fb-pixel Skip to main content

Reducing payments to hospitals doesn’t reduce health care costs, it just shifts them to someone else

By Lynn Nicholas

Piloting a glider successfully requires learning how to avoid over steering, otherwise a flight can quickly turn into a crisis. That same common-sense principle should apply to our state's health care reform efforts. We are on the right course. But over steering by government could send the system spinning off course.

We believe there is a valid role for government in transforming the health care system. But successful reform is about collaboration between government and stakeholders, not government exerting control over them.

The current health care system is extraordinarily complex. A reformed system will be more efficient and easier for patients to use, but it will still be a complex system. And the system is already highly regulated by state and federal bureaucracies. Overzealous expansion of centralized government control could impede rapid innovation and improved efficiency, rather than facilitate those goals.


Massachusetts is on the right reform path. Coverage expansion is a success. And while significant cost concerns remain, the conversation has turned to how to sustain our undeniable progress:

• Massachusetts hospitals are consistently among the highest ranked hospitals in the country on quality and patient safety measures, and continue to improve. A recent federal report on 25 key quality measures showed 20 percent improvement over 5 years.

• When average health insurance premiums are ranked as a percentage of median household income, Massachusetts ranks among the lowest — 48th out of the 50 states and the District of Columbia in 2010.

• Massachusetts family health insurance premium growth trend was -0.8 percent in 2010, as opposed to the national trend of 6.5 percent;

• In the same year, the Massachusetts individual health insurance premium trend was 2.8 percent versus the national trend of 5.8 percent;

• Massachusetts' small group premium base rate increase for 2012 was 1.8 percent ,down from 9.0 percent in 2011;


• The annual rate of medical expense increase declined from 7.5 percent in 2007 to 1.5 percent in 2011;

• The four largest Massachusetts health insurers have been able to build capital and surplus positions that exceed statutory minimum reserve levels by more than $2 billion.

In acknowledging progress, we are not declaring victory. More work needs to be done for the well-being of our health care system and for the health of our economy, which is driven by health care employment and investment. With 500,000 health care jobs in the mix and nearly 200,000 of those in hospitals, a measure of caution is warranted as we struggle to climb out of a recession during unpredictable times.

Delivering medical care generates costs. When one party does not pay its full share of those costs, the costs don't simply disappear, they remain in the system and are shifted onto others. That is why simply reducing payments to providers should never be mistaken for actually reducing costs. Real reform is about improving the entire health care system's efficiency and performance.

On average, Medicaid paid hospitals 71 cents for a dollar's worth of care in 2011, down from 83 cents in 2008. That is not reform, it is government shifting its cost onto others. Similarly, Medicare paid hospitals 92 cents for a dollar's worth of hospital care last year. Since the average hospital receives over 50 percent of its revenues from the government, such underpayment is a big problem for hospitals and for everyone who uses and pays for health care.


The challenge for government is to promote transformation: reform its own health care programs; set consensus goals for everyone to achieve; establish transparency requirements so all have timely information to make wise decisions; streamline regulations to smooth the transition to innovative models of care; give stakeholders a meaningful voice in making decisions; pay adequately for the care provided to enrollees in their programs; and avoid new and costly assessments on providers.

The hospital community is working to transform the system, too. Hospitals' goals are to keep their communities healthy, provide coordinated and efficient care, and move to payment systems that reward the quality of outcomes rather than the volume of services. Everyone has a role in this transformation — those who provide care, those who pay for care, and those who receive care. Key to our collective success is staying the course with deliberate, but not excessive speed, and of course, avoiding the hazard of over steering.

Lynn Nicholas is president and CEO of the Massachusetts Hospital Association.