Health Policy Committee Last week, the office fell behind Attorney General Andrea Campbell on Steward Healthcare-related issues, but to its credit, it continued to focus on the larger problem facing Massachusetts health policymakers: long-standing market dysfunction caused by inequalities in health care resources.
Certainly, Steward is a top priority for most in the health care industry, but Campbell clearly wants to move forward as quickly as possible and put this whole debacle behind him.Without waiting for the committee’s investigation to finish, the attorney general has already signaled his intention to support the sale of five Steward hospitals in Massachusetts, the closure of two others, and the sale of Steward’s physician group to a subsidiary of Kinderhook Industries, a private equity player.
“It would have been nice if the Commission had looked more closely at the Kinderhook acquisition, but that is understandable. Completing the Kinderhook acquisition and the other Steward acquisitions as quickly as possible is our top priority right now. It is now time to move on, get Steward out of the state, and focus on equally difficult priorities.”
That’s why a presentation last Thursday by David Auerbach, research director for the Health Policy Committee, caught my eye. Auerbach focused on the inequities in health care resources that plague our health care system and are the result of a few large companies having disproportionate market power. Here’s what I learned from Auerbach’s presentation:
Health care costs have been trending upward in recent years, driven by rising drug prices and increased commercial spending due to rising hospital outpatient volumes. Massachusetts now has the second-highest family health insurance costs in the country, behind New Jersey. A few years ago it was the fourth or fifth highest, so it’s moving in the wrong direction.
Between employer and family premiums and out-of-pocket payments, the family’s annual health care costs exceed $29,000 per year.
Nearly 900,000 people with employer-based health insurance in the state reported not getting the care they needed because of cost, up from 600,000 in 2021, according to the 2023 survey.
There remains a large disparity in payments to health care providers: the most prestigious and market-dominating hospitals receive private payments far in excess of Medicare payment levels for inpatient care, while many other hospitals are paid private prices that are much closer to Medicare prices.
This kind of commercial price variation also exists for outpatient services, which can often be much higher in hospital outpatient departments compared to physician offices. One example Auerbach gave in his presentation is that a standard chemotherapy drug infusion would cost about $10,000 on average if infused in a physician office or a less expensive hospital outpatient clinic. But the cost to insurance companies would be double that if the same drug was infused at Dana-Farber or Massachusetts General Hospital. Another example is that a market basket of 50 common outpatient services (labs, imaging, etc.) would cost over $50,000 at Boston Children’s Hospital or Dana-Farber, roughly double what insurance companies would pay the 10 or so lowest-cost hospitals in the state for the exact same services.
Let’s talk about medical waste.
On the same day, the Center for Health Information and Analysis reported that the state’s hospitals’ total profits had improved significantly, increasing 6.4% year-over-year in fiscal year 2023 compared to fiscal year 2022. Even more surprising, the state’s largest and most prestigious health systems increased their net worth: Massachusetts General Hospital Brigham’s net worth increased to $17.1 billion, Children’s Hospital to $7.66 billion, Beth Israel Lahey Health to $3.97 billion, and Dana-Farber Cancer Institute to $3.36 billion.
While this increase in assets reflects both operating income and an increase in the value of their investment portfolios, it does not suggest that these particular institutions are in as dire a financial position as they often claim. Recent data shows that the net assets of these institutions have increased further during the current fiscal year.
In the past, when the state’s insurers got into financial trouble, larger, more established competitors stepped in to help them out with low-interest loans. But in the current crisis in the hospital sector, the industry giants aren’t stepping in to help. Instead, the state is spending about $500 million over the next three years to bail out hospitals that Steward has let go.
And I suspect that many other “poor” hospitals in the state, while recognizing the need for emergency relief for the six Steward hospitals, are wondering whether the state would help them operate if they too were to find themselves in serious financial difficulty.
Certainly, improving financial oversight and reporting for all health care providers, and keeping an especially close eye on egregious behavior, is a good idea. But the next financial emergency facing health care providers may well involve a nonprofit operator. So a better preventative measure would be state policies that increase the flow of resources to more struggling institutions and curb revenue growth for the wealthier ones.
Whether this reallocation comes from commercial price compression or by paying hospitals a global budget will generate interesting policy debates about how best to stabilize needed providers while improving affordability across the system.
Indeed, it seems timely that these important ideas and related issues should be at the heart of the Health Policy Committee’s November hearing on cost trends.
Paul A. Hattis is a senior fellow at the Lown Institute.
