Massachusetts’ Cost Dilemma

Massachusetts is the canary in the coal mine for health “reform”.  We haven’t visited the state in a while and when last seen, while the number of uninsured was quite low, costs had exploded beyond what was projected, emergency room use was no lower, provider access was becoming more difficult and payers were complaining about individuals who just hopped in and out of the system when they needed care.  The cost issue is obviously the most serious and threatens to unwind the whole boondoggle.  The Massachusetts AG has done a good job of pinpointing the causes of spending growth and the state is trying to identify new ways to pay providers.  A recent report explores the topic.    (Mass. Report)

The report was put out by a group called the Special Commission on Provider Price Reform.  Massachusetts’ reform consequences have necessitated a lot of special commissions.  This commission has done a wonderful job of illustrating what happens when government intrudes further and further into any industry.  All kinds of “unanticipated” (at least by the geniuses doing the legislating and regulating) problems arise, which require further regulation, etc. etc. etc.  The commission produced a statement of principles regarding provider price variation which includes such bon mots as “Unjustified variation in provider prices should be adjusted responsibly and changes should be continually evaluated for intended and unintended consequences.”  What is unjustified variation?  What is a responsible response?  The report has several namby-pamby recommendations which are unlikely to either be enacted or make much difference if they were.

The fundamental problem in Massachusetts, as elsewhere, is that higher prices for hospital services in particular aren’t correlated with better quality, but with greater market share and better brand marketing.  That problem has grown and been fostered in a third-party payment system that decouples cost from the recipient of services.  To fix the problem the decoupling needs to be reversed to the greatest extent possible.  That means having individuals pay for the care they receive and where there is third-party payment, removing all barriers (i.e. state any-willing-provider laws) that inhibit the payers’ ability to require or encourage their members to use efficient providers.  And to increase competition, hospital systems need to be broken up and prohibited from acquiring and offering outpatient and ancillary services.  If there is to be any further well-meaning regulation, it should ban any advertising or marketing by providers, which would both lower their costs of doing business, and keep them from inducing consumers to utilize them for reasons other than price or real quality.