2011 Annual Report

Targeting Health Care Costs: The Price for Services

Solutions from Beacon Hill

The Nations Best Health Plans Working for Affordable Care

Table of Contents

Lets Start with Some Facts Where Does the Premium Dollar Go? Where Do MA Residents Get Care? Whos Making Money? Whats the Role of Price Variation? What Does the Data Tell Us? What Are the Solutions for Dealing with Price Variation? What Our State Leaders Are Recommending What You Need to Know About Market Power and Payment Reform Committed to Cost Control MAHPs 2011-2012 Legislative Agenda Do Higher Costs Buy Better Care? NCQA: High Quality, High Satisfaction Myths and Facts About Health Plans MAHP Board of Directors and Staff About MAHP Philosophy of Care

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Dear Friends:
In 2011, we witnessed many changes in the Massachusetts marketplace: new partnerships by health plans and providers; a significant movement to alternative payment methods; and several provider groups chosen to participate in the federal accountable care organization (ACO) pilot. While these changes all hold the potential for delivering better quality care for patients, one factor remains the same prices for medical services charged by providers, while slowing, continue to rise. Controlling health care costs remains the critical challenge for preserving our states landmark health reform law and helping employers create new jobs. MAHP member health plans continue to do their part and have brought millions of dollars in savings to small busineses through rate reductions and new products. The Legislature, through Chapter 288 of the Acts of 2010, imposed the nations strictest health insurance premium standards, requiring that 90 percent of the premium be spent on medical care, while limiting insurers profits and increases in administrative spending. Still, premiums continue to rise. Why? Despite health plans efforts, the prices providers charge for their services continue to increase. Over the last three years, nearly half a dozen comprehensive state reports including from the Attorney General and the Division of Health Care Finance and Policy have examined the drivers of rising health care costs. In each case, provider price increases, not increases in utilization or health insurance practices, have been identified as the major drivers of health care cost increases. The studies have concluded that prices vary significantly, that they are not correlated to the quality of care, complexity of patient conditions, or government underpayment, and that higher priced providers are gaining market share at the expense of lower priced providers. Payment reform offers the promise of improving health care quality and bending the cost curve over time, but its ultimate success will require addressing unwarranted market disparities and closing the gap between lower-paid providers and higher-cost providers to ensure a properly functioning marketplace. Failure to act will simply memorialize high rates of payment for certain providers, regardless of how they are paid, and perpetuate provider consolidation that could lead to higher prices. Closing the gap between providers will not be easy, and it must not be accomplished by simply raising rates for the bottom tier of providers. The net result from addressing these price variations should translate into lower health care costs for employers and working families. This years annual report, Targeting Health Care Costs: The Price for Services, examines several ways Massachusetts could repair the current dysfunctions in the provider market and provide relief to businesses and residents. We hope it will be a catalyst for thoughtful consideration of these and other proposals for addressing the underlying causes of rising health care costs. Sincerely,

Lora M. Pellegrini
President & CEO

mahp 2011 annual report

Lets Start with Some Facts

The most significant driver of health care costs in Massachusetts is the amount paid for medical services at different institutions. Over the last several years, numerous state reports have highlighted the wide pricing variation that has become a fact of life in our health care system and the challenges this creates as we try to make health care more affordable and effective. As the Attorney Generals 2010 report noted, price variations are correlated to the market leverage of providers and these variations are not correlated to quality of care, the sickness or complexity of the population served, the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or whether a provider is an academic teaching or research facility. The prices listed in the enclosed charts come from publicly available data, offering a glimpse of the price of common services based upon where care is delivered.

Teaching Hospitals:
Typical Cost of a CT Scan of Abdomen
Statewide Median: $575 St. Elizabeths Medical Center Cambridge Health Alliance Boston Medical Center Tufts Medical Center Lahey Clinic St. Vincent Hospital UMass Memorial Med. Center Baystate Medical Center Beth Israel Deaconess Med. Center Mount Auburn Hospital Brigham and Womens Hospital Mass. General Hospital Childrens Hospital Boston $375 $425 $500 $550 $575 $600 $625 $675 $675 $675 $950 $975 $1,475

Community Hospitals:
Typical Cost of a CT Scan of Abdomen
Statewide Median: $575 Quincy Medical Center Norwood Hospital Health Alliance Hospitals Anna Jaques Hospital Lawrence General Hospital Lowell General Hospital MetroWest Medical Center Marlborough Hospital St. Lukes Hospital South Shore Hospital Winchester Hospital North Adams Hospital Newton-Wellesley Hospital Milford Regional Medical Center Harrington Memorial Berkshire Medical Center Cooley Dickinson Hospital Sturdy Memorial Hospital Cape Cod Hospital $400 $425 $450 $475 $475 $475 $475 $525 $525 $575 $575 $600 $600 $650 $850 $875 $950 $1,150 $1,400

source: Health Care Quality and Cost Council (HCQCC): 7/1/2008-6/30/2009 with claims paid through 12/31/2009.

Teaching Hospitals: Typical Cost of a Mammogram

Statewide Median: $225 Tufts Medical Center UMass Memorial Med. Center Baystate Medical Center Cambridge Health Alliance St. Elizabeths Medical Center St. Vincent Hospital Boston Medical Center Lahey Clinic Beth Israel Deaconess Med. Center Mount Auburn Hospital Brigham and Womens Hospital Mass. General Hospital $125 $125 $150 $175 $200 $200 $225 $250 $300 $300 $325 $325

Teaching Hospitals: Typical Cost of a Chest X-Ray

Statewide Median: $100 Cambridge Hospital St. Vincent Hospital Boston Medical Center Lahey Clinic St. Elizabeths Medical Center Tufts Medical Center Baystate Medical Center Beth Israel Deaconess Med. Center Mount Auburn Hospital UMass Memorial Medical Center Brigham and Womens Hospital Mass. General Hospital Childrens Hospital Boston $75 $75 $100 $100 $100 $100 $125 $125 $125 $125 $175 $175 $225

