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POLICY/POLITICS: Spitzer calls a spade a spade w/UPDATE

Eliot
Eliot Spitzer calls a spade a spade in his speech about reforming healthcare in New York. He goes after two of the biggest subsidized sacred cows: 1) Medicaid costs which are double the national average. In fact New York spends more on Medicaid in total than California, with a much lower population. 2) Subsidies to teaching hospitals in the form of fake graduate medical education payments.

… health care decision-making became co-opted by every interest
other than the patient’s interest.  Government abdicated its
responsibility to set standards, demand results and hold institutions
receiving billions in state tax dollars accountable to the State and to
the people those institutions serve. 

Let me give you a few examples:

Take the Berger Commission.  This was a process that should never
have been necessary in the first place.  In most industries, when the
demand for a specific service falls permanently, as has the demand for
long stays in hospitals, supply inevitably follows.  Yet because of
wasteful State subsides and the State’s failure to make strategic
choices, tax dollars have been spent on empty hospital and nursing home
beds instead of insuring our 400,000 uninsured children.  Now we face
dramatic instead of gradual change to rationalize a system in desperate
need of reform.

These changes are painful – and we will use every effort to
implement them in a way that is sensitive to patients, communities and
workers.  But because of the State’s inability to confront the status
quo, these are the kinds of hard choices we must now make to increase
health care quality and decrease health care costs. 

Another example of institutions driving the system is the way the
State pays for graduate medical education.  New York’s Medicaid program
has spent more than $8 billion over the last five years on graduate
medical education – $77,000 per graduate resident in 2005 compared to
similar states like California that spent just $21,000 per resident. 

This education is critically important, but we’re currently funding
it in an excessive and irrational way that isn’t directly correlated to
the actual students being taught – thus costing the State exorbitant
amounts of money in what amounts to general subsidies to teaching
hospitals.  In fact, when we looked closer at this broken formula, we
discovered that many of those dollars are going to pay for phantom
residents and doctors who don’t even exist.

The same lack of accountability has also been evident in the special
subsidies the State gives hospitals to underwrite labor costs.  In
January 2002, with hundreds of millions in new revenue on the table for
health care, the time was ripe for a debate on how best to invest this
money.  But instead of a public debate, the State committed billions of
dollars in new spending to underwrite a portion of the increased costs
of the hospitals’ pending labor agreement. 

As a result of this deal, well over $3 billion alone was pumped into
the health care delivery system with little to no accountability.
Don’t get me wrong: labor costs are real, and the need for training is
real.  What made this a poor choice instead of a wise investment is
that the money was not based on the number of patients served and it
didn’t create a robust system of accountability for institutions that
were growing out of control.

Good luck, Governor. Given who you’re taking on, you’re going to need it! Go read the whole thing.

UPDATE: Some just excellent discussion on this in the forums. JD writes in to comment: "I actually think Spitzer can (mostly) pull it off, though he is
directly confronting both SEIU (Local 1199 has 300,000 members in NY, I
think) and HANYS (the New York hospital association, which has massive
clout). Of these, my guess is that 1199 will be more open to compromise
for the sake of true structural reform. They are showing themselves
more and more willing to think outside the box, find win-win solutions,
and all that. HANYS, not so much. But we’ll see.
As for health plans (my area), it is still too soon to tell how
they’ll react. They won’t like the Medicaid premium freezes, though one
of Spitzer’s key cabinet members (Deborah Bachrach) was an
advocate/lobbyist for the PHSP association. PHSPs are local non-profit
Medicaid-only plans, most of which are owned by hospitals. Collectively
they have over a million members in the state. This and other
appointments mean that Spitzer’s policies are going to be informed by
people who know the ins-and-outs of both the payer and provider side,
and so we are unlikely to see misguided efforts to "bleed the bastards"
which will accomplish, exactly, nothing."

RP writes "…for every dollar we manage to cut from our Medicaid program, we will be
giving up 50 cents in federal contributions. Perhaps we should, but a
lot of that money goes to NYS residents whose health care jobs (about
10% of total jobs here in New York City, for example) might disappear
or whose wages and salaries would be cut."

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6 replies »

  1. Barry,
    I’ll try a few quick answers without the benefit of doing research to back them up:
    #1. I believe there are several factors for higher long term care costs, none of which are demographic in nature, all institutional/structural. I believe the cost per day is higher than average, the rate of admits is higher than average, and the length of stay is higher than average. But none of this, to my knowledge, is the result of a sicker or older population. It’s all Wennberg-type variation.
    #3: As for fraud, there was a great series in the NYTimes on Medicaid fraud in NY a while back. If memory serves, it was last fall. Definitely recommend looking it up if you want to know how little NY has protected itself against fraud in the past.
    #6: Lowering the benefits will be hard, and I don’t know if the will exists (even on Spitzer’s part) to reduce them. Reducing eligibility is right out of the question. The goal is to make more and more eligible for Medicaid, starting with kids. I would be shocked if there were any effort at all to tighten eligibility requirements to make NY more like, say, Texas. The wave is moving in the opposite direction.

