Public Statement on the Recommendations of the Legislature’s Healthcare Provider Price Variation Commission

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Commission Misses Great Opportunity to Advance Healthcare Price Transparency

While most of the country is focused on national health care issues playing out in Washington, Massachusetts is in the midst of an extremely important debate with lasting effects on what Commonwealth residents pay for healthcare prices, about which few citizens are even aware.

Last year, as part of a hastily crafted law replacing a ballot initiative to institute limited provider rate-setting pushed by 1199 SEIU, the state legislature established a special commission to study the Bay State’s stubbornly high healthcare prices. The Provider Price Variation Commission (PPVC), populated by a who’s who of local healthcare bigwigs, very diligently attempted what was asked of them: not only identifying the reasons for our pricey healthcare services, but also providing recommended solutions.

The problem is the task they were asked to perform.

Today, the commission released its findings, giving us a description of why some hospitals and providers can charge much more for their services than their competitors with similar quality outcomes. The reason is no secret and has never been a secret: It is “market power,” pure and simple.

To its credit, the commission correctly points out that price variation is a symptom of market power – the problem is that it stops there. It doesn’t acknowledge that market power is, in turn, a symptom of market failure. When competition is not sufficiently robust, powerful firms use their supply or demand advantage to extract prices above the competitive norm. They deny entrance to new sources of supply or exclude other forms of demand, and they do it for more than a transitory period of time. Their goal is to have the ability to set prices and dictate market conditions. That is market failure, and one critical solution is to ensure the availability of transparent prices, so that all market participants can see the effects of this failure and find opportunities to change relationships in the industry. The goal of any attempt to fix market failure is to make changes that produce competitive prices.

Instead, the charge given to the PPVC was that it examine the many factors resulting from a dysfunctional market and recommend how they can be corrected by regulation.  In essence, they sought to regulate healthcare prices so that the prices looked like what a functional or competitive market, one not suffering from market failure or lopsided market power, might produce.

That is one impossible, tall order.

The report includes many — and we mean many —regulatory prescriptions involving a host of state agencies that, while well-meaning, suggest the ‘micro-regulation’ of pricing conduct to such a degree that they are generally impracticable to adopt and enforce. One example will illustrate the problem: Requiring that payer-provider contracts be reviewed for approval, and presumptively denied, by a state agency to determine if there is an abuse of market power is not a very realistic approach to problems generated by market failures. There is no way to quantify the effects of market power.

But since the state is not able or willing to address changes in market structure or rules of conduct in situations where market power is playing out, its only refuge lies in overly prescriptive regulatory solutions.

Missed opportunity on price transparency

One area where the commission missed an opportunity to spur change is consumer price transparency in healthcare services. Unfortunately, while a few of its recommendations on transparency are encouraging, overall, its treatment of consumer healthcare price transparency is disappointing.

The commission embraces and perpetuates the myth that consumers don’t want price transparency in healthcare because efforts to provide this information “have met with limited success.” This is a circular argument. First, most consumers don’t even know they have the right to healthcare prices before they pay out of their own pockets. Second, carriers, providers and the state do little to encourage, educate, inform or otherwise raise the visibility of transparency in healthcare prices. Third, and perhaps most importantly, market participants — whether the state, insurers or providers — provide few, feeble incentives to shop for value.  Hence, consumers are unaware of their rights and don’t compare prices for non-emergent care. This enables naysayers to claim that consumers don’t want the information and therefore, neither the industry nor the state (the naysayers) makes it easier for consumers to obtain such information.

Studies show that people with high deductible health plans are using the size of their deductible as a blunt instrument to defer care. Hard to believe they would not make more refined choices if they had information and guidance, or even financial incentives to choose high value/low cost providers.

Pioneer believes that strong state leadership, with a focus on raising awareness about transparency, has a place in making this dysfunctional market work better. Price transparency for consumers, employers, and employees can come in many forms, and there is no single transparency plan or website that will lead to success. Pioneer urges a high visibility multi-pronged approach that involves the state and all stakeholders.

For example, we believe the following steps would have been reasonable additions to the report’s recommendations:

  1. Pushing a state-wide campaign that encourages payers and employers around the state to develop creative plans, including financial incentives, aimed at helping employees make high value/low cost decisions.
  2. Releasing actual claims data for popular procedures, identified by provider, through the Center for Health Information and Analysis.
  3. Using existing authority imbued in the Department of Public Health, the Division of Insurance, the Board of Medicine, the Board of Dentistry, and other agencies to encourage payers and providers to, first, comply with existing state laws around price transparency, and second, to promote more robust and consumer-friendly transparency initiatives.
  4. Rewarding patients in the small business market for making smart choices.
  5. Giving small businesses access to de-identified claims data, with appropriate safeguards, to help better mange healthcare costs.

The Commission’s report did not specifically embrace any of these actions.

Pioneer believes that a culture change and robust education effort are necessary to achieve the benefits of price transparency. A great example of these principles in practice is Vitals SmartShopper, the financial incentive program that the state’s Group Insurance Commission’s (GIC) indemnity plan is employing. SmartShopper, along with education and persistent targeted advertising, offers cash incentives to patients who choose low-cost high-quality providers. There are many other examples of creative plans that the PPVC heard about as well.

In terms of trying to drive prices down, we also urge payers to follow the lead of the GIC in using its bargaining clout to extract lower prices for its members. And, we also urged this commission to look at the way reference pricing is used by large employers and by CalPERS in California to save on healthcare costs.

While, as the commission points out, transparency across the entire healthcare purchasing chain is important, it is critical that the focus on consumer-facing price transparency is not lost in a time of rising deductibles and when many consumers are deferring care as a blunt method of reducing healthcare costs. Pioneer’s testimony to the PPVC lays out a more aggressively consumer-focused transparency roadmap, as well as provisions aimed at helping small businesses plan and control their healthcare costs.

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