Community Hospitals: Typical Cost of a Mammogram

Statewide Median: $225 Quincy Medical Center Berkshire Medical Center North Adams Hospital Norwood Hospital Anna Jaques Hospital Cooley Dickinson Hospital Health Alliance Hospital MetroWest Medical Center Cape Cod Hospital Lawrence General Hospital Lowell General Hospital Marlborough Hospital St. Lukes Hospital South Shore Hospital Sturdy Memorial Hospital Winchester Hospital Milford Regional Medical Center Newton-Wellesley Hospital Harrington Memorial Hospital $75 $100 $125 $175 $200 $200 $200 $200 $225 $225 $225 $225 $225 $250 $250 $250 $275 $275 $350

Community Hospitals: Typical Cost of a Chest X-Ray

Statewide Median: $100 Anna Jaques Hospital Health Alliance Hospital Lawrence General Hospital Lowell General Hospital MetroWest Medical Center Norwood Hospital Quincy Medical Center Marlborough Hospital Newton-Wellesley Hospital North Adams Hospital St. Lukes Hospital South Shore Hospital Sturdy Memorial Hospital Winchester Hospital Cape Cod Hospital Milford Regional Medical Center Berkshire Medical Center Harrington Memorial Hospital Cooley Dickinson Hospital $75 $75 $75 $75 $75 $75 $75 $100 $100 $100 $100 $100 $100 $100 $125 $125 $150 $150 $175

mahp 2011 annual report

Where Does the Premium Dollar Go?

Any serious discussion about keeping health care affordable needs to start with what we pay for medical care and why it costs so much, because an increasing portion of the premium dollar is directed to medical costs. In Massachusetts, nearly 90 cents of every health care dollar goes to pay for medical services, such as doctor visits, diagnostic tests, prescription drugs, and hospital stays.

Health Plan Revenues and Expenses

2007

2008

2009

2010

Medical Costs 87.65% Administrative Costs 11.15% Surplus 1.19%

Medical Costs 88.99% Administrative Costs 10.06% Surplus 0.94%

Medical Costs 90.90% Administrative Costs 9.73% Surplus -0.63%

Medical Costs 89.79% Administrative Costs 9.74% Surplus 0.47%

source: Data is based on statements filed by plans with the MA Division of Insurance for the five Massachusetts-based MAHP member commercial health plans.

Where Do MA Residents Get Care?

The Division of Health Care Finance and Policys 2010 Cost Trends Final Report cited the high concentration of physicians in academic medical centers compared to national averages as one of the major drivers of premium increases over the past several years. In fact, admissions to academic medical centers are more than double the national average and a higher proportion of outpatient care in Massachusetts also is delivered in academic medical centers compared to the rest of the U.S.

Admissions to Academic Medical Centers:

45% Massachusetts 19% National Average

The Divisions 2011 Trends In Health Expenditures report noted that a majority of private inpatient spending was devoted to care delivered in tertiary care or specialty and teaching hospitals. In 2009, two-thirds of privately insured inpatient spending was for care obtained in tertiary care or specialty and teaching hospitals, either in the Boston metro area (52 percent) or elsewhere in Massachusetts (14 percent). Just 29 percent of private inpatient spending was for care obtained in community hospitals.

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Whos Making Money?

Making health care affordable starts with a clear understanding of where our health care dollars go and requires those of us in the health care systems health plans, hospitals, and physicians to answer the questions: Why are your costs going up? and What are you going to do about it? MAHP and its member health plans have been strong proponents of sharing health care cost information with the public. We believe that consumers and employers have every right to know how their health care dollars are spent. As the following charts indicate, recent data on the percentage of health care dollars that hospitals report as profit margin compared with the margins of MAHP member health plans offer a useful snapshot of where the money goes. Profit margins only tell part of the story, however. Massachusetts has established the most stringent standards in the country for how health plans use premium dollars. Chapter 288 of the Acts of 2010 requires that a minimum of 90 percent of the premium dollar must be spent on medical care. In addition, the law restricts the amount of funds that may be allocated to administrative expenses, limits health plan profits to no more than 1.9 percent, and requires significantly greater financial, membership, and utilization reporting by health plans. MAHP believes that, in order to increase transparency around the true cost of health care and to provide a more complete picture of how the health care dollar is spent, hospitals should be subject to similar reporting requirements.

2010 Total Margins: Mount Auburn Hospital Top 10 Teaching Hospitals

Baystate Medical Center

8.73%

8.23% Massachusetts General Hospital 6.33% Beth Israel Deaconess Medical Center 6.25% St. Elizabeths Medical Center 5.99% Childrens Hospital Boston 5.61% Saint Vincent Hospital 5.33% Lahey Clinic 5.25% Brigham and Womens Hospital 5.07% UMass Memorial Medical Center 4.08%

2010 Total Margins: Sturdy Memorial Hospital Top 10 Community Hospitals

8.98% Saint Annes Hospital 8.60% Marthas Vineyard Hospital 7.26% Hallmark Health 7.00% Good Samaritan Medical Center 6.41% Cape Cod Hospital 5.75% Newton-Wellesley Hospital 5.01% Lowell General Hospital 4.88% New England Baptist Hospital 4.16%

11.00%

2010 Total Margins: Harvard Pilgrim Health Care Commercial Health 1.90% Plans
Health New England 1.90% Tufts Health Plan 1.90% Neighborhood Health Plan 1.00% Blue Cross Blue Shield MA 0.20% CeltiCare -0.20% Fallon Community Health Plan -0.40% UnitedHealthcare of New England -3.60%

Signature Healthcare Brockton Hospital

source: Division of Health Care Finance and Policys May 2011 Key Indicators Report

mahp 2011 annual report

Whats the Role of Price Variation?

As part of its 2011 Health Care Cost Trends hearings, the Division of Health Care Finance and Policy issued a series of reports examining health care costs and the major trends in health care spending. The Divisions Trends in Health Expenditures report found that from 2007 to 2009 higher total private spending was predominately driven by price increases. In fact, higher prices explained virtually all of the increase in spending for inpatient, outpatient and professional services, as well as prescription drugs. Meanwhile, the Divisions Price Variation in Health Care Services report examined the prices paid by private health plans for commercially insured members for a sample of high-volume health care services in three service categories inpatient hospital care, outpatient hospital care, and physician and other professional services. This report found that: Prices paid for the same hospital inpatient services and for physician and professional services vary significantly statewide for every service examined. There was at least a three-fold difference for every service and for most, a variation of six- or seven-fold. Comparing median prices, highest paid hospitals receive payments that are more than double the lowest paid hospitals. Data on the selected 14 routine inpatient services indicates that service volume tends to be concentrated in higher-paid hospitals. There is little measurable variation among Massachusetts hospitals based on the available quality metrics related specifically to the 14 selected inpatient services. There was no correlation between a hospitals share of Medicaid patients and the prices they received from private payers, with some of the lowest-paid hospitals having the highest proportion of Medicaid discharges.

