Massachusetts’ Problem and Maryland’s Solution We Don’t Have to Wait for Washington Part 2

While health care reformers argue about what it would take to “break the curve” of health care inflation, the state of Maryland has done it, at least when it comes to hospital spending.

In 1977, Maryland decided that, rather than leaving prices to the vagaries of a marketplace where insurers and hospitals negotiate behind closed doors, it would delegate the task of setting reimbursement rates for acute-care hospitals to an independent agency, the Maryland Health Services Cost Review Commission.

When setting rates, the Commission takes into account differences in labor markets and how much a hospital pays in wages; the amount of charity care the hospital does; and whether it treats a large number of severely ill patients. For example, the Commission sets the price of an overnight stay at St. Joseph Medical Center in suburban Towson  at $984,  while letting  Johns Hopkins, in Baltimore Maryland, charge  $1,555. For a basic chest X-ray, St. Joseph's asks  $81 and Hopkins' is allowd to  charge  $155. The differences reflect Hopkins's higher costs as a teaching hospital and the fact that it cares for generally sicker patients.

Such adjustments are never perfect, but in this case, it appears that the Commission is treating hospitals equitably..Since the program started, the Wall Street Journal reports that  Maryland hospitals have enjoyed a steady profit margin, unlike hospitals in other states that often make more money during boom years and less during a recession. Statewide hospital profit margins average 2.5% to 3%.—just enough of a surplus to give  hospitals maneuvering room when setting budgets.  Before the commission was established, Maryland hospitals were losing money covering the uninsured.

What is most remarkable is how state regulation of prices has contained costs. When the program began in 1977, the state’s hospital costs were 25% higher than the national average. Today, Maryland’s hospital costs are 2% lower than the national average.  Meanwhile, over the same span, Maryland boasts the nation's second-slowest increase in hospital costs .

 One reason the Maryland solution works is that Medicare and Medicaid have agreed to accept the prices that the Commission sets—as long as Maryland's hospital costs grow slower than Medicare payments nationwide. 

The deal makes sense for the government because for Medicare, the elephant in the middle of the room is health care inflation. If Medicare spending continues to grow faster than the economy, Medicare is in trouble. ( Yesterday, the Centers for Medicare and Medicaid announced that in 2009  U.S. health spending reached $2.5 trillion, and that health care's share of the economy grew 1.1 percentage points to 17.3 percent—the largest one-year increase since the federal government began keeping track in 1960 )

Below, a chart from the American Hospital Association illustrating Maryland’s remarkable success.

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Maryland's approach gives its hospitals relief from low Medicare and Medicaid reimbursements.  As a result, Maryland’s hospitals cannot argue that they must shift costs to private insurers. State regulations require that they charge all insurers the same rate for a particular service– no more and no less. Thus, the Maryland plan does away with secretive negotiations between providers and private insurers which often turn on just how much market clout the hospital has.

As I noted in part 1 of this post, in other states, a “brand-name” provider may be able to demand twice as much as another hospital or physicians’ group  for comparable services simply because insurance companies know that their customers want to see that name in the insurers’ network. If an insurer resists paying a premium for a marquee name, the provider will refuse to take its plan and customers will switch to another insurance company.  It’s worth noting that in Maryland, at Johns Hopkins  Hospital, the profit margin from operations has been running somewhere  between 2% and 4%, not far from the state-wide average of  2.5 % to 3%.  

By contrast, Massachusetts serves as a prime example of how providers  with clout use market leverage to hike prices.  As I explained in part 1, Massachusetts Attorney General Martha Coakely recently released a report which reveals that:

  • Prices paid by health insurance companies to hospitals and physician groups in the Commonwealth vary significantly within the same geographic area and amongst providers offering similar levels of service.
  • Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.

  • Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers

When Coakley lifted the veil on how much insurers pay various providers (information that is normally considered proprietary), she found that insurers pay elite providers up to 200% more than they pay other physicians and hospitals.That surcharge is then passed on to patients in the form of higher insurance premiums.

