Bay State Panel May Determine Acceptable Provider Price Variations

Published December 17, 2011

Five years after then-Gov. Mitt Romney signed the landmark Massachusetts health care overhaul into law, policymakers are still grappling with how to deal with high health care costs in the Bay State.

The latest proposal for bringing down costs is to empower a panel to decide what price increases by providers are acceptable and which are unacceptable to state regulators.

Commission Recommends Unelected Panel

On Nov. 9 the Special Commission on Provider Price Reform released a set of recommendations to deal with the rising cost of health insurance in Massachusetts. In its report, the commission noted the state spends more per resident on health care than any other state and has done so since 1993.

Although Romney’s reforms have been successful at ensuring more Massachusetts residents purchase insurance, it has not halted the rising cost of that insurance. Massachusetts currently has the highest individual premium costs in the nation, and the commission reports the growth in private health insurance spending is outpacing the growth in the state’s per capita gross domestic product.

The commission singled out variation in provider prices as a culprit for these spending increases. Its survey found variation in provider prices among insurer and provider network ranged from 165 percent to 955 percent. Among physician groups, the prices varied from 177 percent to 225 percent.

To address these variations, the commission proposed an “independent body conduct a rigorous analysis to identify the acceptable and unacceptable factors for price variation in physician, hospital, diagnostic testing, and ancillary services,” according to a statement released by the commission.

Similar to Federal Advisory Board

The proposed body would not have the authority to force providers to lower rates, but it would make recommendations to the state government to implement policy the proposed body deems acceptable or necessary in order to reduce provider price variation.

Although the commission decided to empower another body to determine whether factors driving price variation are acceptable, it did make a special note that “market power and advertising expenditures may be among the unacceptable factors.”

Joshua Archambault, director of health care policy at the Pioneer Institute, says he doubts this commission will work.

“The board is not free from possible political influence, and the methodology by which the board would find a spending variation ‘excessive’ is unclear,” Archambault said. “The board structure, as laid out in the report, also starts the ball rolling towards greater government intervention in the form of price controls.”

Price Controls Could Worsen Situation

If Massachusetts does pursue price controls, it will create even more problems, Archambault says.

“Price controls are being discussed in Massachusetts to control health care costs because they appear to be the simplest, most linear way to fix a problem, and government holds the power,” he said. “The problem with price controls is that they are like squeezing a balloon—the air has to move somewhere. Distortions in the market take hold, requiring additional government intervention in a never-ending quest to ‘fix it,’ and as a result quality suffers.”

Archambault acknowledges there is a problem with rising health care costs in Massachusetts, but he says the state is addressing these problems in the wrong way. He counsels reforms to Medicaid and allowing more innovation in the health insurance sold through the Massachusetts Connector.

“Overall, the state government can play a productive role when it comes to transparency and by reexamining all current regulations and mandates that are on the books,” he said.

If the state’s rising health care costs aren’t addressed, they may undermine Massachusetts’ signature health care law. If health care costs continue to rise, the law can be saved “only if politicians are willing to cut significant funding from public education, public safety, and other social programs,” Archambault said.