How Maryland “Broke the Curve”: A Solution For Massachusetts?


Massachusetts has succeeded in providing health care insurance for all but 2.6% of its citizens.

Yet the Commonwealth still struggles to make that coverage affordable. Health care inflation is driving Massachusetts’ system toward a cliff.  Total outlays for medical services and products are climbing 8 percent faster than the state’s economy.  Unless something is done to rein in the cost of care, health care spending in Massachusetts is projected to nearly double over the next 10 years, hitting $123 billion in 2020. State officials know they must find a way to put a lid on spending so that it grows no faster than the state’s gross domestic product.

But how?

With that question in mind, The Massachusetts Division of Health Care and Policy (DHCFP) contracted with the RAND Corporation to develop a menu of cost containment strategies and options.  In  September RAND came back with a report that recommended 12 strategies for reducing health care bills.

Near the top of the list (right after “bundling” payments for doctors and hospitals),  Rand suggested that Massachusetts set hospital prices by “establishing a regulatory board to determine appropriate rates for hospital inpatient, outpatient, and emergency department care, limiting payment to the  minimum amount necessary to cover hospital operating expenses, and requiring all payers (both private insurers and Medicare) to adhere to the rates set.

In other words, Rand recommended that Massachusetts consider the “Maryland solution” (a.k.a. the “all-payer” strategy). Here’s a brief summary: In Maryland prices for all hospital services are set by seven commissioners appointed by the governor to four-year terms.  When setting rates for at individual hospitals, the Commission takes into account each hospital’s wages, charity care and severity of patient illnesses. Hospitals can appeal only to the commission or take the dispute to court.

Advantages of Regulating Hospital Prices

Savings:  A review of the Maryland plan published in a recent issue of Health Affairs reports that, since 1976,  state regulation of hospital rates  has saved $40 billion.  Had a similar system been in place over the same period of time for all states, savings would have totaled $1.8 trillion or more .

Two readers commenting on parts 1 and 2 of this post have suggested that while the Commission may be holding down hospital spending, “ state regulation of hospital prices “has merely pushed healthcare [and health care spending] out of hospitals. So if a hospital wants a high tech imaging center or surgical-center on its campus, it gets built on ‘unregulated space’ outside the hospital.” Thus, these skeptics argue that while Maryland may have hospital prices under control, when you look at total medical spending, it is a “high cost state.”

To test their theory, I did some research, and discovered the Kaiser Family Foundation’s “State Health Facts.”  First, I looked at Maryland’s health care spending per capita, compared to per capita outlays in other states. It turns out that in 2004, Maryland was spending slightly more than average ($5,590 vs. $5,283) —but less than sixteen other states including Massachusetts ($6, 683).

More importantly, when the growth of medical spending in Maryland is compared to inflation in other states, Kaiser reports that from 1991 to 2004 Maryland’s total heath care bill was climbing by just 6.7% a year—right at the national average. The rate of growth in Maryland was slower than in 32 other states.

Another way to measure healthcare spending is to ask what percent of the state’s Gross Domestic Product it consumes. In Maryland , medical bills equal 13.3% of GDP – once again, right at the national average .

It’s surprising that Maryland’s medical bills aren’t higher.  After all, Maryland is located in the Boston/Washington corridor where health care spending tends to be high; it is home to Johns’ Hopkins  (a world-class academic medical center which draws some very sick patients); Maryland doctors and hospitals in the Baltimore area are serving a large very poor population who have  better access to care than the poor in most states.  (In some states, the poor just don’t receive much care, but in Maryland they do: see below.)

There is no evidence that state regulation of hospital prices is shifting cost to other parts of the health care system. If anything , the fact that the state has put hospitals on a budget may be making everyone more aware of  waste in the system.

Indeed, according to a 2009 article by Emory University’s Elena Conis,

“The savings and financial stability engendered by the system also receive credit for granting the state the lowest health insurance premiums (as a fraction of income) in the country.”

Better Access to Care for the Uninsured

When the Commission sets prices , it takes into account how much charity care a hospital provides, raising rates to compensate for unpaid bills. Thus, as the Health Affairs analysis points out: “Hospitals therefore have a financial incentive to treat all patients.  Meanwhile, the uninsured have access to all hospitals, including private community facilities and the state’s two well-known academic medical centers.”

Moreover, hospitals are not allowed to gouge the uninsured. In other states, when a patient who doesn’t have insurance pays out-of-pocket,  hospitals frequently charge him prices that are far higher than the “group rates” that private insurers have negotiated. In Maryland, by contrast, uninsured patients are charged the fixed rates that everyone pays.