The range in Medicare prices paid across hospitals is similar in breadth to the range found in this reports analysis of private payer prices. However, the relative rankings of hospitals are not similar across Medicare and private payers.

The report also analyzed the potential savings associated with reducing payment variation. Among the findings: If all private payer prices were paid at the 2009 median price, it would reduce spending for professional services by an estimated $640 million and by $112 million on inpatient hospital services for the selected services. Total savings: $752 million. If payments above the current 80th percentile were instead made at the 80th percentile, it would reduce spending for professional services by approximately $320 million. It would also reduce spending by $170 million in inpatient hospital services for the selected services. Total savings: $490 million. If the range of payments were narrowed to the existing 20th and 80th percentile (increasing the lowest prices and reducing the highest prices), it would potentially save $179 million for professional services. If the range of payments for inpatient hospital services for the selected services were narrowed to the existing 20th and 80th percentile, the potential savings would be $88 million. Total savings: $267 million.

Payments paid at the 2009 median

All payments above the 80th percentile lowered to the 80th percentile

Lowering rates above the 80th percentile & increasing rates below the 20th percentile

640MM

112MM

752MM

320MM

170MM

490MM

179MM

88MM

267MM

Professional Services

Inpatient Hospital Services

Total Savings/ Increase

Professional Services

Inpatient Hospital Services

Total Savings/ Increase

Professional Services

Inpatient Hospital Services

Total Savings/ Increase

note: The Division of Health Care Finance and Policys analysis focused on a select set of services, examining 14 routine inpatient services and 20 current procedural terminology codes for professional services.

mahp 2011 annual report

What Does the Data Tell Us?

Attorney General Martha Coakleys landmark 2010 Examination of Health Care Cost Trends and Cost Drivers report found that increases in provider prices, not increases in utilization, were the major driver of health care costs, that higher-priced hospitals have been gaining market share at the expense of lower priced hospitals, and that variations in prices resulted from the market clout a provider may have, not the quality or level of care or the type of institution. In the follow-up to that report, the Attorney General examined whether efforts to expand global payments have reduced health care costs or the payment disparities first identified in the 2010 report. A 2011 report examined risk contracting and care coordination both from the perspective of six commercial health plans and from the perspective of 16 provider groups of varying size, scope of services, geographic location, and payment methodology. Among the reports major findings: 1. There is wide variation in the payments made by health insurers to providers that is not adequately explained by differences in quality of care. 2. Globally paid providers do not have consistently lower total medical expenses. 3. Tiered and limited network products have increased consumer engagement in value-based purchasing decisions. The Attorney General went on to note that the wide variation in provider payments and the significant pace of market consolidation taking place in Massachusetts demonstrate the need for immediate action to restrict and reverse distortion of the competitive market. While payment reform should result in better coordination of care, a shift of payment methodology by itself is not the panacea to controlling costs. As the charts on the following page indicate, globally-paid providers do not have lower total medical expenses and provider price increases, regardless of payment method, have been the major factor for increases in health care costs. The Attorney Generals 2011 report also acknowledged the benefits of tiered or limited network products, but noted that these products are unlikely to counteract, on their own, the historic price disparities that threaten many health care providers. The report noted that the state should impose temporary statutory restrictions on how much prices may vary for comparable services to improve market function until these products can correct the market distortions.

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Globally Paid Providers Do Not Have Consistently Lower Total Medical Expenses
Variation by Payment Method in one Major Health Plans Status Adjusted Total Medical Expenses (2009)
Provider Groups from Low to High TME

Price Increases Caused the Majority of the Increases in Health Care Costs in the Last Six Years
% of Increase in Costs Due to Changes in Price v. Mix v. Utilization

0.800 0.900 1.000 1,100 1,200 1,300 1,400 1,500 1,600

Relative Health Status Adjusted TME

Marlborough/Assabet East Boston Neighborhood Health Ctr. Neponset Valley Healthcare Assoc. Nashoba IPA HCPA BMC Management Services Metro West - LMH Holyoke PHO Anna Jaques/Merrimack/Whittier Caregroup - NE Baptist Lowell General PHO Signature Healthcare Brockton Lawrence General IPA Fallon Clinic New England Quality Care Alliance Henry Heywood Morton Hospital Caritas Christi Baystate Health Winchester/Highland Health Alliance Atrius Health Beth Israel Deaconess Southcoast Mount Auburn Cambridge IPA Valley Medical Group Northeast Health Systems Lahey Clinic Central Massachusetts IPA Acton Medical Associates UMass Memorial Med. Ctr. Cooley - Dickinson PHO Sturdy Memorial Hospital South Shore PHO Partners Harrington PHO Childrens

100%
Globally Paid/Risk Sharing FFS/Upside Only

90% 80% 70% 60% 50% 40% 30%

Utilization

Provider Mix and Service Mix

5+ 5+

Unit Price 11

20% 10% 0% 2005

5+

5+

2006

2007

2008

2009

2010

5+

source: Office of Attorney General Martha Coakley, Presentation at the 2011 MAHP annual conference.

mahp 2011 annual report

What Are the Solutions for Dealing with Price Variation?

The Division of Health Care Finance and Policys June 2011 report on provider rate variation and the Attorney Generals reports on health cost trends and cost drivers have highlighted unwarranted variation in provider prices as the main factor driving increases in the cost of health care. Simply put, the kinds of objective factors that would be expected to result in higher prices especially higher quality and better outcomes are absent in our health care system. Instead, market clout is the primary deciding factor in many cases. So, now that we know what the facts tell us, what can be done to address market power and unwarranted price variation? Several promising approaches to correcting this costly flaw in the health care market were put forward in 2011, including legislation filed by House Majority Leader Ronald Mariano, recommendations for statutory changes offered by Attorney General Martha Coakley, and the recommendations of the Special Commission on Provider Price Reform.

