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AG: Runaway costs burden health system

Caitlin Yoshiko Buysse

While President Obama has made significant strides to reform the nation’s health care system, last month’s bill did not tackle all the problems.

One such problem was addressed recently by state Attorney General Martha Coakley in a reported entitled  “Examination of Health Care Cost Trends and Cost Drivers. ”

The report reveals in stark detail the rising costs of health care and, among other things, the enormous price variation in medical procedures at different hospitals in Boston and across the state.

Among other findings, the report showed the median cost for a knee or ankle MRI at Massachusetts General Hospital is $1,050. The same procedure is only half this price, $525, at Boston Medical Center, less than two miles away.

 Price discrepancies are nothing new in a free market economy — a loaf of bread at one store may be more expensive than at another. But unlike prices in the aisles of a supermarket, hospital price tags are not clearly marked, making shopping for the best deal a difficult task.

“Insurance buyers have little information on prices paid and the reasons behind disparities,” the report stated, “nor do consumers generally have sufficient information, insurance product options, or incentives to make value-based health care decisions.”

The report explained that hospitals negotiate with insurance companies through private contracts to determine how much it will be reimbursed for each inpatient procedure. The hospitals set a “base rate” for a given case, which represents the starting price upon which additional fees can be charged depending on the complexity and severity of the specific case.  

 According to the report, the pricing system lacks transparency. Because prices are set privately and on an individual basis, hospitals do not know how much insurance companies pay other hospitals. Another problem, the report states, is that insurance companies do not know how much other inurers are paying hospitals. And if hospitals and insurance companies are in the dark, most consumers are left out of the process all together.

Although the report did not list the prices of specific procedures at specific Boston hospitals it directed readers to the state Health Care Quality and Cost Council (HCQCC), which allows consumers to compare data online.

According to its report, the median cost of a chest x-ray is $75 at BMC and $175 at MGH. The price tag on this procedure at Tufts Medical Center is $100, the same as the state average.

Similarly, a natural delivery at BMC and Tufts has a median price of $4,100 — standing $400 below the state average — while the same service costs $5,100 at MGH.

But the attorney general’s office found that higher prices do not necessarily mean better service or quality of care. “Our results indicate that there is no correlation between price and quality, and certainly not the positive correlation between price and quality we would expect to see in a rational value-based health care market,” it concluded.

According to the HCQCC, for example, coronary artery bypass surgery — an operation to fix clogged arteries in the heart — yields the same-quality results at BMC, MGH, and Tufts. All three hospitals were ranked as performing at the state-average level.

But the median cost of this operation at MGH is $54,000, while only $40,000 at Tufts and $29,500 at BMC. The state median is $44,000.

Depending on an individual’s coverage, the price differences in this type of major operation could determine whether the upper limit of insurance is exceeded or not.

There is a 180 percent difference between the highest and lowest paid hospitals under contract with Blue Cross Blue Shield in Massachusetts (Partners HealthCare Nantucket Cottage and Athol Memorial Hospital, respectively), and a 224 percent difference in payments to physicians.

The report also found that hospital prices are not related to the sickness of the patients, their use of Medicaid or Medicare, the complexity of procedures performed, whether the hospital is a teaching or research institution, or actual hospital costs.

Instead, the report explained, “price variations are correlated to market leverage” wielded by each hospital.

This means that prestigious hospitals, like those affiliated with Partners HealthCare such as MGH and Brigham and Women’s, can use their clout to demand higher pay from insurance companies — and receive it.

And this above all else, the attorney general concluded, is the cause of rising health care costs in the Commonwealth. According to the report, large “brand name” hospitals dominate the health care market by using their financial leverage to win more pay from insurance companies.

The rise of these negotiated prices constituted the greatest increase in health care costs in the past few years —not the cost of procedures or overhead.

The report was discussed earlier this year at a series of public hearings examining the rising cost of health care in Massachusetts. At the hearings, Partners HealthCare officials disagreed with the attorney general’s conclusions and denied that their practices were responsible for driving up health care costs in the Commonwealth.

Thomas Glynn, chief operating officer at Partners, said at the time that its hospitals charge more to compensate for inadequate Medicaid and Medicare payments from the government.