Massachusetts’ Problem and Maryland’s Solution

While health care reformers argue about what it would take to “break the curve” of health care inflation, the state of Maryland has done it, at least when it comes to hospital spending.

In 1977, Maryland decided that, rather than leaving prices to the vagaries of a marketplace where insurers and hospitals negotiate behind closed doors, it would delegate the task of setting reimbursement rates for acute-care hospitals to an independent agency, the Maryland Health Services Cost Review Commission.

When setting rates, the Commission takes into account differences in labor markets and how much a hospital pays in wages; the amount of charity care the hospital does; and whether it treats a large number of severely ill patients. For example, the Commission sets the price of an overnight stay at St. Joseph Medical Center in suburban Towson  at $984,  while letting  Johns Hopkins, in Baltimore Maryland, charge  $1,555. For a basic chest X-ray, St. Joseph’s asks  $81 and Hopkins’ is allowd to  charge  $155. The differences reflect Hopkins’s higher costs as a teaching hospital and the fact that it cares for generally sicker patients.

Such adjustments are never perfect, but in this case, it appears that the Commission is treating hospitals equitably..Since the program started, the Wall Street Journal reports that  Maryland hospitals have enjoyed a steady profit margin, unlike hospitals in other states that often make more money during boom years and less during a recession. Statewide hospital profit margins average 2.5% to 3%.—just enough of a surplus to give  hospitals maneuvering room when setting budgets.  Before the commission was established, Maryland hospitals were losing money covering the uninsured.

What is most remarkable is how state regulation of prices has contained costs. When the program began in 1977, the state’s hospital costs were 25% higher than the national average. Today, Maryland’s hospital costs are 2% lower than the national average.  Meanwhile, over the same span, Maryland boasts the nation’s second-slowest increase in hospital costs .

One reason the Maryland solution works is that Medicare and Medicaid have agreed to accept the prices that the Commission sets—as long as Maryland’s hospital costs grow slower than Medicare payments nationwide.

The deal makes sense for the government because for Medicare, the elephant in the middle of the room is health care inflation. If Medicare spending continues to grow faster than the economy, Medicare is in trouble. ( Yesterday, the Centers for Medicare and Medicaid announced that in 2009  U.S. health spending reached $2.5 trillion, and that health care’s share of the economy grew 1.1 percentage points to 17.3 percent—the largest one-year increase since the federal government began keeping track in 1960 )

Below, a chart from the American Hospital Association illustrating Maryland’s remarkable success.


Maryland’s approach gives its hospitals relief from low Medicare and Medicaid reimbursements.  As a result, Maryland’s hospitals cannot argue that they must shift costs to private insurers. State regulations require that they charge all insurers the same rate for a particular service– no more and no less. Thus, the Maryland plan does away with secretive negotiations between providers and private insurers which often turn on just how much market clout the hospital has.

As I noted in part 1 of this post, in other states, a “brand-name” provider may be able to demand twice as much as another hospital or physicians’ group  for comparable services simply because insurance companies know that their customers want to see that name in the insurers’ network. If an insurer resists paying a premium for a marquee name, the provider will refuse to take its plan and customers will switch to another insurance company.  It’s worth noting that in Maryland, at Johns Hopkins  Hospital, the profit margin from operations has been running somewhere  between 2% and 4%, not far from the state-wide average of  2.5 % to 3%.

By contrast, Massachusetts serves as a prime example of how providers  with clout use market leverage to hike prices.  As I explained in part 1, Massachusetts Attorney General Martha Coakely recently released a report which reveals that:

  • Prices paid by health insurance companies to hospitals and physician groups in the Commonwealth vary significantly within the same geographic area and amongst providers offering similar levels of service.
  • Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.
  • Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers

When Coakley lifted the veil on how much insurers pay various providers (information that is normally considered proprietary), she found that insurers pay elite providers up to 200% more than they pay other physicians and hospitals.That surcharge is then passed on to patients in the form of higher insurance premiums.

What Drives Health Care Inflation: Steeper Prices and More Aggressive Care

When the U.S. is compared to other nations, researchers find that we spend far more on  health care for two reasons:   we pay higher prices for the same services and, as Commonwealth president Karen David notes, “we perform more complex, specialized procedures.”  Hospital stays are often shorter in the U.S. than in many other countries, but “more happens to you while you’re there,” observes  Dartmouth’s Dr. Elliot Fisher .

Massachusetts confrims the trend:  health care in Boston is more expensive than in any other town on the globe both because well-known providers can command higher prices, and because these hospitals tend to offer more aggressive and intensive care.

Consider Mass General: , when it comes to the “intensity of care” measured by the amount of time spent in the hospital,  the number of patients seen by 10 or more specialists,  and the intensity of physician services,  Dartmouth research shows that  Mass Gernerl ranks  in the 82nd percentile..

Mass General is not alone. Other well-known Boston hospitals also tend to recommend more specialized, high-tech care for their patients. On the “intensity” index, Brigham & Woman’s and Tufts New England Medical Center both score in the 70th percentile, while Beth Israel Deaconess ranks above the 60th percentile .

By contrast, academic medical centers located in regions where medical practice tends to be more conservative  rank lower on the intensity scale:   Both North Carolina’s  Duke, and the  Mayo Clinic,in Minnesota wind up in  the 30th percentile,  while San Francisco’s   UCSF ranks in  the 40th percentile and the Cleveland Clinic scores just above the 50th percentile. (As I have reported in the past, outcomes are just as good—or better—at these medical centers. This  suggests that patients receiving the most aggressive care may be over-treated.)

Meanwhile, Coakely’s report confirms the second reason why care in the Boston-area is pricey: elite  providers can command higher prices for identical services.