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What Our State Leaders Are Recommending...

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mahp 2011 annual report

The PEER Act: An Act Promoting Equity &

Representative Ronald Mariano of Quincy
House Majority Leader

Q: Do you think Massachusetts is making progress in controlling health care costs?

I think weve made some progress. Moving people into products with tiered or limited networks has shown some promise because it makes consumers aware of the cost of their treatments and gives them a role in controlling some of those costs. People want the most expensive treatment, which they think is the best treatment, because the insurer will pick up the cost. We have to help people understand that their treatment decisions are reflected in the cost of insurance. In the big picture, weve seen payment reform moving doctors and hospitals away from fee-forservice where there is no incentive to control costs. State government can speed things up and get them moving in the right direction faster.

Q: How would your proposed legislation address the high cost of health care in our state?
The Attorney General and others found that the prices being paid to doctors and hospitals were the major drivers of high health care costs in Massachusetts, and that there were wide differences in what insurers paid that had nothing to do with quality. The legislature tried to

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tackle this problem in 2010 when we passed a small business health care cost control bill (now Chapter 288 of the Acts of 2010), but we couldnt reach agreement, so we waited to see how the market would react.

The projected total savings - $267 million... can be used between now and 2015 to provide an impetus to keep moving the system in the right direction.

I didnt feel like there was nearly enough progress, so I filed a proposal that would lower reimbursement rates for hospitals charging above the 80th percentile and increase rates for hospitals below the 20th percentile. What Im trying to do is close the gap between the haves and the have-nots, specifically community hospitals. If youre going to have a tiered system that offers alternatives for low-cost quality care, the marketplace needs community hospitals to provide that care. Many of them are struggling because they get lower reimbursements than

Efficiency in Rates
academic medical centers for the same services and for equal quality. I wanted to do something to make sure they were treated fairly and they were in a financially sustainable position.

Q: Does this mean you think the market cant solve the problem?
My proposal expands government involvement, but it sunsets after 2015. This is not meant to be a long-term solution; its an attempt to fix a problem thats immediate while moving the marketplace in a direction that will allow for the sustainability of our states low-cost hospitals. There are safeguards that ensure that the savings are real and that they are reflected in reduced premiums and not as surplus for insurers. And the projected total savings $267 million, according to the Division of Health Care Finance and Policy for a limited number of procedures can be used between now and 2015 to provide an impetus to keep moving the system in the right direction.

Q:

Theres been a huge drop in premium increases this year and hospitals and health plans have been renegotiating contracts for lower rates. Arent those signs the market is

working? To some extent it shows the market is working, but it also shows theres been a reaction to what Ive proposed. Reopening contracts and reducing payments is a much better alternative for hospitals and insurers than my plan, so Im not surprised that theyre moving in the direction wed like them to move.

Q: What else should the health care community focus on?

Theres a huge learning curve that has to begin with educating consumers about their role in making health care choices. We need to do a better job in establishing quality measurements so that people understand that youre just as well off getting your gallbladder removed at a community hospital as at a teaching hospital.

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Q: Do you think Massachusetts can lead the nation in managing costs as we did on health reform?
The folks on the national level are watching us, waiting to see how we approach the cost containment issue and what kind of results we get. The Governor has made it his priority; hes been very forceful in trying to get the legislature to take action and we will take action.

mahp 2011 annual report

Fixing a Flawed Foundation

Martha Coakley
Massachusetts Attorney General

At MAHPs 2011 annual health policy conference, Attorney General Martha Coakley outlined her recommendations for dealing with price variations due to market dysfunction. Excerpts from her speech follow. One of the most significant ways our office has been engaged in cost containment is through the two examinations we have done on the cost drivers of health care. We explained that a shift to global payments is certainly not a panacea because it ignores the flawed foundation of the dysfunctional health care market. That dysfunction is a market where costs are not based on value or quality, but on the market leverage of providers. Id like to offer some specific solutions to address that dysfunction three pillars to shore up that foundation and reduce costs.

Greater Transparency For Consumers

Consumers are feeling the impact of rising health care prices without necessarily having more choices or control over those costs.

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When consumers go to buy a car, for instance, they can shop for the lowest price at the quality they want. When they go to repair a car, they can even get estimates from mechanics before they authorize the repair. In the same way, consumers need information about their health costs so they can make decisions about the most cost-effective choices. We are considering requirements that providers disclose the full amount that consumers could be liable to pay, so that patients know in advance what they are agreeing to.

We still need to address this entrenched dysfunction in order to create a level playing field for competition.

Ensuring A More Effective, Competitive Marketplace

Providers in the market are consolidating, merging, and affiliating at an increased rate. With increased focus on payment and delivery system reform, we should anticipate even more consolidation in the future. But how big is too big? Right now, there is no reporting mechanism in place to effectively monitor provider market size or clout. There should be an administrative review process in place in which updated information is provided to a regulatory agency. When a provider does reach a certain level of market clout, it should trigger a market impact review to determine whether the providers size is having a negative impact on consumer choice, access, or healthy market function. The agency must then have authority to restrict certain types of provider activity to protect consumers and the market.

A Balanced Approach To Addressing Price Disparities

We still need to address this entrenched dysfunction in order to create a level playing field for competition. We believe that the market should be given a chance to correct itself. If those market efforts fail, then we need to set the stage for limited and temporary government intervention to bring the market into alignment and reduce costs. First, we already have rules in place prohibiting excessive or unreasonable health plan premiums. We need to have similar rules for health care providers. The administration should have specific authority to ensure that provider contract rates are not unreasonable neither excessive nor inadequate. We then should give the market a chance to correct the unwarranted price variations, but set reasonable and firm markers to guide market corrections over the next few years. Starting in 2015, if the market has not corrected unwarranted price variation, the administration should be able to reject health plan contracts with excessive or inadequate provider price variations. Health plans should be prohibited from paying provider rates that differ beyond a certain band. One example would be 20 percent above or 20 percent below the plans average price for the previous year. Any savings would then be directed to consumers in the form of lower premiums. We should include a sunset provision to re-evaluate this system and determine whether this regulatory mechanism should be continued in 2018 or 2019.