What Drives Health Care Inflation: Steeper Prices and More Aggressive Care

When the U.S. is compared to other nations, researchers find that we spend far more on  health care for two reasons:   we pay higher prices for the same services and, as Commonwealth president Karen David notes, “we perform more complex, specialized procedures.”  Hospital stays are often shorter in the U.S. than in many other countries, but “more happens to you while you’re there,” observes  Dartmouth’s Dr. Elliot Fisher .

 Massachusetts confrims the trend:  health care in Boston is more expensive than in any other town on the globe both because well-known providers can command higher prices, and because these hospitals tend to offer more aggressive and intensive care.

 Consider Mass General: , when it comes to the “intensity of care” measured by the amount of time spent in the hospital,  the number of patients seen by 10 or more specialists,  and the intensity of physician services,  Dartmouth research shows that  Mass Gernerl ranks  in the 82nd percentile.. 

Mass General is not alone. Other well-known Boston hospitals also tend to recommend more specialized, high-tech care for their patients. On the “intensity” index, Brigham & Woman’s and Tufts New England Medical Center both score in the 70th percentile, while Beth Israel Deaconess ranks above the 60th percentile .

By contrast, academic medical centers located in regions where medical practice tends to be more conservative  rank lower on the intensity scale:   Both North Carolina's  Duke, and the  Mayo Clinic,in Minnesota wind up in  the 30th percentile,  while San Francisco's   UCSF ranks in  the 40th percentile and the Cleveland Clinic scores just above the 50th percentile. (As I have reported in the past, outcomes are just as good—or better—at these medical centers. This  suggests that patients receiving the most aggressive care may be over-treated.)

Meanwhile, Coakely’s report confirms the second reason why care in the Boston-area is pricey: elite  providers can command higher prices for identical services.

Here, it's worth noting that, hospitals often claim that they are paid more because they treat more poor patients.  But  the new Massachusetts study confirms what many reseachers already  know about spending on low-income patients: According to the Massachusetts' report,  hospitals that treat large numbers of poor patients  . . . are paid 10 percent to 25 percent less than average by commercial insurers,

To rein in spiraling health care costs, reformers realize that they must face up to the two factors driving health care inflatiion: over–priced care and  over-use of cutting edge medical technologies which can expose patients to risk without benefit. 

Addressing the second  problem, policy-makers  are pretty certain that they can reduce over-treatment  if we re-align financial incentives for prioviders so that instead of  paying them  for "doing more," we begin rewarding them for better outcomes  at a  lower price

But what do we do about the fact that, as providers consolidate, some have the clout to demand exorbitant reimbursements from insurers?

In part 3 of this post, I’ll comment on a recent report by Rand Health to the Massachusetts Division of Health Care and Policy which suggests Massachusetts might consider adopting the Maryland solution.. I’ll also note that in  the past, 30 other states have tried to regulate hospital rates; Maryland’s program is the only one that has survived.  Why?

I'll l also  explain how, while putting a lid on health care inflation, the Maryland Commission has achieved four other important goals:   :

  • Making  fees for services affordable and equitable across hospitals;
  • Increasing the transparency of hospital financials;
  • Making hospitals financially stable. and
  • Ensuring  access to hospital care for all Marylanders, including the uninsured,

Finally, I’ll suggest that we don’t have to wait for Washington to pass heath care legislation.  This is one reform that could and should be done at the state level.

20 thoughts on “Massachusetts’ Problem and Maryland’s Solution We Don’t Have to Wait for Washington Part 2

  1. This is fascinating. I look forward to Part 3. I have been discouraged by the direction the national effort has been going. It seems to me that the Democrats may have taken their eyes off the prize when they began calling it “health insurance reform” instead of “health care reform.” The root of the problem is not the bad old insurance companies, fun as it is to bash them. They aren’t much help, but they are more a symptom than a cause in my view.
    Continuum Health Partners, a hospital conglomerate here in New York City is locked in a battle with United Healthcare over increases in fees that Continuum wants and United Healthcare’s insistence on timely notification when a patient is admitted. Where is the health of the patient in that argument?

  2. As I pointed out in comments to part one of this post, the Maryland HSCRC has been effective in controlling hospital costs, but not in controlling health care costs. Please refer to the Dartmouth data.
    Maryland is a high cost state, one in which the HSCRC has been operating since the early 70′s. What the HSCRC has managed to do is to drive a lot of medical care out of hospitals into imaging centers, surgicenters, etc.

