CommonWealth Magazine - CommonWealth magazine

ON AUGUST 19, 2003, I stood in the operating room of Brigham and Women's Hospital in Boston. My wife was lying supine on a table in front of me and the obstetrician was pulling and tugging at her insides in a manner that exceeded my comfort level. I was running the state Medicaid program at the time, and even though my agency paid for about 30,000 births that year, I had never witnessed one.

In medical terms, the birth of my daughter was uneventful. But not for me. I was uneasy and scared. As it turned out, the physician was a master and performed the caesarean section flawlessly.

Brigham and Women's Hospital is part of what is now known as Mass General Brigham, the largest integrated health care system in Massachusetts. The care provided in this system is outstanding and the physicians and nurses are among the best in the business. The system seems to have it all: not one, but two world class hospitals; the largest physician network in the state; the highest payment rates; and the most money.

But there is one thing it does not seem to have — enough.  The system is now embarking on a $2.4 billion expansion strategy that, if not stopped by state regulators, will threaten the fabric of the fragile health care ecosystem in Massachusetts. And the result will be felt most acutely by those most in need.

A brief primer on hospital finances will help explain why. Hospitals have three primary sources of revenue: Medicare, Medicaid, and commercial insurance. Medicare is the federal insurance program that pays for medical care primarily for those 65 and older. Most hospitals come close to breaking even on Medicare. Medicaid is the joint federal-state insurance program that pays for the medical care of low-income families, disabled individuals, and some seniors. Most hospitals lose their shirts on Medicaid; it pays approximately 65 percent of the cost to provide care to these populations.

If Medicare and Medicaid were the only sources of revenue, virtually all hospitals would be out of business. That brings us to commercial insurance, the third and most profitable source of revenue. This is the insurance that employers purchase to cover the medical care of their employees. It is the only area where hospitals have the ability to negotiate their rates. What they must do is negotiate rates that are at least high enough to make up for the losses from the two government payers. Most hospitals in this state do it just enough to about break even; the median statewide operating margin for hospitals last year was 1.3 percent.

How well a hospital does financially, therefore, is largely a function of how much commercial insurance business it has and how high its rates are for that business. And its rates are determined by its negotiating power. How does a hospital increase its negotiating power? By becoming as big as possible and having hospitals and doctors in its network that patients want to see. If an insurance company cannot do without you in their network, you have a huge advantage in negotiating rates with them.

Mass General Brigham has shrewdly pursued this strategy for decades. Brigham and Women's Hospital has inpatient rates that are about 30 percent higher than most of its competitors (the gap is even larger on the outpatient side). But there is no material difference in the type of services being offered. Its competitors are all academic medical centers, delivering the same high quality, complex and cutting-edge care.

This bargaining advantage has allowed Mass General Brigham to completely dominate the market in Massachusetts. Its hospital revenues, at over $7 billion, are more than two times those of its next largest competitor. Revenues from its employed physician group are an additional $2.7 billion, more than three times those of the next in line. Its total net assets are now over $10 billion, which is greater than the combined net assets of all six of its next largest Massachusetts-based competitors, including Beth Israel Lahey, UMass Memorial Health, Baystate Health, Wellforce (which includes Tufts Medical Center), Dana-Farber Cancer Institute, and Boston Medical Center.

So why is this bad? Why shouldn't market dynamics and competition be allowed to play out like in other sectors of the economy? There are many reasons, but the first is that if you are trying to control costs in health care, expansion of the largest, most dominant and most expensive system in the state does not help. It has the opposite effect.

And the state desperately wants to control costs. It passed a law in 2012, known as chapter 224, to try to do just that. But while well intended, it missed the mark. The reason is that it focused only on limiting cost growth and not on the underlying price disparity that exists between providers. As a result, it baked into law the huge advantage that Mass General Brigham already had. And Mass General Brigham has prospered as a result.

But there is a bigger reason why the bargaining advantage of Mass General Brigham is bad for society. It's equity. This is a zero-sum game. There is only so much profitable commercial business to go around. As Mass General Brigham uses its market power to acquire more of that commercial volume, it is taking this market share from other hospitals who tend to serve higher percentages of Medicaid members and other low-income populations. These other hospitals rely on the substantially lower commercial volume they have to help cover their losses on Medicaid. When they lose even a small amount of that commercial business, it destabilizes them and hurts the vulnerable constituencies they serve. That's exactly what has played out.

Community hospitals in particular are sucking wind right now. The aggregate operating margin for all community hospitals in the state last year was a negative number and the lowest it has been in five years. This summer the Boston Herald reported that 28 safety net hospitals in Massachusetts are on "life support" and are being pushed to the brink of closure or program cuts. And this is after receiving federal and state COVID relief funding to help. Their latest troubles have been caused largely by COVID, to be sure. But that's exactly the point. These hospitals operate on such a slim margin that any unanticipated environmental event can push them over the edge.

But there is something else at play that needs to be addressed directly. It is not just that the populations most severely impacted by these market dynamics are from poor neighborhoods. It is that they are also disproportionately communities of color.

State Sen. Barry Finegold of Andover represents the city of Lawrence, where more than 85 percent of the population is from a minority community. On a debate in the Senate earlier this year, he noted that Lawrence General Hospital gets a commercial payment rate of $100 for a basic chest X-ray, but Massachusetts General Hospital gets $180 for that same chest X-ray. He called this disparity and others like it "a manifestation of systemic racism in the insurance industry."

To be clear, there are no racial motives behind Mass General Brigham's market strategy. On the contrary, the hospital system employs some of the nation's leading experts on health equity and diversity and has made meaningful contributions to the field. The system recently announced a $50 million investment in mental health and community healthy equity.

