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House health care bill needs some work



House health care bill needs some work

A HEALTH CARE REFORM BILL headed for a debate and vote in the House next week has some very good elements, but it also has some worrisome provisions, in particular the well-intended but flawed effort to raise commercial prices paid to the lowest-paid hospitals.

There is certainly a lot to like in the bill with respect to provisions giving the Health Policy Commission, the Center for Health Information and Analysis, and the attorney general more access to data and more review and oversight power over providers. �

Clearly the House is right with respect to wanting a better state understanding and deeper dive into the financial operations of an expanded group of providers—hopefully to learn about problems well before they reach the stage that Steward Health Care is manifesting right now.�

Also on target is wanting the Center for Health Information and Analysis, the Health Policy Commission, the attorney general, and the Department of Public Health to work together as a team to review and, as needed, to take action to protect against market transactions or provider expansions that increase health care costs or directly threaten a functioning market.

One of the most positive aspects of the House bill is its call for moving away from a single-year examination of provider or insurer spending growth related to the benchmark to a review of performance over three years. This would allow someone with over-the-benchmark spending growth in a given year to take appropriate actions to correct the negative trend over the next two years; at the same time, it ought to give more courage to the Health Policy Commission to order remedial action by any provider contributing to excessive spending growth over a three-year period.

Finally, the House bill would grant a long-standing Health Policy Commission request to make hospitals, physician groups, and some other types of health care organizations directly accountable for their spending growth and possibly subject to performance improvement plans.

These are all very good and much needed updates to our regulatory scheme.

But there are also some items in the bill that don’t make sense to me.

First, the bill proposes a change in the composition of the Health Policy Commission board, reducing the number of members from 11 to 9, allowing the governor to appoint a majority of them, and giving them stipends. More troubling is the proposal to eliminate the current conflict-of-interest restrictions on who can become a board member.�

A commissioner under the House bill could be someone who has a current role with or interest in a particular provider or insurer.  Imagine an employee of Children’s Hospital being appointed to the Health Policy Commission board and then being asked to vote on whether the hospital should be reined in under a performance improvement plan for out-of-control revenue growth. Very awkward.

It’s unclear to me why such a change is needed. There is no evidence to date that board members have acted improperly. Perhaps current health industry market participants could be more active participants on the commissions proposed Technical Advisory Committee, a group that the House seems to want to give more deference to with respect to their policy recommendations on adjustments to the benchmark and other matters. That should be the limit of where people currently active in the market should be allowed to directly participate in policy-making decisions at the Health Policy Commission.

Another proposed change—worth losing sleep over if enacted into law –is the attempt to increase the flow of commercial insurance payments to struggling hospitals in the state. Though the provision is well intended, there are some real flaws in its execution.�

The House wants to boost the commercial insurance revenue flowing to those providers that are paid the least and who often serve challenged patient care populations. �

The draft bill would establish a minimum effective relative price level that would be used for commercial insurance payments made to hospitals and certain physician groups for which the Center for Health Information and Analysis has pricing data. For 2026, the proposed statute would set the minimum effective price paid at 85 percent of the state average. Starting in 2029 it would rise to 90 percent, go to 95 percent in 2032, and finally to 100 percent from 2035 to 2037.

At each step, hospitals receiving less than the minimum effective relative price would receive a payment adjustment from insurers at the end of the year. Once the minimum effective price hits 100 percent, every hospital would be receiving commercial  payments at no less than the average payment level for all providers.

I am assuming, to avoid a continual ratcheting up of the average price level each year from setting these payment floors, that the average price would be calculated based on each previous year’s negotiated price levels between providers and insurers, ignoring the portion tied to the end of the year subsidy boost paid to those who were under the target floor level in place at that time. To do otherwise, would make no rational sense.  �

Perhaps an even more perverse aspect of this proposed scheme is that it would give the lowest-paid hospitals little incentive to negotiate increases in their pricing with insurers. Instead, they will be cheering on the rest of the hospital field to get paid as much as they can in order to raise up the average relative price level for all hospitals and, in so doing, maximizing the additional subsidy that they would receive.�

A key question with the proposal is how much the subsidies to hospitals with lower prices would cost. The most recent data available on pricing is from 2021, when total acute hospital spending was $10.65 billion. Assuming the House bill’s subsidy initiative had gone into effect in 2021, there would be about a dozen hospitals whose initial negotiated price fell below the effective minimum level. By my estimate, the supplementary payments they would be entitled to would have totaled nearly $43 million in that first year.  Updating that estimate to 2026, when the scheme would come into operation would probably yield a higher total subsidy cost, probably in the $55 million range.

Over the following decade, the supplemental payment costs would keep increasing, as more and more hospitals fall below the minimum effective relative price which entitles them to a subsidy at the end of the year.  The cost could run into the hundreds of millions of dollars, putting more upward pressure on premiums.

One way to reduce the impact on overall premiums would be to offset the subsidies going to the lower-priced health care providers by reducing the payments going to the higher-priced providers.

I could certainly imagine Mass General Brigham’s flagship hospitals: Massachusetts General and Brigham and Women’s, along with Children’s and Dana Farber, absorbing a combined total of $55 million of annual revenue holdbacks.  After all, Mass General Brigham was placed on a performance improvement plan for having $50 million per year of over-the benchmark revenue growth tied to a portion of their commercial business.    They are now in the process of foregoing about $176 million in revenues over an eighteen month period—apparently without any great challenge in operations while doing so. �

Even so, I wonder about the political viability of this proposed House scheme when one starts to look at a need to holdback each and every year, hundreds of millions of dollars to offset the subsidies given to those who become eligible for supplemental payments under the House scheme.

For me, the Health Policy Commission’s suggestion to cap overall price levels by establishing some benchmark relative to Medicare prices is a much better approach. Such an approach could of course be combined with minimum levels of commercial prices, again built off of Medicare prices. Or, alternatively, one could use some of the savings from price caps to directly subsidize providers in need of support.

I am heartened that the House is really trying to step up and take on some of the important health care policy challenges in front of us right now.  I am hopeful that they, and ultimately their Senate colleagues as well, can get these aims accomplished in as effective a way as possible.

Paul A. Hattis is a senior fellow at the Lown Institute.

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