HB2167 An Act to Improve Health Care Costs for Employers and Consumers

Joint Committee on Financial Services

The Massachusetts Health & Hospital Association (MHA), on behalf of its member hospitals and health systems, physician organizations, and allied healthcare providers, appreciates this opportunity to offer comments in strong opposition to HB2167, “An Act to Improve Health Care Costs for Employers and Consumers.”

Effective January 1, 2019, for five years, HB2167 would create a payment cap for all providers (hospitals and physician group practices) that participate in a payer’s network, such that no provider (except potentially exempted unique-service, geographically isolated and specialty hospitals) would receive payment that is more than the carrier specific 80th percentile within its geographic region. For providers that are above the 90th percentile, payers and providers would have five years to come into compliance with the 80th percentile cap; for providers above the 85th percentile, payers and providers would have 2 years to do so. Providers that do not agree to participate in a plan’s network would be forced to accept the carrier-specific price within its geographic region. Providers would be prohibited from increasing prices to other plans in order to recoup any losses from the implementation of these provisions. “Net” savings are to be reflected in premiums.

MHA is opposed to arbitrary caps on provider payments. The cap imposed in the bill is completely arbitrary— no basis is provided as to why the resulting payment range after applying the proposed cap is the only acceptable, permissible and legitimate range of price variation. This bill purports to address the issue of price variation in the healthcare system—and while MHA agrees that price variation is an important issue and has made recommendations on how it should be addressed to the legislature, HB2167 imposes an arbitrary and confusing calculation to a complex reality without any analysis or understanding of the various provider types that are part of the healthcare system, and without accounting for warranted factors for price variation between providers, including those recognized by Medicare as drivers of higher costs—such as disease intensity, teaching intensity, or for service mix (including the need to subsidize poorly reimbursed but essential services such as behavioral health) or underlying differences in the cost of providing care or the funding of societal needs (such as teaching, research, providing a safety net for those unable to afford care). It is not only bound to fall short of its goal, but to also lead to significant negative consequences for patients and the Commonwealth’s healthcare system.

Government payers already account for 60% of an average hospital’s payer mix - a percentage that is targeted to grow in the future due to Medicaid expansion and an aging population that will rely on Medicare benefits and assistance. It is troubling that HB2167 would expand government control of provider payments even beyond the 60% - by imposing government-regulated arbitrary limits on private market payment levels. Such an action would be an undesirable intrusion into the marketplace and poses numerous negative consequences.

HB2167 would cap payments by randomly picking an upper limit to permissible variation in price 
and using this to reduce provider payments. This would be equivalent to rate setting by private payers
themselves—and it ignores the other changes occurring in the healthcare system through the ongoing
implementation of Ch. 224. Chapter 224, which passed after prolonged and thoughtful debate, uses a
balanced mix of market and government regulations to address a variety of cost, payment, and
delivery system reforms. It promotes the movement to alternative payment methods and integrated
delivery systems for care of populations and ties reimbursement more closely to quality outcomes. It
rightly focuses on total medical expense growth (TME) rather than price alone to steer the system
towards a sustainable cost growth trajectory. Driven in part by requirements of Chapter 224,
providers are focused on redesigning care delivery, providing care in the most appropriate setting,
maximizing efficiency, all while maintaining quality. In such a dynamic payment reform
environment, simplistic solutions such as those proposed in this bill have no place.

The technical flaws and concerns of the actual language of HB2167 are many. In defining an upper
limit to payment levels for providers within a geographic region it creates a “moving target” as
shown in the table below i.e. the 80th percentile in Year 1 (1.16) becomes the de-facto “maximum”
price in Year 2 while the Year 2 80th percentile falls to 1.152, which then becomes the maximum
price in Year 3, and so on. The “declining 80th percentile” phenomenon occurs even though, in the
example below, the relative prices of the lowest paid providers increase every year. In other words,
an “80th percentile” cap would continue to arbitrarily squeeze payments to higher paid hospitals
every year as the 80th percentile relative price keeps getting reset at a lower level.

Example for One Carrier

Provider 1            1.32        1.16     1.152
Provider 2              1.2         1.16    1.152
Provider 3            1.15         1.15      1.15
Provider 4               1.1           1.1        1.1
Provider 5              1.02        1.02      1.02
Provider 6                 0.1          0.1        0.1
Provider 7               0.96        0.96      0.96
Provider 8               0.84         0.84      0.84
Provider 9               0.63           0.7       0.75
Provider 10             0.54           0.7        0.75
80th Percentile       1.16       1.152   1.1504

It is important to note also that there is no requirement in the bill to create a floor on provider
This runs counter to the position of MHA, which is that, under appropriate DoI oversight,
commercial payment rates to the lowest paid hospitals should be increased; there should be a
reasonable floor on these payments with the goal to reduce unwarranted disparity in payments.

Implementation of the payment limits required in the bill would necessitate periodic calculation,
reporting, review and publication (as well as subsequent compliance monitoring) of prices by payer,
for every provider in the state—prices that change frequently as contracts come up for renewal or are
modified, and/or new ‘episodes’ or ‘bundles’ of payment are developed. Tracking this information
would be a near impossible task, adding huge administrative burden to a system that is already
overburdened by often needless, duplicative paperwork—and it flies in the face of efforts to seek
administrative simplification in the healthcare system. Additionally, the bill requires CHIA to
calculate statewide and carrier-specific relative prices “by provider category” but does not take
provider category into account when calculating the 80th percentile by geographic area.

Another key provision in the bill would require that a non-network provider must accept a rate equal
to the carrier-specific median relative price for similar in-network providers. This creates several

  1. A perverse incentive for insurers to exclude higher-paid providers from their network so that
    such providers would default to payment levels at the median relative price for the services
    they provide to the insurer’s members.
  2. An incentive for providers whose payment levels are below the median to drop out of the insurers’ network to receive payments at the median relative price.
  3. Implications for patients in terms of out of pocket spending and cost sharing, continuity of care etc. since insurance plans generally include higher patient cost sharing amounts for outof-network providers.

HB2167 also poses indirect harm to some hospitals by impeding access to capital since current bond
ratings take into account future projections of revenue, which could decline abruptly for varying
hospitals under this scenario

The commonwealth’s healthcare system is at a transformative phase and is moving in the right
direction. Yet, at the same time, hospitals are experiencing declining volume and continued
inadequate reimbursement from government programs, and facing unprecedented instability at the
federal level. Imposing the arbitrary and simplistic “quick-fix” posed by HB2167 would result in
negative consequences for access and delivery of safe patient care, endanger the state’s leadership in
medical education and research, and turn back the clock on the progressive change initiated by
Chapter 58 and extending through Chapter 224. On behalf of MHA’s membership we urge the
committee to reject this misguided proposal.

Thank you for the opportunity to offer testimony on this important matter. If you have any questions
regarding this testimony or require further information, please contact Michael Sroczynski, MHA’s
Vice President of Government Advocacy, at (781) 262-6055 or msroczynski@mhalink.org.