Price disparities among hospitals pose one of the more intractable issues for policy makers, regulators and the government. That they exist is indisputable. Why they exist is a source of much contention. And the issue creates great disunity within the hospital world, causing fissures especially between academic medical centers and community hospitals.

Massachusetts, which has the perhaps unwelcome distinction of generally being in the forefront of key health policy initiatives, has a history of trying to analyze and understand hospital price disparities, and, even more challenging, trying to do something about them. Recent action, described in more detail below, comes on the heels of earlier commissions, studies and discussions probing the issue.

As is well known nationally, in 2006 Massachusetts adopted a significant reform program aimed at increasing access to care. Now known, perhaps with a wry and ironic sense of humor, as RomneyCare,[1] its insurance and benefit reform provisions served as the key model for similar provisions in the Affordable Care Act, enacted in 2010. It was generally understood in 2006 that Chapter 58 would address access to coverage, but not, simultaneously, other key health policy concerns, especially cost. Subsequent legislative enactments sought to address the wide array of health care policy challenges that were not principal foci of Chapter 58.[2] One of these challenges was price disparities among hospitals—that is, different prices for what might appear to be similar services.

In 2010 the Massachusetts legislature, in Section 67 of Chapter 288, created a Special Commission on Provider Price Reform.[3] The charge to the Commission was to “investigate the rising cost of health care insurance and the impact of reimbursement rates paid by health insurers to providers.” The Commission was further charged with examining policies “aimed at enhancing competition, fairness and cost-effectiveness in the health care market though the reduction of reimbursement disparities.” The Special Commission issued its report in November 2011.[4]

Less than a year after the Special Commission issued its report, the Massachusetts Legislature created another Special Commission, this one charged specifically to review variation in prices among providers.[5] This Special Commission was charged with conducting “a rigorous, evidence based analysis to identify the acceptable and unacceptable factors contributing to price variation in physician, hospitals, diagnostic testing and ancillary services.”[6] Recognizing the complexity of determining causality in this arena, the Special Commission’s charge required it to include in its analysis (“but not be limited to”) consideration of an examination of a broad range of factors such as “quality, medical education, stand-by service capacity, emergency service capacity, special services provided by disproportionate share hospitals and other providers serving underserved or unique populations, market share of individual providers and affiliated providers, provider size, advertising, location, research, costs, care coordination, community-based services provided by allied health professionals and use of and continued advancement of medical technology and pharmacology.”[7]

Understandably recognizing that the issue of price disparities is not unique to the Commonwealth, the Special Commission’s analysis was also to include a comparison of price variation between providers in the Commonwealth and providers in other states. Further identifying the possibility that payer contracting strategies have a role to play in fostering disparities, the Special Commission was also tasked with reviewing “the feasibility of requiring insurers to separately contract with all provider locations for a multi-location provider, rather than contracting only with the individual provider locations,” and “contracting practices that require payers to pay the same or similar prices to all provider locations for a multi-location health care provider where geographic differences in the provider’s site do not support charging the same or similar prices.”[8]

This Special Commission never did issue a report. However, the Massachusetts Attorney General has issued a series of reports on health care cost drivers, including on price disparities, which began in 2011, based on Chapter 288.[9] The Massachusetts Health Policy Commission, also established by Chapter 224, has made efforts to address the disparities issue as well. [10]

The issue of price disparity took a very different, and highly visible, political turn in 2015 and 2016. Demonstrating an apparent willingness to use the referendum process to decide major matters of health care policy[11], the SEIU gathered 130,000 signatures and, in December 2015, received certification that, with completion of additional procedural steps, would have put the issue of price disparities on the November 2016 state-wide ballot. While more complex in detail, the SEIU proposal would in effect have limited payments for services of certain acute hospitals ultimately to no more than 120% of the median carrier-specific relative price for the service, and would have required payers to bring acute hospitals with lower relative prices up to no less than 20% below the median carrier-specific relative price for services.[12] Similar provisions were included in legislation filed in conjunction with the SEIU initiative effort.[13]

The potential success of the SEIU’s putting the matter on the ballot galvanized more intense focus on the political ramifications of price disparities. While the Massachusetts Hospital Association board, consisting of both community and academic medical center members, took a unanimous position against the ballot initiative, data supporting the effects of implementation of the proposal—the reallocation in effect from hospitals with higher prices to those with lower prices—had a high likelihood of splitting the hospital community.[14]

The SEIU effort posed a significant political problem for the Governor and the Legislature. Notwithstanding years of discussion and reports on the issue, little substantive progress had been made in determining the addressable underlying causes for price disparities and therefore in substantively addressing them in an equitable fashion.[15] Yet it seems apparent to virtually all stakeholders that complex issues of health policy should not be made through a popular election. Political leaders saw as understandably daunting the prospect of a major political campaign, costing millions of dollars by most estimates, in the midst of both a Presidential election and the biennial election of all members of both branches of the Massachusetts legislature. It is not surprising, then, that, after some “closed-door talks between stakeholders and government leaders,” as the State House News Service observed, the Governor, Speaker and Senate President announced a resolution—I dare not say solution—that would have the SEIU agree not to pursue its ballot initiative. The resolution took the form of a legislative approach.