  3. Maggie,
    As Legacy Flyer noted in both his most recent comment and his more detailed comment on February 4th on Part 1 of your Maryland Solution post, the state’s regulatory effort just drove a lot of care out of hospitals but did not materially reduce TOTAL healthcare costs in Maryland.
    Bruce Bullen, CEO of Harvard Pilgrim Healthcare, noted in one of his comments on his Let’s Talk Healthcare blog that Massachusetts had an all payer system for hospital charges in the late 1970’s and early 1980’s but Medicare pulled out of it when the DRG system was introduced in 1983. He did not indicate why it did so.
    One possible issue for other states considering Maryland’s approach is that if it meant raising Medicaid payment rates so that private insurance payments could be reduced, it would increase the burden to be paid by state (and federal) taxes when virtually all states and the federal government face large deficits already. CMS would face the same issue if Medicare rates also increased from what they are now.

  4. Legacy, Martha, Barry
    Legacy–You’re mistaken.
    Please see my reply to your comment on part 1 of this post.
    Maryland looks expensive in the DArtmouth data because DArtmouth is only looking at Medicare data.
    As I explain in the post,
    under the regulation system in Maryland, Medicare Pays the Same Rate as Private Insurers–Normally, it pays less than private insurers. .
    But despite the fact that Meedicare pays more Total Health Care Spending in Maryland is lower than in many states.
    In terms of total health care spending it is not one of the top ten.
    Again– see my long reply to your comment on part 1 of this post.
    Martha– Thnaks very much.
    You’re entirely right: we love to bash insurers, but in many areas providers have the power and are commanding very high prices that are driving our insurance preimums skyward. (Nationwide, hospitals have been consolidating for some years. Unfortunately, this has not led to lower hospital prices–it has led to higher prices.
    Where is the health of hte patient in this argumetn? In the book and in the film I quote a Swahili saying: “When elephants fight, the grass is trampled.”
    Patients are the grass.
    Barry–
    See may reply to Legacy’s comment on part 1 of this post.
    . While Medicare spending is higher in Maryland because Medicare pays the smae rate as private insurers in Maryland, private insurers are not paying as much as they do in states where consolidated hospitals can shoot them down.
    As for non-hospital care, when you look at total healthcare spending in Maryland you find that it is not one of the top ten states.
    In addition, Maryland is now “bundling” payments for inpatient stay and out-patient services, and in that way beginning to regulate non-hospital spending.
    States gave up regulation for political reasons. With Reagan’s election in 1980, the federal government began to back for-profit HMOs.
    (Before Reagan’s election virtually all HMOs were non-profit).
    The for-profit HMO lobby was against rate-setting for hopstials: these HMOs thought that could beat their rivals in the insurance market by negotating private deals and win steep discounts from hostpials.
    Why did Mass give it up?
    With rate-setting, Mass was saving money: , from 1982 through 1986, all-payer ratesetting reduced hospital expenditures by 16.3 percent in Massachusetts, 15.4 percent in Maryland, 6.3 percent in New York, and 1.9 percent in New Jersey, compared with the national average.”
    And costs were not being shifted to other parts of the health care system: “The obvious concern is that costs will be shifted from the hospital sector to other sectors as the medical care system responds to constraints in one sector. Morrisey, Sloan, and Mitchell (1983), as well as Coelen and Yaffe (1983), compared the rate of increase in Medicare Part B expenditures in States with mature ratesetting programs with States without ratesetting and found that the rate of increase in Part B expenditures was lower in States with mature ratesetting programs.”
    (This is all from the Health Care Financing REview, by Gerard Andersen– an expert in hospital administration and economics from Johns Hopkins– I quote him in the book. )
    Massachusetts gave up regulation for political reasons. In 1991, newly elected Republican Governor Weld made dereuglation of hopsitals a central part of his agenda. Pataki did the same when he took over New York.(This is from Health Affairs: “http://content.healthaffairs.org/cgi/reprint/16/1/142.pdf
    It’s worth noting that in the past Republicans favored rate-setting. Nelson Rockefeller instituted rate-settting in New York.
    But post-Reagan, far more conservative Republicans objected to virtually all government regulation– of banks, of Wall Street, of hospital rates, etc. (Hence the mess we have today.)
    As for Harvard Pilgrim: “Harvard Pilgrim CEO Charlie Baker, . ., got into state health care policy-making positions partly on the strength of his think-tank work calling for the abolition of state-run hospital rate-setting regulation”
    By contrast, Democrats maintained control of Maryland, nad Maryland has been brining down healhtcare costs.
    Beginning last year, Maryland also began penalizing hospitals where there are an excessive number of errors, funneling the saved money to hospitals with fewer errors.
    Finally, yes, in Maryland Medicaid pays more for care.
    Most people see this as a huge plus.
    Nationwide, Medicaid patients receive sub-par care and are more likely to die in large part because Medicaid pays so poorly. The safety-net hospitals that see these patients just don’t have the resources to care for them properly. Often residents are working, unsupervised.
    In Marlyand, Medicaid patients stand a better chance of getting good care.
    In Maryland, hospitals also cannot charge the uninsured more than they charge insurance companies, increasing access to care.
    The only reason Medicaid pays less is because when Medicare and Medicaid legislation was passed, Southern Congressmen refused to sign on unless providers who took care of Medicaid patients (many black patients ) were paid significantly less than those who cared for Medicare (mainly white paitents. Relatively few blacks lived past age 65 in the South back then.)
    The legacy of racism leads to medical apartheid which hits all poor people on Medicaid– black and white.

