Massachusetts' Next Step


According to this article in the NY Times, Massachusetts is getting crushed by health care costs. A vast majority of people in the state have some form of insurance, but the costs of providing health care in Massachusetts is expected to increase by 42% in 2009 alone.

Now Massachusetts is looking at whether it can regulate insurance premiums – i.e. limit what insurers can charge.

Massachusetts is also deciding whether or not to “bundle” payments for health care. In other words, if you need your appendix out, Massachusetts pays the provider one price to take care of you from beginning to end of treatment for that problem. If you get it done cheaper, the provider keeps the change. If there are complications or if expensive testing is needed, the provider pays out of pocket for whatever costs go above and beyond the flat fee. In theory, providers could lose significant amounts of money by treating high-risk patients who are prone to develop complications or bad outcomes.

This prepayment idea was also tossed about by Michael Canon at the CATO Institute.

On its face, the idea sounds good. But underneath the surface, I think that such a system encourages skimpy medical care and encourages cherry-picking of healthy patients.

Remember the HMOs that paid physicians a flat fee for taking care of all the patients? Remember fighting with physicians for appointments and testing because the physicians had to control costs? How will the system proposed in Massachusetts be any different?

In addition, I think there will be a lot of gaming of the system.

I was going to give examples of how the system could be gamed, but will hold off for now until more about the proposal is disclosed.

I continue to think that “prepayment” or “bundled payment” ideas will have an adverse effect on medical care.

Healthcare policy experts interviewed for the article hit the nail on the head:

Changes in payment practices will not be enough to slow the growth in spending, even when combined with other cost-cutting strategies. To truly change course, they say, the state and federal governments may need to place actual limits on health spending, which could lead to rationing of care.

“Really controlling costs requires just stopping spending,” said Stuart H. Altman, a professor of health policy at Brandeis University.


  1. I am clearly no healthcare policy wonk, but I am perforce involved because these policies intimately impact my daily life, and the discussions about them are sometimes passing as political debate. Imagine! So if I counter what seem like elevated remarks with plebian details of the personal, well… consider it local politics.

    My orthopedic surgeon “bundles” his services. For instance, there is a flat fee for a shoulder replacement, from pre-op visit through surgery (or surgeries, should there be complications) to post-op visits. He does phenomenal work, has saved my life a few times, and has incredible diagnostic super-powers. Don’t get all aquiver to cast aspersions on this fine surgeon, despite the man’s obvious leftist/socialist/progressive tendencies in billing because…

    He also commits what, in my opinion, is fraud. He recoups his money, thereby maintaining an obscene profit margin, through double-billing (even triple billing)of surgical services. Add that to the legal tricks of the trade, like calling cortisone injections given by his nurse “outpatient surgery,” and he’s making a healthy bundle through Creative Coding.

    So is he just an odd version of a Robin Hood? Keeping cost low for me, sticking it to the insurance company, and raking in the profits for himself?

    The first time I noticed what was going on, I called the business office at his practice, thinking that there had been an error in what was submitted for payment to BCBS. Bluster-bluster-bluster was the response. I wrote a polite letter formalizing my inquiry. No response. Fine. I called the insurance company. The Customer Service rep referred me to their Fraud Unit. The rep there listened intently, seemed to be taking notes, and when all was laid out, responded:

    “What do you want us to do about it?”

    My insurance premiums have increased 500% since 2002. For coverage of myself alone, I pay $1,327/month, with a $5,000 deductible. I have no *choice*, indeed, it was only with the assistance of the State Insurance Commissioner that I was able to get coverage at all. I am disabled and my monthly disability insurance payment through my employer, a school system, is $1996.20 — not subject to adjustment for cost of living.

    I have a mortgage that is paid fully and on time every month. When Pres. Obama announced assistance to those facing foreclosure, I spent a few weeks being pissed off that people — probably much better off than me — were getting a freebie. Somehow, I woke up one day to realize the destructive nature of my anger. The assistance being offered did not harm me, and why should I be angry that someone else was helped?

    What do these petty personal details have to do with the cost of healthcare in Massachusetts? Hell, I almost don’t know anymore, except that I am thinking of relocating there.

    Bundling of services, if done without fraud by the doctors billing the services, would be a very helpful policy for people such as myself. Perhaps if obscene profit margins were sufficiently tempered, and care truly “focused,” defensive medicine, with its cover-your-ass excessive testing/costs, might be choked out of the system. Yes, there ought to be responsible tort reform to go along with that — providing focused bundled care should not expose doctors to additional risk of specious litigation.

    The 42% increase (from 2006 costs) that Massachusetts will spend on “health insurance programs” covers an additional 432,000 people, leaving only an *astounding* 2.6% of their citizenry uninsured. Yes, the costs the state is facing appear untenable, but there are some
    positive counterweights:

    “Although nearly 60 percent of the newly insured are covered by public programs, Massachusetts also seems to be a rare state where the percentage of employers offering health benefits is actually growing. And the state government has realized substantial savings, worth about $250 million last year, from lower payments to hospitals for uncompensated care for the uninsured and underinsured.”

    Thank you for the consistent provocation!

  2. Here is a way to see the bad aspects of the “flat fee per diagnosis” proposal.

    FlatFee assumes that the physician has perfect knowledge about his patients and the future. He is expected to charge the expected average for all outcomes plus his own pay, up front, and either profit or lose according to how things work out.

