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Patrick’s second term | Globe Editorial

To contain health costs, state should try a new way of paying

January 2, 2011

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GOVERNOR PATRICK’S promised push for controls on the rising costs of health care couldn’t come at a better time for the state and its economy. While tax collections are finally rising again after a deep drop, increases in Medicaid spending are consuming virtually all the gains. Small businesses still face brutal premium hikes. Families across the state must contend with mounting expenditures for premiums, deductibles, and co-payments. The state is right to trumpet the fact that 98 percent of Bay Staters have health insurance, but now it must find a way to bring outlays under control without sacrificing quality.

A state commission in 2009 concluded that the most effective way to provide a realistic check on costs would be to revamp the entire payment system for health care. The current fee-for-service system, in which hospitals and doctors are paid for specific tasks, is an engine of inflation, encouraging overuse of tests and procedures. As an alternative, the commission pointed to a so-called “global payment’’ system in which networks of doctors and other providers working together would agree to cover the cost of patients for an annual fixed amount.

That “global payment’’ would reflect the patient’s age and history of medical problems, and essentially make the network responsible for all aspects of the patient’s health. To avoid the drawbacks of similar managed-care plans in the 1990s, the commission called for stricter controls on quality. But there are good reasons to believe that quality would increase under a system in which patients are followed closely by a coordinated team of doctors and providers, since the disconnection of the current system leads to medical errors and redundant procedures.

Switching from fee-for-service to global payments will take several years, at least. An interim step would be to pay doctors and hospitals a set fee pegged to each patient’s disorder rather than to specific tests or procedures. This would give doctors a greater incentive to be on the alert for post-operative complications, since they wouldn’t be paid for the extra services. .

More investment by the state in smoking cessation and anti-smoking ads could curb public and private outlays for the devastating but preventable diseases, from asthma to cancer, caused by tobacco. The state would also do well to enroll more elderly patients who are eligible for both Medicaid and Medicare in the Senior Care Options program, which combines health services with social supports to reduce unnecessary visits to hospitals and doctors’ offices.

Medicaid is central to the state’s health cost spiral on both the public and private sides because the below-cost reimbursements that hospitals get for Medicaid compel them to charge increasingly higher rates to privately insured patients, to make up the difference. Since passage of the state’s health reform law in 2006, Medicaid enrollment has jumped by almost a quarter million, an increase of 24 percent. At first, the numbers grew because the law broadened eligibility for the program; more recently Medicaid has become the fallback for laid-off workers.

A rebounding economy with substantial employment gains would be the best prescription for lowering the Medicaid bill. But Beacon Hill cannot count on that right now. In addition to long-term reform of the payment system, the state must find ways to hold down costs in the near term, including greater use of managed-care plans for its Medicaid caseload.

Such a step could be taken in a way that reduced the Medicaid burden on certain hospitals, allowing them to cut the fees they charge private insurers.

There are no easy answers to controlling health costs. There will be no ribbon-cuttings. The governor won’t necessarily be thanked for shaking up a system that, despite its waste and inefficiency, accounts for more than one-sixth of the Massachusetts economy. But Patrick’s commitment to reducing the unsustainable cost increases has been firm, and he should stick with it. It’s eminently the right thing to do for the state budget, for businesses, and for the many people struggling to cover their premiums.