BOSTON – The Massachusetts Attorney General's office has released a report noting serious system-wide failings in the state's commercial healthcare marketplace that threaten access to affordable, quality healthcare.

The report contains preliminary findings of the office’s investigation into the contracting practices between commercial healthcare insurers and healthcare providers (hospitals and physicians), specifically examining healthcare prices and how those prices are negotiated.

The AG’s report is based on information received from major Massachusetts health plans and providers in the wake of a 2008 law promoting cost containment, transparency and efficiency in the delivery of quality healthcare. The AG’s office intends to finish its investigation and hold cost containment hearings starting March 16.

“Healthcare costs are increasing much faster than the growth of the economy, creating serious hardships for many individuals, families and businesses who are unable to keep pace with these rising costs,” said Attorney General Martha Coakley. “Our review shows that the current system of healthcare payment is not always value-based and healthcare providers throughout the state are compensated at widely different rates for providing similar quality and complexity of services.”

The report outlines six key findings:

1. Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and among providers offering similar levels of service;
2. Price variations for hospitals and physicians offering similar services are not explained by quality of care, the sickness or complexity of the population being served, the extent to which the hospital is responsible for caring for a large portion of patients on Medicare or Medicaid or whether the hospital is an academic teaching or research facility;
3. Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers;
4. Variations in providers’ per-member per-month expenses are not correlated to the methodology used to pay for healthcare, with expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis;
5. Price increases, not increases in use, caused most of the increases in healthcare costs during the past few years in Massachusetts;
6. The commercial healthcare marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.

Coakley said these findings raise concerns that existing systemic disparities in reimbursement may, over time, create a provider marketplace dominated by very expensive “haves” as the lower and more moderately priced “have nots” are forced to close or consolidate with higher paid systems.

The report also makes four recommendations to promote value-based purchasing and ensure consumer access to high quality, affordable healthcare:

• Discourage or prohibit insurer/provider contract provisions that perpetuate market disparities and inhibit product innovation;
• Increase transparency and standardization in both healthcare payment and quality to promote market effectiveness and value-based purchasing by employers and consumers;
• Improve market function by adopting payment reform measures that account for and do not exacerbate existing market dynamics and distortions and developing legislative or regulatory proposals to mitigate health market dysfunction and rate disparities to promote convergence of provider rates where there are no differences in quality or other value-based factors; and
• Engage all participants in the development of a value-based healthcare market by promoting creation of insurance products and decision-making tools that allow and encourage employers and consumers to make prudent healthcare decisions.