    There is a way to have perfect knowledge, just for discussion. Charge all patients after the fact, at the end of the year. Each patient receives a bill stating:

    “This is the average charge for treating patients with your condition. We apologize if your case was uncomplicated, but we are running a combined insurance company / medical practice, and must charge you according to the averages. If your case was long, uncomfortable, and complicated, at least you have the consolation that your bill is less than the cost of treating you.”

    In reality, the FlatFee proposal has all of the characteristics of this example, PLUS the uncertain knowledge of what will actually happen in the future, so it must work out less well than the discussion example.

    This would be complicated and unfair to the doctors. Why should they have to combine an insurance company operation with their other duties? In reality, they would have to sub-contract the insurance aspects, and then represent that their charges were “fair” to some regulatory committee.

    Of course, this is what medical insurance does as a specialized function that can be evaluated and purchased separately by the individual. Insurance has the benefit that the doctor is paid for the services performed, so there is no disincentive to deny or cut back on care to the sickest patients, and fewer lawsuits against doctors claiming exactly that.

    Also, how does one include following specialist care, when there is a disincentive to refer to a specialist. Doctors should remain neutral in advising about courses of care with associated costs and risks. Consider the lawsuits about denied referrals. Defensive medicine would require an expensive referral for almost all cases, and these costs would be bundled into the “average cost”.

    The government cannot reduce the actual costs of medical care by sweeping the insurance function under the doctor’s rug. Government is already distorting the price of care and access to care by forcing hospitals to charge the insured patients for the cost of care to all of those who can’t or won’t pay.

  3. MA has a statue that requires everyone have health insurance or they are charged a penalty when taxes are filed. To accomodate low income and self employed, MA introduced insurance through the state; do you think this has contributed to the radical increase in costs.

    Additionally, here in NY bundling is what I have always known. Every surgery I have had included follow-up visits in the surgeons fee.

  4. “Consider the lawsuits about denied referrals. ”

    How many are there? What have been the payouts? How can we factor those if we don’t know the answers to those questions?

  5. “Denied referal” is not what is necessarily happening now or in the future, but is what I think lawyers could claim in the future.

    If a doctor can make more profit by denying some care, as FlatFee would produce, then lawyers will claim that this moral hazard has injured their patients, and many lawsuits will result, as I see it.

    There is already much wasted money on tests done as “defensive medicine” to prove that the doctor looked for everything. This is not cost-effective care, and it raises insurance rates, but it is cheaper than being sued often. If the incentives of doctors become confused, there will be defensive medicine, defensive referrals, and defensive everything, in my opinion. This will raise costs, not lower them.

    I’m not a doctor. If I am wrong, I would appreciate being informed and corrected.

  6. It’s dangerous trying to guess what patients might claim in the future, and what courts might recognize as a cause of action. There’s simply no telling.

    There’s no reason a flat fee wouldn’t work for doctors. I often offer my clients a flat fee v. hourly rate. Sometimes they want the certainty. It doesn’t change the quality of the work product. The key is pricing it right and clarifying what comes with that.

    As for defensive medicine, putting aside the problem of defining it, again there’s no evidence it works. Nor is there any evidence it raises insurance rates, unless docs are lying regularly that things aren’t medically necessary.

    The key is looking at these issues as individuals purchasing services from professionals. That’s all it is.

  7. The other problem with flat fee pricing that all the above are assuming is that the amount given out by the insurance company is NEGOTIABLE.

    It is not. The insurance companies dictate to all of doctors what they will pay. There is no give and take.

    I as a solo doctor have no say in making the reimbursement cover my costs. I as part of a larger Independent Practice Association still have no say in adjusting the reimbursement. Even when I was with the largest physician organization in the US, we had no real leverage in getting increases in reimbursements.

    The premiums have gone up. Patients’ Co-payments or deductibles have gone up. My reimbursement in dollars per visit have not gone up since I started practice in 1987. So where did all that money go? To the millions in bonuses to the CEO, to the stockholders (who are also the CEO and other higher ups using their stock options).

    Blue Cross keeps more than 15% of the premium dollar for “non-medical overhead”-thats the other name for profit. Kaiser keeps 1.5-2% for their overhead.

    No one complains about the insurance companies. I’m the greedy doctor doing this just for the money.

  8. I apologize for being so “tangential,” off topic. Recently, I received some Explanation of Benefits forms from BCBS regarding their payment of a specialist that I have been seeing. This doctor runs a tight ship — he has more technology in his office than I’ve seen in the hospital proper. Anyway, I don’t know what the length of time is within which insurance companies are supposed to pay providers (30 days?)– but he is the first I’ve ever seen to charge BCBS INTEREST for late payment! It is, in my case, only a few dollars — but I imagine it adds up to a nice sum over time.

    One way to possibly get some [small] satisfaction, hashmd. I suppose another route would be to become Code Crazy like Happy Hospitalist — sad to see, although I am beginning to appreciate the “need” — in your case, frankly, more than his…

    • Actually from my experience working in Medical A/R, it does happen on occasion that things fall through the cracks at the insurance company and an interest penalty is paid.

      More often than not, the insurers will apply the penalty to themselves! (Really!)

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