Could New York State Reform Health Care?

What would I say about Obamacare, compared with the health care finance problems I identified, and solutions I proposed, in early 2008 before President Obama was elected?  (You can read my entire series on health care in the MS word document attached to this Room Eight post).

I would say that legislation makes reform possible, but it is not reform in itself.  As I noted at the time, U.S. healthcare is mostly government financed, directly or indirectly, but with complicated flows of public money under a wide variety of deals, the distribution that money is horribly inequitable. The tie between government health insurance subsidies, via a tax break, and a particular place of employment is bad for workers, entrepreneurs, and the economy.  The U.S. healthcare system is extremely expensive, and delivers poor value.  From the point of view of consumer protection, it engages in abuses that would not be tolerated in any other industry.

While Obamacare will reduce some of the inequities, it left the most of the complex and inequitable U.S. healthcare finance system in place, and punted much of the responsibility for further progress to the states.  Which is not a good thing if you have a corrupt and poorly run state.  The only reason New York will have a state health insurance exchange, as mandated by the Obamacare legislation, is that Governor Cuomo somehow was able to get around our parasitic legislature and create one by fiat.  Yet there are many abuses that a state could get rid of, if it were not controlled by a legislature whose MO was to allow abuses in exchange for campaign contributions.  In a major development, the federal government shined a light on one just last week.

I’ll talk about it, and how a more “progressive” (the early 1900s version, not the self-interest group politics of so-called NY “progressives” today) state might respond, after the break.

What other industry is allowed to keep its prices secret until AFTER a service has been delivered, so customers can’t search for a better deal?  What other industry can pile on services without the customer’s knowledge or permission, and then bill for them later?  That is what the health care industry does.   So why does that industry raise the cost of health care by a huge amount every year?  Because it can.

Last week the Centers for Medicare and Medicaid released a download of what every hospital in the country charges for every service.  Medicare does not allow 20 doctors to drop by a sick person’s room while they are asleep, and then bill for 20 checkups.  It only pays for the treatment of a set range of conditions, in total.  And it does not allow hospitals to charge whatever they want.  It provides some variation based on a limited number of factors, with slightly more paid in higher wage/cost of living areas like New York, using the same factor I use to adjust public school spending per student for the cost of living, and somewhat more paid to teaching hospitals, to cover the cost of the teaching.

The Medicare data release not only showed what Medicare pays each hospital for each situation, but also shows what each hospital bills for each service based on its “normal” prices. “A quick spin through the data shows that what hospitals in the same town or state charge for the same procedure is often very different” according to National Public Radio.  “And, as previous studies of anonymized data have shown, there are big variations from one part of the country to another.” “In some places, the details on charges could spark conversations or pushback about how well nonprofit community hospitals are doing at their public missions,” according to this source.

Time magazine had a whole series on abuses in the health care billing back in March.  After the Medicare release, it posted this update.  “Americans are a big step closer to being able to compare what hospitals charge them for goods and services with what they actually cost. CMS public-affairs director Brian Cook told me that (Secretary of Health and Human Services) Sebelius’ action today comes in part as a response to ‘Bitter Pill,’ TIME’s special report on health care pricing practices in the March 4 issue.”

The sky high hospital charges revealed by data dump are what LESS WELL OFF people are made to pay.  Those without insurance.  Those whose insurance only covers up to a given limit, or only covers a share of the bill.  Those with more clout get discounts.  But even powerful insurance companies cannot prevent health care providers from running up the tab.  Hospital billing practices, therefore, are yet another inequity in a system that provides taxpayer financing and subsidies for high-cost, high-tech, not very useful health care for some, but doesn’t even guarantee basic preventative care for others who help to pay for it.

I distinctly remember a “consumer protection” scandal in the funeral home industry many decades ago.  Like the health care industry, the funeral industry deals with people who face sudden, unexpected trouble and are vulnerable and in need. That industry was concealing its prices, with huge bills for separate additional services revealed only AFTER the funeral had taken place, and no way to compare prices between different funeral homes ahead of time.  This was a scandal. There was outrage. There was reform.

I guess the funeral industry did not donate as much money to the legislature as the health care industry.

Speaking of insiders using the New York State legislature to rip off the less well off and less powerful, until the Pataki Administration the State of New York set prices for hospitals.  And since the state legislature is controlled by producers of public and publicly-funded services, which therefore always seeks to force people to pay more and more for less and less, the result was sky-high charges. 

