As I reported here, in 2003 New York State was charged $7,912 per Medicaid beneficiary, 76% higher than the national average of $4,487 and more than any other state. This is not a surprise, as New York has had the highest Medicaid spending per recipient as far back as I have collected data. And, I once read a paper that described New York State’s Medicaid program as being vastly more expensive than other states in the early 1970s, less than a decade after the program was created. In fact, I saw a film on the Channel 25 “City Classics” program showing a press conference by former Mayor Abe Beame, who was bemoaning the fact that Medicaid spending was out of control and seeking to use city resources to combat fraud to stop it. The state had no interest in doing so, Beame said, because it could simply force the city to pay.
Why does New York pay so much? The detailed comparative information required to answer that question has never really been collected, and given the power of the health care industry no wonder. What I can do is show you how New York City’s spending per recipient compared with the national average and the average for nearby states by category of service in 2002, and some of the things I have been told that might explain the results. Why 2002 and not 2003? Well, this data comes out so late I don’t take the time to analyze it every year. The 2004 data won’t be out until January – or until the last state provides the information requested by the Centers Medicare and Medicaid. My summary of the 2002 data for Medicaid in the 50 states is attached.
As that data shows, New York State’s Medicaid spending per beneficiary was 87% higher than the national average in 2002, while the adjacent states of Pennsylvania, New Jersey, Vermont, Massachusetts, and Connecticut spent 32% more than the national average per beneficiary. You may recall from a prior post that the average private sector worker in Downstate New York, excluding the high-paid finance sector, earns about 33% more than the national average, while those Upstate earn about the average. To some extent, therefore, the higher spending per recipient in New York can be explained by the higher wages, and thus the higher cost of living, Downstate, where the majority of Medicaid recipients live. In fact, the federal Medicare program pays about 33% more for services Downstate to account for this. But New York’s Medicaid spending per beneficiary exceeds the national average by far more than 33%.
Not in all cases, however. For “capitated care,” which is payment to insurance companies for Medicaid Managed Care, New York State was just 12.2% above the national average, while the adjacent states were 46% higher. For home health care services, for which New York State has many beneficiaries (more on that in the next post), New York State was also just 12% above average, while the adjacent states were three-times the national average. Perhaps New York is making up for having so many beneficiaries by paying less for each one. For mental health facilities, New York State spent 20% more than the national average, an increase compared with past years when spending in this category was quite low. Perhaps at some point someone decided the mentally ill deserved better care. For lab and X-ray services, New York State spent half the national average per beneficiary. For physician services New York State spent one-third less than average. I once complained to a physician college classmate about New York’s high Medicaid spending, and was told that the state’s payments to physicians were among the lowest in the country. “That can’t be,” I told him. Oh, yes it can!
How about the other side? Well, the state’s Medicaid payment per recipient for “personal care” services was triple the national average. More on that in the next post. For nursing home services, New York was only 12.4% above average, but that is misleading. Going to additional detail, I found that New York’s Medicaid spending per beneficiary for 116,000 elderly nursing home recipients was 50% above average, and its cost for 36,500 blind and disabled recipients was 44% above average. The overall average for nursing homes is brought down by 85,000 “unknown” recipients who each received $668 in Medicaid nursing home services each. What is an “unknown” recipient? I don’t know. But I do know that New York State accounted for one-third of all such recipients in the country. For intermediate care facilities for the mentally retarded, New York State’s spending per recipient was 135% higher than the national average; the adjacent states were 37.8% higher than average.
Then there is New York’s hospital industry. New York State’s Medicaid spending per beneficiary was 54% above the national average for in-patient services, and 42% above average for outpatient services. The adjacent states were 12.6% below average, and 37% above average, respectively. This is quite a comedown from the past. In 1997, New York State’s in-patient hospital Medicaid spending per recipient had been 90% higher than the national average. It was still high in 2002, and given the “Health Care Reform Act” passed that year, it wouldn’t surprise me if it was still high today.
As shown in the spreadsheet attached to this post http://www.r8ny.com/blog/larry_littlefield/where_the_excess_and_below_average_government_jobs_and_pay_are.html, New York City (which accounted for 78% of the states Medicaid spending on hospital in-patient services and 71% of its spending on out-patient services in 2002) has a high ratio of both public and private hospital employees relative to population. With all this high spending, those workers aren’t even especially well paid. In 2005, the city’s public hospital workers were paid just 12.7% more than the national average for such workers, according to data from the Governments Division of the Census Bureau. The city’s private sector hospital workers were paid 32% more than average – comparable with private sector workers as a whole — according to data from the New York and U.S. Departments of Labor.