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mahp 2011 annual report

Special Commission: Provider Price Reform

Jay Gonzalez
Secretary, Executive Office for Administration and Finance Co-Chair, Special Commission on Provider Price Reform

Q: How would you summarize the work of the special commission?

My first observation about the commission was the high level of consensus on the need for government to play a role in helping to address unjustified variation in prices for health care services. Everyone recognized, based on the great work done by the Attorney General and the Division of Health Care Finance and Policy, that there is often a lack of any real correlation between higher cost and better quality or other outcomes that might explain the variation. Our #1 recommendation was that we need to change the way we pay for and deliver health care to bring down costs and get better results. We also had recommendations about improving transparency on quality and costs; we had a recommendation, involving the Attorney General and others, to make sure we have a competitive marketplace; and we had recommendations around analyzing the extent to which the new, limited-network and tiered products are playing a meaningful role in addressing price variation.

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Two recommendations were the most significant. One was unanimously approved by all 10 members of the commission, acknowledging that there seems to be variation in prices thats hard to explain. We recommended creating a panel that consists of a number of experts to take an in-depth look at the data behind differences in price and to develop recommendations on whether and, if so, how the government could play a role when variations in prices are not justified.

The final recommendation, which passed by a 9-1 vote, recognized the need for a short-term step to address unjustified price variation.

The final recommendation, which passed by a 9-1 vote, recognized the need for a short-term step to address unjustified price variation until we get to a place where variation can be determined to be legitimate and weve changed how we pay for and deliver health care services.

Q: What role would state government play in making that determination?

This isnt government dictating prices. It would rely on insurer and provider negotiations to make sure there is a relationship between different prices and the quality of care. If the parties cant reach agreement, and the provider is asking for a price in excess of the median of what other providers are charging for those same services, the insurer could take the issue to an independent panel that would assess whether the providers request is justified based on better quality of care. If the panel determined it was, then the provider would be entitled to that price. If the panel determined that it wasnt justified, then the provider would get either the lower of what they were paid in the prior years contract or the median of what the plan pays other providers. Government would set up the process, but insurers and providers ultimately negotiate prices.

Q: Isnt it likely that lower-paid hospitals would ask for larger increases, and if so, will there be net savings?
The commission made it clear that implementation of these recommendations needs to result in overall cost reduction. That doesnt mean hospitals that arent getting paid a fair amount for their services wouldnt have a chance to demonstrate that theyre providing quality that justifies higher prices. All providers would have that opportunity if they couldnt reach agreement with the insurer through the regular negotiation process. But it would begin leveling the playing field, so when we move forward and work to control costs, were doing so against a base that is more in line with the quality of care thats being provided and what the market generally is charging for those services.

Q: Are you confident that future savings would be passed on to consumers?

Addressing unjustified price variation and controlling health care costs in general is all about lowering costs for the consumer, whether its government, businesses, families, or individuals. Its very important to Governor Patrick that we reduce health care costs for the purchasers so they have more of their resources to invest in everything else they need to and want to do.

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mahp 2011 annual report

Will Reducing Payment Variation Simply Increase Cost-Shifting?

[N]egative Medicare margins do not necessarily mean that payments are
too low but are due at least in part to the lack of private financial pressure for cost containment.

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MedPAC, Report to the Congress, March 2011, p. 37

There is a common assumption that hospitals need to charge private payers, like health plans, higher rates in order to offset lower rates they receive from public payers, such as Medicare. If that were true, high-payment hospitals, such as those in Massachusetts that have been identified as benefiting from their market power, might make the case that their rates are justified by low public payments. This argument only accounts for one side of the equation, however. Hospital profit margins are determined, not just by how much is paid for services, but by the cost of those services. An efficient hospital can accept lower rates of payment public or private and still maintain an adequate margin by controlling its costs. Researchers have found, in fact, that hospitals with higher market power had higher costs, higher private-pay margins, and lower Medicare margins. This contradicts the traditional theory of cost shifting, which rests on the assumption that hospitals will use market power to raise rates only if they face financial stress as a result of uncompensated care cost or inadequate payments from certain payers.* According to MedPACs March 2001 Report to Congress, some hospitals have strong profits on non-Medicare services and investments and are under little financial pressure to constrain their costs. As a result, negative Medicare margins do not necessarily mean that payments are too low but are due at least in part to the lack of private financial pressure for cost containment.**

The MedPAC report went on to examine institutions under high financial pressure those with smaller operations, a lower case-mix index, and a larger share of patients covered by Medicaid. The report noted that hospitals under financial pressure tend to have lower costs. Similarly, the Division of Health Care Finance and Policys Price Variation in Health Care Services report refutes assertions by some providers that higher private payer prices are needed to compensate for losses incurred by serving Medicaid patients. The report found no correlation between a hospitals share of Medicaid patients and the prices they received from private payers, and pointed out that several hospitals with the highest proportion of Medicaid discharges are among the lowest paid for certain services. Implementing measures to deal with price variation would help to enhance competition, fairness, and cost-effectiveness in the health care market, leveling the playing field for providers to compete on quality rather than market clout and lowering the cost of care for employers and working families.

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*Stensland, J., Gaumer, Z. & Miller, M. (2010). Private-Payer Profits Can Induce Negative Medicare Margins. Health Affairs, 29:5, 1045-1051. **Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy, March 2011

mahp 2011 annual report

What You Need to Know About Market Power and Payment Reform

MAHP and its member health plans are committed to working with state policymakers and others in the health care sector to reform the payment system. Health plans have spent many years learning how to manage care across delivery settings and across diverse populations, and that experience will be critical to a successful transition of the health care payment and delivery systems. As measures are undertaken to develop payment reform legislation, it is important for policymakers to consider a few key questions.

Will Payment Reform reduce health care costs?

As the Attorney Generals 2011 Examination of Health Care Cost Trends and Cost Drivers noted, a shift to global payments by itself is not the panacea to controlling health care costs. Price differences exist regardless of the way the provider is paid and any payment reform legislation should include efforts to mitigate these payment disparities. Efforts to reform the payment system and reduce health care costs for Massachusetts employers and working families will only be success by addressing the disparities brought about by the market power of certain providers.

Once we address market distortions, how do we ensure that health care remains affordable?
It is prudent to set goals for cost trend reduction that would be aggressive, yet attainable. Payment reform should establish metrics that the entire health care sector would be required to meet.

