Health Care Financing Legislation

In July the legislature passed a far-reaching new law dramatically changing health care regulation in Massachusetts. I read the 354 page bill and attended a House session on June 5th to watch the legislative debate. Here are my thoughts on the key challenges we face and how the new law addresses them.

We want to lower health care costs without sacrificing services and coverage. That means finding and eliminating inefficiencies in the existing health care delivery systems. The two big impediments are a lack of good information itself, and the lack of the right financial incentives. Addressing each of these will require significant change within the health care industry.

Exactly who will lead these changes and what will be the resulting industry organizational structure are the big, big questions to resolve. In reality, there will be many different strategies aggressively pursued, regardless of state or federal government policy. It's just how things work in an open, competitive, innovative economy. Every current player -- the insurance companies, the hospitals, the health care professionals, the health care information technology firms, and the consumers of health care services -- is scrambling to stay relevant. And there are brand new firms, with different perspectives, already making their presence known in a disruptive way.

Health Care Financing Law: the Good Parts

The new law acknowledges the lack of right financial incentives, and addresses this by emphasizing an "accountable care" framework, as opposed to a "fee for service" framework. The goal is to have decisions about health care options and services made at a level where the overall health of the patient is the main objective, and not the decision whether or not to deploy a particular treatment.

The law also addresses the existing information problem. It takes an existing department of the state government responsible for collecting, analyzing, and disseminating data about the health care system and strengthens it and reorganizes it as the new Center for Information Analysis. The clear intent is in that law that future regulations and policy should be data-driven, and having reliable, timely data in the first place is essential.

In addition to gathering data for the policy makers, the law stresses the need to bring together all relevant information about each patient for use by health care providers. Timely and accurate information of up-to-date patient information is key to better outcomes with system-wide cost savings.

Other parts of the law provide specific incentives and funding for wellness programs and medical malpractice reform.

Health Care Financing Law: the Not-So-Good Parts

The new scope of regulation over the entire health care industry is quite sweeping. My own view is that our focus at the State House should be targeted more precisely on the 16 billion dollars the state spends through the budget.

The state should be a leader in all these areas where reform is needed -- changing the financial incentives, encouraging healthier lifestyles, managing system-wide information better, and providing health-care providers with full and accurate information about patients. The successes and set-backs that the state will experience dealing with its own employees and retirees and managing the other state-run programs will be invaluable to shaping future policy initiatives.

The new law, however, sets up a new regulatory framework that covers all health-care related spending in the state -- at least 70 billion dollars worth. And the law sets strict targets on the overall growth in spending.

The problem from my point of view is that it is trying to control something to a much finer degree than it can possibly measure. How exactly do we define total health care spending? We can make some assumptions and get in the right ballpark, but every single assumption is subject to challenge and debate. For instance, how do we deal with people moving in and out of the state, or people crossing state lines to access different health services? What exactly should be included, and what is excluded?

For shaping broad policy objectives, the exact answers to these kinds of questions are not so important -- we would need to understand the big picture, and respond appropriately.

But, as in the new law, if there is a precise target to cap total health care spending in the state, then everything becomes a measurement game. We have seen this story played out in the financial sector, where ad hoc regulatory decisions about risk distorted business practices and led to more system-wide risks. Economists like myself know that these measurement games will be a fact of life once we start basing regulatory decisions on them.

Some people I have talked to who have watched this legislative process closely say that there is a lot of discretion built into the new regulatory structure. I take some comfort in that, but I also have some concern. Discretionary authority can be misused and swayed by political clout, rather than what works best.

As someone looking at the legislation with fresh eyes, I am also surprised by the degree to which the new regulatory authority is placed out of the control of the executive branch. I like the separation of powers. I think each of the three branches in government has its own special role. I also think that the history and culture of the Massachusetts legislature is one where the legislature repeatedly oversteps its role and gets too deeply involved in affairs that are properly the domain of the executive and judiciary branches.

So when the legislature creates a very strong regulatory body independent of the main executive departments, concentrates administrative power in a single executive director, gives the executive director a five year term, and then encourages the appointment of a senior staff aide to the Senate President as the interim executive director, I get concerned about overreach. I would prefer to see the executive branch have more day-to-day control over the new regulatory agency.

Looking Ahead

Regardless of my committee assignments, I will keep a close eye on the implementation of this new groundbreaking legislation. I will urge my colleagues to stay focused on the state's own spending for health care services, so that we can lead by example. And I will encourage a long-term perspective, and let the coming shake-out in the organization of health care services be determined by best business practices and disruptive innovations in the management and treatment, and not by politics.