While significant and laudable, this investment pales in comparison to the hundreds of millions of dollars Mass General Brigham is investing toward expanding access for already well served affluent communities. And if these expansion strategies worsen existing racial disparities, Mass General Brigham must answer for them, no matter how much good it may be doing elsewhere.

That brings us to Mass General Brigham's current expansion proposal. The $2.4 billion spending plan appears to be the biggest ever proposed in the history of Massachusetts health care.

While Mass General Brigham did not plan it this way, the timing could not be worse for vulnerable providers and populations. We are in the midst of the worst world-wide pandemic in a century. Safety net hospitals are as vulnerable as they have ever been. And we are now facing in health care the worst workforce shortage crisis in decades. And yet, this is the time Mass General Brigham is planning to double down on its market dominance and add significantly more capacity. Really?

The most glaring example of the deleterious effects of this strategy can be seen by looking at the hospital system's plans to place a facility in Worcester County. It is hoping to build a 62,000-square-foot facility in Westborough at the intersection of Routes 9 and 495 that will effectively serve as a mini-hospital. The proposal calls for a multidisciplinary outpatient clinic that will have primary care, 11 different subspecialty services, imaging, surgery, and behavioral health.

It is hard to escape the conclusion that Mass General Brigham chose this site specifically to "cherry pick" the profitable commercial business and leave the care for Worcester County's low-income patients to everyone else. Westborough residents have a median income in the top 20 percent of the state and most of these residents are commercially insured. Westborough also has a very low percentage of Medicaid patients and these patients could not get to the proposed site anyway because it is not accessible by public transportation. Perhaps even more troubling is the fact that fewer than 2 percent of Westborough residents are Black and fewer than 1.4 percent are Hispanic. (The comparison for the state as a whole is 9 percent Black and 12.4 percent Hispanic. For Worcester it is 13.3 percent Black and 21.9 percent Hispanic.)

Picking off this commercial business in central Massachusetts will be destabilizing to providers in the region and the patients they serve. This is especially so for UMass Memorial Health, the largest safety net system in central Massachusetts and the system where I work.

But why should anyone cry for UMass Memorial? It is a $3 billion system. Can't it take care of itself?  The answer has to do with the level of the playing field. Competition only works if it is fair. And this is not.

The numbers tell the story. First is the payer mix. Commercial business makes up about 30 percent of the revenue of the average hospital in Massachusetts. That is about what it is for UMass Memorial. Mass General Brigham is at 40 percent. This difference is massive. For example, if UMass Memorial could trade just 5 percent of its Medicaid business for commercial volume, getting halfway to Mass General Brigham's mix, it would result in an extra $50 million to the bottom line.

Then there is the rate advantage of Mass General Brigham. If UMass Memorial got paid the same inpatient rates as Mass General Brigham, it would result in an additional $200 million per year to the bottom line.

So Mass General Brigham has 10 times the net assets, much more high-paying business, and much higher rates for the business it has. But that's not all. UMass Memorial is a private, non-profit organization, just like Mass General Brigham. But the state has imposed two specific obligations on it that it has not imposed on Mass General Brigham. Both are designed to serve the public interest. The first obligation is to serve as the safety net for the region and to take care of the most vulnerable patients. This is reflected in UMass Memorial's Medicaid payer mix, which at 25 percent is more than double that of Mass General Brigham. The second obligation is to financially support the T.H. Chan School of Medicine, the state's only public medical school.

UMass Memorial takes on these important responsibilities with pride. But how can government impose such a weight on its shoulders, bake into law certain unfair advantages for Mass General Brigham, and then expect UMass Memorial to out-compete Mass General Brigham for commercial share? It can't. And this same inherent unfairness, to varying degrees, plays out with virtually every other hospital in the Commonwealth.

We cannot blame Mass General Brigham's leaders for this situation. Most health care leaders in their shoes would do the same thing: maximize their advantages within the rules and take what they can to further the interests of their organization and its patients. It is up to our government to fix this.

Health care is not like making widgets. It is intimate and personal and part of the ingredient of living a good life. For this reason, we care a lot about it and we ask our government officials to play an outsized role in helping to guide the system and protect all of us. That is especially true in Massachusetts where we have chosen to treat health care as a right effectively guaranteed to all citizens.

We care deeply in this state about the greater good. Doing so has paid huge dividends. Massachusetts is routinely listed as among the best states in the nation for health and health care. This civic-mindedness also resulted in our state having one of the highest COVID vaccination rates in the country, undoubtedly saving thousands of lives.

But maintaining this high perch requires a not-so-invisible-hand balancing all of the interests at play.  Private interests, including even the convenience of some Westborough residents, must at times have to give way to the public good. We have reached that point with Mass General Brigham.

Our health care ecosystem is at a crossroads, much like that little girl who came into the world before my eyes in a Brigham and Woman's operating room. My daughter is off to college next year, and is filled with hope and expectation, but uncertain of what her future has in store. So, too, the people of Massachusetts, who envision a health care system that delivers high quality, equitable care to all.

Meet the Author

Chief administrative officer, UMass Memorial Health

There are several government actors with the tools to stop Mass General Brigham's expansion and pull us back from the brink. Will they act? Who will be the heroes in this drama? Who will be its ostriches? As a society, will we lean in to make the hard decisions necessary to preserve our fragile system? Or will we shrug? Only time will tell.

Douglas S. Brown is president of community hospitals and chief administrative officer at UMass Memorial Health in Worcester. Prior to coming to UMass Memorial, he spent 10 years in public service in Massachusetts, including as its Medicaid director.