June 22, 2012 | Alan Sager and Deborah Socolar

Beacon Hill’s health plans are doomed to failure

The Massachusetts Legislature will soon pass a bill promising to control health costs. But a bill that can pass will be too weak to work. Political pressure to craft a law with real teeth is still lacking.

The world’s other rich democracies surpass the U.S. in containing health costs while covering all people and enjoying superior longevity. Despite big differences in how they raise money, cover people, and pay hospitals and doctors, they share six key approaches to containing costs.

First, those countries unite all public and private payers to play on the same team. Second, they set annual budgets for hospitals that cover both patient care and salaries of hospital-based physicians. Third, they negotiate financial and political deals with office-based doctors — deals crafted so that hard-working doctors earn target incomes. Fourth, they have lots of primary care doctors and lower-cost community hospitals. Fifth, they set lower prices for brand name drugs. Sixth, they hold down administrative waste.


Successful foreign countries are also similar in shunning market competition, government micro-management, financial incentives, and high out-of-pocket costs. Instead, their budgeting and political negotiations move hospitals and doctors toward serving as trusted fiduciaries or stewards who marshal vast but finite resources. (Interestingly, the American Medical Association endorsed physician stewardship just this week.)

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The Legislature’s plans use none of the six tools proven to work in the world’s other rich democracies. Instead, the proposal merely threatens to act if health spending continues to grow faster than the state’s economy. Political will is lacking today; why would it materialize in a few years?

This passivity is unaffordable. U.S. health spending per person is more than double the average of rich democracies. Massachusetts spending was 36 percent above the U.S. level in 2009, a big jump from 26 percent higher in 2001. About half that rise came before our state’s universal health care law passed, and about half since.

The Massachusetts excess cost all of us $16 billion in 2009. Some of it is well-justified — but most isn’t. Our state’s elaborate and expensive care patterns arose not from villainy but mainly because care here accidentally evolved to rely excessively on very costly teaching hospitals, and to attract the nation’s highest ratio of doctors to people.

Engaging the whole-hearted cooperation of the hospitals and doctors who deliver high-cost care will be essential to saving money in ways that are clinically and politically safe. Some hope that burgeoning alternative quality contracts and accountable care organizations (ACOs) are ways for payers to entice and reward that cooperation.


ACOs replace long-standing financial rewards to doctors and hospitals that give more care with rewards for giving less. To protect patients, competing ACOs are allowed to share in the profits from cost-cutting only if they satisfy 33 quality standards. Everything — revenues, costs, services, and quality — must be documented. That’s good for the IT business. But it’s time-consuming for doctors and nurses. Worse, it invites financial gaming and engenders mistrust. In response, payers will boost their own spending on software and auditors. Caregivers might avoid sicker people.

Another source of mistrust is the proliferation of skimpy insurance plans that force sick citizens to pay more out-of-pocket. More and more families face annual out-of-pocket spending of $10,000 or more on top of premiums. What good are laws that lower premiums, if newly-covered people are forced to pay unaffordable out-of-pocket costs — a tax on getting sick.

U.S. employers and governments like sick taxes because they shift costs to patients and avoid fights with powerful doctors and hospitals. Free market economists promote them, imagining, apparently, that solid insurance leads patients to seek recreational organ transplants and heavy radiation doses from whole body CT scans. Market advocates hope that high costs force patients to become careful health care shoppers. Instead, when high sick taxes turn patients into kamikaze pilots in a cost control war, they indiscriminately cut both needed and unnecessary care.

One reason is that good information about price and quality is hard to find, and even harder for patients to use — especially when in distress. Worse, that information often doesn’t matter. It’s helpful to learn a surgeon’s or an MRI’s price and quality only if we need that care. Learning what’s needed rests on advice from trustworthy and competent doctors — not fantasy consumers staying up late to google their symptoms. Also, it’s doctors who can best lower the high costs of serving the sickest patients — costs often unaffected by copays and deductibles.

ACOs and skimpy insurance coverage don’t save money safely. They lead the wrong people to think about money in the wrong ways. They result in denial of needed services. They trap health care in a quicksand of greed, mistrust, clinical documentation, and financial paperwork. This makes it harder to contain costs by methods proven to work in the other rich democracies. Financially motivated caregivers can’t be trusted — especially by patients fearing another co-pay.


Everyhere, pathology is remorseless, but health care money is finite. Health care’s aim should be medical security — confidence that we’ll get effective, competent, timely, and kindly care without having to worry about the bill when sick, or about losing insurance coverage ever.

Winning affordable medical security will require that doctors professionally and honorably use their own finite time and hospitals’ finite budgets to do as much good as possible for all of their patients. Hospitals will need to act as fiduciaries that weigh the value of care against its cost.

This will be much easier when we have more primary care physicians, and when more care is provided in less costly community hospitals — or when many of today’s teaching hospitals shift toward effective but leaner and more affordable methods of treatment.

And it will be much easier when we stop dreaming that costs can be cut by preventive care or electronic health records. Both should be pursued because they are valuable in themselves, not because they might save money. Financially, both are distractions.

Two futures are possible. In one, unaffordable premiums and out-of-pocket costs force angry public and private payers to rigidly slash health spending. Patients and caregivers suffer.

In the other, physicians and hospitals cease rationalizing high costs, recognize the impossibility of generating more money to finance business as usual, and instead embrace and negotiate health care budgets combined with guaranteed coverage — to make health care more effective, secure, and durably affordable for all who live, work, and do business in our state.

Alan Sager is a professor of health policy and management at the Boston University School of Public Health. He and Deborah Socolar have co-authored many reports available at www.healthreformprogram.org.