You'll Just Love Government HMOs, Say Bay State Bureaucrats

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As usual I woke up this morning to NPR's "Morning Edition." Of course, the topic du jour is government health care reform, or as it is increasingly called, "health care overhaul." Whatever. In any case, the NPR story today was all about the joys of Massachusett's three-year failing experiment with health care reform. Surprise! It turns out that the state government can't pay for it.

So now Bay State bureaucrats are trying to figure out how to lower their health care reform's "costs." And lo and behold, Massachusetts' paper pushers are reaching for the tried and true technique for controlling prices the government can't afford to pay: price controls. Only they don't call it that. In this case, the health care bureaucrats are saying that they merely want to "restructure" what they pay doctors and hospitals.

As NPR reports:

The first thing they decided — unanimously and right off the bat — was that the current way of paying doctors, hospitals and other medical providers has got to go…

In other words, Massachusetts is going to try to kill off fee-for-service. That's the time-honored system that pays health care providers a separate fee for every service they provide.

In the world of health care, this is big news. For years, experts have lamented that fee-for-service payment drives costs up because it gives health providers a strong incentive to do more doctor visits, more tests, more procedures, more hospitalizations.

Also, fee-for-service doesn't pay for many things that might reduce health costs and keep people healthy. But no state has ever tried to eliminate this payment method across the board…

Massachusetts policymakers want to replace fee-for-service with "global payment" — paying groups of health providers a flat yearly fee for each patient they cover.

But hold on. Doesn't "global payment" sound suspiciously like the much-demonized health maintenance organizations (HMOs) of last decade? Well, yeah. But this time, it will work because caring and careful government bureaucrats will make sure that it does. As NPR explained:

But some worry "global payment" sounds suspiciously like the managed care "capitated" HMO plans of the 1990s. Those plans were also based on paying health care providers a fixed amount per patient.

That experiment failed, because it gave doctors and hospitals an incentive to hold back on care.

To avoid a repeat of that experience, advocates of global payment say health providers will have to be watched closely.

"You need someone monitoring this," says Nancy Kane of the Harvard School of Public Health. "You can't just walk away because you've set the limit."

Kane is a health care finance expert who also served on the recent Massachusetts Payment Reform Commission.

She says there are ways these days to prevent stinting on care.

"There's a lot of quality measuring that can go on now that didn't used to be available," she says. "We now have electronic medical records. It's easier to monitor what's going on. So I think the whole reporting system and the intention to maintain a monitoring infrastructure is all critical to avoiding the bad days of managed care."

Look, there's plenty wrong with how doctors and hospitals are compensated now, not least of which is that consumers have almost no way of affecting prices.  But if "reformers" think that administrative expenses were high when profit-seeking HMOs were trying to keep costs down, just wait until monitoring those costs to keep them within government budget constraints are in the hands of  the equivalent of government Health Maintenance Organizations. Just one word: rationing.