Business

Beacon Hill health bill pits large hospitals against small ones

BOSTON, MA - 6/24/2016: The Brigham and Women's Hospital Shapiro Cardiovascular Center is pictured on Friday, June 24, 2016. Hospital officials said they were reducing patient capacity and bringing in hundreds of temporary nurses in anticipation of a strike by nurses on Monday. (Timothy Tai for The Boston Globe)
Timothy Tai for The Boston Globe
Executives at big hospitals in Massachusetts, such as Brigham and Women's, are warning about a proposal to reduce disparities in the way hospitals in the state are paid.

A big new health care bill moving through Beacon Hill is pitting small community hospitals against industry giants owned by Partners HealthCare, as lawmakers try to control rising costs in part by reducing the stark disparities at which hospitals are paid.

The bill has already drawn stern objections from executives at two Partners hospitals, Massachusetts General and Brigham and Women’s, which could face fines under the legislation, but lawmakers are insisting they will move ahead with it.

Leaders of hospitals in cities such as Brockton, Lawrence, and Holyoke have long complained that they cannot compete with big Boston hospitals if they continue to receive reimbursements from insurance companies that are so much lower than their competitors’.

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“We don’t have the luxury to ignore the issue that there’s a huge disparity,” said state Senator James T. Welch, a Democrat who cochairs the Joint Committee on Health Care Financing and is a key architect of the bill.

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For consumers, the debate isn’t simply academic; when overall health costs rise, they must pay a share.

Many politicians and industry experts agree that helping community hospitals is a worthy idea, but the challenge for senators is to do so while also keeping health care spending in check.

Senators came up with a two-pronged solution: prop up community hospitals by setting a minimum amount for payments, and set a benchmark for growth in overall hospital spending. If the hospital industry overall exceeds that benchmark, estimated at 2.7 percent, the legislation allows for potentially millions of dollars in fines against the three Massachusetts hospitals with the highest commercial spending.

“I would describe it as a common-sense realistic approach to addressing price variation” between small and large hospitals, Welch said.

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Reports over the past several years have found evidence of price variation across Massachusetts, meaning that for many common tests and procedures, some health care providers get paid hundreds or thousands of dollars more than others.

Partners, the state’s largest network of doctors and hospitals, has been a target of past efforts to tackle these disparities. In 2016, the Service Employees International Union pushed a ballot question that would have redistributed millions of dollars from Partners hospitals to its less expensive competitors. That ballot question was avoided after a compromise was reached, which included the creation of a new state commission to study price variation. The commission released a lengthy report this year that called for tighter regulation to control hospital costs.

Executives at Partners and its top two hospitals, Mass. General and the Brigham, say the new Senate legislation attempts to help community hospitals at their expense.

“In the event that the hospital industry exceeds the Senate’s benchmarks, the Senate proposal would penalize just three hospitals — regardless of how those three hospitals performed,” Partners spokesman Rich Copp said Wednesday.

The Senate bill, he added, creates many new rules for hospitals “in what is already the most highly regulated industry in the Commonwealth.”

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Mass. General and the Brigham are powerhouses of medical research and physician training, and are known for taking care of critically ill patients from around the world.

The heads of both institutions testified at a public hearing at the State House this week to warn that those missions are threatened by what they consider to be unfair penalties in the Senate legislation.

Dr. Peter L. Slavin, president of Mass. General, said the bill creates perverse incentives for other hospitals to raise spending substantially, while penalizing Mass. General even if it successfully contained spending.

The senators promoting the new health care bill are not buying that argument. Welch said the fears expressed by Partners executives are unfounded.

“The argument that was brought up at the public hearing, to me, it would take the largest conspiracy in the history of Massachusetts politics for it to happen,” he said. “You’d have to get dozens of hospitals and insurance companies to come together and say: ‘We really want to get these two hospitals or three hospitals.’ It’s just not reality.”

Senator Harriette Chandler, a Worcester Democrat, said lawmakers are hopeful the formula in the bill will work.

“I think we give it two or three years to see if it works and we’re hoping that if it does, that the market will straighten itself out, but if it doesn’t we will have to resort to a regulatory framework,” she said in an interview Wednesday night.

“This is a cost containment bill, and one of our problems is that the costs of the big hospitals are growing by leaps and bounds, and that is a problem,” she added.

Advocates of the bill argue that the largest hospitals should accept some financial penalties if such a move helps shift payments to struggling community hospitals. Community hospitals in Quincy and North Adams have closed in recent years because of deteriorating finances.

Community hospital leaders say they desperately need government intervention to help them cover their expenses and make enough money to invest in their facilities.

“This [Senate] fix has few that it hurts and many that it helps,” said Kim Hollon, chief executive of Signature Healthcare, which operates Brockton Hospital. “It is an incremental step to fairness.”

The Senate bill would raise payments for community hospitals up to 90 percent of average. Hollon said that would be a $10 million increase for Signature, where total revenue is about $344 million.

But the concept of raising reimbursements for the lowest-paid hospitals has also prompted concerns.

Groups representing health insurers and small businesses, for example, are worried that the provision could simply push health care spending higher at a time when the state is trying to tamp down on spending.

Ellen Murphy Meehan, a consultant who works with community hospitals, said the Senate bill represents “a significant step in the right direction.”

“It’s a very gradual public and thoughtful architecture and structure that gives a lot of flexibility to improve the rates for those at the bottom and monitor the growth at the top,” she said.

Correction: An earlier version of this story mischaracterized the growth of Massachusetts health care costs.

Globe correspondent Jacob Carozza contributed to this report. Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.