  5. “In Maryland, hospitals also cannot charge the uninsured more than they charge insurance companies, increasing access to care.”
    I really like this idea and wish all states would either copy it or rule that any providers who participate in Medicare cannot charge the uninsured more than 125% of Medicare rates for any service, test or procedure that Medicare pays $250 or more for. Perhaps 150% of Medicare or even a bit more might be a reasonable upper limit for PCP office visits and other less expensive services. Even without full hospital rate setting, a legislated limit on how much the uninsured could be charged would implicitly quantify a zone of reasonableness for provider charges. Medicaid, with the exception of long term custodial care in nursing homes, should be either folded into Medicare or required to pay Medicare rates to mitigate cost shifting to private payers.
    Within those bounds, private insurers could negotiate their own deals and, to create some countervailing power against large hospital systems, put the hospitals with high prices (relative to Medicare rates) into a high cost tier that would require patients to pay a higher co-pay or coinsurance percentage that is significant enough to get their attention. This is basically the approach that we use with considerable success for prescription drugs. It should also be made clear to patients that hospitals in the more expensive tier are there because their charges are excessive vs. their competitors but their quality of care is not demonstrably better.
    My issue with full rate setting by regulators is the difficulty in striking the right balance between payments and costs across the huge and complex spectrum of services, tests and procedures without overpaying for some procedures and creating excess capacity and utilization in the process and underpaying for others and creating shortages of those.

  6. Barry–
    Yes, there definitely needs to be a limit on how much the uninsured pay.
    And insofar as most hospitals make money or break even on the vast majority of their Medicare patients, I really don’t see why the uninsured should pay more than Medicare rates–perhaps Medicare plus 5%
    If they are paying cash or by credit card, the provider has virtually no administrative expenses.
    As to government regulating prices: we have seen that the market does a very poor job of rationalizing hospital prices: they are all over the place.
    IN the same city you might pay 4 times more for a colonosocopy at one hospital than at another.
    By contrast, regulation in Maryland has worked very well. As I noted the majority of hospitals are working with a 2% surplus. Since they know what they will be paid, they can budget.
    The fact that they have put a lid on hospital inflation suggests that they are not over-paying, the fact that most hospitals have a surplus suggests that they are not underpaying.
    The system is not perfect, but it is very, very good.
    I agree, though, that setting rates over such a huge and complex spectrum of services is very, very complicated, and for this reason I can’t imagine the federal govt’ doing it for all of the hospitals in the nation.
    I suspect it is something that states need to do, though I think Medicare needs a fraud unit that would inspect charges of corruption.
    Maryland has done a good job of keeping its commission pretty free of political influence. Other states would need to do the same.
    .

