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The Boston Globe

Health & wellness

House targets health spending

Proposal aims to cut growth in half; Excessive prices would lead to tax

Massachusetts House leaders released a major proposal to curb health care costs Friday, calling for new limits on the fees charged by hospitals and doctors and for creation of an independent agency to monitor medical spending. The lawmakers project their plan would save families an average of $2,000 annually on health insurance premiums.

The long-awaited bill would require the health care industry to cut the growth in spending in about half by 2016, so that it is below the growth of the overall Massachusetts economy.

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Providers that charge prices deemed excessive and that they cannot prove are linked to above-average quality would pay a tax, similar to the luxury tax Major League Baseball imposes on the big-spending New York Yankees and Boston Red Sox. That money also would be redistributed to financially-shaky hospitals.

Another key provision would charge hospitals, ambulatory surgery centers, and insurers a one-time tax totaling about $200 million to help struggling hospitals that treat many poor patients.

Lawmakers have been working on proposals to control health care spending for two years, and the House legislation filed Friday kicks off debate that is likely to last through July. Senate leaders said they will file their own bill next week, indicating they disagree at least in part with the House’s approach.

The Massachusetts Hospital Association and the doctors’ lobby, powerful industry groups, suggested Friday that they, too, will fight portions of the House bill, arguing that its spending targets are too severe.

Hospitals, doctors, insurers, and government leaders have been arguing for months about whether the industry can control costs on its own or whether the government has to intervene with some type of price controls. The industry points to a recent moderation of price increases to argue regulation is not needed, but consumer advocates attribute the slowdown to the recession and pressure from the Patrick administration.

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The cost-control battle is the second act in the state’s effort to revamp health care, and once again it is in the national spotlight as one of the first states to attempt to restrain the expensive and often-disorganized health care system.

President Obama’s health care law is modeled on one passed in Massachusetts in 2006 that expanded health insurance coverage to nearly all residents in part by mandating the purchase of insurance by anyone who can afford it. Massachusetts leaders have long said that the insurance requirement was just the first step and must be followed by cost controls.

House Speaker Robert A. DeLeo said he tried “to find that balance’’ between the providers’ concerns and competing interests of employers and consumers who cannot afford to keep up with health care costs that are growing 6 percent to 8 percent a year.

“We don’t want to stifle research and innovation,’’ said DeLeo, pointing to Richard Mangino of Revere, who received a double hand transplant at Brigham and Women’s Hospital last year. DeLeo said he met Mangino, who lives in his district, at the hospital last week.

He said he tried to “soften the blow’’ to providers in the legislation with an approach that is “a carrot more than a stick.’’

Representative Steven Walsh, a Lynn Democrat and cochairman of the Committee on Health Care who led the House effort, held 800 meetings, including with executives from 54 hospitals, DeLeo said.

But Lynn Nicholas, president of the state hospital group, said, “To expect the health care industry to perform at less than the economy overall is unreasonable and will impinge on our ability to deliver care at the level people expect. . . . That may damage the economy more than it helps it, and, because of that, jobs may be lost.’’

Nicholas and Dr. Lynda Young, president of the Massachusetts Medical Society, said the House’s spending target is too aggressive. By 2016, the legislation calls for health care spending to shrink to the rate of growth of the gross state product, a measure of economic activity, minus a half percent.

Another key provision of the legislation would make the cost and quality of care more transparent to consumers on the Internet, so they can take those factors into account when planning medical treatment, as well as fuller disclosure of out-of-pocket costs up front.

The bill also encourages providers to form so-called accountable care organizations to care for patients in a more efficient coordinated fashion, and pushes insurers to shift toward global payments, which pay providers a lump sum to care for a group of patients, and away from paying separate fees for every service.

Much of the authority in the new system proposed by the House would lie with the independent agency, which would oversee compliance with spending goals, in part by investigating providers and insurers whose prices exceed the limit and, in some cases, requiring them to renegotiate fee increases.

The legislation also takes aim at the extreme variation in prices that hospitals charge insurers and government payers for similar services. Investigations by the Globe Spotlight Team and Attorney General Martha Coakley’s office have documented that hospitals with market power - because of their reputation, location or specialized services - often charge much more than other hospitals for services of similar quality.

Under the legislation, hospitals that charge 20 percent or more above the median - and cannot link their hefty prices to above-average quality or special services - would pay a 10 percent tax that would go to struggling hospitals.

Legislation filed by Governor Deval Patrick last year would allow his administration to more directly scrutinize contracts between insurers and providers. In a written statement yesterday, the governor applauded the House for “finding a long-term solution to lowering the cost of health care,’’ but he was noncommittal about the details.

Walsh said during an interview that the plan would save $160 billion over the next 15 years. Families would see their annual health insurance premium fall $2,000 on average below forecasts for the next five years. The average family premium for employer-based coverage in Massachusetts was $14,600 in 2010, of which $3,500 was paid by the employee, according to the Kaiser Family Foundation.

David Cutler, a Harvard economist who advised the House on the proposal, said it is realistic to expect this level of savings. “We are spending $66 billion a year on health care,’’ he said. “There is a lot of money in that system.’’ Cutler also advised President Obama on health care.

Liz Kowalczyk can be reached at kowalczyk@globe.com.

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