This week, the state turns its eye toward the complex issue of price variation. A diverse group of stakeholders has been appointed to examine the issue and debate what -- if any -- changes need to be made in the way that different health care providers get paid for the services they provide. As the commission kicks off, three concepts are fundamental to the discussion:

  1. Relative underpayment by the government payers – Medicaid and Medicare – must be a part of this conversation. Some will suggest that addressing commercial price variation will solve struggling community hospitals’ financial problems by getting their commercial insurance rates closer to that of Boston’s academic medical centers. A closer look at the numbers shows that is not the case. Some of the community hospitals in financial distress get more than 70% percent of their revenue from government payments that are typically much lower than commercial rates. To stabilize community hospitals in a sustainable way it is essential to include consideration of all payment sources – narrow attention to commercial rates only will have very little impact when such payments are only a small percentage of their business.
  2. This is not a Massachusetts issue. Price variation occurs everywhere and is widespread in health care markets across the country. In New England, studies have found wide variation in Rhode Island and New Hampshire. A recent HPC report acknowledges this, noting: “The presence of price variation in multiple markets across the country suggests that the market dynamics that drive extensive variation in provider prices for the same sets of services are not unique to Massachusetts.”
  3. Let’s define what problem we are trying to solve. Massachusetts is fortunate to have some of the best hospitals in the nation, the greatest concentration of life sciences research and biopharma industry in the nation and the best access to health care of any state. We are also fortunate, as a state, to have higher income levels. According to the Commonwealth Fund, our health insurance premiums are among the lowest in the nation, as a percentage of household income and those premiums buy some of the highest quality health care in the US. We must do more to control costs, but let’s clearly define what we are trying to fix before we make radical and potentially harmful changes to a health care system that is the envy of many other states.

This is not a Massachusetts issue. Price variation occurs everywhere and is widespread in health care markets across the country.

With these three points a central part of the dialogue, we can have a meaningful and constructive discussion about what constitutes warranted and what constitutes unwarranted price variation – and what to do about it.

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Topics: Affordability, Medicare/Medicaid, Economic Impact

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