March 11, 2010
David Morales, Commissioner
Massachusetts Division of Health Care Finance and Policy th Floor Two Boylston Street, 5
Boston, MA 02116
RE: Testimony for March 18, 2010 Cost Trends Hearing
Dear Commissioner Morales:
On behalf of Tufts Health Plan, thank you for the opportunity to testify at today’s hearing. Tufts Health Plan insures around 740,000 members. Since 1979, Tufts Health Plan has been committed to providing a higher standard of health care coverage and to improving the quality of care for every member. Tufts Health Plan’s Health Maintenance Organization (HMO) and Point of Service (POS) plans are ranked third by U.S. News & World Report/National Committee for Quality Assurance (NCQA) and its Medicare Advantage plan, Tufts Health Plan Medicare Preferred, is ranked number four in the nation.
My testimony will focus on delivery system reform, the drivers of medical cost inflation, as well as some solutions and potential challenges in moving toward a more efficient and higher quality care delivery system.
The report recently released by the Division of Health Finance and Policy (DHCFP) concludes for the period studied (2006 through 2008), that growth in premiums was caused primarily by growth in medical claims. In fact, 97% of the total per member per 1month premium growth from 2006 to 2007 was attributable to medical claims. This
makes it clear that the only way to rein in premium increases is by containing medical claims costs.
We also know from the DHCFP reports and the Attorney General’s preliminary report,
that unit price, or the price we pay per service, is responsible for 75% of medical inflation 2while utilization contributes around 25%. The AG’s report also describes and
graphically demonstrates a tremendous price variation among providers, even those 3within the same geographic area. According to the AG’s findings, this variation exists
1 Massachusetts Health Care Cost Trends Part II: Private Health Insurance Premium Trends 2006-2008, The Division of Health Finance and Policy, February 2010 2 Investigation of Health Care Cost Trends and Cost Drivers, Preliminary Report, Office of Attorney General Martha Coakley, January 39, 2010, p. 16 3 Investigation of Health Care Cost Trends and Cost Drivers, Preliminary Report, Office of Attorney General Martha Coakley, January 39, 2010, p. 4
not due to patient acuity or quality of care, but rather due to market leverage or the relative market position of the hospital or provider group.
The conclusion we draw from these reports is that the solution to cost control will require a more rational alignment of incentives and a possible realignment of prices that results in more affordable access to coverage.
We support the Special Commission on Payment Reform’s recommendation that global payments become the predominant form of payment to providers in Massachusetts. We concur with the Commission's suggestion that the transition occur within a period not to exceed five years.
Tufts Health Plan has considerable experience with global payments, in particular, in our senior products segment. Approximately 22% of our commercial HMO membership is covered under a risk based arrangement, including capitation; however nearly 100% of our Medicare HMO members are covered under these same types of arrangements. We believe that global payments, or capitation arrangements, when appropriately structured, can result in more efficient and higher quality delivery of health care. Our results are consistent with this.
4 contrasting Medicare Advantage plans to traditional fee-for-service In a recent analysis
Medicare, Tufts Health Plan had significantly lower rates of avoidable hospitalizations and unnecessary emergency department visits, resulting in cost savings and improved patient care. Tufts Health Plan’s rates for preventable hospital admissions and preventable emergency visits were also well below the national average for Medicare beneficiaries.
As I mention above, we believe that the transition to risk based payments can and should happen over a five year period and that a pilot or demonstration program is not necessary since providers across the Commonwealth, of all different sizes and capabilities, are already delivering care under these arrangements. We do recognize, however, that the pace for transition will vary by provider and that it is reasonable to assume that some providers may never be capable of assuming risk either due to the nature of their practice or their specialty. Nevertheless, we should not begin the planning process with exceptions and possible exemptions. Rather, we should focus on the development of a road map that moves the vast majority of providers along the continuum of risk sharing.
It is essential that we acknowledge that global budgets, in and of themselves, may not correct for the variation in unit price, at least not in the near term. I believe that before we make the transition to global budgets, our efforts should be focused on smoothing the variation in unit price. As the AG’s report points out, there is significant variation in unit
4 The analysis of Tufts Health Plan’s Medicare Advantage product is part of a larger report, authored by Johns Hopkins University researcher Gerard Anderson, Ph.D., and commissioned by the Alliance of Community Health Plans.
price which the report attributes to provider leverage based on a particular provider’s size,
geographic location, brand power and/or unique specialty. These drivers of provider leverage are reinforced by member and employer demands for full access to providers, particularly those with national standing and the ability to perform advanced specialty services.