Here, it’s worth noting that, hospitals often claim that they are paid more because they treat more poor patients.  But  the new Massachusetts study confirms what many reseachers already  know about spending on low-income patients: According to the Massachusetts’ report,  hospitals that treat large numbers of poor patients  . . . are paid 10 percent to 25 percent less than average by commercial insurers.

To rein in spiraling health care costs, reformers realize that they must face up to the two factors driving health care inflatiion: over–priced care and  over-use of cutting edge medical technologies which can expose patients to risk without benefit.

Addressing the second  problem, policy-makers  are pretty certain that they can reduce over-treatment  if we re-align financial incentives for prioviders so that instead of  paying them  for “doing more,” we begin rewarding them for better outcomes  at a  lower price

But what do we do about the fact that, as providers consolidate, some have the clout to demand exorbitant reimbursements from insurers?

In part 3 of this post, I’ll comment on a recent report by Rand Health to the Massachusetts Division of Health Care and Policy which suggests Massachusetts might consider adopting the Maryland solution.. I’ll also note that in  the past, 30 other states have tried to regulate hospital rates; Maryland’s program is the only one that has survived.  Why?

I’ll l also  explain how, while putting a lid on health care inflation, the Maryland Commission has achieved four other important goals:   :

  • Making  fees for services affordable and equitable across hospitals;
  • Increasing the transparency of hospital financials;
  • Making hospitals financially stable. and
  • Ensuring  access to hospital care for all Marylanders, including the uninsured,

Finally, I’ll suggest that we don’t have to wait for Washington to pass heath care legislation.  This is one reform that could and should be done at the state level.

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much, an examination of the economic forces driving the health care system. A
fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.

43 replies »

  1. Peter,
    Your conditions are arbitrary. It is when would THEY like their illness treated or diagnosed, not you and not me.
    And obviously there is a cost to providing care, but so many patients have no cost to them, they come regularly and gorge. They also do this at the doctor’s office.
    Patients cannot have a Mercedes just because they ask for one.

  2. “People love free care. Ask anyone who works in an ER. People can’t get enough of it.”
    So MD, would you rather provide them “free” care in the ER or free care at the much less expensive family physician? Would you rather treat their illness at an early stage or at an acute late stage? Would you rather have them contribute something to healthcare through income taxes or get nothing from them in the ER?

  3. Don’t Maryland and HSRSC get the benefit of a Medicare waiver in which Medicare is required (by law) to abide by their rules and payment levels? I know that used to be the case. And I believe the similar systems (in New York, New Jersey and yes Massachusetts ), which were not written into law, were revoked by the Federal government years ago, because they were costing more than regular Medicare. So, any state could do what Maryland did, yes, if the Feds agree to pay more for Medicare than they are otherwise. And veterans of those systems will tell you that while they were “disinterested,” they were still extremely political. Setting rates is not the answer.

  4. Maggie,
    People love free care. Ask anyone who works in an ER. People can’t get enough of it.

  5. “In New York if you want to apply for insurance you have to prove that you have been “continuoously insured” (with a break of no more than 63 consective days) up until the time that you apply for new insurance.”
    Maggie – I stand corrected on this. NJ uses the same continuously insured rule with no more than a 63 day break in coverage as well.
    The discussion of community rating vs. medical underwriting does apply mainly to those who purchase insurance in the individual market. People who work for large self-funded employers are effectively community rated though for companies with older workforces, health insurance can be surprisingly expensive if you have to purchase it through COBRA if you lose your job or retire before becoming eligible for Medicare.
    Employer coverage is great as long as you remain an employee. Reform is partly about having peace of mind in knowing that affordable coverage is available to you if you lose your job, choose to retire before Medicare kicks in, change jobs or start your own business. People between the ages of 50 and 64 are especially vulnerable to losing their jobs and health insurance at the same time while most cannot afford to take up COBRA coverage without the current temporary subsidy. In any case, COBRA coverage generally expires after 18 months. The peace of mind issue has also not gotten the attention it deserves during this debate, and, in my opinion, is significantly undervalued by much of the population.
    To cite a small example, the small software company that my wife worked for since 1987 was recently sold. Out of 28 employees, only three were kept on with much of the work outsourced to India and the Ukraine. She was on my employer’s insurance anyway and we can easily afford the loss of her income. However, quite a few of those employees were the primary breadwinner for their families and had health insurance through the company as well. This is happening a lot. My understanding is that roughly one-third of the workforce is employed by companies or non-profit entities with fewer than 100 employees. Of those that still offer health insurance, more and more are dropping it while others are scaling back coverage, shifting more of the cost to the employee or both.
    On the political front, I think it would be helpful if both parties explored what each thinks is a reasonable percentage of income at various points along the income distribution spectrum individuals and families should be expected to spend for health insurance plus out of pocket expenses. In that context, I think it’s important to note that middle class people with good employer coverage are already, in effect, spending 15% or more of their total compensation for health insurance alone including the large piece nominally paid by the employer. It would be useful to try to develop some common ground on this issue before trying to move forward.

  6. Maggie,
    You say: “You seem to forget that when Maryland began regulating, hospital costs were 44% above average. Now they are 2% below average.”
    And as you say: “Source, evidence??”
    Again, what is your source? Neither the Dartmouth data nor the Kaiser data go back to 1977.
    Also, neither shows costs 2% below average. Both show costs above average.
    What hat are you pulling these numbers out of?

  7. “Not to be tiresome about it, but it’s about time we found out what sacrifices providers are willing to make for the greater good.”
    No one will go willingly, and the reason you haven’t heard much from medical providers is because the “Reform” Bill left them alone. When Canada was instituting it’s Medicare the docs were the loudest opponents and largely still are. As well all the continuing fights to keep Medicare from eroding to a for profit system is with docs. But every other country that either uses single-pay or government controlled healthcare establishes what it will pay for procedures and reimbursments. But of course hosptials in Canada have budgets to meet, their CEOs are paid much less, and each physician added is considerd a cost not a revenue producer. So nothing much here will change until the mind-set has changed from milking the sick for all their worth, to considering expenditures for healthcare as expenses not income.

