The math is wrong

I have great respect for Jim Stergios and the Pioneer Institute he heads. The Institute has been an important force in Massachusetts public policy debates for many years. But I think Jim has the wrong policy prescription in an op-ed published in the Boston Globe.

Citing the higher than expected costs of the Massachusetts Healthcare Reform Act of 2006, Jim proposes that there should be a reduction in payment to Boston Medical Center and Cambridge Health Alliance, the two largest hospital providers of care to the poor in the Boston metropolitan region. To be fair, Jim is not the first to propose this. Over the years, there have been periodic attacks on BMC and CHA for their special payments. Several years ago, for example, many of the community hospitals complained that they were subsidizing these urban safety net facilities.

Beyond ignoring the history of these hospitals in our city and the special role they play in the health care system, Jim’s proposal puts the focus of the financial problem in the wrong place.

The reason for the higher than expected costs of Chapter 58 is pretty
simple. The costs were underestimated at the start. More people than
expected signed up for state-subsidized health insurance. And, lo and
behold, once people had insurance, they actually used it for medical
care. The actuarial estimates of the dollars per person covered were

That does not suggest that the Act was ill conceived. Not at all. It
was a law designed to provide greater insured access to health care.
The theory, which will play out over time, is that people with
insurance will make better use of primary care and will have better
health over time than when they would wait until they were really sick
and show up at emergency rooms. But in the meantime, for example, those
poor women who had not had mammograms in 20 years will now have them,
and some percentage will be diagnosed with breast cancer and will begin
treatment. In short, it is entirely reasonable to expect a bulge in
health care costs among the population that previously did not have

If we want to keep this new system in place, there are only three
sources of revenue for these costs: The taxpayers, the insurance
companies and through them their subscribers, and the hospitals. None
of these have tremendous political support, and there will be
interesting political debates and compromises on Beacon Hill as this is
figured out. I am afraid, though, that Jim has mistakenly chosen to
avoid the first two and then focused his solution on a subset of the
last one.

4 replies »

  1. As noted in comments to Paul’s blog on my opinion piece, he misses several very important factors:
    – higher sign-up rates mean that BMC and CHA face less unpredictability and have the benefit of a greater number of people who are insured. The extra payments to these institutions are therefore less necessary.
    – the extra payments are unfair, as St. Luke’s in New Bedford, Baystate Health in Springfield and many other worthy institutions who had served a disproportionate share of the uninsured never enjoyed these benefits. Are the poor or the hospitals in those areas less worthy than in Boston and Cambridge?
    Focus on the reform, which was meant to move subsidies from institutions to health care consumers. That is the only reasonable way forward. We cannot risk the entire reform on the basis of a political deal to aid BMC and CHA.

  2. Eric, EXACTLY! Please pose that question to the medical schools, hosptial boards and the AMA.

  3. There may be an opportunity to address the higher than expected costs in Massachusetts with a reduction in healthcare overutilization. A recent article JAMA by Emanuel and Fuchs (http://jama.ama-assn.org/cgi/content/extract/299/23/2789) argued that there is tremendous savings to be had through the reduction of healthcare overutilization. Why are so many people on Lipitor when there are 3 generic statins available? Lipitor costs $120 a month; you can get the generic at Walmart for $4 a month. Does the doctor really need to order an MRI for that low back pain? A lumbar spine MRI can cost $1,500 and the evidence points against using them for acute low back pain.

  4. More than likely the poor and barely insured will be tossed overboard in favor of the first two – tax payers and insurnace companies. Could the under estimated costs have been the usual political smoke and mirrors or the usual political incompetence?

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