Much of the discussion of Medicaid spending has focused on "waste, fraud and abuse," but this is an easy and misleading answer. One person’s "waste" is another person’s fully deserved income source. Below is a list of possible causes for New York’s high Medicaid spending, provided to me by health care industry insiders and others over the years. I cannot answer how much of a factor each of these is, because no one has dared to ask the questions. I believe each is worthy of study.
- Enrichment of individual health care providers through fraud. The example I had been given is top administrators in a hospital getting kickbacks in exchange for purchasing expensive equipment of dubious advantage. Also, one ought to wonder why “personal care” expenditures per recipient are so high, given how little personal care workers earn. And, I once knew a couple whose child suffered from autism, and who qualified for state-funded services. They were upset when the health care worker who had worked well with the child decided to leave the field for better pay, and outraged when they found out the difference between what she was getting and what the state was paying the agency. Many providers of personal care services, in particular, are reputedly operated by members of the state legislature, their family members, friends and associates. I expect, however, that outright theft is a small share of the total additional cost. It certainly isn’t 40 percent, which the Times reported, though 10 percent is possible.
-
A jobs program for the unemployable. Much of the additional expenditure is for “personal care” aides, such as those represented by Local 1199. Medicaid has, in this view, become an alternative to welfare, with some benefit to the elderly (who get maids, personal shoppers, etc.) that they would not get elsewhere.
-
Job security for the obsolete. Health care is shifting from in-patient to at home, clinic, and same-day care. But unlike those in the private marketplace, where the customer is king, those with a lifeline to public money are assumed to have a “right” to their jobs. Therefore, hospitals continue to get bailed out, just as public schools in areas with declining enrollment get more money at the expense of New York City’s children in the allocation of state school aid.
-
Overpaying employees. Personal service aides may be earning barely more than the minimum wage, and a physician friend tells me doctors here make no more than in Missouri despite the higher cost of living, but top administrators are earning millions in what are theoretically non-profit charities. To be fair, the same physician friend says that hospitals with millionaire administrators work better.
-
Money into the bricks and mortar. Hospitals went on a building boom in the early 1990s, with money borrowed from the Dormitory Authority of New York, guaranteed by the federal government. The hospitals were not needed; high Medicaid reimbursements are used to pay for them. I was told that New York State had at one point absorbed over 80 percent of federal health care construction loan guarantees.
-
Redistributing resources downward. This is what the health care industry would have me, and you, believe. It provides health care to all, then goes out and tries to get the money where it can, and to make up for losses on uninsured immigrants and working poor people ineligible for Medicaid, it charges more for those who are eligible (and to insured public employees). Maybe, but I’ve heard most Medicaid patients get sent to public hospitals anyway, and if this is really the cause of higher spending per patient, then every dollar spent on extensions of Medicaid coverage – like Family Health Plus – should be met with a dollar of savings in the cost per patient. But it hasn’t happened.
-
Redistributing resources upward. In this view health care price deregulation was botched. It makes sense to allow providers to set their own prices, but why are these alleged charities allowed to practice price discrimination? The Wall Street Journal has covered the exorbitant prices NY hospitals charge the uninsured, compared with prices negotiated with private insurers. But Medicaid may be overcharged as well, thus allowing health care for insured executives and their corporations to be subsidized, back door, by a taxpayer-funded public program for the poor! In most states, in contrast, low Medicaid reimbursements are subsidized by higher charges to private insurance; this year Massachusetts raised Medicaid payments to hospitals at the urging of the business community.
-
Redistributing resources outward. I’m told that many of those getting Medicaid-funded operations at NYC hospitals are from other states (and countries) where services are less good and public health funding less generous. They show up, have a cup of coffee here to qualify as residents, and then get care. If all your recipients are really sick, that would explain higher spending per patient.
Finally, there is one other issue: the family of last resort dilemma. This is the multi-trillion dollar issue, one of the most important issues our nation faces. And it is the subject of the next post.
How much do each of these factors explain high Medicaid spending, and high Medicaid spending per recipient, in New York State? That would require a lot of analysis of a lot of information I do not have. Much of the information about New York’s hospitals, for example, comes from the Greater New York Hospital Association, which releases study after study showing that they are broke and require more public funding. I think it is entirely possible that they are broke precisely because being so gets them more public funding. And I will go on thinking that is so until provided with information from an objective and disinterested source that convinces me otherwise.