  8. Margait–
    Just saw your comment after I replied ot Barry below.
    Here’s a short version of what I said to Barry–
    Yes, young people who have large-group employer-based insurance will not be affected. Young people who have no insurance will find themselves paying significantly more–or paying a fine.
    In between, young people who now buy their own insurance will save because in the Exchanges, they’ll get group rates, but they’ll also find themselves in a pool with more sick people. Will the savings resulting from group rates balance the extra costs of sick people in the pool? This no one knows. It will vary state by state, depending on how many sick people were excluded in the past, and how much health care they use once they have insurance.
    Beginning with your first post: you’re absolutely right. If we want insurers to cover people with pre-existing conditions– and not charge them so much that the insurance is unaffordable, we have to have mandates and subsidies.
    But what you say about New York in your next comment isn’t entirely true. In New York if you want to apply for insurance you have to prove that you have been “continuoously insured” (with a break of no more than 63 consective days) up until the time that you apply for new insurance.
    This means that you cannot wait until you are sick to apply.
    And yes, insurance is significantly more expensive for young people in N.Y. because they are in a pool that includes sick people and older people. In many other states, people with a history of pre-existing conditions simply can’t get insurance.
    You are also correct that by and large reformers have
    not talked much about the fact that, in states where insurers can now refuse to cover people with pre-existing conditions, insurance will be more expensive for some young people.
    BUT –and this is important– young people who get their insurance through a large employer will not pay any more. Today, employer-based insurance does not discriminate against people with pre-existing conditions–they’re in the pool already
    So the only people who will be affected are young, relatively affluent (too rich to be eligible for a subsidy) healthy people who are now buying their own insurance and who live in states where sick people are excluded from the pool. These young people will find that they are now buying insurance in an Exchange which includes people who are sick.
    On the other hand, in the Exchanges, they’ll be getting a group rate, while today, people who buy their own insurance pay an individual rate. The group rate is significantly lower because administrative costs are lower. So it’s hard to know how the premiums will work out–it all depends on how many sick people were excluded in the past and, under reform, join the pool.
    Finally, of course, young people who live in low-income or lower-middle income households will be eligible for subsidies that don’t exist today.
    Bottom line: the only young people who will be likely to face significantly higher premiums are those who a)don’t have employer-based large group coverage b) are upper-middle class (too affluent to be eligible for a subsidy) and are healthy enough that they feel they don’t need insurance, so haven’t bought it, or have bought very inexpensive, not very comprehensive catastrophic insurance.
    M.D. as Hell and Bev MD- In many other developed countries there are no co-pays or deductibles. Healthcare is free at point of service. Yet in those countries people undergo fewer surgeries, take fewer drugs, undergo fewer tests, etc. This is because doctors recommend fewer surgeries, tests, etc.
    The fact that the care is “free” doesn’t cause people to seek more care. (Most people don’t enjoy medical care.)
    The fact that health care is supply-driven is a pretty well-established fact in health care economics, going all the way back to Kenneth Arrow, the father of health care eocnomics. See also Tom Rice’s more recent book..
    Granted, patients sometimes ask for a relatively high-cost drug they saw on TV, but most accept what their doctor tells them they need. Most importantly, all of the high-ticket items (surgery, 8 days in an ICU, chemotherapy, a series of tests, hospitalization etc. are prescribed by doctors. Very few paitents “demand” to be hopsitalized.
    In addition, we have more than two decades of reserach from Dartmouth which shows that in areas where there are more hospital beds and more specialists (Miami, Manhattan) you’re more likely to find youself in one of those beds with 7 or 8 specialists are consulting on your case. In areas where utilization is lower, there are fewer hospital beds and fewer specialists.
    We know that excess capacity drives overutilization of health care.
    Margait– The cost of insuring a 62-year-old in Ohio would depend on his health (pre-existing conditions) but even if he had no pre-existing condtions he would probably be charged more simply because he is older.
    In some parts of NY (metro NYC) hospitals and doctors are more expensitve than they would be in Ohio in part becuase the cost of living is higher, in part because
    Manhattanites tend to see more specialits and undergo more tests and procedures than people in Ohio (because doctors here practice more aggressive medicine, in part because we have an excess capacity of specialists and beds in Manhattan.
    But in upstate New York, people undergo fewer tests adn procedures, there are fewer specialists and hospital beds, and doctors and hosptials charge less. So insurance is less expensive.
    We’re not talking about how much you or a colleague is paid for a particular procedure.
    We’re talking about whether overall income for most specialists has risen over a 10-year period.
    Each year Modern Healthcare tracks physician compensation in 23 specialties using information from 14 healthcare serach firms and medical organizations.
    You’ll find the most recent survey here http://www.themedicusfirm.com/files/A_Feeling_the_Pain_Modern_Healthcare_7-13-09.pdf.
    The surveys are available., on line, going back to 2003.
    Someone put the numberse from 2003-2009 together in a chart. It shows that for virtually all specialities, form 2003-2009, average annual income growth has ranged from 3.2% to 4.2%.
    In other words, specialists were keeping ahead of inflation. Most workers were not. (See salary range for each speicalty in the most recent Modern HealthCare report) And of course, specialists’ incomes are well above average
    As I noted in my original comment, specialists are making more in part because they are doing more, see more patients. Unfortunately, some of this extra care is not good for patients.
    Legacy, as you acknowledged in your comments on HealthBeat (www.healthbeatblog.org), Dartmouth’s Medicare data is not relevant here since Medicare pays more in Maryalnd than in any other state. (Under regulation, Medicare has agreed to pay the same prices that private insurers pay.)
    So we’re back to the Kaiser data– which I found for you– and which shows that Maryland’s spending per capita is somewhat above average. It is surprising that it is not well above average given that Medicaid pays significantly more per patient, Maryland’s demographics, location, and the fact that Maryland requires that employers offer more benefits than any other state but one.
    You seem to forget that when Maryland began regulating, hospital costs were 44% above average. Now they are 2% below average. And the savings did not cause other medical spending to balloon– overall, healthcare spendng in Maryland is in the 38th percentile. In other words, Maryland spends less than 38% of all sptates. .
    Finally, you ignore the fact that in Maryland, health insurance premiums, as a percentage of median household income, are the lowest in the U.S.
    In absolute dollars, premiums in Maryland are just a hair above hte national average–and cheaper than in 20 states.
    Maryland is not a “high-cost state”– that term is reserved for states in the top 20 percent. Maryland is at the lower end of the top 40%