Will Payment Reform lead to further market consolidation and will greater consolidation lead to higher prices?
Changes in the delivery system, such as the formation of ACOs in order to accelerate the adoption of alternative payment methods, have the potential to lead to increased consolidation, increased market power, and higher health care costs. State agencies should prevent and remedy any anti-

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competitive behavior, but existing antitrust enforcement is insufficient to be counted upon to catch and prevent every inappropriate accretion of market power. Payment reform legislation should include a process to screen for anti-competitive behavior and to determine whether such changes will result in further consolidation that will increase health care costs and are disadvantageous to consumers.

Should ACOs and the adoption of global payments be mandatory?

The worthy goals of accountable care can best be achieved by ensuring that the market retains needed flexibility for critical innovation while defining the core elements for ACOs. Massachusetts health plans and providers have already made significant progress in transitioning the market to one

that rewards high value and coordinated care. Rather than a prescribed one-size-fits-all approach, achieving payment reforms goals of better integration of care, better alignment of incentives, and lower costs is best accomplished through a voluntary, market-based approach with clearly defined goals aimed at improving care and lowering costs.

What effect will payment reform have on employers and consumers health care coverage?
Today, nearly 50 percent of individuals under the age of 65 are covered by self-insured plans. These plans are governed by the Federal Employee Retirement Income Security Act, which prevents the state from imposing specific requirements on how they operate. Additionally, nearly half of individuals enrolled in the private market are in a PPO product, which allows individuals broad access to providers without restrictive networks. Employers need flexibility in benefit design, and consumers want choice. Payment reform legislation should ensure sufficient product options so that employers and consumers have meaningful choice of products that meet their health care needs.

What is the role of government?

Government can accelerate the positive changes taking place in the health care market by changing its own policies and practices as an employer and as a major public payer. Government should not be a barrier to market innovation. Instead, it should monitor, facilitate, and guide the broader transition and ensure that the entire market is meeting established metrics. Further, the Attorney Generals office should continue to play a role in ensuring that the integration of health care providers and payers does not lead to market consolidation disadvantageous to consumers.

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mahp 2011 annual report

Committed to Cost Control

Four years ago, MAHP and its member plans outlined a comprehensive cost control agenda designed to improve the affordability and quality of the health care system in the Commonwealth. Since that time, a number of proposals we outlined have been adopted, but we havent stopped. We remain committed to doing everything we can to control the rising cost of care and make health care more affordable for employers and working families.

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Needs wor n Measures ing to DPH o ostic Services Report 10. Hospitalce Duplicative Diagn to Redu n Measures to Needs work ing to DPH o ing spital Reportgency Room Overcrowd 11. Ho er Eliminate Emroved Management rough Imp Th Needs work d aged Medicai Man reater Use of 12. Make G Needs work Requirements Regulatory e Duplicative 13. Eliminat Passed irements Requ ize Reporting 14. Standard Passed ive Processes at ne Administr 15. Streamli Passed entialing Cred ize Physician 16. Standard

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MAHPs 2011 - 2012 Legislative Agenda

MAHPs legislative priorities focus on improving the affordability and quality of the health care system and simplifying the administration of health care.

Controlling Health Care Costs

The Affordable Health Plan: limits provider rates and health plan profits to provide a low-cost, affordable option for small businesses. Limits on Out-of-Network Rates: controls the amount out-of-network providers may charge for services and prohibits balance billing consumers. Limits on Hospital Margins: subjects hospitals with operating margins above 5% to a public hearing on the measures they are taking to reduce the cost and improve the quality of care they provide. Prohibition on Public-Private Cost Shift: prohibits providers from cost shifting from public programs to commercial carriers. Hospital Billing and Licensure: requires hospitals that provide services at a new facility to obtain a new license and national provider identification number for that facility. Strengthening the DON: establishes a statewide planning process to ensure services are located only where they are needed when evaluating proposed new facilities or service expansions. Mandated Benefit Reform: imposes a moratorium on new mandated benefits, allows consumers and employers to choose mandate-free and mandate-lite products, and requires an analysis of the cost of new mandated benefits on municipalities and small businesses. All-Medicaid Managed Care Model for MassHealth: enrolls all Medicaid recipients in a Medicaid health plan, improving the quality and continuity of care while significantly reducing the Commonwealths cost growth within Medicaid.

Quality Improvement
Reduce Preventable Hospital Readmissions: limits reimbursement to hospitals that have recurring preventable readmissions. Reduce Duplicate Diagnostic Testing: seeks to eliminate duplicating diagnostic services performed on a patient in one facility by another hospital or diagnostic facility. Emergency Room Overcrowding: requires all hospitals with ERs to file annually a written operating plan to eliminate ER overcrowding.

Administrative Simplification
A Central Repository for Claims Data: establishes the Division of Health Care Finance and Policy as the sole entity of the Commonwealths health care data and requires all state agencies utilize this information for their health care data needs. Electronic Transmission of Health Care Transactions: requires health care providers and group purchasers to exchange health care administrative transactions in electronic formats. Electronic Submission of Claims: encourages greater use of electronic claims submission by limiting the states prompt payment law to claims sent electronically.

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mahp 2011 annual report

Do Higher Costs Buy Better Care?

Despite the continued growth in spending, the Massachusetts health care system remains widely inconsistent and is not yielding the highest quality or safety. The Commonwealth Funds 2009 State Scorecard and the Agency for Healthcare Research and Qualitys (AHRQ) 2010 National Healthcare Quality Report ranked each state on the overall performance of its health care system and clearly shows the areas where improvements are needed. While the state ranked well on access, Massachusetts continues to rank towards the bottom on avoidable costs and there remains wide variation in the quality of care.

