Thursday, October 25, 2007

Senator Murray has it right

Our good friends at Health Care for All were quick to jump on remarks made by State Senate President Terry Murray at the Greater Boston Chamber of Commerce and make a pitch for a return to rate regulation of health care in the state. First, to be clear, the Senator did not advocate this policy. Indeed, she had a number of very thoughtful comments about the underlying structural problems in the health care system in Massachusetts, to which I return in a moment.

I responded to HCFA:

Sorry, but rate regulation does not control costs. As a person who was intimately involved in rate regulation for years — of electricity, gas, and telephone companies — I know from experience that rate regulation generally creates a cost-plus environment for those companies subject to such supervision. This is because the legal framework for rate regulation makes it difficult for the regulator to second-guess costs incurred by the regulated entity. So, ironically, it is the high-cost, low-efficiency organizations who benefit relative to the low-cost, high-efficiency organizations.

To expand on this, regulated companies that have the greatest core competence in accounting and legal representation before the regulatory agency do the best under rate regulation. In contrast, those who develop the managerial and organizational skills to improve quality and cost efficiency find themselves relatively unrewarded.

If rate regulation is re-introduced, it will be those entities who enter the newly regulated environment with the highest base of costs who will start out with higher revenue streams. If some type of efficiency-based regulation is put in place, those higher cost organizations will have more to gain from future efficiency improvements than the ones who start out as lower cost providers. In short, regulation produces perverse incentives.

In earlier comments, I addressed the issue of the growth of costs in this state and offered a menu of options for dealing with this. Senator Murray offers her own sensible list of actions that could be implemented or encouraged by state government action. Some of these overlap with the ones I raised. Others are additive. Between these two lists, we pretty much cover the waterfront. Here is her list:

Increase our workforce capacity of nurses and primary care physicians.

Realign payment structures so that our primary care doctors are compensated at or near the same rate as specialists. We should also boost primary care services by carving out a larger role for Nurse Practitioners.

Support the creation of limited service clinics.

Require more public information and transparency. (This would include a public process to document the need for premium increases in excess of 7% in any given year.)

Expand our use of new technology that will streamline administrative functions and reduce the duplication of services.

Readjust the financial incentives that are the foundation of the current system and make smarter use of the money we are already spending.

Redesign the “determination of need” process that is supposed to provide statewide and regional planning for significant health care services.

5 comments:

John McDonough said...

"Our good friends at Health Care for All were quick to jump on remarks made by State Senate President Terry Murray at the Greater Boston Chamber of Commerce and make a pitch for a return to rate regulation of health care in the state."

Hi, Paul. I think you jumped the gun in your interpretation of our posting. We just reprinted the President's remarks and congratulated her on talking tough on costs without endorsing any specific measure.

We also have proposed public review hearings on health premium increases in excess of 7% in legislation we filed last January. The current deregulated system is an utter failure in controlling premium growth, and the damage is everywhere. Something has to change fast, and we applaud the Senate Pres for diving headfirst into the issue.

We recognize all the flaws from the prior hospital regulatory system. Still, something is catastropically wrong here and need to change.

And we think all your ideas have merit, and also think that not one of them (except "readjust the financial incentives...") holds realistic prospects to change this trend in any serious way.

And serious changes in financial incentives? Yes, could be real. But look at Pay For Performance -- the last "financial incentive" revolution which is fast becoming just another financial add-on, and a minor one at that.

Time's running out. And we're both glad Pres. Murray is paying attention.

Paul Levy said...

Sorry John,

I apologize if I misintepreted this comment:

"Based on the President’s later elaboration, we’re not sure she would concur with the term 'rate regulation.'

"But we would… "

On the big picture, I think we agree on lots!

Anonymous said...

I spent my medical career in Maryland, the only state in the union which still regulates hospital rates. It ain't a pretty picture. As best I ever understood it in 21 years while Medical Director of our hospital system's laboratories (and few people could explain it to me either), it completely uncouples the typical cost incentives seen in a normal business. Save too much money so you had a surplus, and the state simply cut your rate the next review period. Several times the system had to "give back" profits and our budgets would be unexpectedly cut. Long term planning was a joke. The Maryland Cost Review Commission was uniformly despised and seen as manipulating the situation to save their own jobs. I don't recommend this to any other state.

Anonymous said...

i like the idea of family doctors, pediatricians, internists, general doctors, etc, netting an income comparable to the higher paid specialties. imagine how many more excellent primary care providers there would be. This is probably not realistic but it should be an idea worthy of consideration in the minds of our politicians, hospital administrators, medical school administrators, etc etc. As a fam doctor, I feel this would vastly improve the health care delivered in our country

jstergios said...

Sen. Murray's first point (Increase our workforce capacity of nurses and primary care physicians) is most often taken as a question purely of numbers--we need more nurses. And that seems obvious.

Having seen up close several other countries (most comparably Japan) where private, for-profit hospitals make up a significant slice of the provider market, I have come to wonder if the capacity question is also one of different levels of specialization.

My wife currently runs a hospital in Japan, so I have had a pretty unique opportunity to sit in on nurses meetings and watch the operation of that 105-bed hospital pretty up close. It's an interesting counterpoint to the MA system.

In Japan nurses are equally specialized in terms of training, but they are less constrained by job description, so coordination is far easier. (A single nurse will change the bed, handle the bed pan, check the chart, oversee the distribution of medicines, handle the IV, etc.) I have usually found service to be faster. Certainly it would be important to see numbers on nurse/doctor ratios as well as the nurse/patient ratios.

Though I am sure it can be a question of some sensitivity, I wonder if you had any thoughts on nurse specialization (perhaps the better word is categorization) and the need for greater nursing capacity in the industry.