PERHAPS THE MOST vexing challenge the Massachusetts Legislature confronts as it seeks to lower health care costs is the disproportionate market power that certain hospital networks, including Partners HealthCare System, enjoy by virtue of their prestige, power, and customer appeal.
That clout has let those networks enjoy considerably higher reimbursements from insurers than other institutions receive for similar services. Often, the higher fees are justified by world-class care. In other instances — especially for basic services conducted at suburban hospitals that just happen to be part of the same network as Mass. General, Brigham and Women’s, or other teaching hospitals — the higher fees are an unjustified burden on patients and insurers. There is, however, a market-based fix that could go a long way toward restoring equal bargaining power between such networks and insurers: Force all hospitals in a network to negotiate their fees separately. Thus, Partners wouldn’t have so much negotiating power when it comes to leveraging higher prices for its suburban affiliates.
On Beacon Hill, the House version of the health care cost containment bill includes such a provision, which should remain part of any future legislation. It would help insurers resist demands by networks for a range of higher fees across different institutions in order to get the insurer’s patients access to specialized services at a world-class teaching hospital.
Currently, if an insurer can’t come to agreement with a hospital system, that plan’s members lose access to all the hospitals in that system. That obviously enhances the network’s negotiating power. But the same wouldn’t be true if those hospitals had to negotiate individually. Similarly, this plan would make it easier for insurers to choose only the hospitals they want rather than including all of a network’s institutions.
The House’s proposal needs some refinement. It would apply only to hospitals that do most of their business on a fee-for-service basis, rather than accept a single payment to cover the cost of a patient’s yearly care. That makes sense. But the formula for determining whether a hospital is primarily operating on a fee-for-service basis should take account of only its own primary-care patients, rather than those referred from other hospitals. In addition, it does not seem necessary to require, as the House bill would, that each hospital in a system have its own completely separate negotiating team, with a firewall between them; that would add bureaucracy and cost. It should be enough to specify that providers can’t make their entering into one contract with an insurer contingent on the payer signing a second with another facility in the network.
Hospital-by-hospital negotiations may prove a headache for hospital systems. But by helping equalize negotiating power, it could lead to lower prices and thus lower insurance premiums. That prospect makes this a reform worth pursuing.