Measure

Massachusetts Rank out of 50 States

How National Scorecards Rank Massachusetts on Health Care Quality

Adult Preventive Care

7th* 25th** 26th* 37th* 38th** 39th* 42nd**

Percentage of adults age 50 and older who received recommended screening and preventive care

Pneumonia Recommended Care Receive Heart Failure

Percentage of heart failure patients given written instructions at discharge

Percentage of hospital patients with pneumonia who received recommended hospital care

Hospital Readmissions
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Medicare 30-day hospital readmissions as a percentage of admissions

End Stage Renal Disease - Adequate Dialysis

Percentage of adult hemodialysis patients with adequate dialysis

Preventable Hospital Admissions

Medicare hospital admissions for ambulatory care sensitive conditions per 100,000 beneficiaries

Heart Attack ACE or ARB at Discharge

Percentage of hospital patients with heart attack and left ventricular systolic dysfunction who were prescribed ACE inhibitor or ARB at discharge
*The Commonwealth Fund, 2009 State Scorecard. **AHRQ, 2010 National Healthcare Quality Report.

NCQA: High Quality, High Satisfaction

MAHP member health plans are consistently rated the best in the nation. In its annual report card ranking the clinical quality and member satisfaction of health plans across the country, the National Committee for Quality Assurance (NCQA)1 rated members of MAHP among the top health plans in the country for all three categories commercial, Medicare and Medicaid including the top two health plans for commercial coverage and the #1 Medicaid plan. The rankings are based on data evaluating 483 private health plans, ranking 390 of those based on clinical performance, member satisfaction, and NCQA Accreditation. Additionally, NCQA evaluated over 200 Medicaid health plans and ranked 99 of those based on the same criteria on issues such as access to care, prevention efforts and treatment of diseases, such as diabetes and heart disease. NCQA analyzed the information, and found:
6 of the nations top 13 commercial health plans2 were based in Massachusetts 2 of the top 12 Medicare plans3 were based in Massachusetts 4 of the top 7 Medicaid plans4 were based in Massachusetts

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NCQA is an independent, non-profit organization dedicated to improving health care quality. NCQA accredits and certifies health plans and a wide range of other health care organizations, recognizes physicians and physician groups in key clinical areas, and manages the Health Plan Employer Data and Information Set (HEDIS), the tool health plans use to measure and report on their performance. MAHP member health plans that were ranked among the top 13 commercial health plans in 2011 and have received the NCQA accreditation designation of Excellent include Fallon Community Health Plan (HMO/POS), Harvard Pilgrim Health Care (HMO/POS & PPO), Health New England (HMO/POS), and Tufts Health Plan (HMO/POS & PPO). MAHP member health plans that were ranked among the top 12 Medicare plans in 2011 and have received the NCQA accreditation designation of Excellent include Fallon Community Health Plan and Tufts Health Plan. MAHP member health plans that were ranked among the top 7 Medicaid health plans in 2011 and have received the NCQA accreditation designation of Excellent include BMC HealthNet Plan, Fallon Community Health Plan, Neighborhood Health Plan, and Network Health.

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mahp 2011 annual report

Myths & Facts About Health Plans

Myth: Fact: Utilization is Driving Premium Increases. Utilization is not driving premium increases, the price of services is. As the Division of Health Care Finance and Policys Trends in Health Expenditures report noted, from 2007 to 2009 higher total private spending was predominately driven by price increases. Higher prices explained virtually all of the increase in spending for inpatient, outpatient, and professional services, as well as for prescription drugs. Payment reform will Fix the Cost Problem. As the Attorney Generals reports have noted, while payment reform should result in better coordination of care, a shift of payment methodology by itself is not the panacea to controlling costs. The Attorney Generals 2011 report noted that globally paid providers do not have consistently lower total medical expenses. Addressing the market power dynamics is essential for payment reform to lead to lower costs for employers and working families. Health Plans Make Excessive Profits. Health plan surpluses (profits) represent a tiny fraction of the premium dollar. In most years, health plan surpluses account for 1 precent to 2 percent of the premium. Over the last several years, health plan profits have decreased, with several health plans experiencing operating losses, and state law limits profits in the small group market to no more than 1.9 percent. Capping Health Insurers Premium Increases will Drive Down Health Care Costs. Placing caps on insurers premiums ignores the findings of multiple state reports, which have all pointed to provider pricing and the market clout of certain providers as major drivers of health care costs. Without comparable restrictions on provider rates, capping premium rate increases will do nothing to address disparities in provider pricing nor will it contain health care costs. State Mandated Benefits Apply to All Coverage. State mandated benefits only apply to coverage offered through a health plan licensed by the state. These policies are purchased by an individual or through a small or medium-sized business. Large companies typically self-insure, providing employee health benefits by directly paying health care claims to providers. They are governed by the Federal Employee Retirement Income Security Act and are not subject to state mandated benefits. Small and mediumsized employers typically do not have the ability to self-insure and must include benefits they and their employees may not need or want.

Myth: Fact:

Myth: Fact:

Myth: Fact:

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Myth: Fact:

Myth: Fact:

Providers Who Only Take a Little Bit of Insurance Risk Dont Need an Insurance License. In the transition to alternative payment methods and ACOs, there should be appropriate oversight of providers, including licensure for providers that take insurance risk. Any provider or ACO that takes on insurance risk should be held to the standards as a licensed health plan. This is necessary to ensure that there is financial accountability of providers, including that they meet state solvency standards and can manage insurance risk, and that they abide by consumer protections. Administrative Costs are Driving Premium Increases. The major driver for premium increases is due to increases in the rates providers charge for medical services. Roughly 90 cents of every premium dollar is spent on medical care, including hospital stays, diagnostic tests, doctor visits, and prescription drugs. Further, Chapter 288 restricted the rate of increase for administrative expenses to no more than the New England medical CPI, so administrative spending is not the cause for rising premiums. Hospitals are only Receiving 2 Precent 3 Precent Rate Increases while Premiums are Increasing 6 Percent 8 Percent. The prices paid to providers are the leading driver of premium increases. While some hospitals have negotiated lower rate increases of between 2 percent 3 percent, some of these institutions may be starting from a higher base and will therefore continue to receive substantially higher reimbursement rates than other hospitals. Up to 30 Percent of Premiums is Being Spent on Administrative Costs. Only about 10 percent of the premium is allocated toward health plan administrative costs, which include services that benefit consumers and support providers, such as care management programs for individuals with chronic conditions, claims administration, disease management, and health information technology, as well as reporting requirements mandated by state and federal agencies. Health Plan Reserves Should be Transferred to Providers to Fund the Systems They will Need for Payment Reform. Health plan reserves serve an important function: they act as the financial safety net for employers and consumers and ensure that providers get paid in the event an unexpected or catastrophic event occurs, such as a pandemic or other natural or man-made disaster. There is no evidence to indicate that health plans have excessive reserves or that the transfer of reserves would do anything to get lower health care costs. mahp 2011 annual report

Myth: Fact:

Myth: Fact:

Myth: Fact:

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Myth: Fact:

MAHP Board of Directors

James Roosevelt Jr.

