid populations are migrating steadily from traditional indemnity to managed care products. For the most part, these managed care products are characterized by substantially overlapping provider networks, and fee-for-service is still the dominant method of payment for providers.

Increased enrollment in managed care products has meant a decline in hospital use. In a community already characterized by excess acute care hospital capacity, further decline in demand has intensified competition among hospitals and made it increasingly difficult to use patient care revenues to cross-subsidize teaching and research functions.

Three large care delivery systems -- Partners Health Care System, The Care Group and Boston Medical Center -- have emerged in the last few years as a result of mergers between major hospitals located in the city proper. At the time of the site visit, one major academic medical center, New England Medical Center, had been unsuccessful in finding a partner, but subsequently announced plans to affiliate with Lifespan, a Rhode Island-based not-for-profit health system.

These large care delivery systems have focused largely on geographic expansion through acquisition of or affiliation with community hospitals and physician practices. Building geographically expansive networks serves to generate referrals for highly specialized tertiary care, but, more important, may also serve to strengthen the position of provider systems seeking to negotiate with insurers and health plans. These expansive networks are developing at the same time that some systems are negotiating with managed care plans for contracts that include nearly full capitation payment and that delegate care management responsibilities (credentialing, quality and utilization review, etc.). These actions have led some respondents to speculate that one or more of these systems eventually may try to compete directly with managed care plans.

The Boston market is dominated by three not-for-profit plans that have local origins but now serve much of the Northeast region: Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim Health Plan and Tufts Associated Health Plan. Growth in covered lives through geographic expansion is a key component of the long-term strategy of each of these three health plans. Health insurance products with large, geographically dispersed provider networks are viewed favorably by large employers seeking to offer the same health insurance products to their entire New England work force. Also, the level of managed care penetration in the Boston metropolitan area has reached what many believe to be a saturation point for the commercial population. Accordingly, geographic expansion is viewed as one way to keep increasing enrollment and to reap the benefits of economies of scale.

The health system changes underway pose challenges and opportunities for Boston’s safety net providers. As Medicaid recipients are moved increasingly from traditional fee-for-service arrangements to managed care options, the community health centers (CHCs), in particular, are actively working to adapt to new market dynamics. Many individual CHCs have entered into contracts with health plans and hospitals to participate in established provider networks that serve commercial and Medicaid insureds. CHCs as a group also continue to promote enrollment in the Neighborhood Health Plan (NHP), an HMO established during the 1980s under the auspices of the Massachusetts League of Community Health Centers that currently serves about 40,000 Medicaid enrollees. Because CHCs represent a diverse group with varying talents and capabilities, it is likely that some will adapt very successfully to the changing environment. However, others may not.