  9. Barry, I may be missing something, but I’m not so sure that the young and healthy would necessarily have to pay that much more, if at all.
    For the young and healthy that obtain their coverage through employment, nothing should really change. The problem seems to be in the individual markets. If we had one Federal public plan for all folks that cannot get employer insurance, wouldn’t that large pool be at least as effective at spreading costs as the various employer pools?
    Of course, if we compare to paying nothing and having no insurance, the currently uninsured young and healthy will pay infinitely more than the zero dollars they pay now, but with an individual mandate and a national pool they shouldn’t have to pay more than their employer covered counterparts. Maybe even less?

  10. Margalit – I don’t have any numbers for a 63 year old in Ohio though perhaps Nate does. I should have mentioned in my earlier post that NY is also a guaranteed issue state which, when combined with community rating, tends to result in people waiting until they get sick or know they will need expensive care in the near future to apply for insurance. While the New York City metropolitan area is an expensive market, healthcare costs are much lower upstate. Community rating is a great deal for people like me who are not only older but, in my own case, probably uninsurable under medical underwriting. Any universal coverage approach whether financed through premiums or taxes is certain to be much more expensive for young, healthy people than the current system that relies on medical underwriting. Reformers have not been very transparent about that.

  11. You are smart enough to know that it would be virtually impossible to “source” my point to your satisfaction. Physician Fee Schedules of the commercial insurance industry are harder to get than the nuclear codes in the Oval Office. Worse, they remove the old fee schedules to prevent any comparative analysis. So unfortunately, I must depend on my QB software coupled with our EMR software to prove to me that we make less per patient today.
    So, let me use a current change in Medicare to prove my points that reimbursement to physicians including specialists is decreasing and has decreased in the past. Medicare eliminated the Consult CPT Codes in favor of us using E/M CPT Codes. Go to cms.gov and put Physician Fee Lookup in the Search box. Once you arrive at the CPT lookup, you’ll notice that the reimbursement for E/M Codes is significantly lower than the old consult codes. With this change in coding, we will see a sizable decrease in reimbursement with each new, referred patient in this practice.
    Another sad example is one of the surgical procedures done by the specialist in this office. The surgeon’s fee in the late 80’s and early 90’s was between $1200 and $1800 per procedure depending on the insurance company. Today, we have no commercial carrier or government program that pays over $800 for that same procedure.
    OK. I will admit that we had a slight increase in collections for 2009 over 2008, 2007, and 2006. But that increase was the direct result of seeing more patients per day, filling the schedule each day, overbooking when appropriate, confirming accurately, and working hard to reduce our No Show rate. Certainly not because as you say:
    “The truth is that since 1999 many specialists have seen their overall income rise. Unfortunately, the same can not be said for the vast majority of American workers.”
    Like the “vast majority of American workers” physician incomes have not increased either.

  12. Barry, regarding the Ohio-New York premium comparisons for a 20 year old, are there any available numbers for insuring, say, a 63 year old in those two states? I assume the New York number will not change.
    And aren’t there additional factors that would make the NY rates higher, other than the existence of community rating?
    BTW, I came across this report from AHIP http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyFinalReport.pdf
    It seems that their numbers are a bit lower than the ones you got from WellPoint.

  13. Maggie writes:
    > the governor of Maryland is supposed to
    > put the public good first
    The public seem to think it is very good to get everything for free, and the governor thinks it is good for the public for him to get re-elected — he is not disinterested and neither is the public. Who was it that said we get the government we deserve? Of course, that goes all the way back to the Israelites — they wanted a king and they got one. But I digress.
    When the public’s ideology about the common good improves, we’ll find a way out of this mess, not before.

  14. Maggie,
    You say: “one would expect Maryland to be significantly more expensive than average in terms of per capita spending.
    Instead, it’s toward the bottom of the 40th percentile (with 100th percentile the most expensive.”
    As you say to Practice Admin: “Source, evidence??”
    If you look at either the Kaiser Data: (http://www.statehealthfacts.org/comparemaptable.jsp?ind=596&cat=5)
    or the Dartmouth Data: http://cecsweb.dartmouth.edu/atlas08/datatools/datatb_s1.php
    You will find that in fact Maryland’s total health care costs per capita are:
    1) Above the national average
    2) Increasing at the same rate as the nation.

  15. To follow up on Peter’s earlier question, Wellpoint recently provided some data comparing the cost of insuring a healthy 20 year old male in Ohio vs. New York. Ohio is a state that uses medical underwriting while New York uses pure community rating with no mandate to acquire coverage. In Ohio, depending on the scope of coverage, the 20 year old would pay between $53 and $202 per month. In New York, the same plan for a healthy 20 year old male would cost between $832 and $1,087 per month. Community rating without a mandate to acquire coverage, and subsidies to help lower income people afford coverage, results in extreme adverse selection and unaffordable premiums. It’s as simple as that.