  2. Robert,
    You raise some important points. On the matter of the portion of Medicaid expenditures paid by the state vs. localities, I thought that the state was already in the process of taking over these expenses and would completely remove localities from funding by 2008. Looking for confirmation, I found this in a recent Pataki budget:
    Initiate a full State takeover of local Medicaid costs effective January 1, 2008…This State takeover of local Medicaid liability will save property taxpayers billions of dollars.
    I doubt Spitzer will try to rescind, though maybe dates have changed. What that means is that the state is soon going to have a substantially larger burden from Medicaid than it already does.
    And I wouldn’t worry about NY losing Medicaid dollars from the Feds. Don’t forget that at the same time Spitzer is proposing to reduce costs, he is proposing to expand access. If he manages to reduce PMPM (per member per month) costs by 20%, but expands access by 20%, that’s a wash as far as total Medicaid dollars go.
    Spitzer has been saying that he expects to save even more money on a structural and per member basis than he will spend on new members. While that is a great thing to strive for, I would be surprised if he achieves it in his first term. Using my crystal ball, I think the most he achieves is budget neutrality at the end of the first term, and net savings on an inflation-adjusted basis in his second term. But if he brings in all the low-income uninsured in the process, that is still an achievement worth writing home about. I would even call it a great victory.
    One good thing about Spitzer’s position is that he has given himself negotiating room to “compromise” with a budget-neutral agreement. Given his penchant to play hardball, I can see him getting this compromise even though it means billions of dollars will have to be spent differently and more efficiently by providers…lots of restructuring for them. Interestingly, providers and 1199 are leaving open (even if accidentally) this same compromise when they say that they will not accept transfers of healthcare money to education. So then, what if there is no transfer from healthcare to education, but the Medicaid money that stays in healthcare has to pay for 25% more people?
    This is a hard deal to pass up for 1199 and HANYS, because how do you tell New Yorkers that the state that pays by far the most for Medicaid can’t spend its money better and more in line with the rest of the nation? As Spitzer pointed out, it’s not like we have commensurately better Medicaid health outcomes to show for our billions. Given Spitzer’s huge popularity and the mood of the electorate on reform, I don’t think this is a winning fight for HANYS/1199, despite the fact that they’ve fought and won this sort of battle before. (Spitzer’s shadow once beat up Pataki at a beer garden.)
    Just a thought on one way this might play out. But what do I know? Maybe I’m letting my hopes intrude too much on my analysis. Maybe I’m just another schlemiel far removed from the power brokers of Albany.
    And maybe, possibly, I’m underestimating Spitzer and his ability to make the public interest triumph over special interests.

  3. Eliot Spitzer probably needs to have surgery to reduce the size of his massive, massive balls. Wow. I’m not syaing anything bad about him for 60 days.

  4. Two very interesting and informative posts. In thinking about how New York State might shrink its Medicaid costs, I have the following questions and comments:
    1. Regarding the 60% of Medicaid spending that is attributable to long term care, why is it so high? If it relates to demographics and housing patterns – more elderly living alone who can no longer care for themselves and have nowhere else to go and/or family members who might be willing to care for their relative but live in housing that is just too small (especially in NYC) to make it practical. If those are the main reasons, it will be tough to achieve savings in this category.
    2. Supplier induced demand can and should be reduced and probably will be, at least to some extent, as the Berger Commission recommendations are implemented. Surplus hospital capacity, at the margin, probably results in both more total hospital patient days and excessive costs due to the need to spread fixed expenses over still too few patients (relative to the number of beds). Providing more basic care in community clinics rather than emergency rooms may or may not save money. Establishing and running these cost-effectively is probably easier said than done.
    3. Going after provider fraud has a lot of potential to save money as does more widespread use of interoperable electronic medical records, especially in hospitals. Additional audit staff and significant IT investments don’t come cheap, however. Since federal taxpayers would reap half of any savings, they should probably underwrite half of the costs as well.
    4. Better buying of prescription drugs and, perhaps, a somewhat more restrictive formulary of drugs that Medicaid will pay for can also save enough to justify a significant effort.
    5. A more sensible approach to subsidizing graduate medical education should not be all that hard to achieve.
    6. One thing that Governor Spitzer did not mention is that New York’s Medicaid program pays for a number of optional benefits that are not required and most other states don’t cover. New York’s eligibility criteria also allows people with higher incomes than in other states to qualify. He could try to bring these into closer alignment with other states. Alternatively, as other states look for ways to cover more of their uninsured, their spending of tax dollars could rise to close some of the tax gap between New York and elsewhere.
    I think, at the margin, Governor Spitzer’s task will be easier because he is a Democrat in a very Blue state, and he won his position by a huge electoral margin. I wish him well.

