News & Events

Hospitals stress cost cuts saving billions

By Liz Kowalczyk and Robert Weisman, Globe Staff  |  July 22, 2010

Massachusetts hospitals say in a new report that they have substantially slowed the rise in their costs in the past 18 months, saving insurers and employers billions of dollars, and showing that they do not deserve all the blame for skyrocketing health insurance premiums.

The Massachusetts Hospital Association is releasing the analysis today, as the Legislature is considering imposing mandatory short-term cost controls on the hospital and insurance industries, including provisions hospitals find unappealing.

The House bill, which is expected to be debated today, would grant the state broader powers to review — and reject — large hospital construction projects and contracts between insurers and providers that pay hospitals rates that are far from the statewide average.

The Senate passed a different bill in May, including a one-time $100 million assessment on wealthier hospitals that would be used to offset premium increases for small businesses. If the House approves its legislation, the two chambers would need to agree on a final version, the likelihood of which is unclear. Hospital officials oppose the Senate assessment, and much of the House proposal, but support long-term revamping of the payment system.

Lynn Nicholas, president of the hospital group, said politicians and policy makers propose solutions based on outdated numbers about rising hospital costs, which have since “mitigated substantially.’’ According to the group’s analysis, between 2004 and 2008, hospital operating expenses grew at an average annual rate of 8.6 percent.

But since then, Nicholas said, hospitals have voluntarily cut the rate of increase to 3 percent a year, through cutting workers and pay, canceling holiday parties, and consolidating services. The association said emergency room visits also have begun to slow, partly because of hospitals’ efforts to reduce unnecessary visits and insurers charging higher deductibles that discourage emergency room use.

The belt-tightening cut overall hospital expense growth by $3.1 billion, the group said, compared to what it would have been if past trends had continued. “The world has changed dramatically since 2008,’’ Nicholas said. “There have been many new pressures and many new initiatives.’’

Revenue increases from private and government payers also have slowed, to 5.2 percent from 2008 to 2009, the association said. That compares with 8.4 percent average annual growth in the previous four years.

Nicholas rejected the suggestion that savings that are the result of the nationwide recession would disappear once the economy rebounds. “Hospitals know they have to operate in a more lean way in the future,’’ she said.

Some were skeptical of the hospitals’ claims. Senator Richard Moore, Democrat of Uxbridge and cochairman of the Legislature’s Joint Committee on Health Care Financing, said, “If costs are really declining for hospitals, why can’t they live within temporary limitations on cost increases,’’ like those in the Senate bill.

State health insurers, criticized by small businesses and state officials for surging premiums, have been working to shift the spotlight to the rising costs of medical care at hospitals.

Lora Pellegrini, the president of the Massachusetts Association of Health Plans, said yesterday that she had not seen the hospital association report. But she said payers have not benefited from cost-cutting efforts at hospitals.

“My health plans, almost all of them, did not make money last year or the year before,’’ she said.

Hospital companies — including Partners HealthCare, which owns the well-paid Massachusetts General and Brigham and Women’s hospitals — are pushing back against attempts by insurers to paint them as the culprit in the cost debate. In a letter to Pellegrini last week, Partners vice president of finance Peter Markell wrote that Partners’ annual rates have risen 5 to 6 percent, while insurers have boosted small business premiums by 15 to 20 percent or more in some cases. “Partners HealthCare is committed to doing everything we can to keep health care affordable and accessible to our patients,’’ Markell wrote.

Pellegrini, in a response sent Monday, noted that Partners’ rates are “substantially higher’’ than other health care providers’. “The prices paid to providers are the leading driver of increased premiums,’’ she wrote.

But Boston health care consultant Ellen Lutch Bender, who works for hospitals and physicians, said providers have been looking for ways to hold down costs. The push is driven both by a recognition that rising costs are unsustainable and the precarious financial condition of many providers, she said. “Every hospital I talk with or represent has been implementing severe cost cutting for the past 18 months at least,’’ Bender said. “There isn’t a hospital leader that doesn’t understand that these are really dangerous times. Some hospitals are really up against the wall.’’

Liz Kowalczyk can be reached at; Robert Weisman can be reached at