  16. Maggie,
    Supply driven, yes. But it is the supply of free cash flow that entices people to enter medicine. It is the supply of free cash that, driven by potential medical liability, that gets the patient in for a procedure that the doctor is afraid to NOT recommend. It is the patients that are the most fearful that go to the doctor in the first place.
    The patient must counterbalance their receiving care against a cost to them, which is now next to nothing. Only then will utilization fo down and costs go down.

  17. Duly noted, but, in the Workers Compensation arena, providers aren’t allowed to dictate what is “reasonable and necessary.” There, the provider overtreats at his peril.

  18. Tom, Pracice Admin,Barry, Archon 41 —
    Tom–Unlike the CEO of a corporation (whose first obligation is to his shareholders), the governor of Maryland is supposed to put the public good first.
    In a country where health care inflation is out of control (and was beginning to spiral in the early 1970s) it is in the interst of the public to rein in costs. Many physicians understand this; they want their patients to be able to afford care. It is very frustrating to know that your patient needs a treatment, but cannot afford it.
    Therefore cost-control is not a matter of ideology. It’s a matter of responding to the practical fact that
    healthcare costs are growing far faster than GDP or employees’ wages.
    When I speak of a “disinterested panel” I mean that they are not being bribed by lobbyists and have no financial interest of their own when it comes to where fees are set.
    Practice Admin–
    You write “we are paid less than we were in 1999” . . .
    Source, evidence??
    The truth is that since 1999 many specialists have seen their overall income rise. Unfortuantely, the same can not be said for the vast majority of American workers.
    That said, increases (after adjusting for inflation) and decreases (inflation-adjusted) are all over the map. Much depends on the specialty, as well as where you practice. (On the whole, physicians have seen better pay hikes in the West.)
    In addition, physicians are working harder to earn more–seeing more patients, working longer hours.
    Nevetheless, one can reasonably argue that “doing more” is not helping patients. (As Atul Gawande points out, the number of surgeries done in the U.S. has soared– with no evidence that patient outcomes or health have improved as a result.)
    Finally, in recent years, many physcians have seen significant increaese. (See the NEJM–'+and+salaries+and+increases&cd=1&hl=en&ct=clnk&gl=us)
    For example, the NEJM career center notes that “In 89 percent of specialties, incomes increased in 2005, and the average overall increase was 6 percent. The biggest jumps occurred in dermatology, gastroenterology, and cardiac/thoracic surgery; all tallied gains from 10 to 12 percent. For the most part, however, those specialists also significantly increased their production. . .
    “Following a persisting trend, physician compensation levels remain highest in the Midwest and northern Midwestern states (Illinois, Indiana, Michigan, Minnesota, and the Dakotas, for example) and the Southern states, compared to the Northeast and Western regions. The most dramatic recent compensation increases occurred in the West, where incomes rose more than 8 percent in 2005. (AMGA) ('+and+salaries+and+increases&cd=1&hl=en&ct=clnk&gl=us
    Yes the Medicare and private insurance markets are different. (Folks at Dartmouth have been talking to me about this recently.)
    But when you look at differences in the private insurance market, you need to realize, first, that some states are much stricter than others when it comes to requiring that employers provide comprehensive policies.
    Some states let employers offer so-called “health benfits” that don’t include many of the basic benefits that people need. (See my reply to Peter and others just above this comment.)
    In addition, private insurance premiums will be much lower in states that let insurers not only refuse to insure very sick people, but cancel their insurance when they become sick, and go back and look for a reason to claim that the patient fradulently didn’t fully disclose past illness. (“Recission” has been a major problem in California. )
    The average commerical premium in Minnesota is higher because Minnesota actually regulates insurers, insisting that they treat patients fairly. When it comes to controlling costs and raising quality, Minnesota has done an excellent job.
    Barry, if you talked to the doctors and health policy experts that I know in Minnesota I think you would agree. By and large, they take a very rational approach to health care. And I’m not talking about Mayo– I’m talking about the University of Minnesota and the state government
    Archon 41–
    You wrote: “Not to be tiresome about it, but it’s about time we found out what sacrifices providers are willing to make for the greater good.”
    I agree. See this post http://www.healthbeatblog.com/2009/12/always-do-right-gratify-some-people-and-astonish-the-rest.html
    where I talk about Dr. Howard Brody’s piece in NEJM, calling on physicians to identify the 5 most wasteful practices in their specialites. It’s excellent. And I think some specialites may being to do it.

  19. Peter,, Legacy, MD as Hell, archon41 —
    Thanks for your comments.
    Peter– a good question. As of 2008, according to this Commonwealth Fund chart, http://www.commonwealthfund.org/~/media/Files/Publications/Data%20Brief/2009/Aug/PDF_Schoen_Paying%20the%20Price_figures_FINAL.pdf Maryland’s average family premium ($12, 541) was just a hair above the nationwide average of $12, 298 for a family plan– and lower than other East Coast states such as New Jersey, Connecticut, Rhode Island, Delaware. and Mass (where average premiums are $13,500) AVerage premiums in Maryland are lower than in 20 other states.
    Moreover, the same study shows that if you look at insurance premiums as a percent of median family income, they are lower in Maryalnd than in any other state in the nation: In Maryland premiums eat up 13.3% of median famly income versus an average of 17.2% nationwide. .
    It’s worth noting that Maryland requires that employerse provide pretty comprehenisve plans. Only one othe rstate requires that employers include as many (51) benefits in their plans. Mandated benefits generally add 15 5o 20% to the cost of a plan cost of a plan. See http://www.businessfairfield.com/webpdf/CouncilReport(1sided).pdf
    This is yet another reason why one would expect premiums to be significantly higher in Maryland–but they are not.
    (See my reply to Legacy for more reasons why one would expect health care spending in Maryland ot be higher than it is.
    First– please see my reply to Peter’s question.
    Secondly, As I explained in the post (see part 3) Maryland’s location in the Boston-DC East Coast corridor, it’s demographics (large poor minority population in the most densely populated part of the state ), the fact that Medicaid and uninsured patients have better access to care than in most states (because Medicaid pays as much as private insurers for hopsital care and because hospitals are not allowed to gouge the uninsured, plus the fact that it boasts a world-class academic medical center that attracts very sick patients— given all of that one would expect Maryland to be significantly more expensive than average in terms of per capita spending.
    Instead, it’s toward the bottom of the 40th percentile (with 100th percentile the most expensive.)
    ND as Hell– we have ample evidence that high utliziatio of heatlh care is supply-driven, not consumer-driven. Patients do what doctors and hostpials tell them they need to do: undergo surgery, transfer to the ICU, take these drugs. Especailly when it comes to the pricey items, health care providers drive the decisions.
    archon 41– the problem with “reasonable and necessary” is that these are the prices established the providers themselves. When LBJ agreed to let Medicare follow the Blues in paying the “reasonable and necessary” rates that providers had set, he assumed that with time, and more specialists graduating from medical schools, competitoin woudl cause physicians’ fees to fall.
    He was wrong. The health care market doesn’t work like other markets. With more specialists, and more competition, specialists fees went up—higher and higher.
    Charging more doesn’t usually hurt a doctor’s market share–it simply convinces people that he must be the best. And when you’re very sick, you want nothing but the best. (80 percent of our health care dollars are spent when people are suffering from severe chronic illnesses like heart disease