There are two proposals currently under consideration by the administration and legislature which could have an immediate effect on unit price and premium rates. The Affordable Health Plan, which limits provider prices to 110% of Medicare and insurer underwriting surpluses to two percent, would result in an average premium decrease of around 22 percent. The Affordable Health Plan is effective in reducing premium rates because it caps provider prices at 110% of Medicare rates. This proposal is a short-term solution, designed specifically for small businesses that are in need of immediate relief.
A second proposal, House Bill 4490, which requires carriers to offer a limited network product, would also provide immediate relief. It is worth noting, however, that this product does not require legislative approval. In fact, Tufts Health Plan currently offers a limited network product and other insurers which provide coverage to state employees have been asked to develop a limited network product. Our select network product offers a price differential of around 10% to 20%. These products achieve the level of savings I have just described through unit price discounts. But their success depends on provider and consumer acceptance of limited networks.
A third, possibly more systemic approach, would be to implement the Payment Reform Commission’s recommendation that an entity be established to oversee the transition to
global payments. The Commission suggested that among the oversight entity's recommended responsibilities was to “set milestones for achievement of greater value-5 The entity could based payment equity and monitor market progress to these targets.”
consider this responsibility in the greater context of the Commonwealth’s overall cost
savings goal. I agree that this deserves further consideration and I submit that I do not have all the answers. But clearly, if our goal is to curb medical inflation, we must begin by addressing the unit cost problem.
The Path Forward
As I have mentioned, I firmly believe that our goal should be to transition to risk based payments over a five year period. I also recognize how lofty a goal this is and that it will require considerable collaboration among providers, plans and government agencies. A road map or transition plan should be developed that includes specific criteria for transitioning to risk based arrangements. The plan should be flexible to accommodate a variety of practices and arrangements, sizes of groups and relative preparedness on the part of providers. There should also be limits on fee-for-service prices for providers who are capable, based on established criteria, but unwilling to transition.
5 Recommendations of the Special Commission on the Health Care Payment System,June 16, 2009, p.15
As we enter into global budget arrangements, first and foremost, provider organizations or accountable care organizations should not be required to take on inappropriate levels of financial risk. In addition, the legislature in collaboration with state agencies must develop very clear rules and methods for monitoring provider consolidation. As the AG report shows, provider consolidation and market leverage have resulted in higher prices.
The health plan’s role is critical to the overall success of this approach. Health plans
must retain the insurance risk and continue to maintain an adequate level of reserves. In addition, health plans play an important role in providing the data, programs and tools for successful management under global payment.
Tufts Health Plan has a unit that works with our contracted medical groups to improve overall performance. The team is led by a Tufts Health Plan physician and includes nurses and data analysts. We provide comparative reporting on the use and cost of services and the quality of care. This comparative reporting enables provider groups to identify group-specific trends and opportunities for improvement. We also identify and share best practices among groups and provide support and consultation for implementing changes to improve the management of care.
Another important function of the health plan is identifying and developing effective disease and care management programs. Tufts Health Plan deploys a number of programs in partnership with physicians. Finally, the health plan must routinely monitor for under use and overuse of services and work extensively with providers to monitor the quality of care being delivered.
As our experience shows, global budgets can be successful in promoting efficiency and better care coordination among providers.
We recognize that there are several challenges ahead. Although we should be mindful of those challenges, we should not be paralyzed by them. Our failure to act on these problems will undermine our accomplishments in access to coverage.
Among the challenges, is the need to smooth unit price variation. The success and/or failure of reducing costs rest on our ability to moderate unit prices. Furthermore, the success of global budgets as the long term solution for cost containment hinges on our ability to control for variation in unit price.
There are also structural challenges associated with global payment arrangements. There are two issues that will require considerable discussion and planning. The first issue concerns the continued desire of employers and members for a PPO product. The current challenge of this product under a global arrangement is in assigning these members to a primary care physician and thus a risk-bearing entity (given that the member is not required to affirmatively select a primary care physician).
The second issue concerns global budgets and whether these arrangements are accepted by self insured employers. The key obstacle is in convincing these self-insured employers that their claims cost will come down over time if their members are “assigned” to providers who have aligned financial incentives to manage the cost of care.
In conclusion, as recent reports show, premium increases are directly attributable to the growth in medical costs. And the primary driver of medical cost increases is the price we pay per service. Taking this on will not be easy but without the appropriate focus and discipline, employers will continue to struggle with the costs of covering their employees.
We look forward to working with state agencies, employers and providers on ways to
rein in medical costs.
James Roosevelt, Jr.
President and Chief Executive Officer