A health care wish list narrowed to one

With red ink rising, it's best to focus on provider input costs

ABOUT A YEAR AGO, I wrote about seven state governmental policy wishes for 2022 to help rein-in overall health care spendingand to work towards a more affordable health care system in our state.  My hit rate for my wishes was 2.5 out of 7,  or nearly 36 percent. But with so many health care challenges  —nationally and in our state—my wish list keeps growing.

Hope is in the air with a new Healey Administration taking office and the Legislature starting a new session with a growing sense that our health care financing and payment system truly needs an overhaul. On my list would be the need to create a fairer provider payment system that supports quality and equitable access (more revenue for some and less for others);  an improved approach to risk adjustment and coding that provides revenue streams to providers that are more closely aligned with true patient and population health status and care spending needs;  and a financing and payment system that is not primarily volume driven, and rewards good outcomes and greater equity.

Realistically, however, the optimism that comes with a new calendar year is dampened by a health care system awash in red ink, with key drivers of operating losses tied to high labor costs and inflation.

That is why, after listening to the December 14 Health Policy Commission board meeting, it seems much more realistic to focus attention in 2023 on just one hope — one raised by Harvard economist and HPC board member David Cutler.  He specifically suggested that in the health care financial environment we are in right now, it makes most sense for the HPC and the state to gain a  detailed understanding of what he called provider “input costs” than to focus on the provider overpayment and pricing issues that plague health care delivery in our state.   The inputs include pharmaceutical costs, health care administration, excessive care utilization costs, and perhaps the one input most out of whack these days due to staffing shortages–nursing and other health care worker labor costs.

I wholeheartedly agree. All  of our Massachusetts health systems, hospitals, and larger physician groups should report on all of their operating costs — and, yes,  the detail here is very important.   The data would be valuable to not only understand where the expenditure level is for any particular organization—but comparisons could be made between and among providers.

I focus on this one reporting issue because the information gleaned from such a universal reporting by our hospitals/health systems and larger physician provider groups is something we can move ahead with now via a legislative mandate, and can use the information both short term and long term to try to address a number of important health policy issues—including ones which tied into the challenges noted above.

If some hospitals seem overpaid while others struggle to survive via state bailouts, doesn’t it seem important  to better understand what are the actual expenses that providers are incurring to provide care. Are they doing a good job with operating efficiency or not?  What are they (particularly the wealthy providers)  cross-subsidizing?

These are not questions that can be answered by only looking at relative price levels or examining the growth of per person revenue flows for a subset of commercially insured patients—largely the main factors the HPC tends to focu on when examining issues tied to health care provider performance. Without a better understanding of the expense side of provider operations, our thinking about what to do to make our system more affordable and equitable is stymied

It seems more than fair to try to learn if providers who appear overpaid are spending monies gained from the patient care revenue that flows to them for unfunded research, for administrators, or for carrying  less productive physician specialists on their staffs. The information could also be useful in evaluating mergers, expansions, or capital investments.

For hospitals struggling financially, the information could be helpful in determining whether they are not getting enough revenue based on volume and payment levels or whether they simply are not managed well and need to be restructured or shut down.

For policymakers, the information could help in the evaluation of rate increase requests and calls for more state subsidies

For all of these reasons, Cutler’s call for learning a lot more about the nature and amount of provider operating expenses makes sense as a key policy focus for the HPC and the state in 2023.

Paul A. Hattis is a senior fellow at the Lown Institute.