Better Care for Medicaid Patients

Typically, Medicaid pays health care providers roughly 30 percent less than those providers would receive if they were caring for a Medicare patient. As a result, the safety-net hospitals that care for many Medicaid patients often operate in the red; they simply don’t have the resources to give all of their patients the care they know they need. (In Money-Driven Medicine I write about how such hospitals are forced to make tough decisions: “ad hoc rationing puts enormous pressure on doctors, nurses and caseworkers who struggle to decide who should receive costly drugs and surgical procedures, who should be moved out of an expensive bed in an ICU and sent back to a nursing home, who should receive a third round of chemotherapy. . ..” )

In Maryland, Medicaid, like Medicare, pays the standard rates set by the Commission.

Financial stability for hospitals

Nationwide, hospitals are hard-pressed to plan their budgets. Typically, they find themselves on a roller-coaster—for a few years, reimbursements are high, and then they plunge, as payers decide to “get tough.” Hospitals never know when Congress will decide to change the rules for Medicare reimbursements —or how annual negotiations with insurers will turn out. Meanwhile, charitable care remains an unfunded mandate.  Hospital costs and revenues can fluctuate sharply.

Government rate regulation by an independent Commission has proven far more rational and predictable then either Congress or “the market.”  (As I noted in part 1, in this marketplace might makes right: if insurers have more clout, they insist on steep discounts; if large hospitals have the leverage, they demand reimbursements that far exceed their costs.)

In Maryland, prices are pretty equitable across hospitals, and the Commission seems to be paying neither too much, nor too little. On average the state’s hospitals are operating with a 2 percent surplus; for a non-profit this is a comfortable margin  Indeed, Health Affairs rerpots, it is wide enough to satisfy bond-rating companies: “Maryland has consistently had the highest proportion of hospitals rated ‘investment grade’ of any state.”  At the same time, “while  profits in Maryland hospitals have tracked national trends” they “have averaged about 0.7 percent lower on operating and 1.4 percent lower on total margins since 1993. “

Lower administrative costs, greater transparency

In a recent issue of  The New England Journal of Medicine, Jonathan Oberlander, and Joseph White argue for “system- wide” cost control, arguing that : “setting standard rules would simplify billing and reduce the related confusion and expense. The staggering price variation in the U.S. health care system would end, significantly reducing administrative expenses for providers who must now maintain costly billing systems and administrative staffs to cope with different insurers’ disparate rules. Standardization would also create more transparency for consumers, who could more easily determine what prices insurers were paying for services and thus their appropriate copayments.”

Why is Maryland the Only State That Sets Hospital Prices?

Maryland wasn’t always unique. At one time some 30 states regulated hospitals reimbursements.In many states, the strategy seemed to be saving money. In a 1991 article published in Health Care Financing Review, Gerard Anderson, a health policy expert at Johns Hopkins Bloomberg School of Public Health, observes that “the final report of the national rate setting study concludes that mandatory programs saved $36 billion dollars from 1969 to 1982 and reduced costs per discharge in States with mandatory programs 12-26 percent.  When Schramm, Renn, and Biles (1986) compared six mandatory rate setting  States with the non-rates setting States during the period 1976-83 they found that the annual percent change in adjusted expense per admission averaged 3-4 percentage points lower in the States with mandatory rate setting.’’  In  addition “ Robinson and Luft (1988) found that, from 1982 through 1986, all-payer rate setting reduced hospital expenditures by 16.3 percent in Massachusetts, 15.4 percent in Maryland, 6.3 percent in New York, and 1.9 percent in New Jersey, compared with the national average.

Yes, Massachusetts was one of the states that set rates. But then the political winds shifted– and states began to deregulate.

Writing in Health Affairs in 1997, former Massachusetts state representative John McDonough points out that most rate-setting deregulations occurred as States where Democrats were replaced with Republican or Independent  leaders. He offers some examples: “In 1991 newly elected Massachusetts Governor William Weld, a Republican, made hospital deregulation a central part of his first-year agenda.

In 1995 newly elected Governor Angus King, an Independent, worked with a new Republican majority in the Maine Senate to eliminate their twelve year- old system. In 1995 New York’s first Republican governor since 1974, George Pataki, placed NYPHRM deregulation squarely on the state’s policy agenda.”

While these Republicans favored deregulation, it is worth noting that a earlier generation of pre-Reagan Republicans ushered in rate-setting:  “New York’s Nelson Rockefeller presided over the implementation of rate setting in the early 1970s. New Jersey’s Thomas Kean” was also an advocate.
Maryland’s rate regulation survived in part because long-term Democratic majorities in both branches of the legislature combined with Democratic control of the governor’s office set the state apart from This.

According to the Rand report Maryland’s triumph is also due to “proper design of the rate-setting commission.” (Thanks to Igor Gorlach at  “A Healthy Blog” for pointing this out .http://blog.hcfama.org/?p=3553)  Gerard Anderson points to the fact that in Maryland “rates are hospital specific,” is another factor that “distinguishes the Maryland program from many other rate setting programs.”

