Monday, June 09, 2014

Bad math leads to bad writing

You can cover your eyes to avoid the facts, but it doesn't change them.  A Boston Globe editorial praises the recent deal between the Massachusetts Attorney General and the state's dominant health care system.  I have called this deal a sell-out, but you don't have to adopt my view to see the logical flaws in the editorial.  Here's the key section:
Some critics have attacked the arrangement as merely enshrining the status quo, but it actually does a good deal more. Holding Partners’ annual rate increase to general inflation amounts to a real-dollar freeze on costs at the state’s leading provider over the next six and a half years. 

That’s significant — and something that would not otherwise occur. Over the last decade, Partners had regularly gotten increases in the 4 to 5 percent range, and sometimes higher. And the inflation of medical costs typically runs about 1.5 percent higher than general inflation, which makes the deal look even better.

As a further restraint, the deal stipulates that annual cost increase to insurers from Partners’ HMO contracts won’t exceed 3.6 percent, the state’s health care cost-constraint benchmark. (Those costs are driven by a combination of the rates charged for care and the number of times that care is delivered.) If Partners exceeds that cap, it will have to refund the extra to the insurers; other health care providers merely have to develop cost-control strategies. 

The editorial tries to find virtue in the deal by comparing it with Partners' monopolistic-like pricing over the past decade (actually almost two decades, but who's counting.)  That pricing has enabled the healthcare system to accumulate a huge balance sheet--in cash, in investments in unnecessary plant and equipment, in overstated reserve accounts.  It has also enabled it to have rates that are remarkably higher than other providers.  Remember this quote?

“What surprises me most is the difference between Partners and their next biggest competitor,’’ said Áron Boros, executive director of the Center for Health Information and Analysis, which compiled the report. He said Partners has been able to negotiate high prices with all insurers, unlike other systems. “None of them has the consistent success of Partners in driving prices up,’’ he said.

In all, billions of dollars above what was required to maintain high quality care and research. 

There is scarcely a provider group in America, much less Massachusetts, whose financial plan is not built on the idea of rates raising at the rate of inflation.  By holding PHS to that level, the AG has achieved a nullity relative to the industry.  But by applying that rate to the excessive level that exists for PHS right now, the AG has permitted the disparity between PHS and the other Massachusetts providers to grow.

The Globe Spotlight team pointed out all these issues a few years ago.  Now, its editorial board seems to have forgotten the facts presented by its colleagues in the other section of the newspaper.

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