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A Massachusetts Model to Fix Health Care?


To rein in costs, the state wants end the fee-for-service system. If it succeeds, the effort could serve as a role model for Congress

Massachusetts is again leading the nation on health care, this time by considering an overhaul of payments to hospitals and doctors. While Congress debates how to finance coverage for the nation's uninsured, Massachusetts, which instituted universal coverage three years ago, wants to end the practice of reimbursing for every medical procedure and doctor visit. Providers would instead get a yearly fee for each patient, thus eliminating financial incentives to overtreat.

The motivation for this switch is simple desperation—and it should be a warning to Washington. When Massachusetts enacted the most comprehensive insurance-for-all bill in the U.S. in 2006, it did nothing to address rapidly rising costs. Three years later the rate of uninsured residents has dropped from 8% to 2.6%, the lowest of all 50 states. But the cost of covering an additional 428,000 residents is wreaking havoc on the state's finances.

So last year the legislature formed a commission to come up with a way to end the expensive fee-for-service system. Any such attempt nationally is expected to face stiff opposition from much of the medical establishment, which is why health-care reform bills emerging from Congress barely address the issue.

If Massachusetts succeeds, the state could serve as a role model for Congress. It "could really accelerate the movement toward payment reform at the federal level," says Paul Ginsburg, president of the Center for Studying Health System Change, a Washington think tank.

Long one of the most expensive states for medical care, Massachusetts' costs have risen even higher since passing universal coverage. The state will spend $595 million more on health insurance this year than it did three years ago, a 42% increase. Its latest budget proposal calls for eliminating insurance subsidies for 30,000 legal immigrants in an effort to save money. "There is a clear consensus in the health-care community and among elected officials that if we don't do something about rising costs, our universal coverage will be jeopardized," says Andrew Dreyfus, executive vice-president for health-care services at Blue Cross Blue Shield of Massachusetts.

State legislators deliberately did not include cost-cutting measures when they pushed through universal coverage in 2006, recognizing it would be politically risky to try to pass both at once. Policymakers say they always planned to address the problem down the road, and within a few years ballooning costs left them no choice.

State officials need look no further than neighboring Maine to see what will happen if they don't act. Maine enacted universal coverage in 2005, also with no cost constraints. Premiums for the state-financed insurance plan have risen 74% since, and many residents have dropped coverage. Maine's uninsured rate is back at 10%, barely lower than the pre-reform level.

To avoid this fate, Massachusetts passed a law last year creating a 10-member payment-reform commission with delegates from hospitals, doctor groups, and insurers (to secure their support). The committee is poised to issue its report July 16; members hope the state House of Representatives will vote on it this year.

A draft proposal calls for a five-year phase-in of "global payments," with the amount per person set by age, gender, and health status. Medical providers would cluster into networks of doctors, clinics, and hospitals capable of providing for all a patient's needs.

Arnst is a senior writer for BusinessWeek based in New York.

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