Until William F. Weld arrived at the State House as governor in 1991, it had been assumed for decades that state government had an important role to play in overseeing health care costs. When hospitals wanted to add more beds, for instance, or provide cardiac catheter services, they had to make their case to state regulators that such moves were in the public interest. At the same time, the state’s rate commission helped collect cost data from providers and establish the rates that hospitals could charge for procedures, within broad parameters.
However, those efforts were deemed too radical by conservatives in state government. Weld and his secretary of health and human services, Charles D. Baker, are viewed today as moderate Republicans. But in fact they were devout libertarians when it came to issues regarding government regulation. Their mantra was not so different from the Tea Party backers of today — the less government, the better. In health care, the Weld administration essentially deregulated the system in 1992, based strictly on ideological grounds. Hospitals could charge what they wanted, passing on the costs to insurers — who, in turn, passed them on to employers and the economy as a whole.
The results have been abysmal. Massachusetts health care costs are now 15 percent above the national average, and our individual market rates until recently were the highest in the nation. While costs have dropped since the recession began, this is a temporary respite stemming from lower utilization due in a bad economy. Most analysts anticipate another major cost escalation once the economy recovers.
Clearly, the Commonwealth made a mistake under Weld. Luckily, there are models for returning to a system of common-sense regulation.
One example of a system that works quite well is Maryland, which has regulated the rates hospitals are allowed to charge all payers — including Medicare — since the 1980s. In Maryland, the bill for the same procedure is always the same — whether it’s sent to Medicare, Medicaid, an insurance company, or to an individual patient paying with cash. Medicare subsidizes the Maryland demonstration to the tune of $500 million each year; in exchange, the federal government insists that Medicare costs in Maryland remain below the national average. While various studies of this approach have drawn murky conclusions, the fact is that in 1975 hospital costs in Maryland were 25 percent above the national average; by 2009, they were 2 percent below. One clear lesson from Maryland is that for any system to be truly effective, Medicare and Medicaid — not just private health insurance companies — must be included, since reimbursements from those programs generally represent about 50 percent of the revenue at most hospitals. To secure the participation of Medicare and Medicaid, Massachusetts should seek a federal waiver to permit a rate-regulation demonstration similar to the one in Maryland; the state can mandate private payer participation directly.
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