A plan to regulate the price of health care treatments negotiated by insurers could be a booster shot for cash-strapped community hospitals, supporters say.

The proposal by Sen. Ben Downing, D-Pittsfield, caps prices that commercial insurers agree to pay hospitals for a variety of services at no more than 20 percent higher than the average of what other providers receive.

His bill also sets a pricing floor for “safety-net” hospitals — which serve mostly low-income patients — of no lower than 90 percent of the average.

The proposal is backed mostly by a hospital workers union, which argues that large teaching hospitals, such as Partners HealthCare’s Massachusetts General, dominate the market and demand higher payments from insurers, driving up health care costs and shortchanging smaller facilities.

“For too long community and safety-net hospitals have been forced to fight over the crumbs within a system that caters disproportionately to wealthy hospitals,” said Veronica Turner, executive vice president of the union, 1199 Service Employees International Union United Healthcare Workers East. The labor group represents more than 52,000 hospital workers in Massachusetts.

Many community hospitals now struggle to stay afloat while serving large numbers of low-income patients, collecting from low-paying government insurance programs and getting below-average reimbursements from commercial insurers, said Turner.

Industry opposition

But Downing’s bill is opposed by the some in the industry, including the Massachusetts Hospital Association, which represents large medical centers as well as community hospitals.

“I don’t think more government regulation is what we need right now,” said Tim Gens, the association’s executive vice president. “We had a reimbursement rate regulation system in Massachusetts years ago, and it didn’t work.”

Gens said Downing’s proposal is “flawed” because it doesn’t account for other factors contributing to the financial stress of local hospitals, such as underpayment for services by the state and federal governments. Based on that and other concerns, the association’s board of directors voted to oppose the legislation.

State lawmakers have wrestled with rising medical costs since approving a landmark health care law in 2006 that mandated universal coverage and expanded the state-run health care program to include more people.

In 2012, the Legislature passed a package of reforms that included an array of other cost-curbing provisions estimated to save Massachusetts more than $200 billion over 15 years. The law, signed by former Gov. Deval Patrick, caps annual health care cost increases at 3.6 percent.

Gens said that law isn’t fully implemented, and lawmakers should give it time.

“If these approaches don’t work, nobody is saying we shouldn’t revisit it,” he said. “But if there’s a need to address cost containment down the road, there’s a strong consensus in the medical community that this bill is not the way to go.”

Money for local hospitals

Supporters say Downing’s proposal reduces payments to hospitals by an estimated $500 million a year, with $250 million in savings going to community and safety-net hospitals. That would mean more than $23 million a year for hospitals on the North Shore and Merrimack Valley.

The union estimates that Beverly and Addison Gilbert hospitals would save $3.5 million a year; Lawrence General Hospital would save $5.7; Holy Family Hospital in Methuen would save $4.7 million; Merrimack Valley Hospital in Haverhill, $2.6 million; and Anna Jaques Hospital in Newburyport, $6.8 million.

While reimbursement rates paid by private insurers are not public, recent federal Medicare and Medicaid disclosures highlight payment disparities among large medical centers and community hospitals.

For example, Brigham and Women’s Hospital receives more than $67,000 on average to treat a heart attack, while Lawrence General Hospital gets about $23,000 and Anna Jaques Hospital $14,500 for the same treatment, according the federal Centers for Medicare & Medicaid Services.

“High-priced hospitals are paid nearly double that of low-priced hospitals for the same services, yet both provide virtually the same quality of care,” said Brooke Thurston, a spokeswoman for Steward Health Care System, which owns Holy Family and Merrimack Valley Hospital.

A report last year found community hospitals are struggling financially as more patients go to more expensive teaching hospitals for routine care, such as childbirth, further escalating the cost of insurance.

The report by the Healthcare Equality and Affordability League recommends that the state’s health care cost benchmark, established by the 2012 reform law, be set lower to help address differences in reimbursements.

“The problem of rate inequities is alarming, and it needs to be addressed,” said Steve Walsh, executive director of the Massachusetts Council of Community Hospitals. “Rates are not based on quality or need, but on brand and leveraging power, which is not the way to build a health care system if we’re trying to keep care in our communities in perpetuity.”

Christian Wade covers the Massachusetts Statehouse for CNHI’s newspapers and websites. Reach him at cwade@cnhi.com.

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