  20. “Assuming Maryland’s lower (disputed) costs and also assuming insurance prices will reflect those costs can someone give me an insurance rate for a healthy individual of same age in Maryland and maybe MA or some other comparible state?”
    Peter – You raise an interesting question.
    Earlier this week, I attended a healthcare policy conference in Washington D.C. sponsored by Academy Health and Health Affairs magazine. One of the presenters was Mark Miller, Executive Director of MedPAC. An interesting point he raised in his presentation was new to me. Namely, that while Medicare spending per beneficiary is generally higher in large cities than in smaller cities and rural areas, the opposite is true for commercially insured people under 65 years old. For example, he noted that Medicare spending per person is quite high in CA (especially the large cities) vs. other states yet the average private insurance premium in CA is in the 3rd quartile with the 1st quartile being the most expensive. Conversely, Medicare spending per person in MN is below the national average but the average commercial insurance premium in MN is in the 1st quartile. Moreover, non-profit insurers control 100% of the commercial insurance market in MN because state law forbids for profit insurers from selling it even though UnitedHealth Group is headquartered in Minnetonka, MN. Go figure.

  21. Archon41. Since we are paid less today per patient than we were in 1999, I have a question. What “sacrifices” are you willing to make with your salary and benefits in your job for the greater good?
    Nothing. Exactly what I expected!

  22. MD as Hell. You are correct again. In this practice, more than 65% of our patients have no financial interest or concern in the cost of healthcare including their own. Therefore, they expect the best care, the most care, and all the care they desire, anytime they want it. How, how much, who, and when the providers get paid is of no concern to them.

  23. Not to be tiresome about it, but it’s about time we found out what sacrifices providers are willing to make for the greater good.

  24. archon41 writes:
    > why not […] make all provider charges subject to
    > the time-honored “reasonable and necessary”
    > challenge before an impartial administrative agency?
    Maggie Mahar:
    > This IS about a pael of disinterested
    > professionasl setting rates.
    The panel is in no way “disinterested”. OK, well maybe in a technically-legal sense, but not really. What is the ideology behind their rate setting? Could they have an interest in this?
    Maggie — what do you make of it when the CEO of a large, self-insured corporation is the chairman of the area’s largest healthcare system’s board? Is he interested in the health of the health system, or in the health of the company paying his outsize salary? And do you think he might be controlling his corporate healthcare spending by controlling quite directly several area hospitals and indirectly all of them? You can guess my answer.
    Now substitute “CEO of a large, self-insured corporation ” with “governor of the state of Maryland”. See the parallel? He is not disinterested. I’m not saying he’s wrong, but he’s not disinterested any more than the CEO is. He has his constituency, and it ain’t the 20% who get sick.
    And should you manage to assemble a disinterested panel of would be philosopher-kings, it will be called “heartlessly cruel to sick people” and simultaneously “innovation-killing” which is another way of saying “heartlessly cruel to people who will get sick tomorrow”. It won’t be permitted to exist so long as it is disinterested.
    I beg Ms. Mahar to distinguish among price, cost, and spending always and everywhere. This is a source of great confusion.
    I stand corrected concerning Flyer’s use of the word “quintile”. The top ten states are indeed first quintile of states.

  25. So why not go beyond what Maryland has done, and make all provider charges subject to the time-honored “reasonable and necessary” challenge before an impartial administrative agency? That would certainly put a brake on providers and, no questionable charges or procedures, no administrative hassle.

  26. Assuming Maryland’s lower (disputed) costs and also assuming insurance prices will reflect those costs can someone give me an insurance rate for a healthy individual of same age in Maryland and maybe MA or some other comparible state?

