Insurers say Senate bill will drive up health premiums

Several large health insurers are sounding the alarm on the eve of Senate debate on a health care bill that seeks to shrink the gap between rates paid to the most expensive hospitals and lower-paid providers, warning that without changes the bill would drive up costs for consumers.

The insurers, including the CEOs of Harvard Pilgrim Health Care, Tufts Health and Fallon Health, wrote directly to Senate President Stanley Rosenberg on Tuesday arguing for revisions that would penalize all hospitals at the top end of the market that don’t adequately constrain their cost growth, not just the big three - Massachusetts General Hospital, Brigham and Women’s and Boston Children’s Hospital.

The Senate was prepared to open a two-day debate on the health care reform bill on Wednesday.

The price regulations proposed in the bill are aimed at addressing variations in prices paid to providers throughout the state that research has hown to have little correlation to quality of care. While larger research hospitals have justified the higher prices they command as necessary to support their teaching and research functions, community hospitals support the Senate’s approach as a way to put them on more solid financial footing and account for the larger share of Medicaid patients many of them serve.

The insurers say that without changes consumers would pay more for their health coverage than under the current system.

The letter was signed by top executives at six of the largest health plans in the state, which also included UniCare, UnitedHealthcare of New England, and United Healthcare Community Plan of Massachusetts.

The insurers took direct issue with provisions in the bill that seek to raise rates for lower-paid hospitals to 90 percent of the statewide average for the previous year, and set a target rate of growth for total hospital spending.

“While these sections are intended to narrow the gap in payments among hospitals, the provisions will have the unintended impact of causing health care costs to rise. Specifically, increasing the prices paid to lower-paid hospitals without including sufficient measures to constrain the rates paid to high cost hospitals will lead to higher premiums for employers and consumers,” the insurance executives wrote.

The Massachusetts Association of Health Plans raised similar concerns at a hearing last month on the Senate’s legislation, but neither principles of the bill changed significantly as they moved through the Senate Ways and Means Committee.

The insurers say the bill must “address the prices charged by high-priced hospitals” to control premiums, and are advocating for penalties for any provider that contribute to “excess growth.” The bill would empower a new council to levy penalties on the top three hospitals that contribute to missed growth targets.

Furthermore, the insurers wrote that hospitals that are part of larger networks with healthy earnings should not qualify for increases in rates up to the 90 percent level of statewide relative prices, and hospital owned or affiliated physician organizations should be blocked from increasing their prices “substantially” as a way to mitigate the cost of complying with other parts of the bill.

Without such changes, the bill “may be more harmful than helpful to the marketplace” and “undercut our collective efforts to rein in costs and provide meaningful premium relief to individuals, families and businesses in the Commonwealth,” the insurers wrote.

There are parts of the bill the insurers support.

Pharmaceutical price transparency and a requirement that drug companies participate in the Health Policy Commission’s annual cost trends hearing are both positive steps, the executives said. They also support prohibitions on facility fees and limits on out-of-network rates charged by providers.

Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, is not a member of the Massachusetts Association of Health Plans and didn’t sign the letter, but a spokeswoman said BCBS has “concerns with inadvertent cost increases that may occur from some provisions of the bill.” Blue Cross, like the other insurers, also support efforts in the bill to limit out-of-network billing rates.

Rosenberg’s office also did not respond to a request for comment.

The three highest price hospitals in the state took issue with the same tenets of the Senate bill last month, with Massachusetts General Hospital President Peter Slavin calling it an “unfair legislative attack” at MGH and Brigham and Women’s, both part of the Partners HealthCare system.

He said the bill creates “perverse incentives” for other hospitals to drive up costs, since they would not be subject to the potential penalties that MGH, the Brigham, and Boston Children’s Hospital would face as the highest priced research hospitals in the state.

Senate Ways and Means Chairwoman Karen Spilka suggested to Slavin at the hearing that his hospital got off easy because the Senate chose not to pursue “a hammer” on prices, which could have taken the form of caps.