Insurer Using Market Clout to Lower Healthcare Costs for Consumers

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There are rumblings among some in the hospital community voicing displeasure with the Group Insurance Commission’s (GIC) new plan to cap payments to providers at 160% the Medicare rate. The GIC says this move will help save the agency $50-100 million annually and meet the state’s cost growth benchmark.

Over the years, the GIC has been a leader in healthcare cost containment, from tiered provider plans to a recently launched cash incentive program called Vitals SmartShopper designed to incentivize high-value healthcare decisions.

In yet another innovative program from the state agency responsible for 436,000 state workers and their family members, the GIC has voted to limit payments to providers, some of the most prestigious of which have attacked the plan as government rate-setting.

Before this debate descends into talking points, hyperbole and half-truths, let’s understand exactly what rate-setting is: government requiring all payers and providers to abide by specific prices or limits. When a single insurer decides to use their market power to cut down on unwarranted price variation within their network, that’s called using market forces and alternative suppliers to get better value. That is, to lead the way to healthcare cost containment.

Unwarranted price variation in the Commonwealth has been a stubborn barrier to cost control efforts for years. Major legislation was passed in 2010 and 2012, and most recently, a Special Legislative Commission was established on the subject. Most healthcare stake-holders are against government regulation as the primary approach, instead looking to market forces to bring greater balance to this highly-striated industry.

But now a major payer is using its position in the market to take a stand and lower its own individual payment rates. That is not rate-setting. That is an example of market forces at work.

Other payers with some degree of market power could learn a lesson from the innovative GIC. It’s about time that the remnants of that “golden handshake” between a certain payer and provider, as reported years ago by a Globe Spotlight team, was broken once and for all.

A high-powered insurer forcing high-priced institutions to reckon with their prices or be left behind is exactly the sort of market-based solutions that the hospitals have been calling for.

For decades, large hospitals have used their market clout to demand higher payments from insurers wishing to include these prestigious institutions in their networks. Now, a large insurer is using its leverage in the market (which also happens to be taxpayers dollars) to drive down the growth in healthcare costs, using the playbook some hospitals wrote.

Indeed, the GIC could go further and institute reference pricing for certain procedures as some major corporations are doing. This market does not have to remain captive to old ways of doing business. This policy is a step in the right direction, but it must continue to put downward pressure on prices to truly succeed.

Under The GIC’s plan, there is no mandate that providers have to enter into a contract. Payers are still free to negotiate their contracts. The GIC has just drawn their line in the sand for all to see.


About the authors:

Barbara Anthony, a lawyer, is a senior fellow in healthcare at Pioneer Institute focusing on healthcare price and quality transparency.  She is also an associate at the Harvard Kennedy School’s Center for Business and Government.  She served as Massachusetts Undersecretary for Consumer Affairs and Business Regulation from 2009 to 2015.

Scott Haller graduated from Northeastern University with a Bachelor’s Degree in Political Science. He started working at Pioneer Institute through the Northeastern’s Co-op Program and continues now as the Lovett C. Peters Fellow in Healthcare. He previously worked at the Office of the Inspector General.