Amara Azubuike and Sandra Wolitzky are assistant attorneys general in the Massachusetts Office of the Attorney General.

A new report released in October 2018 by Massachusetts Attorney General Maura Healey finds that complicated and varied methods used to determine health care payment rates contribute to administrative cost increases and make it difficult for market participants to identify high-quality health care options.

The report identifies factors that have significant implications for the health care marketplace in Massachusetts. First, commercial health care fee-for-service payments are determined using complex and varied methods with little consistency across payers, providers, or insurance products. The report finds that hospital outpatient payment methods are particularly complex, and in many cases this complexity makes it difficult, according to the report, to “predict which hospitals are competitively priced or are likely to be a good value within any particular payer” or “assess value across payers without detailed case-specific information.” Risk contracts — where providers are rewarded if they spend below a negotiated budget to care for a population, or penalized if they spend more — are similarly complex and vary from insurer to insurer. This adds another layer of complexity on top of the fee-for-service framework that underlies alternative payment methods. This varied payment system generates administrative costs that do not appear to add value to patient care. Complexity also serves as an obstacle to price transparency for consumers, employers, policymakers and providers.

The report offers the following recommendations to address these key findings:

• Reduce complexity and explore increased standardization, where appropriate, of the methods for determining fee-for-service payments and the key terms that govern risk contracts.
• Establish real-time, service-level price transparency for employers, consumers, policymakers and providers. A simpler approach to health care payment practices would allow for new transparency initiatives that would enable purchasers and providers to compare options for specific services.
• Further study the administrative costs associated with current approaches to health care payment practices that significantly vary between insurers, insurance products, and providers.

This is the eighth cost trends report issued by the Massachusetts Attorney General’s Office. These reports aim to increase transparency around the forces and conditions that affect health care spending. Prior cost trends reports from the office have focused on inefficiencies in the distribution of health care dollars, including provider price variation unexplained by differences in quality, complexity of services, and other common measures of consumer value. Prior reports have also documented higher per capita spending on commercially insured people in more affluent communities compared to less affluent ones, despite the higher sickness burden found in less affluent communities “Health care costs are one of the highest expenses for Massachusetts families,” Attorney General Healey explained. “This report shows that there is more we can do to reduce administrative costs and make health care price comparisons easier for patients, employers and health care professionals.”