WHEN THE LEGISLATURE reconvenes and takes up the unresolved challenge of shoring up the bottom lines of financially stressed community hospitals, lawmakers would do well to keep in mind the bedrock ethical principle taught to every student at the four outstanding medical schools in Massachusetts.

First, do no harm.

In the endlessly complex business of health care financing, even the best-intentioned tinkering can have unwanted and unintended consequences and threaten one of the crown jewels of the Bay State and a powerful engine for its economy.

Tim Ferris.

Nonetheless, we have real problems that need solutions.  Structural issues at our local acute care facilities that treat a disproportionate number of lower-income patients have left them impoverished. The state-federal Medicaid program, known in Massachusetts as MassHealth, has been a source of declining public subsidy against ever-rising costs. Combined with a mix of too few commercially insured or self-paying patients, these important local institutions cannot generate the internal cross-subsidies that other hospitals use for long-term financial stability.

This is a part of the health care financing story that is rarely told: the complex network of cross subsidies in health care that undermines even the best ideas for solutions. These have developed and expanded over many years, exacerbating the strain on so-called safety-net hospitals.

Massachusetts has long been an exemplar and laboratory for innovation not just in treatment of illness and disease but also expanding access to the high-quality care provided here. This has extended in recent years to finding ways to control costs through alternatives to the expensive fee-for-services payment model.

Since 2012, the state’s regulatory oversight on costs has established target caps on total health care spending – with the threat of tougher measures if they are exceeded – and it has worked, according to Stuart Altman, chairman of the Massachusetts Health Policy Commission and a health care economist at Brandeis University’s Heller School.

“Since the state law was enacted in 2012, the growth in total health spending in Massachusetts, which had been among the highest in the nation, fell to among the lowest. Other states appear interested in the success of Massachusetts,” Altman wrote in June with Brandeis colleague Robert Mechanic in the journal Health Affairs.

They cite the Health Policy Commission’s 2017 Annual Health Care Cost Trends report published in March stating the Massachusetts growth rate of 2.8 percent per capita in total health care expenditures in 2016 was below the national growth rate of 3.5 percent, continuing a seven year trend of total spending growth below the US rate. Now we learn from the state that the 2017 results were even better—1.6 percent. Moreover, the lower growth rate in commercial health care spending between 2012 and 2016 amounted to an average of $5.9 billion less in spending – almost $1.2 billion a year – than it would have been had Massachusetts matched the national average in that period, the report said.

So the upward cost curve is flattening in Massachusetts as hospitals, other providers, and insurers adapt to keep the state in the forefront of new therapies and technologies while maintaining access to the high quality care for which the state is renowned.

This is being accomplished, particularly at the state’s six academic medical centers – Massachusetts General and Brigham and Women’s hospitals, Beth Israel Deaconess, Boston Medical, Tufts, and UMass Memorial medical centers – through efficiencies and internal transfers for care delivery models that help subsidize cutting edge trials and treatments as well as broad-reaching community benefits.

For instance, the Mass. General Cancer Center expects to lose about $28 million over two years on a promising new treatment – CAR-T cellular therapy – approved by the US Food and Drug Administration for patients suffering from an incurable type of lymphoma. This transfer of new science to the care of patients is heavily subsidized because it is not yet a commodity with payment rules. The same is true of investments in home hospitalization, electronic consults, and care coordinators for high risk patients.

The hospitals make these investments to stay at the leading edge of medical care and to recruit and retain the best talent in their fields. Five of the six academic medical centers are in Boston, and they add greatly to the economic vitality and quality of life of the entire region. They also care for underserved communities by operating and offsetting deficits in local health centers.

In Massachusetts, the vast majority of hospitals and insurers operate on a not-for-profit basis. That means they do not take money out of the health care system in the form of dividends or shareholder value to be sold in the marketplace for profit. The cost of research and training new physicians is factored into hospital reimbursement rates, another cross-subsidy. Keeping pace with expensive technological advancements requires investment as well.

Additionally, higher reimbursements for some specialties offset lower rates and margins for other specialties. Another cross subsidy supports vital underpaid services like primary care and mental health. This subsidy occurs at every hospital but inures more to the financial advantage of teaching and suburban community hospitals with higher volumes of highly specialized treatments and care for a higher percentage of commercially insured patients.

At the end of the legislative session, House and Senate bills to help the struggling community hospitals expired in a conference committee unable to resolve differences.

The House measure would have assessed insurers and providers to create a $330 million fund to subsidize vulnerable community hospitals over the next three years.

A more rigid Senate bill would have raised the floor for reimbursements and created a hard cap on the growth of statewide annual health care expenditures. If exceeded, fines would be levied against three commercially successful hospitals in the state, regardless of whether those three hospitals contributed to the excess spending. The bill would have created one more cross-subsidy and a perverse incentive for other hospitals to spend above the cap.

Health care has dozens of cross-subsidies, and three important ones include:

  • Commercial insurers subsidize government underpayment.
  • Payment for clinical care subsidizes research and teaching.
  • Payment for procedures subsidizes primary care, mental health, and more.

The nub of the problem for our distressed community hospitals is the underpayment by MassHealth for the patients hospitalized in their facilities. Before we go and dig the cross-subsidy hole any deeper, further increasing the complexity of health care financing – and undermining the institutions that themselves cross subsidize an important engine of the Massachusetts economy – we should consider addressing the fundamental problem directly.

Better alignment of payments with the true costs of delivering high quality care at our community hospitals would begin the process of unwinding the complex cross-subsidy model that impedes innovation and adoption of more advanced care delivery services.

Finding the funds for improved MassHealth payments will not be easy. They might come from greater incentives for new payment models other than fee-for-services, tighter state control over burgeoning hospital-based ambulatory services, and other innovations.

Creating yet another cross subsidy won’t solve the problem. We need to both preserve what we have while shoring up our vital community resources.

Timothy G. Ferris, MD, is CEO of the Massachusetts General Physicians Organization and one of 11 members of the Physician-focused Payment Model Technical Advisory Committee created by Congress to advise the US secretary of health and human services on Medicare reimbursement.