The rise of HMOS also led to the denouement of rate-setting in many states. During the late 1980s and early 1990s, as for-profit HMOs flourished, they resisted paying prices set by the state. They hoped to negotiate discounts with hospitals eager to join their networks, and in many cases they did. (Later, hospital consolidation  in many regions would give providers the upper hand when bargaining with insurers.)

States hooked on the idea of “managed care” as a way to control costs granted for-profit HMOs an exemption from the rules. So in 1982, Massachusetts chose to allow HMOs unlimited discounting authority. By contrast, McDonough notes, “regulators in Maryland have tightly and successfully limited negotiated discounts (available to all payers, not just HMOs) to no more than 4 percent, and only to insurers who provide certain consumer benefits such as open enrollment. Although payers in Maryland privately grumble, few openly call for deregulation, and none can claim to be suffering inordinately.”

To understand how Maryland hung on to its rate-setting program while other states abandoned the idea,  I also think it helps to realize that, in Maryland  the idea of rate regulation  came not from the state legislature, but from hospitals themselves. As Emory’s Elena Conis points out in her 2009 report: “Initially, it was proposed by the Maryland Hospital Association as a solution to rising hospital costs and the growing problem of uncompensated care.” Government agreed: “Both the legislature and the state had concluded that the unregulated hospital care market was contributing to skyrocketing costs for many hospitals and an inequitable system of care.”

Maryland also recognized that “Government leadership in setting rules for medical care payments was already in place in other countries with a combination of public and private payers, including France, the Netherlands, Japan and Germany; in such all-payer systems [where all payers pay the same rates at a particular hospital] , health care costs were indeed lower.”

Conis goes on to describe a system that works because, after nearly four decades, it is perceived as apolitical and generally honest: “The HSCRC [the “Commission”] is politically independent and widely supported by hospitals, public and private payers, and legislators in both political parties. The system is widely regarded as having created a market in which payments are predictable, transparent, and fair, and in which profits have not suffered as a result. Providers are protected from having to negotiate rates with payers; payers, meanwhile, are shielded from the high markups attached to hospitals services in other states; and patient access to hospital care is protected (indeed, the Maryland health Care Commission says that as a result of the system, the state no longer needs public hospitals).

“As HSCRC Commissioner David Young reported in a recent statement, ‘Of all the accomplishments of the All-Payer System in its thirty-eight year history, and there have been many, nothing stands out to me more than the willingness of all participants – providers, payers, business and labor, and HSCRC staff – to put aside provincial interests in favor of producing the healthiest hospital system in America.’”

In other words, Maryland’s experiment with rate setting survived because it was a collaborative effort. Rather than focusing on their own interests, participants thought collectively. And to this day, they continue to refine how they set prices.

Paying for Quality

The one element missing in Maryland’s original scheme is that it did not allow payers to reward hospitals that provide better quality care—or penalize those that fall short. But  this is changing:  “In 2008, the Maryland hospital association made voluntary agreements with insurance companies not to bill for eight medical errors, including transfusions that use the wrong blood type and surgery on the wrong body part.” observes Dr Lesley Russell, an Australian who is currently a Visiting Fellow at the Center for American Progress in Washington D.C.

Jump-Starting Reform: Following Maryland’s Example

Russell suggests that that Australia might learn something from Maryland.   What about the rest of the U.S.

Although some reformers have discussed the possibility of the government setting hospital rates, this idea, like so many other good ideas for reform, hasn’t gotten very far in Washington.
To be honest, I cannot quite envision the federal government assessing rates for all of the services provided by all of the hospitals in the U.S., adjusting for the cost of labor in each town, how much charity care a hospital provides, and the cost of teaching medical students.

Perhaps it could be done, but I can only imagine the complexity of the task—and the politics as Congressmen vie for higher rates for their states. No doubt the American Hospital Association would want to weight in—as would national lobbies representing insurers.

Ultimately, I believe that most healthcare reform must ultimately be done at a federal level. Our health care system is already both fragmented and inequitable; we don’t want to fracture it further. But in this case, setting hospital rates seem to me a task that might best be done by state regulators who are in a better position to know which hospitals require higher reimbursements to cover legitimate expenses such as charity care, and which hospitals have been using their market muscle to game the system –charging more without providing better care.

Just as in Maryland, a panel of state regulators would need to be protected from lobbyists and politicians. Since Medicare would be paying the fixed rates, it might set up a unit to investigate complaints of corruption or price manipulation. (Meanwhile, states interested in adopting the program would do well to investigate how the Maryland Commission has maintained a reputation for fairness.)

Yet, even with safeguards, I can foresee problems.  In some states, hospitals are so powerful that they might well capture the regulators. On this score I cannot help but think of Massachusetts.

On the other hand, the Commonwealth boasts more than a few brilliant,  progressive, and dedicated health care reformers. Their numbers include physicians, public health experts, nurses and hospital administrators.

