The Art of the Non-Deal Deal

[This article on the demise of the proposed ballot initiative to address hospital price variation was just published in the new summer issue of Commonwealth Magazine.  I first wrote about this issue in an article the winter issue of Commonwealth Magazine in January 2016.]

On May 31, Gov. Charlie Baker signed a new law to avert a proposed 2016 state ballot initiative that would have redistributed as much as $450 million annually from Partners HealthCare hospitals to most of the state’s other hospitals by establishing stringent limits on hospital price variation.  The new law, “chapter 115 — an act relative to equitable health care pricing,” is less than a shadow of the ballot petition advanced by the state’s health care workers union known as Local 1199 of the Service Employees International Union (SEIU).  Is the new law progress? Is it enough?

The clear winners are SEIU and Partners because both got what they most wanted, as well as Baker, Senate President Stan Rosenberg, and House Speaker Robert DeLeo who deflected the ballot question.  If anyone else wins, that is a matter of dispute. Less disputable are lessons about the state of Massachusetts health care politics and policy in the Baker era.

The core issue is the long-recognized disparities in pricing power among the states’ acute care hospitals, focused particularly between the pricing power of Partners’ two hospitals, Massachusetts General and Brigham & Women’s, and nearly everyone else. State reports since 2010 have documented the differences, citing market power, not quality, as the cause.  Reports suggest that unregulated price increases explain much excessive health care cost inflation between 2000 and 2010.  A non-binding state cap on total health care spending, established in 2012, is also believed to have exacerbated the gap.

Last fall, SEIU launched a ballot question effort for the November 2016 election to limit hospital price variation to no more than 20 percent above or 10 percent below the “carrier-specific average relative price for that service,” which would have drained an estimated $450 million from Partners rewarding most other hospitals, and including “reduced premiums, co-pays and deductibles” for consumers. Everyone, including SEIU, saw the initiative as a “blunt instrument” approach to a problem that would be better addressed legislatively.

Chapter 115 includes three main provisions:

  • Re-establishing a “Special Commission to Review Variation in Prices among Providers,” with a March 15, 2017 deadline to recommend policy changes “if … necessary.”
  • Creating a new $45 million “Community Hospital Reinvestment Trust Fund” to provide money over five years to financially disadvantaged hospitals, diverted from the hospital assessment that finances the state’s Center for Health Information and Analysis (CHIA).
  • Adding an additional $15 million to a new $250 million hospital tax created in the 2017 state budget for relief to hospitals with high levels of MassHealth patients.

The re-energized special commission is the third such body enacted into existence since 2010.  An earlier 2011 commission recommended action to minimize variation; a second, enacted in 2012, was never appointed by Gov. Deval Patrick. This latest version has a hefty 23 members, with chairmanship by the Legislature’s Health Care Financing co-chairs, Rep. Jeff Sanchez  of Boston and Sen. Jim Welch of  Springfield, and a fast reporting deadline of March 15, 2017. State sources with whom I spoke emphasize determination for real policy recommendations. Skeptics observe that the large cast of 23 (with no consumer representative) guarantees a show-panel, not a meaningful one. The jury is out.

The five-year, $45 million commitment ($5 million in 2017 and $10 million each in 2018, 2019, 2020, and 2021) is real, though “about enough to keep the lights on for five minutes,” according to one hospital leader, a fraction of the $450 million that the SEIU initiative would have generated.  Disadvantaged hospital leaders worry that the $45 million will be regarded as a permanent solution, not a Band-Aid.  CHIA was hit because Baker insisted on no new net state spending and the data agency was vulnerable – now it’s mission to monitor state health spending is more doubtful.

Sources also suggest that the likelihood of obtaining federal approval for the $15 million in additional MassHealth rate relief is unlikely.

How did Chapter 115 happen?  Since January, state officials have been convening hospitals and other stakeholders to avert conflict and problems associated with the SEIU initiative.  From the start, SEIU leaders proclaimed, “let’s make a deal,” though they were rebuffed by community hospital leaders who mistrusted the union’s motives and feared state control over hospital finances.

Partners was ready to deal.  Throughout the winter and spring, SEIU and Partners leaders negotiated about price variation and about an agreement to allow unobstructed unionization of the hospital system’s non-clinical workforce.  In early-May, SEIU and Partners officials informed state leaders of their unionization deal and willingness to negotiate on price variation.  That motivated Baker, DeLeo and Rosenberg to instruct their respective chiefs of staff (Steve Kadish, Jim Eisenberg, and Natasha Perez) to craft a legislative deal.  Within three weeks, a bill was on Baker’s desk.

So who won and who lost?

SEIU won big by negotiating a non-public deal enabling them to organize staff at Massachusetts General, Brigham & Women’s, and other Partners’ hospitals.  This was a core conflict of interest for SEIU that lured them to settle for little for financially vulnerable hospitals once a labor deal was in hand.  SEIU officials note that community hospitals left them standing at the altar until Partners offered a ring, and that Chapter 115 sets a path for a comprehensive solution if community hospitals can get their act together – far more than existed prior to their efforts.  Still, the conflict of interest has strained their reputation.

After big losses in their efforts to acquire South Shore and Hallmark hospitals, Partners has scored an impressive win. The new law kills the threat of the ballot initiative with zero pricing changes. Partners was ready to spend $12 million to defeat the initiative. Yes, the new Commission might produce damaging recommendations, but it’s far less worrisome a threat than the ballot question.

Governor Baker and legislative leaders won by averting a messy, confrontational ballot initiative that could have created chaos. When the moment was right, they acted with speed and ease to move legislation in yet another example of bipartisan cooperation.

Most non-Partners hospitals were big losers, evidenced by their inability to coalesce on a viable alternative to the ballot initiative. The for-profit Steward chain, the only hospital group to endorse the SEIU initiative, got left with nothing. Non-hospital stakeholders such as insurers and business wanted action on price variation though were more concerned about avoiding any new financial hits on them.

The public had little clue about this now-settled fracas, including the 120,000 who signed SEIU’s petition. Consumers represented by the Greater Boston Interfaith Organization were among the few to publicly criticize the deal: “GBIO is disappointed … The deal ignores the consumer and leaders have punted on an opportunity to make significant progress,” said the group’s president, Rev. Burns Stanfield.

How does it all add up? Partners has demonstrated renewed clout and savvy, staying first among unequals. SEIU wins. The Baker administration and legislative leaders get the job done. The Special Commission will have difficulty exceeding its low expectations.  Open conflict has been contained, and health care policy and politics have become boring again in the Baker era.

About John McDonough

I offer insights and opinions on how to improve health care systems for everyone
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