  5. There are several important things that tend to get forgotten in the discussion about Medicaid costs in New York State (and the New York Times and other papers seem to obfuscate these and other issues).
    1. New York State Medicaid spends about 60% of its total disbursements on long-term care (nursing homes and home care), considerably more than other states, including California, and this makes total expenditures or expenditures per capita difficult to compare across states.
    2. Medicaid costs the state (NYS in its entirety) about $49 billion, which is a lot of money certainly, and not all of it is as well spent as it could be, but the State (that is the New York State budget) only expends about $17 billion of this; the federal government provides slightly more than 50% of the total and localities (including New York City) provide the rest, although the State will be picking up some of the localities’ portion in the future. Thus for every dollar we manage to cut from our Medicaid program, we will be giving up 50 cents in federal contributions. Perhaps we should, but a lot of that money goes to NYS residents whose health care jobs (about 10% of total jobs here in New York City, for example) might disappear or whose wages and salaries would be cut.
    3. Our system is hospital-centered and therefore more expensive than it might otherwise be, but if that is a problem, and I think it is, it will take more than a single year’s State budget or Berger Commission to change it. Hospitals provide a very large proportion of total care, including primary care, in this state, especially in New York City. Building a non-hospital-based primary care system would be a good thing, but it hasn’t proven to be that easy in spite of a lot of admirable attempts.
    4. It is certainly true that the current medical education system is bizarre, but the money hospitals get for it, excessive as it might be, actually supports a lot of health missions that we might not want to give up before we have adequate replacements, including, at least indirectly, uncompensated care and other community benefits. A universal health care program in this state or (preferably) nationally would be a better and easier way to achieve health care financing reform than piece-meal cuts to Medicaid; hopefully, the Governor will make some efforts in this direction in the near future.
    So, while I applaud the governor’s decision to address health care costs early in his new administration and wish him the best in doing so, it’s important to ensure that the effects on the system – and it is a system, however strange – are positive. Our experience of the last 30 or 40 years of continual “reforms” of the health economy in New York State – since the implementation of Medicaid and even before – has not been uniformly good, to say the least.

  6. I should be careful about what I say here, since even though I’m anonymous (right, Matt?) the company I work for has a lot at stake in how Spitzer handles his reforms and it would not be cool, to say the least, to say something that (a) came back to bite me if I stopped being anonymous, or that (b) could be construed as shilling for The Man.
    That said, I think this is an excellent start. Without getting into the details, there are two key ideas in the speech that would usually be disregarded as boilerplate, but not here:
    1. We will put patients before institutions.
    2. We will put healthcare policy before healthcare politics.
    For anyone who has a passing familiarity with New York healthcare, particularly during the Pataki years, accomplishing these things would be almost a miracle. And I actually think Spitzer can (mostly) pull it off, though he is directly confronting both SEIU (Local 1199 has 300,000 members in NY, I think) and HANYS (the New York hospital association, which has massive clout). Of these, my guess is that 1199 will be more open to compromise for the sake of true structural reform. They are showing themselves more and more willing to think outside the box, find win-win solutions, and all that. HANYS, not so much. But we’ll see.
    As for health plans (my area), it is still too soon to tell how they’ll react. They won’t like the Medicaid premium freezes, though one of Spitzer’s key cabinet members (Deborah Bachrach) was an advocate/lobbyist for the PHSP association. PHSPs are local non-profit Medicaid-only plans, most of which are owned by hospitals. Collectively they have over a million members in the state. This and other appointments mean that Spitzer’s policies are going to be informed by people who know the ins-and-outs of both the payer and provider side, and so we are unlikely to see misguided efforts to “bleed the bastards” which will accomplish, exactly, nothing. It also means Spitzer’s team will have intimate knowledge of how (and where) health plans and hospitals make money, and where they don’t.
    Some more thoughts:
    And we will remove the bureaucratic hurdles that prevent vulnerable New Yorkers from getting on and staying on Medicaid. While implementing measures to guard against fraud, we will no longer require that families produce documents for continued eligibility of coverage, when the State can simply confirm that information from its own data.
    This is long-needed, and just what some of us were recommending in another thread here a few days ago. What Spitzer doesn’t mention is that about 40% of Medicare recipients are kicked off the rolls each year for lack of documentation, and this causes huge discontinuities of care and substantially higher administrative costs. Because most of these people return to the rolls a few months later.
    Based on what I’ve seen of Medicaid AERs vs. commercial AERs in NY, I would expect to see around 1% reduction in AER just on the health plan side from easing eligibility requirements. The savings for the state’s direct admin costs would be added to this, and so would any reductions in medical expenses that come from better continuous treatment for chronic conditions. This policy is both more humane and more efficient.
    Our State Department of Insurance will demand a heightened level of transparency and accountability by reviewing regulations concerning provider contracting requirements, the pre-certification process and technical denials. We will not tolerate gamesmanship that results in denial of care or delay in payment for care.
    I should know what he’s getting at regarding transparency and provider contracting requirements, but I confess I don’t. Any ideas? As for not tolerating gamesmanship that results in denial of care, of course! There is simply no excuse for it. It will be interesting to see how they enforce this, and whether insurers balk at the methods.
    For more political gossip on NY healthcare, go here

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