As legislative leaders go down to the wire negotiating a major health care cost-control bill, Governor Deval Patrick has proposed a new approach for targeting large, expensive hospitals and doctors groups that may be driving up fees by abusing their market power.
The governor's plan requires the administration to conduct a "cost and market impact review'' of any medical provider it suspects is engaging in or plans to engage in anticompetitive behavior.
If the review finds that the provider has dominant market share, and has "materially higher'' prices and total medical expenses than competitors, then the administration must refer the case to Attorney General Martha Coakley's office for formal investigation. Total medical expense measures the total spending on medical care for a group of people; the reviewers would take into account the health status of a provider's patients.
The attorney general would determine whether the provider gained its advantage by violating the law prohibiting unfair methods of competition.
"Having market power is not necessarily a bad thing, and price differentials are not necessarily a bad thing,'' said Jay Gonzalez, Patrick's secretary of administration and finance. "This proposal recognizes that. We are trying to focus reviews where market power may be leveraged in a way that is working against the interest of the consumer.''
The market clout of the state's priciest hospitals and doctors groups has been cited as a major driver of health care costs. In a 2010 report, Coakley found that insurers pay some hospitals and doctors twice as much money as others for similar care, because they have name-brand recognition or geographic dominance.
The issue has taken center stage again as House and Senate negotiators attempt to bridge the differences between their cost-control bills before the legislative session ends July 31. The House plan contains the most aggressive methods for attacking market power, including a one-time luxury tax on highly paid providers, but that is unlikely to remain in the final proposal.
A separate House provision would require hospitals in systems to negotiate prices with insurers individually, rather than as a more potent group, as is now commonly done. But the measure is worded such that most provider networks could be exempt.
The Senate proposal takes a more indirect approach to the problem, including market impact reviews when providers want to grow larger.
Gonzalez described the governor's proposal as a compromise. The administration gave it to key legislators last week. Lawmakers did not return calls seeking comment.
Some providers, particularly those that have traditionally been paid less than others, welcomed the governor's proposal.
"It's a clear process to move from data, which we've seen for awhile, to potentially some action,'' said Eric Beyer, chief executive of Tufts Medical Center, a lower-paid teaching hospital in Boston. "It helps us get beyond the status quo.''
Nancy Turnbull, an associate dean in health policy at the Harvard School of Public Health, called the governor's plan a "small step in the right direction'' as it obligates a government agency to delve into market power issues. But, she said, "it's less than we need'' because whether action is taken against a provider would still be "entirely discretionary.''
Others had the opposite view. Michael Widmer, president of the Massachusetts Taxpayers Foundation, said the plan is "an open invitation for unaccountable bureaucrats to go on a witch hunt.''
The market impact review would include the methods used by a provider to attract patients, recruit health care professionals, and buy facilities. The plan does not give Coakley new powers, reflecting the governor's belief that the attorney general already has the authority to investigate providers for unjustifiably high prices and impose fines and seek court injunctions.
Patrick and Coakley have treated the market power issue like a hot potato, with the governor calling on the attorney general to use her antitrust powers. Coakley has fired back that the administration needs to use tools short of law enforcement, such as greater oversight of contracts between insurers and providers.
On Wednesday, Corey Welford,Coakley's chief of staff, would say only that the House, Senate, and governor's proposals all take positive steps. "Our office would play an important role in implementing this new law and addressing market power, and we will carefully review the final bill when it is released from committee," he said in a statement.
The Massachusetts Hospital Association declined to comment, saying it needs to discuss the plan with its members.
Liz Kowalczyk can be reached at email@example.com. Follow her on twitter @GlobeLizK.