  7. Maryland may regulate hospital costs, but we apparently have different rules (if any) for home healthcare in MD. My father recently had a 10-day 24/7 treatment of antibiotics with a timed pump after treatment in a DC hospital for a post-op infection after his gallbladder had been removed in that hospital. My wife and I (after about 15 minutes of instruction from a home health nurse) did all of the bag changing/line flushing. He also had twice a week visits by a nurse and a PT person. Total cost: nearly $6000! Luckily, 80% paid by his insurance (he’s 98, but still has coverage from his wife’s former employer – Medicare DIDN’T cover the home healthcare). I can’t believe the amount of profit there must be in home health!!!! Oh, and noone (neither the hospital nor the home health agency) could/would give us even a rough estimate of the cost in advance. Why does anyone think there’s a case for the “free market” in healthcare?

  8. Maggie,
    “Maryland looks expensive in the Dartmouth data because Dartmouth is only looking at Medicare data. ….But despite the fact that Medicare pays more Total Health Care Spending in Maryland is lower than in many states.”
    I understand your point about using Dartmouth/Medicare data in Maryland and how because Maryland’s “all payors” system charges Medicare the same as private insurers Medicare expenses could look higher in Maryland than in other states. So if you did not use the Dartmouth/Medicare data to determine healthcare spending in Maryland, what data did you use?
    You go on to state: “In terms of total health care spending it is not one of the top ten.”
    Actually the State of Maryland is not one of the top ten in the Dartmouth/Medicare data either. As I stated in my previous post, Baltimore and the Baltimore suburbs and the Maryland suburbs of DC (which is where the majority of Marylanders live) are in the top ten, but the whole state average is brought down into the top twenty because of lower costs in the primarily rural eastern shore and western portion of the state. Presumably your data – wherever it is from – is similar to the Dartmouth data.
    Nevertheless, if it is your contention that Maryland’s HSCRC has cut “Total Health Care Spending” in the state, you need to explain why after 35 YEARS the state has such high costs. If the HSCRC was capable of controlling “Total Health Care Spending” and has had 35 YEARS to do it Maryland’s costs should not be at the top of the second most expensive quartile and the Baltimore and DC metro areas should not be in the most expensive quartile.
    In essence, I believe you are wrong about the effectiveness of the HSCRC, but have not seen the data on which you base your conclusions about “Total Health Care Spending” as opposed to Medicare spending.

  9. Legacy–
    While the Commission regulates hospital rates, it does not regulate payments to physicians.
    When I look at the Dartmouth data, and drill down to Johns Hopkins (presumably a hospital where physicains earn more than the average Maryland physican in a rural area)
    I find that total part B payments to physicains puts Hopkins in the 50th percentile.
    (To do this, go to http://www.dartmouthatlas.org, then click on “Profile” on the left-hadn side of the page (under “Atlas Data tools near top of page.)
    When you get to the “Profile page” select “States” scroll down and then select “States” again, then select Hospitals.
    Click on “Next” at the bottom of that page.
    Then when you get ot hte state page, pick Maryland (you can only pick one state)
    That will take you to a page where you can pick the Baltimore area– choose that option and it will take you
    This is very unusual for a major academic medical center, and confirms other data about utilization of medical resources at Hopkins.
    Also, if most Marylanders live in the Baltimore area, and you say that total healthcare spending
    is very high in the Baltimore area–then why doesn’t that high cost for most Maryland residents push Maryland into one of the 10 most expensive states in terms of total spending per capita?

  10. Legacy–
    Sorry that my guide to drilling down to a particular hospital broke off abruptly. (Hit the wrong button)
    But if you get that far, I’m sure it will be clear to you what to do. (If you
    have any problems, let me know and I’ll fill in the rest of the steps.

