Newsletter Sign-up

By JOEL BERG, a professor and freelance writer

Massachusetts, one of few states to adopt healthcare reform, has become a Rorschach test in the debate over changing the healthcare system nationwide.

But others look at the Massachusetts experiment and see failure. After all, roughly 2.5 percent of the state's residents remain uninsured three years after changes took effect in 2006. The percentage of uninsured before the reforms took effect was about 13 percent.

Then there's the long-term threat posed by healthcare inflation. Costs are piling up for Massachusetts as more residents become insured and medical expenses continue to rise. The financial trends threaten to erode gains in coverage, and observers expect similar challenges for national reform. Expanding coverage without controlling costs is a recipe for disaster, they argue.

But cost-control is much thornier because it essentially means cutting revenue for doctors and hospitals, according to analysts. Payments may shift toward primary care and away from costlier specialty care, for example.

The same challenges would face even a publicly run health plan, which many reformers support both to compete with private carriers and to ensure universal coverage nationally.

"Simply covering the 45 million uninsured in this country will not address problems of cost and quality," says Dennis Scanlon, an associate professor of health policy and administration at Pennsylvania State University in State College, Pa.

The problems posed by cost come as little surprise for reformers in Massachusetts. They debated tackling coverage and cost at the same time, deciding instead to expand coverage first.

Three years later, providers, insurers and state officials are ramping up efforts to rein in spending. Lawmakers created a payment reform commission, which began meeting in January and rolled out recommendations this spring.

The centerpiece is a "global payment system" that bears some similarity to the managed-care, fixed-fee model of the 1990s. The system could point the way forward for controlling costs elsewhere, analysts say.

Insurers would stop reimbursing doctors and hospitals on a fee-for-service basis, which critics argue rewards the volume of care over quality. In its place, they would pay doctors and hospitals a flat rate per patient, with rates adjusted for age, gender, health status and other factors. The new twist is that providers could earn incentives for operating more efficiently and delivering better care.

"We are now moving into the very difficult, very tough-love phase, both as we put pressure on improving quality and we put in place very difficult and very challenging measures to get cost that doesn't add value out of the healthcare system," says Jim Conway, senior vice president at the Institute for Healthcare Improvement, a nonprofit in Cambridge, Mass.

Many details remain to be worked out, including how long the transition to a new system might last, what role the government will play in encouraging it and how smaller providers will be brought into the system.

Officials also must avoid the mistakes that tainted the fee model a decade ago. Doctors and hospitals suffered financially after taking on more risk than they could bear. They were on the hook whenever a patient required more services than the flat rate covered.

"There's a lot of left-over reticence and, to some extent, bitterness," says Joe Kirkpatrick, vice president of healthcare finance for the Massachusetts Hospital Association, based in Berlin, Mass.

But without action, universal coverage could be priced out of reach, observers says.

"I do think there's a real affordability problem for the state over a five- to 10-year period," says Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology. He also sits on the board overseeing the Massachusetts Health Connector, where state residents and small businesses shop for insurance.

Some cost pressure comes from the reform's success in signing up the previously uninsured, Gruber says. All told, more than 430,000 residents have secured coverage since 2006.

The state's reform entailed the creation of two new insurance programs, one subsidized, one not. Both programs target people who don't get health insurance at work but, due to a state mandate, still must get coverage somewhere.

Massachusetts also revamped its program for reimbursing care for the uninsured and merged the markets for individual and small-business coverage.

The unsubsidized insurance program, Commonwealth Choice, makes available a range of health plans with different benefits and cost-sharing options. One plan is specifically tailored and priced for young adults between 18 and 26, a group that often chooses to go without insurance.

Residents buy insurance through the Health Connector, a mechanism that also is part of President Barack Obama's healthcare plan. People who don't buy coverage but are deemed able to afford it pay a penalty. That, too, is part of the Obama plan.

The subsidized program, known as Commonwealth Care, covers adults with incomes below 300 percent of the federal poverty level, as long as they don't qualify for Medicare, Medicaid, employer-based insurance or any other special insurance programs. This year, 300 percent of the federal poverty threshold is $32,508 for an individual and $66,168 for a family of four.

As of Sept. 30, 2008, about 187,000 of the newly insured had purchased private coverage, according to data from the Health Connector. Another 165,000 were enrolled in Commonwealth Care. The state's Medicaid program, called MassHealth, has added 76,000 members.

At the start, some people wondered whether employers would drop coverage, knowing a state program was in place as a safety net. That hasn't happened, according to Richard Lord, president and CEO of the Boston-based Associated Industries of Massachusetts, which represents 6,500 businesses of all sizes.

If anything, Lord says, employer-based coverage has become more critical in attracting talent since the state requires people to have insurance anyway. Workers seek out those companies offering the benefit.

Overall, employers are happy with the state's reform, Lord says. But, he adds, expanded coverage was relatively easy compared to curbing costs. The recession, which is straining the Massachusetts state budget, only complicates matters.

The state is expected to spend about $800 million on its subsidized insurance program, up from $628 million in 2008.

"This next year could be a very challenging time for the state," Lord says.

On a positive note, healthcare reform enjoys widespread support, Lord and others say, giving everyone in the state a stake in its survival.

Legislation over the last three years has nibbled at some of the cost issues and addressed other shortcomings in the program. The state is now promoting the adoption of electronic health records and encouraging medical students to take up primary care, which has experienced a shortage in recent years.

The tweaks show healthcare reform is an ongoing process rather than a one-shot deal, an important lesson for national reformers, says Jon Kingsdale, executive director of the Boston-based Commonwealth Health Insurance Connector Authority, which runs the Health Connector and administers Commonwealth Care.

"There's always a temptation to wrap it all into one piece of legislation and put a bow around it and say it's done," Kingsdale says.

The transition to a global payment system is likely to be a work in progress as well. The state's payment reform commission envisions a transition lasting from three to five years. In the meantime, insurers and providers already have begun experimenting with fee, or so-called capitated, models.

In late 2008, Blue Cross Blue Shield of Massachusetts unveiled what it calls an alternative quality contract. The contract pays a flat rate per patient, as well as incentives for efficiency and quality.

As of late April, four provider groups had signed on, representing about 1,300 doctors and 88,5000 health-plan members, according to Blue Cross.

One of the signatories is Tufts Medical Center in Boston. Details of the contract are closely held and still being worked out, but in general it will offer a mix of capitated risk and opportunities to generate additional revenue, says Dr. David G. Fairchild, Tufts' chief medical officer.

"In the old capitation days, we were just told to save money," Fairchild says.

Fairchild's chief concern about a flat-rate system is in making sure it accounts for the risks faced by hospitals, like Tufts, that care for sicker-than-average patients.

At the same time, he doesn't expect a global payment system to work perfectly, particularly in the early going. The 1990s experiment with capitation revealed plenty of flaws.

"If it was simple to fix," he says, "we would have done it back then."

June 1, 2009

Copyright 2009© LRP Publications