  27. I think a further bit of clarification is in order with respect to my use of the word quintile (which is correct but was misinterpreted)
    I never said the second from the top quintile is the top 20%. Here is what I actually said:
    “Maryland is a state with high health care costs. Its costs are in the second quintile (top 20) although some areas of the state are in the top quintile (top 10).”
    In the above paragraph “top 20” refers to STATES not PERCENT – perhaps I should have been more clear about this. Since there are 50 states, the top 10 states are in the top quintile, the next 10 states are the second quintile. Thus the TOP 20 (STATES) include the top and second quintiles. I should have phrased it “Its costs are in the second quintile putting in the top 20 states”
    Now for more substantive points
    Maggie says: “If you look at total per-capita spending on health care (not just hospitals, but all services and products) you find that Maryland in the 36th percentile–in other words, less expensive than more than 1/3 of all states.”
    In other words: Maryland is more expensive than average, but not as expensive as some other states. The same as I said.
    Maggie says: “Legacy’s comment on how Maryland ranks in the Dartmouth reseach is misleading. Dartmouth shows Maryland as a high-cost state because Dartmouth bases its assessments on Medicare reimbursement only, and in Maryland, in contrast ot other states, Medicare pays the same prices that private insurers pay.”
    Maggie is wrong for several reasons.
    I used two sources to analyze Maryland’s health care costs vs. national costs, one a spreadsheet derived from Dartmouth Medicare data, the other from the Kaiser Family Foundation. Here is a link to the Kaiser site (provided to me by Maggie) (http://www.statehealthfacts.org/comparemaptable.jsp?ind=596&cat=5)
    In the first place the Dartmouth data includes both Medicare Part A, which would be controlled by the HSCRC and Medicare B which is not. With respect to Medicare Part A, Medicare and private insurers pay the same price, but not with Medicare B.
    In the second place the Kaiser data shows much the same thing as the Dartmouth data, and to the extent they are derived from a different source they emphasize my point.
    But the most important reason why Maggie is wrong is immediately obvious if you go the the Kaiser site and plot Maryland’s costs against the national average. If Maryland’s HSCRC was controlling health care costs in Maryland any better than they are being controlled in the rest of the nation (and remember the HSCRC has been in charge of hospital rate setting for 35 years) Maryland’s health care costs would not be above the national average and increasing at the same rate as the nation. QED

  28. So wage and price controls in the 1970’s were such a success we have them today. So capping consumer interest rates at 8%, again in the 1970’s, was good for the consumer, even though there was no money available at that interest rate.
    Go ahead and set rates. I will then tell you if I can or will provide the service for the rates you set.
    That still does not stop the mindless pursuit of unneeded care on the part of patients who waste the most money.

  29. Archon 41 and MD as hell–
    Archon– This IS about a pael of disinterested professionasl setting rates. It has nothing to do with capitation. Please see the three part of my post on http://www.heatlhbeatblog. rog
    MD as Hell–
    You write: ” If government could control any costs in any program at anytime in our history we would not need healthcare reform.”
    I;m guessing that you have never studied governmetn cottrol of utilities . This made light and heat affordable for many Americans.
    The Rand report compares regulation of hospital prices to regulating utilites– the government is controlling prices for a necessity.
    It has worked in Maryland fo4 36 years–why not in other states?

  30. If government could control any costs in any program at anytime in our history we would not need healthcare reform.
    Costs are out of control because of the “free” money available to the patient, whether from Medicare, Medicaid, TriCare, insurance, or access granted through government theft via EMTALA, for pursuing endless and needless gratification without personal consequence or investment.
    The spectre of liability drives all providers to cater to this addiction.
    When the patient no longer had a 20% tab to pay, all hope of reasonable utilization disappeared.

  31. There’s just something about the term “capitation” and its variants that makes me acutely uneasy. Just thinking out loud here, might we not be better off submitting cost issues to independent, professional medical judgment, as they are decided, in the Workers Compensation context, by state agencies?
    It does seem that, anytime you try to substitute “objective metrics” for professional judgment, you end up with something as squirrelly as what we see in these HCR bills.

  32. Tom, Peter, archon 41, Legacy, EVERYONE —
    Tom– You are, of course, right about quintiles (see my response to everyone below.) The top quinile is the most expensive 20%. The second quintile (where Maryland is) falls between the most expensive 40% and the most expensive 20%.
    I hope you you will find that I distinguish between “prices, costs and aggregate spending” if you look at part 3 of this post at http://www.healthbeatblog.com/2010/02/how-maryland-broke-the-curve-a-solution-for-massachusetts-part-3.html
    and read part 1 of the post http://www.healthbeatblog.com/2010/01/in-massachusetts-elite-providers-drive-health-care-spending-what-does-this-say-about-the-dartmouth-research-marylan.html
    The post you see here on THCB is part 2.
    Peter– Actually Maryland has begun bundling payments for inpatient and outpatient services.
    I think that under fee-for-service it would be difficult to set prices for physicians’ services, but as we begin to “bundle payments” for physicans and hospitals– giving them a lump sum that they divvy up for an episode for care for a particular patient- I think we could begin to regulate all providers’ prices.
    archon 41– Thanks, and see my reply to Peter above.
    See my responses to your comments on http://www.healthbeatblog.org
    Everyone: Let me clear up some facts.
    First, on “quintiles” — The top “quintile” is the top 20%.
    Legacy is mistaken when he says that the second from the top quintile is the top 20%. The second from the top quintile is the step below the top step on a five step ladder — the 20th to 40the percentile.
    Maryland does not fall in the top quintile.
    If you look at total per-capital spending on health care (not just hospitals, but all services and products) you find that Maryland in the 36th percentile–in other words, less expensive than more than 1/3 of all states. .
    By other measures (total health care spendign as a % of state GDP, total health care spending in dollars, etc.
    Maryland is right at the national average.
    (I’ve just put up part 3 of this post– you’ll find sources and further explanation here http://www.healthbeatblog.com/2010/02/how-maryland-broke-the-curve-a-solution-for-massachusetts-part-3.html
    Legacy’s comment on how Maryland ranks in the Dartmouth reseach is misleading. Dartmouth shows Maryland as a high-cost state because Dartmouth bases its assessments on Medicare reimbursement only, and in Maryland, in contrast ot other states, Medicare pays the same prices that private insurers pay.
    When Maryland decided to regulate hospital rates, Medicare said it would pay the same prices that private insurers pay –as long as growth of Medicare spending on hopsitals in Maryland remained below average growth nationwide. It has.
    Normally, in the rest of the country, Medicare pays less than private insurers pay.
    Thus, Medicare spending is higher in Maryland. But private insurers pay less than in many other states and so insurance premiums are lower. (Again, see part 3 of the post http://www.healthbeatblog.com/2010/02/how-maryland-broke-the-curve-a-solution-for-massachusetts-part-3.html
    It is a wonder that Maryland is Not in the top 20 percent. Consider its demographics ( a very large very poor population in the most densely populated part of the state), the fact that it is home to Hopkins, a world-class medical center that attracts many very sick patients, and the fact that it is located in the Boston to Washington corridor where health care spending tends to be very high.