  11. Maggie,
    It is your contention that Maryland’s HSCRC has been effective in controlling not only hospital costs, but total health care costs in the state. It is my contention that Maryland’s HSCRC MAY have been effective in controlling hospital costs, but has NOT controlled total health care costs in the state and that the difference has been the “squeezing out” of various services from “regulated space” to unregulated outpatient services. Let me suggest a test of our alternative hypotheses.
    It is my belief that in 1977 (when the “all payors” system started) Maryland was a state with high health care costs, probably not as high as Massachusetts and New York, but certainly higher than Nebraska, Oregon, etc. It is my belief that Maryland is STILL a state with high health care costs, again not as high as Massachusetts and New York, but higher than Nebraska, Oregon, etc. It is my belief that if you graphed total health care costs in Maryland, they would track along the 80th percentile from 1977 to 2009. On the other hand, if you are correct, and the HSCRC has been effective in controlling total health care costs, Maryland should drop from the 80th percentile to SUBSTANTILLY LOWER over the course of 30 to 35 years (of wise and benevolent regulation).
    The only data that I have easy access to (and or currently know where to find) is current Medicare data from Dartmouth. You make the valid point that this could overstate costs in Maryland since Medicare pays the same as commercial payors. You indicated that you had a source of total health care costs. Does this data go back to the 70s? If not, we could use Medicare data from 1977 to the present. The same increase in costs to Medicare due to the all payors system that are in effect now were present in 1977.
    So should I make the graph?
    What will the graph show?

  12. According to Commonwealth’s study, NY State is pretty much at the bottom of all states when it comes to most hospital-based measures.

  13. Maggie,
    You say: “When I look at the Dartmouth data, and drill down to Johns Hopkins (presumably a hospital where physicians earn more than the average Maryland physician in a rural area) I find that total part B payments to physicians puts Hopkins in the 50th percentile.”
    You share a very common MISCONCEPTION. I was the head of recruiting for my 85 doc group for years and I know what I speak of. I am familiar with faculty salaries at Hopkins – at least in my specialty (I was offered a job at Hopkins and refused it) and academic salaries vs. PP salaries in general.
    Rules of thumb:
    • Academic salaries are LOWER than private practice salaries
    • Salaries in rural areas, the south and the Midwest are HIGHER than in urban areas and the coasts. (at least in my field)
    • And when you consider standard of living (housing costs, etc), there is no comparison.
    I will tell you with a great deal of certainty that physicians at Hopkins earn LESS than the average physician in a rural area – assuming same specialty, etc. I have found that this fact confuses many people who are used to thinking that salaries are higher; on the coasts, in large cities and in academic centers. In fact the reverse is true.
    As I used to tell people I was recruiting to our private practice: “You can make more money in Texas – but you have to live in Texas” (sorry to you Texans, you can substitute Nebraska, Iowa, etc.) The reasons are actually not all that complicated. By the time a physician has completed; Med School, Residency and Fellowship, they are typically in their 30’s with spouses and sometimes children. Suppose you trained in Baltimore, your spouse works in Baltimore and your kids may be settled in at a school. Do you really want to go to some rural area, where your spouse can’t work, there are no Starbucks and a good time is country line dancing or a tractor pull? (sorry for the hyperbole)
    You say: “Also, if most Marylanders live in the Baltimore area, and you say that total healthcare spending is very high in the Baltimore area–then why doesn’t that high cost for most Maryland residents push Maryland into one of the 10 most expensive states in terms of total spending per capita?”
    Most Marylanders live in the Baltimore area AND THE MD SUBURBS OF DC. The answer to your question is simple mathematics. If 70% of Marylanders live in Baltimore and DC Metro and have a Medicare cost at the bottom of the top quintile (top 10) and if 30% of Marylanders live in the mostly rural Eastern Shore and Western MD and have a Medicare cost in the second quintile, then the average is “pushed down” into the top of the second quintile (top 20). If you doubt me, take a look at the Dartmouth data for various zip codes in the state. I think you will find what I say is true.
    By the way thanks for the info on how to use the Dartmouth Data.

