Massachusetts: high prices in a managed care stronghold - includes related information on reform legislation

Business & Health, Oct, 1995 by Dan Wise

As small companies face the prospect of a state-imposed pay-or-play mandate, large employers step up demands for the price cuts that managed care has brought to other markets.

Massachusetts has one of the most advanced health-care systems in the nation: Its academic medical centers are first-rate, its concentration of highly trained specialists among the highest. And its managed care penetration, at close to 40 percent, is in the top three along with California and Minnesota.

The Bay State is also a place where purchasers are organized and assertive. The Massachusetts Health Care Purchasing Organization, a coalition of 36 major employers, met its goal of holding HMO premiums steady this year and expects to secure a 3 percent decrease in 1996. The group also keeps close tabs on plan performance and is about to release its second set of HMO report cards.

Yet health care in Massachusetts is more expensive than in any other state, a Lewin VHI 1994 study revealed. Its per capita health expenditure, at $4,123, exceeds the national average by over $1,000. HMO premiums are 20 to 25 percent higher than the national average, according to the Marion Merrell Dow Managed Care Digest. HMOs in California--Massachusetts' rival for the No. 1 slot in managed care penetration--charge about $110 per member/per month in premiums, while monthly rates in Massachusetts average $160 to $170, the state Department of Insurance reports.

"Massachusetts has shown that high managed care penetration is not an automatic guarantor of lower costs," says Dolores Mitchell, executive director of the Group Insurance Commission, the agency that obtains coverage for some 150,000 state employees.

Employers acknowledge that managed care has been an improvement over fee-for-service medicine but express frustration over its failure to adequately control costs. While cost increases have slowed in recent years here as in the rest of the country, they say not enough has been done to change utilization patterns.

MANAGED CARE IN A HIGH-TECH STATE

Why have costs remained so high amid such a prevalence of managed care? A consumer and provider culture that favors medical interventions and high-tech care helps account for the paradox, purchasers contend. With such prestigious institutions as Massachusetts General Hospital, Brigham & Women's, the Dana Farber Cancer Institute and the Harvard Medical School, the state has long been a mecca for medical education and clinical advances, especially in the Boston area. With more than 4,400 post-graduate students in specialties, the city is home to nearly 5 percent of the nation's medical residents. The concentration of resources, says Mitchell, has made Massachusetts a "high utilization, procedure-prone state."

An expensive, specialty-oriented structure is also part of the problem. Managed care is supposed to shift emphasis from specialists to primary care providers, but family doctors are in the minority here. The Boston metro area has 31 specialists for every family doctor, three times the national ratio and six times that of Minneapolis, the managed care stronghold, according to AMA figures. Meanwhile, there are only 11 family doctors per 100,000 people, less than a third of the ratio in Minneapolis and little more than half the national average.

While total inpatient days have declined steadily from 6.9 million in 1983 to 4.7 million in 1993, hospitalization rates have not come down as quickly in Massachusetts as nationwide, despite the heavy influx of managed care. By 1993, according to figures from the Massachusetts Health Data Consortium, hospital discharges had dropped to 127 per 1,000 people, down from 142 a decade earlier. The national rate was 122 per 1,000 in 1992, the latest year for which figures are available, and 167 in 1983.

The economic significance of the health-care sector is another factor. U.S. Rep. John W. Olver, a Democrat from suburban Boston, estimates that one in nine jobs in the state relates to health care, nearly double the national average. As the high-tech and defense contracting industries that had been the job-producers faltered in the late 1980s, health care remained one of the few growth areas in a depressed economy.

Some employers say, too, that the HMOs have not focused enough on wellness to truly have an impact. "I get more reminder cards from my vet than I ever got from my health plan," says Tom Harrison, the former benefits manager for Stratus Computer in Marlborough. About a year ago, Harrison asked his company's plan if enrollees were healthier than the year before. He was told they did not have that kind of data, leading him to conclude that there's not enough of a focus on prevention. "If the plan was doing the right thing, there would be no reason for not seeing all the people they cover once a year or once every two years," he says.

EMPLOYERS ORGANIZE TO WIELD INFLUENCE

The business community signaled its assertiveness--and unwillingness to tolerate the lack of accountability--with the formation of the Massachusetts Health Care Purchasing Organization in 1993. Although the coalition is loosely organized (until this year, it had no paid static) and its members do not purchase collectively, its influence in restraining costs and making HMOs more accountable is widely acknowledged. The group issued an HMO report card based on HEDIS measures last fall. Its first public ranking of providers, based on compliance with HEDIS and improvement in meeting agreed-upon quality goals, is about to be released.