The speed of adoption of the proposed legislation was simply breathtaking. Agreement was announced on May 25. On May 26 the Joint Committee on Health Care Financing reported out the implementing bill (H. 4348) to both the House and the Senate, both of which enacted the bill that same day and sent it on to the Governor, who signed it the day after Memorial Day—6 days from announcement to signing (technically 3 if we ignore a 3-day holiday weekend).[16] Where there’s a will, there’s a way.

And what does the compromise consist of? Creation of yet another Special Commission to address price disparities (well, actually the same Special Commission that Chapter 224 created, with a somewhat different composition and now chaired by the House and Senate Chairs of the Joint Committee on Health Care Financing), and, to address the concerns of the lower priced hospitals (and to foster a parallel policy of supporting community hospitals generally), $120 million of special funding for those hospitals.

The revised Special Commission has essentially the same mandate as had the one created by Chapter 224. It has an obligation to begin meeting in September and to report out recommendations and legislative proposals by March 15, 2017. It seems likely, given the especially political genesis of the new legislation, that the Special Commission will take its responsibilities seriously and, using much of the data and analyses that have been gathered over the past 8 years, seek to find a reasonable accommodation that will work in the zero-sum-game environment of the price disparities war. Unless major changes take place in other aspects of the health care delivery and payment world, there may be a lot riding on the success of this Special Commission. Certainly its workings and its work product will be subject to intense scrutiny within both Massachusetts and elsewhere.

As to the $120 million additional funding for lower priced hospitals, the Governor and Legislature created an intriguing patchwork consisting of two elements:

The first is a bump up of $7.5 million per year to a provider tax of $250 million already proposed by the Governor and approved by both the House and the Senate (currently awaiting conference committee reconciliation to produce the final FY 2017 budget). The provider taxes would be in effect for five years, and generate federal matching funds dollar for dollar. The added $7.5 million per year, with the federal match making them $15 million, for a total of $75 million, would be available for redistribution as add-ons to Medicaid payments for hospitals. This would be in addition to the $250 million already proposed for this redistribution. (The federal match of the $250 million is to be used, among other purposes, for incentive payments for Medicaid providers.) While the source of this $75 million in additional payments does involve redistributing dollars from hospitals with relatively low levels of uncompensated care to those with greater amounts, the redistribution would not be as great as what would have occurred if the SEIU prevailed at the ballot.

The final $45 million is to be derived from reallocating dollars from the assessments that support CHIA (on hospitals, ambulatory surgery centers, and certain payers) into a new Community Hospital Reinvestment Trust Fund ($5 million for the period through June 30, 2017, and $10 million for each of the ensuing four fiscal years). These dollars will be paid over the 5-year period (there will be no federal match) to “eligible acute care hospitals.” These are hospitals that do not have relative prices (that term again!) at or above 120% of the statewide median relative price, as determined by CHIA. The available funding is to be distributed proportionately based on the gross patient service revenue (GPSR) of each of these hospitals as a proportion of the GPSR of all such eligible hospitals, but the payments are to be “adjusted to allocate proportionally greater payments to eligible acute care hospitals with relative prices that fall farthest below 120 per cent of the statewide median price.”[17] This last $45 million does not involve new state dollars, and because it derives from a reallocation of CHIA assessments, is in fact being funded by the provider and payer systems. Note that such reallocation is specifically not to result in an increase in the assessment already provided for to support CHIA, so, in effect, CHIA’s budget is significantly diminished by these payments to eligible hospitals. (CHIA is the principal vehicle for developing and analyzing cost and quality data under Chapter 224, and for developing mechanisms for promoting transparency for consumers, providers and payers. It is not clear how well it will be able to continue and further expand upon its mission with this budget reallocation in effect for the next five years.)

Conclusion

As noted above, addressing price disparities, seemingly because of the zero-sum nature of the issue, is hard, fraught with political peril, creates significant divisions within the hospital world and takes place in an environment in which a reasonably accurate understanding of the legitimate reasons for disparities does not exist, and may never exist. The issue is closely aligned with concerns about community hospitals, whose prices tend to be lower than those of academic medical centers and whose continued viability as free-standing entities is threatened by a number of other challenges. The approach taken in Chapter 115 of continuing to seek to understand the underlying dynamics and potential justifications for price disparities among hospitals through the Special Commission (one presumes that this is more than merely kicking the can down the road) and of identifying alternative sources for new funding for community hospitals presents an interesting policy mix to address these interconnected issues. Of course it doesn’t force the issue in the way the proposed ballot initiative would have, but we have to recognize that, even for our democratic society, making health care policy at the ballot box is risky business. Plus the dollars that would have been spent on a political campaign can be put to better use.