News & Events

Insurer details its unequal payments

Harvard Pilgrim lists hospital, doctor fees; State to open hearing on health care costs

By Liz Kowalczyk, Globe Staff  |  March 16, 2010

Newly released documents from a major insurer detail how certain hospitals and doctors are paid dramatically more than others for the same types of services, sometimes as much as three times higher.

The vast inequalities emerged in documents filed by Harvard Pilgrim Health Care Inc., the second largest health insurer in Massachusetts, before the start today of state hearings investigating why health care costs are rising so rapidly. Written testimony from Harvard Pilgrim discloses which of the hospitals and physician groups in its network are the best paid and which are paid the worst.

The hospitals that commanded the highest fees for inpatient care in 2008 include powerhouses like Children’s Hospital Boston, Dana-Farber Cancer Institute, and the major Partners Healthcare hospitals, Massachusetts General and Brigham and Women’s, according to the insurer.

But smaller community hospitals also landed near the top of the list: tiny Nantucket Cottage Hospital, Fairview Hospital in Great Barrington, as well as South Shore Hospital in Weymouth, and Berkshire Medical Center in Pittsfield. For outpatient care, Martha’s Vineyard Hospital, Cooley Dickinson Hospital in Northampton, and Sturdy Memorial Hospital in Attleboro received fees similar to some of Boston’s large teaching hospitals, the insurer’s testimony showed.

While community hospitals in isolated areas can command high fees for specific services, their impact on over all health care costs is small. Fairview Hospital ranked somewhat higher than the Brigham on its fees for outpatient care, for example. But Harvard Pilgrim paid the Western Massachusetts hospital, which is part of the Berkshire Medical Center network, just $153,421 in 2008 for care provided to its members. It paid the Brigham $129 million, almost twice as much as it paid the hospital in 2004, the earliest year for which Harvard Pilgrim provided testimony. Payments to many other providers also rose dramatically over those years.

Executives at higher-paid hospitals said there are many legitimate reasons for their fees, including treating sicker patients. Harvard Pilgrim did not adjust the fees for the severity and complexity of patients’ illnesses.

Harvard Pilgrim ranked 72 hospitals by their relative fees in the broad areas of outpatient and inpatient care, but did not provide payments for specific services. The insurer calculated benchmark payments for medical services, from imaging tests to surgery, and analyzed how much above or below the benchmark it paid each hospital.

Rick Weisblatt, senior vice president for health services at Harvard Pilgrim, said the payments show that while some large Boston teaching hospitals command higher fees because of their brand-name status and advanced care, smaller community hospitals can exercise market clout too, particularly when they have a geographic monopoly.

“They use that to leverage higher reimbursement,’’ he said. “The employers in that community generally want that hospital in the network. And the hospitals are not shy about threatening termination.’’

The disparities in fees paid to physicians’ groups are just as great, and sometimes greater, the insurer said, with doctors affiliated with Children’s Hospital, Partners Healthcare, and Harvard Vanguard Medical Associates commanding the highest fees.

Harvard Pilgrim’s testimony mirrors the results of a yearlong investigation by Attorney General Martha Coakley’s office, which found that the highest pay goes to the providers with the most clout and not as a reward to those hospitals and medical practices that provide the highest-quality care. The attorney general’s report looked at payment rates from all large insurers. Unlike Harvard Pilgrim’s testimony, Coakley’s preliminary report did not identify providers by name.

A 2008 Globe Spotlight Team series focused on the Boston market found that a small number of hospitals such as Mass. General and the Brigham typically are paid 15 percent to 60 percent more for essentially the same work as other hospitals, even though the quality is not superior. It said the fees paid the Partners hospitals were helping to drive up health costs in Eastern Massachusetts, something critics have called the “Partners effect’’ but that Partners disputes.

Other insurers that filed testimony with the state this month originally did not include their relative payment rates to providers. But after another request from the state, Blue Cross and Blue Shield of Massachusetts and Tufts Health Plan filed additional information in the past few days that similarly showed wide disparities in payment rates.

State regulators say the price of care should be based on quality and the actual cost of treatments, not on market power.

Harvard Pilgrim said Children’s charges the highest fees for both outpatient and inpatient care. But Children’s executives said their hospital should not be compared with adult hospitals, because children are more expensive to treat. Compared with pediatric hospitals nationally, said chief financial officer David Kirshner, Children’s costs overall are average. About 30 percent of the hospital’s patients are on Medicaid, the state insurance program for the poor, which pays providers far below the cost of care, said spokeswoman Michelle Davis. The hospital has to make up the lost revenue from private insurers, she said.

Davis also said the hospital’s physician fees look high — 50 percent above average, according to Harvard Pilgrim — because the group includes many nationally known specialists, who generally command higher fees than primary-care doctors.

In a written statement, Partners defended fees paid to its hospitals, saying the Brigham and Mass. General “care for the sickest patients, treat the most complex diseases, support research discovery and community health programs while subsidizing a broad range of other services which are not fully reimbursed, such as psychiatry and mental health.’’

Partners pointed out that when Harvard Pilgrim used a formula combining outpatient and inpatient care, Mass. General ranked 12th and the Brigham ranked 19th out of 72 hospitals.

The Vineyard and Nantucket hospitals, also in the Partners network, “are geographically isolated and face certain cost pressures that other hospitals do not,’’ the statement said.

Berkshire Medical Center and Fairview Hospital do not have contracts with Harvard Pilgrim, said Darlene Rodowicz, their parent company’s chief financial officer, so they mostly treat members who need urgent and emergency care, which could make the hospitals look more expensive.

“Our margin is less than 1 percent,’’ she said. “If we were abusing our market clout, we’d have huge margins.’’

Likewise, Craig Melin, chief executive of Cooley Dickinson, said market power is not why his hospital is ranked by Harvard Pilgrim as having the second highest fees for outpatient care. The hospital, he said, aims for a 3 percent margin in its negotiations with insurers, because of low payments from the federal Medicare insurance program and because it must subsidize physician practices in order to convince doctors to practice in the area.

Dr. JudyAnn Bigby, secretary of the Executive Office of Health and Human Services, is leading the effort to develop a new payment system for providers and said while hospitals have legitimate explanations for some of the inequalities, the differences probably should not be so large.

“So much of what drives costs now is the revenue that hospitals want to generate,’’ she said.

Liz Kowalczyk can be reached at