  14. Legacy Flyer–
    I did a little more reserach and found Kaiser’s State Health Facts.
    When it comes to total health care spending, it turns out that Maryland isn’t in the 80th percentile. It’s in roughly the 50th-60th percentile (with 100th being the highest spending states.)
    Given its location, its demographics, that fact that is home to a world-class academic medical center, and the fact that its poor have much better access to care , it’s surprising it isn’t spending more.
    (Marylland’s poor have better access because Medicaid pays hospitals as much as private insurers do–about 35% to 40% more than Medicaid pay in other states– and becuase Maryland hopsitals cannot charge uninsured patients anymore than the group rates they charge fully insured patients.)
    Here’s what I’ve written in part 3 of the post (which I’ll be putting up later today):
    Two HealthBeat readers commenting on parts 1 and 2 of this post suggested that .while the Commission may be holding down hospital spending, “anything which goes on outside of a hospital is not controlled by the Commission.” . . . State regulation of hospital prices “has merely pushed healthcare out of hospitals. So if a hospital wants a high tech imaging center or surgi-center on its campus, it gets built on ‘unregulated space’ outside the hospital.” Thus, these readers suggest that while Maryland may have hospital prices under control, when you look at total medical spending, it is a “high cost state.”
    To test the theory, I did some research, and discovered the Kaiser Family Foundation’s “State Health Facts.” I first looked at Maryland’s health care spending per capita, compared to per capita outlays in other states, It turns out that in 2004, Maryland was spending slightly more than average ($5,590 vs. $5,283, ) —but less than sixteen other states including Massachusetts ($6, 683). http://www.statehealthfacts.org/comparemaptable.jsp?ind=596&cat=5
    More importantly, when the growth of medical spending in Maryland is compared to how quickly the total bill is climbing in other states, Kaiser reports that from 1991 to 2004 Maryland’s total heath care bill was growing just 6.7% a year—right at the national average. The rate of growth in Maryland was slower than in 32 other states. http://www.statehealthfacts.org/comparemaptable.jsp?ind=595&cat=5
    Another way to measure healthcare spending is to ask what percent of the state’s Gross Domestic Product it consumes. In Maryland medical bills equal 13.3% of GDP – once again, right at the national average . http://www.statehealthfacts.org/comparemaptable.jsp?ind=263&cat=5
    Given Maryland’s location on the East Coas, where it is home to Johns’ Hopkins — a world-class academic medical center which draws very sick patients– the fact that doctors and hospitals in the Baltimore area are serving a large poor population, combined with the fact that Maryland’s poor have better access to care than the poor in most states (because Medicaid pays Maryland hospitals more and because hospitals cannot charge the uninsured more than it chargers insurers) , it is surprising that Maryland is not spending more. There is no evidence that state regulation of hospital prices is shifting cost to other parts of the health care system.

  15. Maggie,
    You say: “It turns out that in 2004, Maryland was spending slightly more than average ($5,590 vs. $5,283) — but less than sixteen other states including Massachusetts”
    This is essentially what I said, the state of Maryland is in the second from the top quintile (17th of 50 in 2004) and parts of Maryland (Baltimore Metro and MD suburbs of DC) are in the top quintile – top 10.
    If you look at total Medicare costs in Maryland compared to the national average (data from Dartmouth) from 1994 to 2006 (all the years available on their website) you will find that costs in Maryland remain consistently about 10% above the national average. If you look at zipcodes in the Baltimore metro area and DC suburbs you will find that they track in the top quintile (top 10 states).
    You say:
    “Maryland’s total heath care bill was growing just 6.7% a year—right at the national average.”
    This coincides with the data I found from Medicare. There is no evidence that Maryland’s HSCRC has had any effect on the total cost of healthcare in the state which has remained above the national average for the period from 1994 to 2006 and has grown at the national average rate.
    As for the other arguments you make:
    • “Doctors in Baltimore serve a poor population” – True but no different from many other large cities. And the State of Maryland is a wealthy state – ranked #1 in the nation (Wikipedia) ahead of NJ, CT, AK, HW, and MA.
    • “Maryland’s poor have better access to healthcare than the poor in most states” – perhaps although it would be interesting to see data documenting this.
    • “Johns’ Hopkins — a world-class academic medical center which draws very sick patients” – true although many of the patients it “draws” from other areas are wealthy and well insured. On the other hand, the patients it serves from the surrounding neighborhood are poor – just like many other hospitals located in urban areas.
    While MD’s HSCRC may have been of benefit in some areas, controlling health care costs is not one of them. Maryland’s costs have remained consistently above average during the period in which HSCRC controlled hospital rates and have tracked the national average rate of increase in cost.
    I can see why someone of your philosophical bent likes the HSCRC. Having politicians and beaureaucrats in charge can be satisfying to some people even if they don’t actually control costs.

