Perverse Effects of California Health Care Regulation
Who thought this through?
I had a letter to the editor published in the Carmel Pine Cone this morning. They printed it word for word. You can tell the background for my letter by my first few sentences.
Here’s the link. And here’s the letter.
California’s Office of Health Care Affordability has chosen a strange way to make health care affordable. As the Pine Cone reports, the state agency will restrict Monterey County hospitals’ spending increases to 1.8% next year and slightly lower percentages in subsequent years. What would that do to make health care more affordable? Absolutely nothing.
Notice that the OHCA’s limits are on spending, not on revenue. And one obvious way to spend less is to treat fewer patients. What problem does that solve?
I’m not advocating that the OHCA restrict revenue. Restricting revenue could cause CHOMP and other hospitals to reduce prices. But, as with spending limits, another way to reduce revenue increases is to treat fewer patients.
Nor do I advocate that the OHCA impose price controls. As we economists know, price controls virtually always cause unintended and bad consequences.
So what is to be done? The main way to get more affordable anything, whether cars, houses, or health care, is to allow more competition. To their credit, and somewhat surprisingly, California legislators have repealed Certificate of Need laws that limited competition. What they should do next is repeal laws and regulations that make it hard to build anything in California, including hospitals and surgery centers.
But don’t go telling hospitals how much they can increase spending.
I spent a lot of time with my younger sister who spent 6 weeks in a hospital. I asked a lot of questions about the cost of this and the cost of that. How much was that test, what are you charging for that pill, what is the cost of that dressing. No one could or would tell me. I asked for a weekly copy of the bill. I was told that was just not done. Bring the costs down by making everything transparent before you get the bill.
The last 80 years of healthcare finance has been an ugly version of the Children's Classic, If you Take a Mouse to the Movies...
Government imposes wage ceilings, Employers offer non-wage, fringe benefits
Wage ceilings are removed and employment tax policy is changed, Employers expand fringe benefits from Major Medical to Comprehensive Medical Coverage
Sick individuals cannot find coverage because they are known risks, Insurance regulators mandate guaranteed issuance and spread cost to all policy holders
Premiums rise too quickly, insurance regulators impose premium ceilings
With employers or government supplying free-lunch, patients become consumers
With deeper pockets available to pick, Doctors abandon being Practitioners and narrow focus to being Clinicians
And on... and on... and on
Medical Costs go up, deploy more administrators to "contain costs"
Cost containment becomes too strict, mandate less restrictive containment
Administrative expenditures go up, mandate minimum ratio of premium be spent on "medical" care
MLR restrictions impinge on profitability, lobby to have some/many administrative functions labelled as "medical expenses"
And on... and on... and on
And then you put all of these things on steroids when you elevate a pediatrician-in-economist-clothing to god-like stature and follow his inane do-gooder, feel-good, unrealistic Triple-Aim.
Cost - Quality - Access are an Iron Triangle. end of story.
Greater access means greater demand of the same amount of resources
Higher quality means more training/experience of existing resources
Reducing Costs is like imposing "anti-gauging" provisions during times of emergency - fewer resources are attracted to the disaster.
Moving the difficult discussion of "how much is this gonna cost" out of the exam room doesn't make the problem magically go away. It just means that bureaucrats, administrators, bean-counters, politicians, etc will be central planning how to apply those scarce resources, to whom to apply those scarce resources, and how to apply those scarce resources... ugh...