Health executives emerge as state's new power players
By Christopher Rowland, Globe Staff | March 13, 2006

In a scene right out of the days of the Vault, the secretive group of Boston business executives that for decades influenced public policy, Jack Connors, chairman of Partners HealthCare, convened a March 1 meeting of local powerbrokers to deal with a crisis in the healthcare industry.

Sweeping legislation to expand health coverage and set aside hundreds of millions of dollars in new payments for Massachusetts hospitals appeared near death, a casualty of conflicting agendas and egos on Beacon Hill. It was up to these business leaders to forge a compromise.

''There were a number of us in the business community and in the healthcare field who wanted to be sure that we didn't miss this opportunity," said Peter Meade, executive vice president of Blue Cross and Blue Shield of Massachusetts, and one of the select few invited to the meeting at Connors's advertising agency, Hill Holliday.

The quiet gathering in a John Hancock Tower conference room underscored a changing of the guard: Hospital and healthcare executives have replaced the barons of banking at the pinnacle of power in Boston.

Connors, Meade, and representatives of business groups devised a plan to impose a $295 per employee levy on businesses that have 11 or more workers and do not provide healthcare coverage. About 48 hours later, Senate President Robert E. Travaglini and House Speaker Salvatore F. DiMasi stood together at the State House to announce the legislation was back on track. Last week, the compromise was being fashioned into a new bill by a conference committee and could be unveiled as soon as today.

''This reflects the transformation of Boston's economy. The biggest players are not the banks and insurance companies, but the hospitals," said Jeffrey M. Berry, a professor of political science at Tufts University.

Business groups say the healthcare executives' intervention in the bill was not a one-time show of muscle. The industry is deeply embedded in the state's economic structure and its political influence probably will continue, they said.

''That's the fact of life in Boston. Gillette's gone, other businesses are gone. You look around, and who's left?" said Bill Vernon, president of the Massachusetts chapter of the National Federation of Independent Business, which has objected to the healthcare industry's growing influence on the state's political agenda.

''In most places, the healthcare industry isn't this big," Vernon said. ''It's just a different dynamic here than it is in other parts of the country."

Healthcare leaders, having potentially scored a huge win, quickly sought to downplay their behind-the-scenes maneuvers by giving credit to State House leaders. But comparisons to the Vault are unavoidable.

Formally called the Coordinating Committee, the Vault, which disbanded in 1997, consisted of 25 powerful executives who operated in secret and developed a policy agenda for the business community. It first met in a basement vault of Boston Safe Deposit & Trust Co.

But the state's financial services industry is no longer able to muster such clout. Banks and insurance companies are owned by corporations based outside of the state. The private healthcare industry provides 11.5 percent of the jobs in Massachusetts, about 367,300, making it the state's top employer. Partners and Blue Cross are the biggest companies in the sector, each with annual revenues of more than $5 billion, enough to rank them among the state's 10 largest corporations, profit or nonprofit.

But the healthcare power brokers differ from the Vault executives in important ways, Berry said. First, they represent enormous nonprofit institutions instead of for-profit companies. Second, he said, their focus in this case was on complex legislation to benefit their industry -- not on charting broader overall growth and employment strategies.

Because the healthcare industry depends on federal and state tax dollars through Medicaid and free care pools, its executives take a keen interest in public policy decisions: Hundreds of millions of dollars are at stake.

''There was a level of self-interest here that is unusual in Massachusetts politics," Berry said.

Partners and Blue Cross executives denied their interest in healthcare legislation was motivated exclusively by business concerns. They said they have for years urged expanded access to healthcare through universal insurance coverage. It has long been a personal cause of Dr. James J. Mongan, the chief executive of Partners, who also is chairman of the Greater Boston Chamber of Commerce and attended the John Hancock Tower meeting.

Mongan was the first healthcare chief executive to lead the chamber since former Blue Cross chief executive William Van Faasen in 1998. Mongan said an array of other interest groups have influenced the healthcare debate, not just healthcare executives. ''Labor has had a large role, the advocacy groups. It's important to not look at one part of this puzzle," he said.

Funding expanded insurance coverage without increasing money for hospitals and doctors, he added, would be like ''saying you're going to dramatically expand educational opportunities but not pay for any more teachers."

Blue Cross established a nonprofit foundation in 2001 to push for universal coverage and recently hired a high-profile healthcare advocate, Nancy Turnbull, a lecturer at Harvard School of Public Health, to run it.

