Facing rising health costs, Massachusetts seeks cost-cutting that improves care

GWEN IFILL: Much of the anger and debate surrounding the Affordable Care Act focuses on questions of coverage and individual costs for the consumer. But another big question is whether it can hold down overall costs, as intended.

The state of Massachusetts is now grappling with that very question, something it didn't do when lawmakers first expanded coverage there.

NewsHour economics correspondent Paul Solman has the story, part of his continuing reporting Making Sense of financial news.

MAN: The task of access to affordable health care is not complete.

PAUL SOLMAN: A meeting of the Greater Boston Interfaith Organization, which plumped for the 2006 state law on which the Affordable Care Act is modeled. It's led to nearly universal coverage in Massachusetts, but it didn't address costs. That's the next challenge.

MAN: We're worried for the future.

PAUL SOLMAN: Myron Miller works at a small architecture firm.

MAN: Our firm's overall health care expenditure has almost tripled over 10 years.

PAUL SOLMAN: Indeed, insurance premiums have continued to rise since health care reform passed in Massachusetts, climbing almost 10 percent from 2009 to 2011. And health care costs more here than in any state in the country.

So, why is care so costly in Massachusetts? And what's being done about it? The whys are easy; the state is relatively wealthy, so people can afford more. Doctors here have more resources, and getting paid a fee for every service they provide, provide plentifully.

Health economist DAVID CUTLER:

DAVID CUTLER, Harvard University: So, there's a lot of — kind of at the margins between should you do it or not, there's much more of an ethic to do it.

PAUL SOLMAN: And yet, says Cutler, all this spending isn't making folks any healthier.

DAVID CUTLER: There's no great relationship between spending more and doing better. And the reason is that most of the variation in spending is associated with conditions where there's a lot of gray area about exactly how much to treat people. About a third of medical spending is not associated with improved outcomes.

PAUL SOLMAN: So, question two: How do you get top-flight doctors and high-tech hospitals to economize? Last year, the state passed a law to chain spending growth to economic growth, 3.6 percent this year. And what happens if spending tops the target?

ARON BOROS, Center for Health Information and Analysis: We have a mandate from the people of Massachusetts to intervene if the market can't control costs on its own.

PAUL SOLMAN: Aron Boros, who runs the state's Center for Health Information Analysis, says government will muscle high-cost offenders.

ARON BOROS: We will use that muscle to force hospitals, other providers and plans to control costs and ultimately pass those savings to consumers.

PAUL SOLMAN: A new state panel will put firms that miss the target under formal review. So, the health care system's main players see the writing on the wall and are responding.

DANA GELB SAFRAN, Blue Cross/Blue Shield of Massachusetts: We undertook to invent a new way to pay for care.

PAUL SOLMAN: Dana Gelb Safran of Blue Cross/Blue Shield of Massachusetts, the state's largest insurer, which devised a plan to discourage fee-for-service medicine. Doctor networks are paid a flat amount per patient.

DANA GELB SAFRAN: Now, for the first time, that provider organization has the incentive to look, where are the ways that money is being spent on care that it's not adding any value, that it's, in fact, wasteful?

PAUL SOLMAN: If the doctors come in under budget, they share in any savings. If they overspend, they owe Blue Cross. And why isn't that an incentive to stint on care?

DANA GELB SAFRAN: There's a broad set of quality and outcome measures on which the provider organization can earn significant additional revenue by performing well.

PAUL SOLMAN: The plan actually slowed spending by 2 percent its first year, better than 3 percent the second, while improving outcomes. How?

WOMAN: If you had to say where you get the numbness and tingling in your hands, show me where.

PAUL SOLMAN: One new approach is being road-tested at Partners, the state's biggest health care provider. It's turning its primary care practices into patient-centered medical homes.

MAN: When I last saw her, I thought she was doing significantly better. Sarah's asking the psychiatrist to be involved and suggest different kinds of medication.

PAUL SOLMAN: Patients are treated by one doctor-led team that includes a social worker, nutritionist and other specialists. The belief is that coordinated care will keep patients healthier.

WOMAN: You're run-down from the first infection, so that puts you at risk for a second infection. So, if that happens, the earlier you call, the more aggressive we are, you know, maybe we can avoid another trip back to the hospital.

PAUL SOLMAN: Which brings us to the main cost-saver, reducing the priciest part of health care, hospital stays, especially for the sickest among us, who, says Dr. Tim Ferris of Partners, account for the biggest portion of all costs.

DR. TIMOTHY FERRIS, Partners HealthCare: About 50 percent of the total is accounted for by 5 percent of the patients. They're so complicated that, left to their own devices, they will bounce between providers. And that movement between providers, uncoordinated, leads to waste in the system.

PAUL SOLMAN: So, Partners assigns care managers to coordinate the treatment of high-risk cases. The elderly, for example, fall so frequently that, in 2010, over two million were treated in the E.R.

TIMOTHY FERRIS: And emergency room doctors really don't have a lot of choices, they're going to admit that patient. But when someone who knows the patient shows up in the emergency room and says, actually, I know this person, it's OK, she will be safe going home, I'm going to follow up closely with her, that changes the equation.

PAUL SOLMAN: In a 2006 trial run, Partners' care managers reduced high-risk patient hospitalizations by 20 percent, keeping patients out of the hospital. That's the name of the game now that more insurers are putting doctors on a budget, rather than paying a fee for every service.

So, this is fee-for-non-hospitalization.

TIMOTHY FERRIS: It's fee-for-non-hospitalization, but the non-hospitalization is not a problem for the doctor. It's a problem for the hospital.

PAUL SOLMAN: Well, you work at a hospital, though.

TIMOTHY FERRIS: I do work at a hospital, and so we have to figure that out.

PAUL SOLMAN: In fact, Dr. Ferris practices at Massachusetts General. Run by Partners, it's one of the most prestigious and priciest hospitals around. In today's cost-cutting climate, it's been on the defensive.

Why is the very hospital we're in now among the most expensive hospitals in the world?

TIMOTHY FERRIS: This is an all-things-for-all people. There are certain disease categories, we're the only provider that provides care for that category of patients. There's another reason: We teach here. We teach the next generation of doctors and nurses, and we have to cover the costs of that teaching.

PAUL SOLMAN: Places like Mass General make money by providing as many services as they can and charging a premium for them.

DAVID CUTLER: That was always the ethic of the system: Do a lot, keep the hospital beds full, keep the services busy, we will make a lot of money, and then we can use that to support the social missions and save for a rainy day.

What Massachusetts has said is, we can't afford that system. Make your money by being better cheaper, not by being more and more and more.

MAN: I invite you to stand up now.

PAUL SOLMAN: Back at the Greater Boston Interfaith Organization, advocates pledged to meet here again to keep pressuring the health care industry to rein in costs.

MEN AND WOMEN: We will be here.


PAUL SOLMAN: And turning to the industry itself…

MAN: And finally, to our guests from the hospital systems and the insurance providers who are with us up here…

PAUL SOLMAN: … they voiced a commitment as well.

MEN AND WOMEN: We will be here.


PAUL SOLMAN: Still miles to go, of course, but this year, anyway, Blue Cross, the biggest insurer, and Partners, the state's largest provider, both say they will meet the spending growth benchmark in Massachusetts.