Three years ago, the Commonwealth of Massachusetts enacted a far-reaching health reform law that politicians and the media hailed as a model for other states and the federal government. That law has become the major blueprint for health system change on a national scale, and its advocates, with Sen. Edward Kennedy at the top of the list, are aggressively marketing some variation of the Massachusetts plan as the reform of choice. Until recently, there has been little analysis of how the law has worked. This is the third in an occasional series of posts that will explore the Massachusetts law, with an eye toward helping the press and the public understand the flashpoints as legislation based on the Bay State’s experiment winds its way through Congress. The entire series is archived here.

At the tail end of last year, The Boston Globe published the best story on health policy I’ve seen since I began posting for Campaign Desk. The Globe’s Spotlight Team examined the reasons why health care costs so much in Massachusetts. In doing so, the team took on the state’s largest health insurer, Blue Cross Blue Shield, and the state’s medical powerhouse, Partners HealthCare, which runs two of the country’s premier teaching hospitals, Massachusetts General and Brigham and Women’s Hospital.

The Globe story, part of an ongoing series entitled “Unhealthy System,” disclosed how Blue Cross and Partners, the state’s largest private employer and its biggest health care provider, sealed a deal in 2000 that raised health insurance costs across the state. The agreement, which the Globe said was called a “market covenant” by Blue Cross, precipitated the financial troubles the state now faces in maintaining its ambitious health reform law that subsidizes insurance for families with incomes below $66,150. And it reveals the difficulties in containing medical costs when dominant players and their market power seem to set the market’s rules.

One could argue that Partners and Blue Cross gained their clout during the managed care heyday in the early 1990s, when HMOs squeezed doctors and hospitals to reduce costs. In retaliation, providers organized into large systems like Partners. The Globe found that Blue Cross raised “the rate it pays Partners by 75 percent since 2000,” and that Partners also pressured the state’s other big insurers to extend similarly large rate increases. The insurers passed the costs on to policyholders, hiking individual premiums by almost nine percent per year since the agreement was made—more than twice the annual rise in the late 1990s.

Massachusetts has the most expensive care in the country, partly because of expensive styles of medical practice that call for the use of costly high tech interventions. Boston University health policy expert Alan Sager told me health care spending was one-third higher than the national average in 2004, two years before the state enacted its law. “If we cover more people with no offsetting cost controls, we can expect Massachusetts health care to be even costlier than in 2004,” he said.

As more people gained insurance coverage and used it to obtain medical services (which was the point of the law), the care they received piled more costs onto the state’s already expensive system. It’s a simple mathematical proposition: more services lead to higher total expenditures. Jon Kingsdale, who heads the state’s Health Insurance Connector Authority, is blunt: “The cost of health care needs to be under control to sustain the individual mandate or the whole thing unravels. If costs continue to soar, the enforceability of the mandate is in jeopardy.”

Media outlets have delivered that message, but most stories stop short of careful analysis that would be useful as Congress crafts legislation that mirrors Massachusetts reform. (Yesterday, Sen. Edward Kennedy released his bill, containing elements of the Massachusetts plan.) The May issue of the AARP Bulletin told its millions of readers: “At stake ultimately is whether the Massachusetts reforms can survive if health care costs continue to rise unchecked.” But it didn’t offer any discussion of solutions. A shallow story on Marketplace attributed the “pricey” Massachusetts system partly to people who use emergency rooms when they can’t afford a doctor.

New York Times reporter Kevin Sack dug deeper, unearthing the roots of the dilemma: serious cost containment would cut the income of the formidable Massachusetts medical establishment. As Brandeis health policy professor Stuart Altman told the Times: “Really controlling costs requires just stopping spending.” In other words, what’s needed is a limit or cap on spending allocated to medical services. Nobody is talking about that, either in Massachusetts or nationally.

“[Cost control] was really never an active part of the conversation,” says Nancy Turnbull, a professor at the Harvard School of Public Health. The law’s biggest nod to cost containment was the Health Care Quality and Cost Council, which has created a Web site to help consumers shop for the best care at the lowest price. The MyHealthCareOptions site gives some data about quality measures for hospitals and costs for some procedures. According to the state, 2,700 people visited the site during the last three weeks in May. It’s hard to say whether they found it helpful. It’s much easier to say the site does not reduce costs, if at all. There’s little evidence that consumer shopping reduces the price of medical services.

The state built its plan with federal dollars, assessments on employers, redistributing existing funds, and new general revenues. “It needs a dedicated revenue source,” says Boston Medical Center vice president Tom Traylor. “It was all just cost shifting.” So the state has had to raise copayments and premiums for people receiving subsidized coverage, and has increased tobacco taxes to help make ends meet. This year, the state is facing a $4 billion budget gap; the state senate has proposed taking away subsidized care for some 28,000 legal immigrants who are now eligible.

Another cost-control strategy is to enact recommendations made by the Special Commission on the Health Care Payment System, one of which is to give providers a negotiated set payment that covers all the care a patient would need for the year. “The fee-for-service system has all the wrong incentives,” a commission member told the Globe. That sounds an awful lot like what policy experts said fifteen years ago. So do these new “global payments,” which sound like the capitation payments HMOs made to providers in an effort to cut costs. As the great HMO backlash from patients and docs flared up, capitation payments gradually disappeared for some providers and were replaced with, yes, the old-fashioned fee-for-service arrangements.

I asked Sarah Iselin, the state’s commissioner of the division of health care finance and policy, about the difference. She said this time payments would be coupled with performance measures of quality, adding “it’s different from the capitation of the 90s.” I asked a health plan official the same question. He said “they really mean the same thing, for better or worse. Capitation has become a dirty word. What the commission has tried to do is rebranding.”

A lot of newbies cover health these days, and might not be versed in all the payment jargon. The trick will be for reporters to decipher the new buzz words and really deconstruct their cost-cutting potential. Here’s another shout out to the Globe for doing just that. Its story in early May told readers: “The new payment system the commission expects to recommend has been tried before.”

Trudy Lieberman is a fellow at the Center for Advancing Health and a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR’s healthcare desk, which is part of our United States Project on the coverage of politics and policy. Follow her on Twitter @Trudy_Lieberman.