At this point, I am convinced that reform can no longer wait for Washington.  We need a movement on the ground. Those who want to re-shape our broken system should begin to lead the way—today.   I suspect that in Massachusetts, and in many other states, a push for hospital rate regulation would have to come from within the medical culture—as it did in Maryland.

Wanted: Insider Agitators, ready and willing to call for price-setting that will help control costs; increase access to care; make fees for services equitable and transparent across hospitals, and enhance patient safety.

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.

41 replies »

  1. Our nation would be a better place if the media would stop having talking head racist on their shows and stop being lazy and do their homework and tell the truth about these politicians . Rachael Maddow is full of facts armed with her research in front of her when she comes on air . This mess we are in is more important to try and flush out the truth from these politicians and stop making it about personalities.We have just about had enough of these media people . They are a big part of the problems we are having.

  2. Why does the media not do as Rchael Maddow and Keith Olberman? Both Keith & Rachael fact check evrything the Republicans and it has worked at outing them as liars and do-nothings. The Republicans do not have any HCP and they will be completly outed on Thursday .

  3. The HCB must pass with a {Public option and kick in before 2014 . It also must include people under 55 in medicare so that they do not suffer further until the new bill kicks in .

  4. I can’t keep borrowing from Uncle Wen to fund your extravagances. He’s already complaining about loaning me money to pay the interest on what I already owe him. An upgraded Medicaid coupe is the best I can do.

  5. >>This is all getting decidedly unrealistic. Does anyone really believe doctors have so little clout that they can be maneuvered into a system where compensation limits of $50,000 to $100,000 a year can be imposed on them? And what kind of ding-a-ling would suffer through medical school and residency for that kind of money?<<
    Nope. The system is moving around this problem by empowering lower paid midlevel providers with less training. That's the free market in play – providers offering improperly priced services (especially if 'quality' does not meet the consumer's expectations) will fail in market where the barrier to entry (schooling, residency and certification requirements) have been reduced, service offering better defined and cost efficiencies improved. The downward spiral of primary care will continue as hospitalism and specialty medicine continue to dominate the career choices of those interested in general medicine and midlevels continue to advocate for empowerment and recognition through non-traditional (not medical school/residency programs) methods.

  6. “…give some disciple of Alinsky absolute control…”
    This is an oxymoron. No Alinsky disciple would WANT, or approve of, absolute control. That must be your Machiavellian core projecting onto others….

  7. “All we need to do is give some disciple of Alinsky absolute control…”
    Yes, this is what causes rich people to loose sleep, someone who can organize the poor and powerless into action through democracy.

  8. All we need to do is give some disciple of Alinsky absolute control over medical pricing and sugar plums will rain from heaven, don’t you see?

  9. Peter,
    Your flight of ideas is showing. One writer who was turned down because he had in 12 months THREE ROUTINE CECK-UPS. Only a hypochondriac gets three routine check ups in a year. Good thing for himn he was covered for free in France.

  10. Why is it that every time a conversation takes place exploring possible solutions, someone has to take it to an extreme irrational conclusion?
    Regulating prices does not mean that doctors will be making $50,000 to $100,000 a year. Those numbers were quoted as an example of what they make elsewhere in the world, not as a suggestion of what they should make here.
    Physician compensation in the US is all over the spectrum and “good” doctors don’t necessarily make more than the ones that have good reason to fear litigation or the ones that are mainly “business oriented”. Quite the opposite. Many dedicated Primary Care Physicians are grossly underpaid and undervalued.
    Regulation, in my opinion, means significantly increasing PCP reimbursement, while decreasing other specialties’ income from ineffective procedures and such. While $50K is ridiculous, so is $800K.
    As to hospitals, a “right” to transportation means a “right” to a vehicle with wheels and an engine and a seat, maybe a nice little Chevy, that can take you from point A to point B in a reasonable time. A BMW, in hospital parlance would equate to private rooms, cable TV and pay per view, plush carpeting, waterfalls in the lobby and a nice piano with authentic artwork on glass and marble walls. We can’t afford to pay for these things anymore. None of us can, unless we make the $800K and above, in which case, by all means, enjoy!

  11. “French doctors don’t have to pay back their crushing student loans because medical school is paid for by the state,”
    Surely docs here won’t accept this kind of income ($50k-$100k) when over 55% of medical students come from the wealthiest fifth of society. But recruit students from families with less expectations and resources and offer some carrots and you may get physicians not trying to live up their family’s expectations of “successful” lifestyle. Then maybe those wanting a medical vehicle to get them from one point to the other won’t have to ride in the mandated “BMW” and can get there just the same in the Hyundai – if you believe car comparisons are relevent.

