NH Watchdog - Don’t Enact Failed Health Bureaucracy Thirty States Repealed

By Charles M. Arlinghaus
From the print edition of the Union Leader

The current legislature and governor are pushing us to establish a new government agency to control hospitals by setting prices and overseeing hospital management. Similar bureaucracies have been abandoned in more than thirty states that tried them. That model cannot be replicated here without spending more than $100 million that we don’t have.

In the 1970s, hospital rate setting commissions became popular and were adopted in so many states that Jimmy Carter tried to pass a federal version in 1979. Over the course of the 1980s and 1990s, more than thirty states repealed their rate setting agencies. Among the last, Maine’s Independent Gov. Angus King repealed the Maine agency in 1995.

Today, only West Virginia and Maryland still have a hospital rate setting agency. Sen. Maggie Hassan cites Maryland as the model she wishes to follow. Her description implies Maryland has broken new ground rather than being the last holdout of an earlier era.

Most important, the system in Maryland can not be established here and deals with a very different problem. It is an all-payer system in ways that New Hampshire can’t replicate and that the bill’s sponsors don’t want to mention.

Sen. Hassan has claimed that she wants all payers to pay the same rate at hospitals. She cites a patient without insurance paying a rate significantly higher than that paid by an insured customer. Yet, the most recent state data shows that less than 1% of hospital revenue comes from the uninsured. Some charity care or uncompensated care is written off by the hospital at a nominal rate much higher than anyone actually pays but that’s an accounting matter rather than a real price. The aggregate pricing of insurance-covered care and all other non-government paid care is at the same percentage of cost although some individual plans may be slightly more or less.

So the amount charged to the 1% is a small problem suitable to a less grandiose solution. The Maryland model is designed specifically for a different issue.

Medicaid and Medicare traditionally reimburse hospitals and other providers at less than cost. Typically Medicaid payments represent about 60% of a hospital’s nominal cost while Medicare represents closer to 90%. The difference is made up by charging people with insurance a significantly higher cost, a quasi-tax on insurance that subsidizes Medicaid.

The cost-mix is a delicate balancing act. In the aggregate, about half of hospital revenues come from patients with private insurance and about half from government-paid patients. In the case of an individual establishment, a hospital or doctor that has too many government paid patients will go out of business.

Maryland created an all-payer system in which the government agency sets prices for each hospital and every payer pays the same rate at that hospital. Medicaid doesn’t pay less, Medicare doesn’t pay less.

The new government health care agency in New Hampshire will not do the same. Specifically, it will do absolutely nothing about Medicaid cost-shifting, and for good reason. To raise Medicaid reimbursement prices just up to nominal cost would require the state government to find another $100 million it doesn’t have.

Sen. Hassan and the supporters of her bill talk regularly about all customers paying the same rate but conveniently don’t mention they would ignore the only part of the Maryland law that mattered – government payments.

The initial savings that came from adopting the system came from having a system where the government doesn’t underpay Medicaid. Increasing Medicaid payments brought Maryland’s hospital charges in line with the national average However, since then Maryland’s growth has actually been somewhat higher than the nation as a whole.

According the Commonwealth Fund, a supporter of the Maryland system, Maryland’s cost per inpatient increased by 95% from 1992-2007. The national average increase was only 75%.

For all practical purposes, the Hassan plan would create a large new government agency with broad authority to raise its own taxes, set prices and micromanage hospitals all to deal with a problem that amounts to less than 1% of hospital costs. The real problem in the room would be completely ignored by financial necessity.

The current New Hampshire proposal would ignore the successful parts of a model it seeks to emulate and only enact the unsuccessful ones. With no hope of success, we would then be saddled with a large new government agency with the power to raise its own taxes and a mandate to find other ways to manage the operations of the providers whose rates it will control.

The only way this ends well is to end it now.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free market think tank in Concord, New Hampshire.