MA Governor Deval Patrick at the DNC

MA Governor Deval Patrick at the DNC (photo: WEBN-TV)

Massachusetts Attorney General Martha Coakley has released a new report that indicates Gov. Deval Patrick’s goal of controlling health care cost by moving the state towards a global payment method is unlikely to produce real savings. From the report (PDF):

[T]he information we reviewed shows that the shift to global payments without other fundamental changes may not only fail to control cost, but may exacerbate market dysfunction and market inequities by establishing widely different per member per month rates based on historic pricing disparities.

[...]

[P]roviders paid under a global risk contract do not have consistently lower TME than providers paid under a fee-for-service contract. Some risk-sharing provider groups are among the highest TME providers in the state while some groups paid on a fee-for-service basis are among the lowest TME providers in the state. This is true even for providers who have been in global risk contracts for five or more years with all three large health insurers, including Atrius, Health Alliance, Mount Auburn Cambridge IPA (―MACIPA‖), and South Shore PHO.

(emphasis added)

The report also found that switching to global payments didn’t address the problem of a huge variation in payments that can be explained by differences in quality of care.

Our examination shows that there is wide variation in payments to physicians and hospitals in Massachusetts for similar services that is not adequately explained by differences in the quality of care provided. This is true whether providers are reimbursed on a traditional fee-for-service basis or paid on a global, or risk basis.

While it is still early in the state’s push towards global payments, I’ve often thought cost control promises of merely changing payment methods has always been  overstated.

Frankly, what you have is some providers with substantial market power and naturally they intend to use this market power to make strong profits. They will use their power to make sure they are making big profits regardless of the payment system.

To control costs you really need to fix this provider market power issue either by using single payer or all-payer.

The relative market power of the payers to demand low prices is far more important than the payment methods.