  16. Legacy–
    First, in absolute (dollar) terms, Maryland’s per capita spending is very close to the average– putting it close to the 50th percentile.
    The fact that Medicare pays 5-15% more than it pays in other states ( because in Maryland Medicare adheres to the prices the state sets for private insurers) would explain why Maryland’s per capita spending is slightly higher . . .(Medicaid is also paying more than in most states–as it should).
    As to whether Baltimore is a very poor city– my son lived there for 4 years. He has lived in NYC for most of his life–went to public schools, had friends who lived in the Bronx, etc.
    He was very concerned about the amount of poverty he saw in Baltimore.
    “Homicide” and “The Wire ” come close to being documentaries in dramatizing the depth of povery and suffering in Baltimore.
    Finally, I’ve now read just about everythign published on Maryland’s rate-setting in peer-reviewed medical and social policy journals as well as in newspapers like the Wall Street Jouranl.
    All (includng the WSJ) agree that it has been a great success in containing Maryland’s hospital costs and total health care costs.
    In September (2009), Rand sugggested that Mass. adopt Maryland’s regulation of hospital prices.
    People who have studied the Maryland program in depth seem to agree.
    I have also talked ot a docotr in a Maryland hopsital who concurs that while rate-setting is inevitably “flawed” (when making adjustments) it is essentially a very good program.
    So I’m afraid you are in a minority.

  17. There is no way you can look at either the Medicare data or the Kaiser data and conclude that Maryland’s HSCRC has been effective at controlling health care costs – unless you define controlling health care costs as costs that are above the national average and increasing at the same rate as other states.
    If Maryland’s HSCRC had been effective in controlling costs OVER THE LAST 35 YEARS, Maryland would be a low cost state with a curve that had progressively diverged from from the rest of the nation. This is not the case.
    I think we will have to agree to disagree on this topic and I certainly don’t mind being in the minority – in fact I frequently relish it.
    I too have watched the Wire and read Homicide. I have lived in the city of Baltimore since 1975. I have also practiced Medicine in the city of Baltimore and the State of Maryland since 1980. Baltimore is a poor city, but is not unique. If I blindfolded you and put you in the slums of Baltimore, Detroit, Cleveland, DC, St. Louis, Chicago, etc. I think you would be hard pressed to tell the difference.
    I do hope we are delivering superior health care to poor people in Maryland – I just have no way to prove it. I do know that all the excesses of modern medicine you describe are present in Maryland.

  18. Harry C.,Steve, run75411, Legacy
    Harry C.– No Maryland doesn’t regulate home health care, and unfortunately this is an area rife wtih fraud.
    Medicare needs to spend some money investigating home health care–which means that Congress should give Medicare funding for an investigative unit.
    Steve– I’m not sure what you are saying about New York State. . . More expensive? Less expensive? Higher quality? Lower qualtiy?
    run 75411–Thank you.
    Legacy–
    I too think we need to agree to disagree.Which is fine.
    And I have to thank you for this; by pushing so hard, you forced me to become something of an expert on healthcare in Maryland.
    Probably I should move there and run for office.
    Seriously, I agree with you that if I were in the slums of Baltimore, Detroit, Cleveland, DC, St. Louis, Chicago I would find similar poverty.
    But these are cities with some of our worst ghettos.
    In Boston, there are not as many seriously poor people. . .
    Glad you saw “The Wire.” I consider the season they spent focusing on Baltimore schools to be the best television I have ever seen. In many ways, as good as some of my favorite films.
    When I mentioned “Homicide” I was referring to the TV show–not the book. If you liked “The Wire,” and you haven’t seen “Homicide” , you’ll definitely like it. (Some of the same people involved in creating it, and rentable on Netflix.

  19. The free market approach to health care is failing miserably. Over 1500 private health insurance plans easily consume twenty percent of our total costs and limit patient treatments where they shouldn’t. They are by law required to put profits and shareholders above all else, and the first to suffer is quantity and quality of care.

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