  12. This is all getting decidedly unrealistic. Does anyone really believe doctors have so little clout that they can be maneuvered into a system where compensation limits of $50,000 to $100,000 a year can be imposed on them? And what kind of ding-a-ling would suffer through medical school and residency for that kind of money? And you think perhaps they didn’t notice that, by putting you into a position to eliminate these horrid insurers, they would be putting you into a position to dictate their compensation?
    There is no “solution,” as you conceive it, no floodgates of cheap health care to be released by breaking up some conspiracy. The price of all these medical wonders, based largely on what it cost to develop and produce them, is outstripping our ability to pay for them. To say that everyone must have “equal access” to them is no more rational than insisting that a “right” to transportation equates to a right to a BMW.

  13. *The real problem, in Maryland and elsewhere, is utilization, not price. Rate controls do nothing about length of stay, resource consumption, inappropriate testing, poor care co-ordination- where the real cost problem is.*
    This is a key point. As I recall, a key part of the hospital gouging game is building more hospitals (or buying more equipment etc) in areas which already have sufficient capacity. In at least some regulation schemes, the resulting total costs are divided between all providers in the area and so everyone pays for the excess capacity you created.
    But we need to look at the bigger picture this is a but a part of – all regulations meant to contain the costs and guarantee the services of private enterprise in the health care field fail because of multifaceted opportunities for gaming regulations. Regulated power utilities work because things like electricity can be easily regulated in cost and quality. The regulated utility model can’t work in health care, however. This is because health care quality fundamental can’t controlled and measured by regulators. The *adversarial* utility/regulator relation is doomed to break down.
    – Indeed, we pretty much a public utility model in the US and that is the disaster we’re facing. In “Socialized” medicine, the doctor might not have a strong incentive to provide care but at least he doesn’t have a *disincentive*. In the utility model, the doctor has a *disincentive* to provide service. The worst of all possible worlds.
    *MD -As Hell: “It makes no sense to think you can regulate prices, control or eliminate profit, bundle fees and expect anyone will stay open for business.”
    Peter: Canada, France, Germany, Japan, Taiwan, England, etc.*
    I’m not expert on the other nations but I know England does not have a publicly-regulated-private-health-system. They have a state medical system. It is indeed impossible to expect a *private* enterprise to operate as a charity and state-health systems DO NOT DO THIS.
    It’s rather dishonest for either the right OR the left to pretend that tossing more ad-hoc regulations onto the private health system is the same as having a state-run health system.
    It isn’t. The US already has a massively state-regulated system. It’s the disaster we’re looking at. Adding one more piece to the Rube-Goldberg machinery is not going change the basic system or improve it. Adding one more layer of carrots and sticks will, at most, create different opportunities for different people to game things while perhaps the existing “entrepreneurs” suffer.

  14. Peter:
    If state-rate setting is expanded, the most likely scenario is that states will adopt a Medicare PPS style system to set payment rates for all payers. For example, the now defunct New Jersey rate setting system was very similar to the Medicare PPS. If this kind of system is adopted by more states, I predict there will be similar fiascos.
    If you are implying that for-profit hospitals deserve a share of the blame for the long term acute care hospital fiasco described in the NY Times articles, I concur. But my point is that Congress and CMS have utterly failed to address this problem, and there is no reason to believe that applying such a payment policy to all payers will make the outcomes any different. If anything, state legislatures are even more susceptible to the political pressures applied by providers and their allies (e.g., public employee unions).

  15. “another Medicare payment system fiasco. If state rate setting ever makes a comeback, you can be certain that we will see similar fiascos.”
    Skeptic, i fail to see the relation of state rate setting to long-term care hospital problems.
    “But the Select hospital of Kansas City has no doctors on its staff or its wards overnight.”
    “More than 400 similar facilities, called long-term acute care hospitals, have opened nationally in the last 25 years. Few of them have doctors on staff, and most are owned by for-profit companies.”
    “many such hospitals have sprouted since then, driven by Medicare rules that offer high payments for hospitals that treat patients for an average of 25 days or more.”
    “Despite the rapid expansion of long-term care hospitals and the serious illnesses they treat, Medicare has never closely examined their care. Unlike traditional hospitals, Medicare does not penalize them financially if they fail to submit quality data.”

  16. Excellent quote, archon41.
    To all: whether we use market forces or caps on expenses, that is exactly what we need to do, and there will be trouble and layoffs. Anyone who thinks we can have reform that lowers (or even freezes) the cost of care without widespread pain as providers adjust is fooling themselves. Weaker systems will fail or be swallowed. Solo and small practices will continue to fold or be absorbed into hospital systems or large group practices. Even administrative efficiencies through standardizing and centralizing the claims process will result in hundreds of thousands of back office staff losing jobs.
    Naturally, we can’t absorb this as an economy in 2010 or 2011, which is another reason why I thought it best to get access/coverage reform now and do the hard cost-cutting work in a couple years.

