Massachusetts AGO Report Identifies 7 Health Care Cost Drivers

Boston — Massachusetts Attorney General Martha Coakley and members of her Health Care Division presented the findings of the office’s year-long examination of the factors that contribute to health care cost increases in Massachusetts at a hearing today before the Division of Health Care Finance and Policy.

“The information gathered through this process about how health care is paid for is unprecendented in Massachusetts, and unique in the nation,” said Coakley. “Access to this information has allowed us to identify what factors contribute to the ever-rising cost of health care in Massachusetts. We found that health care costs most closely correlated to the market leverage of hospitals and physician groups, rather than other issues that we would expect – like quality of care or patient population."

Seven key drivers identified by the study that have powerful implications for the health care marketplace in Massachusetts are:

1. Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and amongst providers offering similar levels of service;
2. Price variations for hospitals and physicians offering similar services are not explained by
• quality of care, 
• the complexity of services or the sickness of the population being served,
  the extent to which a hospital cares 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 health care, with expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis;
5. Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts;
6. Higher priced hospitals are gaining market share at the expense of lower priced hospitals that are losing volume;
7. The commercial health care marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.

For more information on the outcome of the report including recommendations to promote value-based purchasing, see the full press release.

The final report is available on the Attorney General’s website.