Tuesday, May 8, 2012

New Massachusetts Price Controls and Bundled Payments

Avik Roy discusses Massachusetts' latest proposed health care price controls in his 5/6/2012 Forbes piece, "Massachusetts Moves Toward Health-Care Price Controls. Is America Next?"

The proposed measures include:
* Moving away from "fee for service" towards a system of "bundled payments", where hospitals and doctors receive a fixed fee for caring for a patient's medical problems
* Overt price controls, where the government can punish a hospital if it charges more than what the state considers "reasonable"
* A global cap on state medical spending, linked to the Gross State Product (state equivalent of GDP)
The "bundled payments" in particular will produce perverse incentives for doctors and hospitals.

If you're healthy young 25-year old who catches pneumonia, hospitals will love to treat you because the expected cost will be less than the "bundle" they receive, so they get to keep the difference.

On the other hand, if you are 60-year old with other conditions (e.g., diabetes or kidney trouble), some hospitals will do their best to avoid being stuck treating you. They may seek any semi-plausible excuse to transfer you to another facility. You'll become the undesirable "hot potato" patient that nobody wants.

Bundled payments thus create perverse incentives for doctors to not practice medicine and not take care of the sickest patients.

If the "bundle" for a life-saving heart surgery is, say, $40,000 then some hospitals or doctors may be reluctant to take you on as a patient if they think you'll cost them more than that. Socialized medicine advocates typically argue for government-run health care on the grounds that it "you can't put a price on human life". But bundled payments literally do put a price on what your life is worth.

(Read the full text of "Massachusetts Moves Toward Health-Care Price Controls. Is America Next?.)