The Complexities of Controlling Costs in Healthcare

Jim Stergious of the Pioneer Institute wants Massachusetts hospitals to do their part to help pay for the estimated $153 million budget shortfall for the Massachusetts universal healthcare plan:

We are already well into the new fiscal year, and negotiations with the federal government continue over whether it will renew the waiver that facilitated the Commonwealth's healthcare experiment in the first place. It might be useful to remember that no matter how conceptually interesting, even idea-based reforms face the logic of mathematics. They have to be affordable.

The Education Reform Act of 1993 required the grit of legislators and the governor to make good on the promised massive funding increase needed to make it viable. And now we must remain faithful to the idea of the Healthcare Reform Act, or the federal government will kill it.

The government wants reform, and it doesn't want it to affect federal coffers. Reform is happening; we have successfully signed up hundreds of thousands who were previously uninsured. One has to assume that the reduction in the number of people showing up to emergency rooms without insurance is translating into less of a burden on hospitals, especially those that previously provided care to a disproportionate share of the uninsured - specifically Boston Medical Center and Cambridge Health Alliance.

To remain cost-neutral to the federal government, we have to address this year's shortfall of $153 million and a minimum shortfall of $184 million next year. In the long term, there are several things we can do to contain healthcare costs, including perhaps a hard look at certain benefits mandated in the law and increasing the transparency of cost and quality data useful to consumers.

But there is really only one way to address the costs of the legislation in the immediate term: reduce the level of extra payments to Boston Medical Center and Cambridge Health Alliance, which were granted special annual payments that began at $200 million and ratchet down by $20 million a year. These special institutional payments were meant to ease the hospitals into the new regime. They were also very much a political deal.

Paul Levy, CEO of Beth Israel Deaconess Medical Center and member of the Cambridge Health Alliance, isn't too pleased with the idea:

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

He later relents to the obvious in the comments section:

Tim, of course, is correct that ultimately all flows back from the taxpayers. The policy choice before the Legislature is whether you want to collect that as a direct tax or an indirect tax. Most likely, we will see it hidden as an indirect tax, for the obvious reasons!

Yes, the obvious reason: it's politically impossible to have transparency of healthcare costs.

Unfortunately, we can't have our cake unless we're willing to eat it, too.

The question becomes: what are we eating? Transparency of healthcare costs is one avenue to understand which side of this debate should give. Until we know what healthcare really costs to deliver and avoid the bizarre game of cat and mouse between insurers and hospitals with their Byzantine price markup scheme that confuses the all-important Big Picture of costs, patients (and taxpayers) will continue to get the short shrift.

-Wes