(Chair) President and CEO Tufts Health Plan

Susan Coakley
Chief Legal Officer BMC HealthNet Plan

Jason Martiesian
Vice President of Government Affairs UnitedHealthcare of New England

Eric Schultz
President and CEO Harvard Pilgrim Health Care

Patrick Hughes
(Vice Chair) President and CEO Fallon Community Health Plan

Lois Cornell
Senior Vice President, Human Resources and General Counsel Tufts Health Plan

Ellen McCahon
Chief Operating Officer CeltiCare Health Plan of Massachusetts

Richard Segan
Vice President, External Clients and State Account Management UnitedHealthcare Community Plan Massachusetts Plan

Deborah C. Enos
(Treasurer) President and CEO Neighborhood Health Plan

Stephen Farrell
President and CEO UnitedHealthcare of New England

Peggy Meehan
Director of Finance MIT Health Plans

Robert Sorrenti, M.D.

Chief Medical Officer UniCare

Pam Gossman
President Senior Whole Health

Paul Mendis, M.D.

Chief Medical Officer Neighborhood Health Plan

Christina Severin
(Secretary) President Network Health

Peter Straley
President and CEO Health New England

William Graham
Vice President for Policy and Government Affairs Harvard Pilgrim Health Care

Tim Meyer
Vice President, State Affairs Northeast Region Aetna

Martha Temple
President, New England Market Aetna

Lora M. Pellegrini, Esq.

(Assistant Secretary) President and CEO Massachusetts Association of Health Plans

James M. Kessler, Esq.

Vice President and General Counsel Health New England

Scott OGorman
President BMC HealthNet Plan

Lucy Walsh
Manager MIT Health Plans

John Baackes
President and CEO Senior Whole Health

Michael Kirby
Plan President and CEO CeltiCare Health Plan of Massachusetts

Nancy Roberts
Assistant Actuary UniCare

Pano Yeracaris, M.D.

Vice President and Chief Medical Officer Network Health

Richard Burke
President, Senior Care Services and Government Programs Chief Compliance Officer Fallon Community Health Plan

Michele M. Lepore
Plan President UnitedHealthcare Community Plan Massachusetts Plan

David S. Rosenthal, M.D.

Director, Health Services Harvard University Health Services

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MAHP Staff

Lora M. Pellegrini, Esq.

President and CEO

Jason A. Aluia
Government Relations Manager

Suzanne Lebel
Office Program Manager

Eric Linzer, Esq.

Senior Vice President Public Affairs and Operations

Elizabeth Fluet, Esq.

Public Policy Analyst

Brian M. Quigley, Esq.

Legislative Counsel

Sarah Gordon, Esq.

Vice President of Legal Affairs

Kara Cotich
Public Policy Analyst

Ann Chamberlin LaBelle

Staff Writer

About MAHP

MAHP member health plans act as a touch point, connecting consumers, employers, providers and policymakers to improve health outcomes and keep coverage affordable. MAHP member health plans provide coverage to 2.6 million Massachusetts residents, including Medicare beneficiaries, MassHealth (Medicaid) and Commonwealth Care members, participants in employer-sponsored plans, and individuals purchasing non-group coverage. Nationally, MAHP member health plans consistently distinguish themselves through the results produced by innovative programs designed to improve quality and lower costs within the health care system. Although the approach each plan takes may vary, the goal among all is the same: to focus on the patient while promoting measures that improve the quality of care and keep health care affordable.

MAHP Member Health Plans

MAHP Affiliates

In addition to its health plan members, MAHP also is supported by numerous other organizations involved with the health care system in Massachusetts. Affiliates include:

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Platinum Gold

Delta Dental Abbott Laboratories Amgen Astellas Pharmaceuticals AstraZeneca Genentech Genomic Health GlaxoSmithKline

Lilly MA Behavioral Health Partnership Merck Millennium Pharmaceuticals Pfizer Ropes & Gray

Silver

Allergan Amylin Pharmaceuticals Beacon Health Strategies

Boehringer Ingelheim Pharmaceuticals Bristol-Myers Squibb Ethicon Endo Surgery Forest Laboratories Health Dialog Johnson & Johnson MedAssurant Novartis Pharmaceuticals Optum Health

Ortho McNeill Janssen Sanofi Aventis SeniorLink SouthData UHealth Solutions Vertex

mahp 2011 annual report

Philosophy of Care

We represent a philosophy of health care that emphasizes active partnerships between patients and their physicians. We believe that comprehensive health care is best provided by networks of health care professionals who are willing to be held accountable for the quality of their services and the satisfaction of their patients. We are committed to high standards of quality and professional ethics, and to the principle that patients come first. We believe that patients should have the right care, at the right time, in the right setting. This includes comprehensive care for acute and chronic illnesses, as well as preventive care in the hospital, at the doctors office and at home. We believe that all health care professionals should be held accountable for the quality of the services they provide and for the satisfaction of their patients.

We believe that patients should have a choice within their health plans of physicians who meet high standards of professional training and experience and that informed choice, and the freedom to change physicians, are essential to building active partnerships between patients and doctors. We believe that health care decisions should be the shared responsibility of patients, their families and health care professionals, and we encourage physicians to share information with patients on their health status, medical conditions and treatment options. We believe that consumers have a right to information about health plans and how they work. We believe that working with people to keep them healthy is as important as making them well. We value prevention as a key component of comprehensive care reducing the risks of illness and helping to treat small problems before they can become more severe. We believe that access to affordable, comprehensive care gives consumers the value they expect and contributes to the peace of mind that is essential to good health.

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The Nations Best Health Plans Working for Affordable Care

Design: Tautenhan Design Group Editorial: Eric Linzer and Alan G. Raymond

The Nations Best Health Plans Working for Affordable Care

40 Court Street, Boston, Massachusetts 02108 617-338-2244 www.mahp.com twitter.com/MAHPhealth