''The purpose is to get greater access to healthcare to people," Meade said. At the same time, he said, hospitals need more money to stay in business.

That additional financial support -- in the form of increased Medicaid payments -- is a key component of the proposed healthcare legislation. Medicaid, the insurance program for low-income residents, is supported by state and federal tax dollars and administered by the state. The bill is expected to yield new payments of $540 million to hospitals, doctors, and community health centers over the first three years, and $270 million annually after that. Partners would get about $13 million more in reimbursements during the first year alone.

Partners logged $324 million in profits last year on $5.3 billion in revenue. Blue Cross made $264.8 million in profits after taking in $5.6 billion in premiums. Although nonprofit corporations, they said strong financial showings are important so they can provide better care and facilities. Partners said it spends heavily on capital improvements to its hospitals, including Massachusetts General Hospital and Brigham and Women's Hospital. Blue Cross requires surplus revenue to build up the reserve funds used to pay out insurance claims.

Both companies have long argued that hospitals and other healthcare providers are shortchanged by Medicaid, receiving less than 80 cents for every dollar it costs them to provide care. As a result, more costs are shifted to healthcare premiums, they said.

To make their case, Partners and Blue Cross together spent $850,000 on lobbying and advocacy advertising in 2005. Leading the squad of lobbyists for Partners and Blue Cross is John R. Sasso, who was chief of staff in the administration of governor Michael S. Dukakis. The $109,200 in fees paid last year to Sasso's firm, Advanced Strategies, were split down the middle by the two nonprofits, according to state disclosure reports.

''The future of our state is in the life sciences," said Meade, explaining the rising influence of the healthcare industry.

Which is why the executives gathered for the Hill Holliday meeting. In addition to Connors, Mongan, and Meade, the group included William Van Faasen and Cleve Killingsworth, the former and current chief executives of Blue Cross; Thomas Glynn, the chief operating officer at Partners; Jim Klocke, executive vice president of the Greater Boston Chamber of Commerce; Michael Widmer, president of the Massachusetts Taxpayers Foundation; Alan G. Macdonald, executive director of the Massachusetts Business Roundtable; and two executives from Associated Industries of Massachusetts representing the company's chief executive, Richard C. Lord.

The $295 levy will raise about $48 million a year and will be added to the stew of federal and state sources of money that fund the state's healthcare industry. Only Associated Industries dissented, but the organization says now it is undecided and is withholding comment until more details are known.

Business groups that were not in on the deal had mixed reactions. For instance, the Massachusetts High Technology Council accused healthcare executives of cutting a deal to enhance their own revenues.

''It appears that the motivation, for certain segments of the healthcare industry, was all about increasing reimbursement," said Christopher Anderson, the council's president.

The proposed fee was intended to be modest enough to win support of enough business groups and perhaps even Governor Mitt Romney, who has vowed to reject any plan that includes a tax. It was also designed to be enough of an employer mandate to win the backing of DiMasi, whose insistence on a broader payroll tax had led to deadlocked negotiations with the Senate.

Precisely how far the $48 million will go toward solving the state's problems remains unclear. Earlier versions of the bill would have expanded coverage to large numbers of the 500,000 to 600,000 uninsured residents. In the compromise version, negotiators are expected to set aside money in addition to the $48 million for subsidies to increase access to care for low-income families who can afford part of the cost of insurance. The amount of the subsidies and the number of people they would benefit has not been disclosed.

Blue Cross and other large health insurance companies are expected to make other gains through the legislation. Most significantly, residents will be required to buy the companies' products, under a so-called individual mandate, just like drivers must purchase auto insurance.

To keep premiums low, the legislation is expected to allow insurance plans with high deductibles and increased out-of-pocket expenses for consumers. A Senate bill approved last week would have permitted deductibles of as much as $10,000 a year for a family, which means they would be covered for a medical catastrophe but little else.

''I think this bill is a disaster for consumers," said Stephen D'Amato, a Cambridge public interest lawyer and former state insurance regulator.

''The products insurers are going to be selling are going to be woefully inadequate in terms of coverage," he said. ''Rates associated with these products will be excessive and will produce enormous profits for the insurance companies."

Blue Cross's Meade said it is too early to respond to details of the measure, because it is still being drafted by lawmakers.

''I bet the plan won't be perfect, and I also bet the plan won't have everything that everybody wants," Meade said. ''I do bet it is going to be a good beginning."

Christopher Rowland can be reached at crowland@globe.com.



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