Massachusetts healthcare spending varies widely

The highest-cost providers in Massachusetts spent nearly a third more per patient than their lowest-cost peers, mirroring the widespread cost variation found in markets throughout the country.

Massachusetts' largest and highest-cost organization, Boston-based Partners HealthCare, spent 32% more per patient annually than Reliant Medical Group, after adjusting for treatment severity, according to a new report from the Massachusetts Health Policy Commission that analyzed the 14 largest providers in the state. That variation amounted to more than $1,500 per patient. Provider organizations like Partners that are anchored by academic medical centers, where expenses related to specialty care and research often outpace revenue, spent more than other types of organizations, researchers said. "We use more AMCs than any other state and often provide outpatient care in a hospital or an AMC, which leads to higher costs," said Dr. Stuart Altman, chair of the Massachusetts Health Policy Commission. On average, spending was 9% higher at academic medical center-anchored organizations than at physician-led facilities, according to the report. Hospital outpatient services saw the greatest spending variation, which was in large part due to facility fees that are levied via hospital-owned outpatient facilities, said David Auerbach, director of research and cost trends at the commission. Partners was twice as expensive at $1,963 per patient than Reliant at $974, according to data gleaned from the state's All-Payer Claims Database and the Registration of Provider Organizations data. There was also a 28% spread on patient cost-sharing. While the data analyzed was not tied to quality metrics, past work from the commission has not found significant correlations between cost and quality, the organizations said. The commission is still working on what influenced spending in pricing, patient mix and other factors. Notably, the lowest-cost provider analyzed, Reliant, had one of the largest shares of patients that are covered by narrow-network plans like HMOs and point-of-service plans, at 79%. Economists have long argued that the variation is often related to pricing. The list prices that providers set through their chargemasters are often inflated to secure a better rate in negotiations with payers. In many cases, uninsured and out-of-network patients have to bear the full list price even though it is often multiples higher than the actual cost. An additional dollar in list prices for hospital procedures translated to a 15-cent increase in payment from private insurers, research shows. "We all know that spending is driven by prices more than volume," said Barak Richman, a professor at Duke University School of Law. Prices often increase when healthcare providers grow, economists argue. There were 19 physician group mergers, acquisitions or affiliations in Massachusetts since April 2013, as well as 19 acute-care hospital mergers, acquisitions or affiliations, the commission said. This type of variation is a story that has played out across the entire country, economist Benedic Ippolito said. But it's important to keep in mind that variation isn't inherently bad, what's important is to understand why spending varies, he said. "Price is a function of a bunch of things—perceived quality, demand," Ippolito said. "It can be hard to understand why there is high demand for certain providers, but name-brand hospitals seem to command a premium and consumers are willing to pay more." The commission recommended bolstering competition, increasing transparency, improving incentives for payers and purchasers to seek out high-value care, and implementing alternative payment models. States like Maryland and West Virginia have looked to rein in pricing by setting prices through a state commission and regulating chargemasters, respectively. Many states are also trying to pass legislation that enforces pricing transparency. Massachusetts has also been proactive in trying to make patients into smart buyers by providing cost and quality metrics through the state's All-Payer Claims Database, Richman said. "But Massachusetts has said that it has a long way to go," he said. "And if that's the case, so do many other states."