  17. “be sure to read last week’s NY Times article on long-term acute care hospitals—another Medicare payment system fiasco.”
    Got a link?

  18. “I note no companies in your retort.”
    I don’t know what you mean.
    “Canadians come here.”
    A few rich Canadians come here. Americans also go (over)there:
    “The Brits ration care.”
    But we ration access. Maybe we need to just ration profits.
    “Ever hear of anyone wanting French medicine?”
    More than just the French it seems:
    “You should know French doctors make a lot less than their American counterparts – roughly $50,000 to $100,000 a year – because the French government (not doctors or pharmaceutical companies) sets the prices for everything – prices they feel are reasonable.”
    “As Greece circles the drain we will see what effect it has on the socialist tilt of Europe.”
    You mean healthcare did this?
    I guess the American taxpayer “solution” to “market speculation and greed” was your preferred way? You are encouraged by our deficit solutions to private market ponzi schemes?

  19. My thanks to TCoyote (Jeff G.) for nailing this issue, he is right on target. For those of you who think government administered pricing is the road to salvation in hospital cost containment, be sure to read last week’s NY Times article on long-term acute care hospitals—another Medicare payment system fiasco. If state rate setting ever makes a comeback, you can be certain that we will see similar fiascos.

  20. Peter,
    I note no companies in your retort. Canadians come here. The Brits ration care. Ever hear of anyone wanting French medicine? As Greece circles the drain we will see what effect it has on the socialist tilt of Europe.
    The hospitals may decide what they will pay, but the doctor will decide if he moves or not. No one really need a CEO; give the money to the doctor. He/she can pay the hospital.

  21. From my discussions with physicians with admitting privileges in hospitals (or large health entities), they already feel pushed around by them during negotiations. I can hardly wait to see what happens when the hospital is the decider of distributions in bundled payment arrangements.

  22. The gold you seek for the greater good reposes in the temple of Asclepius, fiercely guarded, and all approaches garrisoned. It is unwise to disturb the priesthood of this order, for they will unleash upon you the Furies, implacable in their wrath.

  23. “”The Thompson Reuters analysis concludes that about 50 percent of U.S. hospitals are losing money and that total margins for U.S. hospitals declined last year.”
    Apply that to other businesses losing money in this economy and I guess your solution would be to raise prices? My understanding is that hospitals have seen elective surgeries cut and rates of unpaid medical bills increase because of economic conditions. Maybe hospitals should be asking for those Wall Street bonuses instead of the “smart” guys who got us here. Why wouldn’t they cut expeditures like everyone else is having to do? Our state hospital has 17 VPs, think all their jobs are “indispensable? Surprisingly a national healthcare system would pay hospitals for ALL their care giving – in return for budget controls. Have you looked at your own state and local budgets – would you support an increase in taxes to hold up expeditures in education, social services, roads, police, fire, mental health?

  24. “The Thompson Reuters analysis concludes that about 50 percent of U.S. hospitals are losing money and that total margins for U.S. hospitals declined last year. The worst performing hospitals had margins of negative 7 percent, while the best performing hospitals’ margins topped 4.5 percent.” New Research Says U.S. Hospitals in Trouble, Ann Zieger, 3-2-09, FierceHealthcare.

  25. tcoyote, you have it wrong. The problem is overwhelmingly unit cost (price). Our hospital utilization is actually considerably lower than most nations with comparable standard of living. We pay 3-4 times as much per bed day in the US, though we spend about 50% as much time in the hospital. The data is pretty unambiguous.
    Over-utilization factors in as a significant problem only if you think of it in terms of the intensity of care (choosing the more aggressive/invasive/hi-tech option when a cheaper one with similar outcomes is available, or when comparative effectiveness is unknown). But part of why there is a problem here is again unit cost. Look at my previous link and you’ll see that a CT scan in the US is far more expensive than in other nations. Choosing a CT scan over an x-ray makes such a big difference because the unit cost difference is so high.
    Americans are not in general using medical care more often than other nations after adjusting for population risk factors. They actually use medical care less in many, many areas. However, when they do use it, they pay typically twice as much for the same service/drug/equipment (with a huge range in variation). And, on top of that higher cost, when alternatives are available, Americans with insurance (be it private or public) use the more expensive alternative more often than Europeans, Japanese, Canadians, etc., do.
    There is a classic mistake that people make when explaining our high cost. It is true that when you look across regions within the US, utilization is a bigger factor than price. But that does not mean that when comparing US costs to those of other nations, utilization is a bigger factor than price. In fact, the opposite is true. It takes a little mathematical insight to see how this is possible, but presumably readers and commenters here are familiar enough with statistics to make sense of this.