  33. “Were such a plan applied to all providers, I don’t see offhand how it could not work.”
    “Perhaps you are right, but the HSCRC applies only to inpatient hospital rates, physicians services and outpatient services are not controlled.”
    To see how it could work with “all providers” you just need to look to other industrialized nations’ healthcare. But all providers archon would include the insurance industry. And yes the medical community has been quiet, but not strangely, on cost controls if you discount “tort reform”.

  34. Not sure how easy it would be to get those $680,000 a year orthopedic surgeons on board. It occurs to me that the “medical community” has been strangely quiet on “cost controls.”

  35. Perhaps the government needs more studies and sample from Maryland’s solution and a natural way to make people lives a bit better than milking people’s pocket only.

  36. archon41 said:
    “Were such a plan applied to all providers, I don’t see offhand how it could not work.”
    Perhaps you are right, but the HSCRC applies only to inpatient hospital rates, physicians services and outpatient services are not controlled.
    Healthcare costs are a little like a beanbag – you push them in one place and they pop out the other. Many imaging centers, surgicenters, etc. have been built by hospitals in “unregulated space” and hence are not under the control of the HSCRC. I have seen the curious and unfortunate spectacle of seriously ill patients being transported by ambulance 100 yards from “regulated space” to “unregulated space” to have a scan done.
    Part of the fault for this is the HSCRC which “over reached” and unwisely tried to prevent acute care hospitals in the state from acquiring CT scanners. A group of hospitals that had been denied scanners sued the HSCRC and won. There were other similar suits against the HSCRC and the HSCRC ended up having its “wings clipped”.

  37. Tom,
    My use of the word quintile is correct:
    “A quintile is one of the five classes, each one containing one-fifth (20%) of the total number of elements, in which a distribution can be divided. Quintile can also refer to each of the four cut-off points such that the values corresponding to the units in one class are less than the first quintile, those in the second class are greater than the first quintile and less than the second quintile, and so on.”
    If you look at the Dartmouth Data you will see that it is broken up into five categories or QUINTILES.
    I can also see you don’t have a very good grasp of mathematics. Let me suggest that you do the following experiment:
    1) Using a spreadsheet enter in the years 1977 (when the HSCRC took control of all payors in MD) through 2009 in a row.
    2) Beneath that create 2 rows, label one MD, label the other US.
    3) Enter a 6 in the first column for MD. Enter a 5 in the first column for the US. This represents healthcare costs in MD vs. the US. MD’s costs are 20% higher.
    4) Then progressively multiply MD’s row by 1.04 (4% inflation). Progressively multiply the US row by 1.05 (5% inflation). In essence what you are saying is the MD’s HSCRC has been able to reduce the rate of healthcare cost inflation by 1% (from 5% to 4%)
    You will note that MD’s cost cross below US costs in ’97 (no surprise since that is 20 years). You will also note that MD’s costs are 13% lower than the national average in 2009. This is what is meant by “bending the curve” and it only takes a 1% difference in inflation compounded over many years to make a profound difference.
    If you take a look at either the Dartmouth Medicare data or the Kaiser data, you will find that the state of Maryland is higher than the national average and its cost curve parallels the national curve.
    The unavoidable conclusion is that MD’s HSCRC has not been able to control health care costs in MD, although it may have been able to do other worthwhile things.

  38. archon41 says:
    > Were such a plan applied to all providers,
    > I don’t see offhand how it could not work.
    That’s the rub: economic thinking involves seeing what does not happen. Read Hayek’s book “The Fatal Conceit” to understand how it could not work. I do not recommend Hayek to argue against all government (especially state government) regulation of medical services, but to help us to see the limits and pitfalls.
    Legacy Flyer says:
    > after 35 years of control Maryland should be a
    > state with low health care costs which have been
    > diverging from the national average increase.
    Ignoring Flyer’s misuse of the word “quintile”, his analysis ignores the prevailing conditions — Maryland is trying to turn an ocean liner in a hurricane. Yes, you’ve got a rudder and a couple of big engines, but you’ve also got a lot of windage, and if you capsize you drown everybody.
    I do with our intrepid journalist would carefully distinguish among “cost”, “prices”, and “aggregate spending”.

  39. Were such a plan applied to all providers, I don’t see offhand how it could not work.

  40. Maggie’s article is a triumph of wishful thinking over accurate analysis of the data.
    If you plot healthcare costs in Maryland vs. the national average (I used the Dartmouth Medicare Data but you get the same result using data from the Kaiser Family Foundation and I invite others to do the same) two things become apparent:
    1) Maryland is a state with high health care costs. Its costs are in the second quintile (top 20) although some areas of the state are in the top quintile (top 10).
    2) Maryland’s rate of health care cost inflation has paralleled the national rate of health care inflation.
    The above is true DESPITE MARYLAND’S HSCRC HAVING CONTROLLED HOSPITAL RATES FOR 35 YEARS! On the other hand if Maryland’s HSCRC had been effective in controlling costs, after 35 years of control Maryland should be a state with low health care costs which have been diverging from the national average increase.
    Maryland’s HSCRC may do many things and it certainly appears to have found its way into Maggie’s heart, but controlling health care costs is not one of the things it does.