Center for Studying Health System Change

The Community Snapshots Project

Capturing Health System Change

Boston, Mass.
1995

Overview

ost pressures from health plans and employers, and a frenzy of consolidation discussions among providers, are challenging Boston’s powerful academic medicine ethos. The speed and chaotic nature of change is reflected in the widely divergent views of key players about what is happening, what is going to happen, and what the changes will mean for the residents of eastern Massachusetts.

The Boston area is noted for its high quality health care and notorious for its oversupply of hospital beds and high costs. Despite extensive managed care penetration in the market, many area plans historically functioned more like preferred provider organizations (PPOs), with only modest management of care and little capitation. Today, health plans are growing, instituting more stringent managed care tactics, capitating providers, and steering patients to selected hospitals. Yet, observers expect the area’s high costs, oversupply of beds, and provider-dominated system to continue for a few years to come.

The Boston market includes about 3.8 million people living within the boundaries of I-495, about 25 miles from downtown. The market’s western boundary is Worcester, where the strength of the fully integrated Fallon Health Care System has deterred competitors from entering Boston-based systems. However, the market is broadening as hospitals, physician groups, and health plans expand their service areas to neighboring states, adding 700,000 people to the total market population.

The structure of Boston’s health system and the current rapid pace of change have been strongly influenced by public policy. Until 1991, hospital rate regulation fueled hospital expansion by ensuring high reimbursement rates, and it encouraged managed care growth by allowing only HMOs to negotiate rates with hospitals. Favorable state-set payment rates also fostered a strong system of 25 community health centers (CHCs) in Boston. Repeal of the hospital rate-setting structure in 1991 was a green light for all insurers to find ways to reduce hospital use and costs. The state Free Care Pool has provided safety net financing for the care of uninsured people, giving hospitals and some CHCs added financial security in the shifting marketplace. However, some advocates fear that a new Medicaid 1115 waiver could undermine the state’s long-held commitment to care for uninsured patients.

These developments primed the delivery system for change, which was ignited in 1993 when Harvard affiliates Massachusetts General Hospital (Mass. General) and Brigham and Women’s Hospital, the region’s two largest facilities and two of its five academic medical centers, announced a strategic alliance. That move sent almost every other player, including CHCs, in search of a partner to "bulk up with" in the impending fight for survival. The drive to find the right strategy and partner was and is so strong that pending mergers and the people involved in them are changing almost daily, indeed, one merger dissolved and three of the area’s top managers left key jobs in the course of this short review.

The dominance of Boston’s academic medical centers, which insulated the market from change in the past, is also evident in new hospital and health system alliances. The new Mass. General-Brigham and Women’s parent company, Partners Healthcare System, inspired other hospitals affiliated with Harvard, Tufts, and Boston University medical schools to seek their own partners. A possible New England Medical Center-Deaconess Medical Center merger has, according to recent newspaper reports, evaporated, leading to renewed talks among Deaconess, Beth Israel, and Children’s hospitals. Two of the city’s other major institutions, Boston City and Boston University hospitals, are also in merger negotiations.

Physicians and community clinics are pursuing horizontal and vertical consolidations. The Partners system has spawned a regional network governed largely by physicians, while other hospitals, such as Beth Israel and Cambridge, have created medical service organizations to contract with or employ providers. Significantly, hospitals and health plans are courting Boston’s CHCs to bolster referral bases and compete for Medicaid managed care clients. The Lahey Hitchcock Health Care Network (a merger of large medical clinics in Massachusetts and New Hampshire) and the Massachusetts Alliance of Physicians are examples of physician-driven consolidations. Interviewees are not certain whether these consolidations will lead to the complete integration of service delivery and insurance functions.

Growth and more aggressive cost management are the bywords among health plans. The sentinel event was the merger of Harvard Community Health Plan (HCHP) with Pilgrim Health Care in fall 1994. The new organization has nearly one million enrollees, enough to rival Blue Cross’s 2.1 million members. Harvard also shook the Boston area health system in 1994 when it moved all of its pediatric care from Mass. General to Children’s Hospital. Blue Cross, in turn, is seeking a preferred alliance with Partners. Tufts Associated Health Plan’s fully capitated Secure Horizons Medicare risk plan is expected to spur more extensive risk sharing by providers throughout the market. Some observers predict that the dominant, not-for-profit HMOs will become for-profits to obtain capital for further expansion.

Employers have not played an active role in shaping the health system, possibly because of the decline of large manufacturers in favor of smaller service firms. A few large businesses have tried innovative strategies, such as General Electric’s drive to "co-manage" care through sole-source HMO contracts, but most have conservative purchasing policies. However, the formation in 1993 of the Massachusetts Healthcare Purchasing Group (which has issued public "challenges" to health plans to hold down premium increases) portends a greater influence of the employer community over the future of the health system.

The snapshot of the Boston market shows everyone holding their breath, waiting to see whose merger marriage will succeed and whose will fail, which academic medical center will close, which HMO will turn for-profit, and what state and federal policies will mean for teaching and research programs, and other health care providers.

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