  26. “It makes no sense to think you can regulate prices, control or eliminate profit, bundle fees and expect anyone will stay open for business.”
    Canada, France, Germany, Japan, Taiwan, England, etc.
    “but I can tell you the anxiety about the rate setting was very high among the administrators.”
    Of course it was, any imposition of budgets is always stressful, but necessary. Don’t you think government department heads get anxious when they get their budgets – which is an attempt to spend YOUR tax dollars wisely. Think about the budgets government is trying to work under now.
    “One disturbing aspect was that, if the state decided a hospital had made too much $$ one year, you were required to pay it back the next year by a compensatory rate cut.”
    Bev, my state of NC “regulates” car insurance rates because car insurance is mandatory. It has given us some of the best insurance rates in the south east. Once in a while the Department of Insurance decides that the insurers “made too much” and they have to reimburse policy holders. No big deal, life goes on.
    “when the growth of medical spending in Maryland is compared to inflation in other states, Kaiser reports that from 1991 to 2004 Maryland’s total heath care bill was climbing by just 6.7% a year—right at the national average.”
    I question the use of the word “just”. I would assume that the 6.7% is compounded – ouch! Comparison to an an already perverted “national average” is unimpressive. Clearly control of only hospital rates helps but is not nearly enough.

  27. I live in Montgomery County, Maryland, just outside the Beltway, and work in DC. I wonder what effect the Maryland system described above has on physicians’ choices as to where to locate their offices and what hospitals to associate with. DC is the home of a number of hospitals, including Georgetown, George Washington University Hospital, Sibley, Washington Hospital Center. In addition, there is a big concentration of high-priced specialists in DC.

  28. This is a 1970’s solution to a 2010 problem. Hospitals are a whopping 31% of health costs. The real problem, in Maryland and elsewhere, is utilization, not price. Rate controls do nothing about length of stay, resource consumption, inappropriate testing, poor care co-ordination- where the real cost problem is. Amazing how few new ideas there are in health care these days. Maryland is an antique- a regulatory system captured and controlled by its two big teaching hospitals. It would work great in Massachusetts, cementing the Partners monopoly and locking in absurd price differentials vs. community based care. Keep digging, Maggie.

  29. Maggie,
    I appreciate the conceptual appeal of an all-payer rate setting approach, especially its potential to improve access to care for the poor, simplify administration and provided fairer financial treatment to the uninsured. That said I would like to offer the following comments:
    1. Any state that considers adopting an all-payer rate setting approach today is likely to find it very difficult to win buy-in from either Medicare or Medicaid due to the severe adverse impact the recession had on both the federal and state budgets. Why would they agree to spend more money than they are already spending to enable private insurers to pay less?
    2. I’m not sure I understand how the rate setting panel would set rates for inefficient hospitals that are inefficient because they are old and antiquated, are poorly managed and/or are operating well below an efficient occupancy level. These are high fixed cost facilities by their nature, after all.
    3. Conversely, I think hospitals that are well run and either provides good care at low cost or exceptional average care at a competitive cost should be rewarded with an above average profit margin.
    To make the healthcare market function more like a normal market, I offer the following recommendations:
    1. Provide both patients and referring doctors with actual insurer reimbursement rates for all procedures as well as information regarding infection rates, readmission rates, mortality, volume of various surgeries performed, etc. in an easily accessible, user friendly format. This should allow referring doctors to help patients make more cost-effective healthcare decisions.
    2. At the recent conference sponsored by Academy Health and Health Affairs that I attended, I asked Uwe Reinhardt for his thoughts on how to get patients to care about costs even when insurance is paying. His response was that they absolutely need to have some “skin in the game” in the form of coinsurance (but not deductibles). In response to a follow-up question regarding tiering or requiring patients to pay a higher coinsurance amount if they wanted to use one of the high cost hospitals that does not provide demonstrably better care but is high cost because of its local market power, he said that was a sensible idea which was proposed as long as 20 years ago in California but was never really taken up. Such a tiering approach could help to provide insurers with the countervailing power they need to negotiate with the more powerful providers.
    3. An alternative approach to price negotiation offered by one of the other presenters at the conference was what he called “baseball arbitration.” In baseball arbitration, each side proposes its last and best offer and, if they can’t reach an agreement on their own, the arbitrator picks one or the other with no opportunity to split the difference or take features from each one. He said it tends to rein in expectations on both sides. Obviously, the arbitrator(s) would have to be trusted by both sides and be insulated from and independent of politics.
    You also mentioned bundling which is a concept that I really like because I think it would better align incentives in the system. I was somewhat disheartened, however, to hear Susan DeVore, CEO of Premier Inc., an alliance of 2300 hospitals and 64,000 other healthcare facilities, state categorically that hospitals simply do not have the infrastructure currently to handle bundled payments and divide them up fairly and appropriately with all the other providers involved in the care episode.
    Finally, regarding your comment about 80% of healthcare costs related to the management of chronic disease, it includes virtually all of my costs which are heart related. I take several thousand dollars worth of prescription drugs each year. It’s an easy matter to ask about generics and to find the least expensive pharmacies. With adequate price and quality transparency information, referring doctors will know which labs, imaging centers, physical therapy facilities, etc. can provide good quality care for the lowest cost. Referring doctors can also help select surgeons, oncologists, and the like that provide high quality care for a reasonable cost if they have the appropriate information available. At the end of life, they can also be helpful in guiding patients toward hospice and palliative care resources. The fact is that very little care is delivered under true emergency conditions where price and quality shopping impossible.