Basically, people who worked in the hospital industry decided how much they wanted to pay themselves, how much equipment they wanted to buy, and how many people they wanted to hire.  And they decided more and more and more.  The state took those costs and let them charge whatever it added up to.  If most people stopped going to a given hospital because they couldn’t afford it, the state required those who showed up to pay even more make up for it.  Including taxpayers, through Medicaid, which is one reason New York’s average Medicaid payment per beneficiary was about double the U.S. average two decades ago, and soaring.

The Pataki-era changes eliminated some abuses.  Hospitals were required to bargain their prices with the customers, well actually the insurers, rather than having the state force people to pay more.  Hospitals were then pushed to cut their charges in order to get large insurance companies to allow patients to go there.  Hospitals with sky-high costs, or low quality that kept away customers, went out of business.  Medicaid charges per beneficiary, relative to the U.S. average, went down (although New York’s share of total Medicaid spending remained high because so many people, perhaps people who are not in fact from New York, benefit from Medicaid spending here, paid for in part by NY State and NYC taxpayers).

But abusive and secretive billing continues.

Consider that, as I’ve shown in the past, more than three quarters of third party health care expenditures (excluding co-payments and stuff like cosmetic surgery) is paid for by some level of government, directly (Medicare, Medicaid, public health agencies, the VA hospital system) or indirectly (private health insurance purchased on behalf of public employees, the exclusion of health insurance funded by private employers from taxable income).  And that share is going up.  In addition, in New York much of the health care sector is officially organized as “non-profit” charities, despite the high salaries paid to those at the top, and is thus exempted from property taxes as well.

The public is paying.  Health care is mostly funded by taxes, and taxes forgone.  When you strip away the opacity of the health care finance system, with many different deals of varying value for different people, that’s what you find.

So why does the state allow abusive and secretive billing practices to continue?  Specifically, why does the state allow hospitals and other health care providers to bill after the fact in secret, and to charge different prices to different people (or insurance companies) based on how much power they have, with those with less power paying vastly, vastly more?

I’m certainly not suggesting that the state dictate prices.  That was certainly abused.  Health care providers should set their own prices.

What I’m suggesting that aside from Medicare and Medicaid, which dictate prices, hospitals and other health care providers should have just one price for every one, regardless of insurance company or lack thereof.  One price regardless of who would be paying the bill.  That price should be for the treatment of each condition in total, the way Medicare pays, be specified in advance, and available on the Internet on a state database for all to see.  I’m suggesting there ought to be real price transparency, and a real competitive marketplace, in health care.

With that price transparency some health care providers, those who are thought to provide better health care or more comfortable or luxurious conditions, might charge more.  Some health insurance companies, those with lower rates, might not be willing to allow their customers to use those providers, or force them to pay more out of pocket if they do.  That happens today, but at least the customers would know what was going on.

Other health care providers might seek to provide the basics at a more affordable price.  Some who are charging too much might see business dry up and be forced to cut their charges.  But the charge for each service would be the same for every insurance company, and every person.  It would not be possible to charge someone extra because they showed up ill, desperate and vulnerable, not to hand out favors to those with more power and seek to make it up somewhere else.

The game of deals for some and ripoffs for others would be ended.  There would be the Medicare price, the Medicaid price, and the price for everyone else, and everyone would get to see it.  Discounts from the price would only be allowed to be given to individuals on a case by case basis as charity care, with each example carefully reported on and justified.  The discounts would be for charity care for the less well off.

There may be some people who are inherently and proudly selfish and dishonest, the “honest rouges,” but most require a little rationalization to stand between what they have taken and others have lost, a wall of mental separation between the two.  That’s why abuses tend to happen in secret, and the more obtuse and secretive a set of decisions is, the more unjust it is likely to be.  That’s why our state legislature has all these impassioned battles while the sun is up, and then passes deals without a single “no” vote at 3 am.

Like the state legislature, like New York City teachers with their massively costly retroactive pension deals followed by cuts the classroom and lower pay and benefits for future teachers, physicians and those in the “non-profit” health care sector don’t like to think of themselves as selfish people benefitting at the expense of others.  They like to think of themselves as heroic servants of the people, providing far more than they receive in exchange.  Well there is one way to test that.  A mandatory state database with the charges for each health care good or service, for Medicaid, Medicare and everyone else, for each health care provider, searchable for all the providers within a given area.

Given who controls the state legislature, given what the state legislature does, given who Richard N. Gottfried, the head of the New York State Assembly health care committee is a mouthpiece for (and what, by his silence, he has made a non-decision is JUST FINE), could New York State reform health care?  Perhaps, but only if Governor Cuomo could impose the state database suggested above by fiat.