* State's law mandates nearly all residents have insurance
* Often seen as prototype for national reforms
* Governor's plan takes aim at way providers compensated
* Malpractice reform focuses on defensive medicine
By Ros Krasny
BOSTON, Feb 17 (Reuters) - The governor of Massachusetts proposed changes on Thursday to the state's comprehensive healthcare program, one often seen as a prototype for national reforms, to attempt to bring rising costs under control.
The plan would give the U.S. state more authority to scrutinize fees paid to hospitals and doctors, reform the current standard by which healthcare providers are compensated and enact medical malpractice reform.
"The existing fee for service payment system is outdated," Governor Deval Patrick, a Democrat, said at a Greater Boston Chamber of Commerce breakfast. "There is no financial incentive in the system for good care, only for more care."
The Massachusetts healthcare law mandates that nearly every resident obtain a minimum level of health insurance coverage. Free healthcare or subsidized insurance is provided to low-income residents.
The law was enacted in 2006 by then-governor Mitt Romney, a Republican who is widely expected to make a second run for U.S. president in 2012 after falling short in 2008.
The Massachusetts program was often regarded as a model for President Barack Obama's sweeping 2010 healthcare reforms, which are under attack from Republican lawmakers.
Some 98 percent of the state's residents now have health insurance, including more than 400,000 who had previously been uninsured before the law took effect.
But the state faces spiraling costs. "At the current pace of increase, healthcare spending will consume one third of a family's income by 2016," Patrick said. Healthcare costs are also a major impediment to job growth, he said.
Patrick said escalating costs were not created specifically by the Massachusetts system, but the state was well placed to lead the way on cost control.
"I believe we can crack the code on healthcare costs," Patrick said. "Better care, a whole person approach, is actually cheaper."
The proposed reforms would encourage the formation of groups of providers, known as accountable care organizations, that would work together to treat patients and coordinate their care for a budgeted fee.
Further, the state would have the authority to reject "excessive" premium increases proposed by insurance providers, based on criteria that include the rate of increase in the state's Gross Domestic Product.
"We shouldn't have healthcare costs rising faster than GDP growth," Patrick said.
Alice Coombs, president of the Massachusetts Medical Society, which represents some 23,000 physicians and medical students, said the association was supportive of Patrick's malpractice reform proposals designed to reduce lawsuits.
Defensive medicine, the practice of doctors ordering tests of often marginal value for a patient as a safeguard against potential lawsuits, "adds billions of dollars to the cost of healthcare," said Coombs, an emergency room physician.
(Reporting by Ros Krasny; editing by John Whitesides)