  30. Hmm, this doesn’t look encouraging: “Statewide, the Commission says the profit margin averages about 2.5 to 3%,” Maryland’s Price Controls Going National?, Health Care Maryland, July 2009, quoting from WSJ. Good luck attracting new investment with that.

  31. I practiced in Md.for 21 years. I can assure you the attitude toward the HSCRC within Md. is considerably less positive than depicted by Maggie. To be fair, Maggie should uphold her reputation for exhaustive research by conducting an anonymous survey of hospital administrators in Md., to elicit the negative (and positive, if present) aspects of the rate setting system from their perspective. As a physician, I was less directly affected, but I can tell you the anxiety about the rate setting was very high among the administrators. One disturbing aspect was that, if the state decided a hospital had made too much $$ one year, you were required to pay it back the next year by a compensatory rate cut. I do not call this “predictability” as indicated by Maggie.
    No system is perfect. At least take the time to examine it from both sides.

  32. Wouldn’t you have to know what the margin of hospital profit or surplus is in order to get a handle on how much might be saved by regulatory price control without cutting into the “muscle” of the system? If they’re making “big bucks,” they’re being awfully quiet about it.

  33. The free market approach to health care is failing miserably. Over 1500 private health insurance plans easily consume twenty percent of our total costs and limit patient treatments where they shouldn’t. They are by law required to put profits and shareholders above all else, and the first to suffer is quantity and quality of care.

  34. MD they can stay in business providing the cost control service the problem is the public can’t afford to buy it. I know a number of other industries that have price controls, electricity and gas in a number of states. Hardly describe either of them as efficient and affordable systems. Postage is price controlled.
    So many reasons this would never work, as much as I would love to have the same pricing as the major insurers long term it would be far worse.
    No competition or innovation. Providers, like power companies, would just focus on driving up underlying cost or selling the need for capital improvements.

  35. I can’t even begin to digest this information fire hydrant. But I don’t believe it. It makes no sense to think you can regulate prices, control or eliminate profit, bundle fees and expect anyone will stay open for business. They might be open now, but will they stay open? TennCare caused a migration of physicians out of Tennessee. Let’s see the Medicare fee cuts stand up next month. If they do, then there are balls in Washington. Balls but not brains.
    Sounds like a great way to move private care out of hospitals, leaving hospitals with the poor and very sick. More and more care is ambulatory now.
    There is a built in fixed cost shift for indigent care? Why would a citizen stand for a hidden tax like that in their plan?
    Maryland is a small state. Where are the patients going that can’t get what they want?
    Are doctors flocking to Maryland to practice in this utopia?

  36. While I’m not opposed to the idea of rate setting RAND estimates that it could increase spending. Under the most optimistic scenario RAND says it could reduce hospital spending by 2 percent per year — not bad — but the most optimistic scenario is pretty unlikely.

  37. *Yet the Commonwealth still struggles to make that coverage affordable. Health care inflation is driving Massachusetts’ system toward a cliff. Total outlays for medical services and products are climbing 8 percent faster than the state’s economy. Unless something is done to rein in the cost of care, health care spending in Massachusetts is projected to nearly double over the next 10 years, hitting $123 billion in 2020. State officials know they must find a way to put a lid on spending so that it grows no faster than the state’s gross domestic product.*
    Wow, Indeed.
    Thing about this is … MA pushed a legal mandate which made the average person the *financial* punching bag for the current insane health care cost explosion. So the touted MA model, the one which was going to be imposed on the whole country … was a terrible failure.
    Please, I understand on an intellectual level why experts that negotiated the plan didn’t have huge alarm bells going off when the mandatory enrollment idea slithered forth. I know it’s hard for an expert to put themselves in the place of a consumer and see the anger this kind of thing provokes. I can even intellectually understand the denial, the “we can still pass something” attitude, the inability to realize that health care reform process has been “Derailed, Burned To Ground and Shoveled Over With Dirt”, as The Onion would say.
    But it still pains me, both because personally had some small, certainly mis-guided hope things could work and because, as professional programmer, the experts aren’t that different from me.
    So to you folks – a reform plan where the *risk taker* is the average person and big people are the ones imposing the experiments is reform plan that will make people your enemies. The MA election was a friggin clear signal. Listen, please, despite your prejudices. Back-tracking all support for the mandatory purchase of private insurance is crucial for anyone who wants a progressive solution for health care.