Shorter Boston Globe: How Elite Hospitals Rake in the Bucks

Last Updated Jan 3, 2009 12:48 PM EST

Massachusetts hospital scandal -- just the facts, ma'amOver the past six weeks or so, a series of Boston Globe articles have revealed a fascinating situation: The state's top-tier hospitals are raking in the bucks because they've forced health-insurance companies to reimburse them at much higher rates than their competitors. The latest story, published last Sunday, prompted Massachusetts Gov. Deval Patrick to ask a new state panel to look into these payment practices.

Although the series stands as a classic of investigative journalism, it's sometimes repetitive and clocks in at almost 15,000 words -- likely more than any busy healthcare manager or observer can manage to digest without significant caffeine supplementation. So as a service to BNET Healthcare readers, let me present the Just the Facts Edition of the emerging Massachusetts hospital scandal.

Part One: A healthcare system badly out of balance

  • Procedures such as angioplasty cost far more at elite medical centers such as Brigham and Women's Hospital than they do at community hospitals. In general, a handful of hospitals -- including Brigham, Massachusetts General and Children's Hospital -- are paid 15-60 percent more than their competitors. Individual procedures can cost two to three times as much at the favored hospitals.
  • The disparities reflect a healthcare system in which "deregulation and lax government oversight have allowed hospitals with the most clout to extract big increases from insurers while everyone else falls behind."
  • Family health-insurance premiums in Massachusetts have risen 78 percent since 2000. Charles Baker, president of the state's second-largest insurer -- Harvard Pilgrim Health Care -- says a significant part of the increase reflects the fact that powerful hospitals have extracted higher payments from insurers.
  • Most Massachusetts hospitals are nonprofits, yet the higher payments allow the elite institutions to snare patients and physicians from their rivals. "They are using that not-for-profit status to make a profit and to build more capacity for things we don't need," says John Chessare, former acting CEO of Caritas Christi, the state's second-largest hospital chain.
  • Inflation of insurance payments to doctors and hospitals directly affects insurance premiums.
  • Children's Hospital struck the highest reimbursement rates in the state, and consistently reports profits three times the median for Massachusetts hospitals. Insurers have little choice because they believe people won't accept insurance that doesn't cover such a prominent pediatric hospital.
  • Partners HealthCare, formed by a 1994 merger that brought together Brigham and Mass. General, has played the reimbursement game aggressively. When Tufts Health Plan rejected a proposed reimbursement increase, Partners announced it would no longer accept Tufts insurance. Thousands of Tufts members threatened cancellation, and the health plan backed down.
  • The Globe estimates that Partners and its doctors receive $800 million more every year than they would were they paid at rates similar to competitors. As a result, Partners recently launched a five-year, $4 billion expansion program.
  • These inequities even work in reverse. Beth Israel Deaconess Medical Center is paid 15-20 less than Partners hospitals, but its overall mortality rate was lower in 2005.
  • The dominance of Partners and Children's hospital parallels a national trend toward hospital consolidation and the closure of unprofitable facilities.
  • Outcomes data suggests that routine care at Partners hospitals is in general merely good -- and sometimes inferior to that at community medical centers and other hospitals.
Part Two: Fueled by profits, a healthcare giant takes aim at suburbs
  • Since Partners' creation in 1993 -- yes, the Globe gives two different years for the founding -- it has expanded rapidly into the Boston suburbs in what the paper calls "an unapologetic battle for suburban market share."
  • Partly as a result, community hospitals are suffering. Twenty have closed during the 1990s, and two dozen more are currently losing money. In addition to the competitive threat, hospitals are seeing their own physicians leave to set up outpatient facilities that offer highly lucrative services such as radiology.
  • Partners' own revenue from outpatient facilities more than quadrupled to $1.7 billion from 1997 to 2007. The company now receives nearly one in every five dollars spent on such care.
  • Community hospitals owned by Partners are already charging higher rates to insurers. Blue Cross and Blue Shield of Massachusetts pays three suburban Partners hospitals an average of 14 percent more than it does other facilities.
  • Partners CEO Jack Connors, a former advertising executive, says the complaints about his company amount to little more than jealousy. He disparages Paul Levy, CEO of Beth Israel, and Harvard Pilgrim's Charles Baker by name, saying of Levy, "There are not enough crying towels to keep this guy in service."
  • In one case study, the Globe looks at the impending rivalry between local Beverly Hospital in Danvers and a new Partners facility currently under construction nearby. The twist: Beverly used to be part of the Partners network, until the company kicked its doctors out in early 2007. Since then, the two sides have waged a fierce advertising and medical-arms race.
  • Massachusetts officials recently adopted new rules intended to prevent the construction of duplicative medical facilities. But critics of Partners say the rules are too late, and will mostly prevent its rivals from expanding to fight back.
Part Three: A handshake that made healthcare history
  • In May 2000, Partners CEO Samuel Thier and Blue Cross CEO William van Faasen shook hands and agreed to what the Globe calls the biggest insurance-payment increase in at least seven years. In return, Partners agreed that it would push for the same increase from Blue Cross' competitors, pushing up health-insurance costs across the state.
  • According to the Globe, that deal had never been made public, apparently at least partly because Partners' lawyers were concerned about the legality of striking a market-setting agreement.
  • By 2001, Partners had won similarly large increases from Tufts and Harvard Pilgrim, two other major insurers in the state. At the time, Thier said he wanted to "reset the prices" that insurers paid hospitals. During the 1990s, many hospitals complained that insurance companies underpaid them.
  • The situation is ironic because executives justified the merger that formed Partners by saying it would save money -- as much as $240 million a year. In fact, Partners now says the merger saved only a total of $200 million to $250 million over five years.
  • Partners' two main hospitals continue to compete with each other and to offer duplicate services. Brigham, for instance, recently added a pancreatic transplant program, even though a competing service at Mass. General does only one to two such transplants a year. Brigham said it would perform ten such transplants in 2007, but did only two.
  • Legal scholars suggest that the Thier-van Faasen agreement could raise antitrust issues. Others disagree, noting that proving the verbal arrangement violated the law would be very difficult.
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    David Hamilton is the assistant managing editor of CNET News. He has been writing and editing business and tech coverage for about two decades -- the majority of that at the Wall Street Journal in both Tokyo and San Francisco. He is a two-time winner of the Overseas Press Club award and has written for numerous magazines and blogs, including Slate, Science, VentureBeat, CBS Interactive's BNET, California Lawyer and the New Republic.