(NY TIMES) Clifford J. Levy, January 3, 2023

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Gov. George E. Pataki unveiled a broad plan today intended to lower health care costs by lifting most of the rules that control the fees charged by hospitals.

He also called for the state to make deep cuts in financing for medical education, a proposal that quickly ran into opposition in New York City, where programs that train doctors are one of the pillars of care in poor neighborhoods.

Mr. Pataki’s aides said that by reducing money for medical education, the state should be able to cut by 30 percent the number of slots for medical residents in New York over three years. Such a move, they said, would help slim down a health care system that is bloated with extra doctors.

The Governor said that ending the state’s decades-old practice of setting rates for services provided by hospitals would allow competition to push down costs and offer new incentives for people to seek cheaper treatment outside of hospitals.

“We are just quite confident that this will lead to a stronger and healthier health care system as we move into the next century,” Mr. Pataki said at a news conference this morning.

The plan is the latest jolt to hospitals in New York City, which are already facing sharp cuts in Federal and state spending for Medicaid and Medicare. The city, which has one of the largest concentrations of hospitals in the nation, educates far more doctors than any other and relies heavily on government money to care for its poor.

Mr. Pataki’s plan stirred a fierce response from some city hospital executives, who contended that the cuts might force hospitals to consolidate or close, hurting medical care in some areas. The proposal could also be a new source of tensions between the Governor and Mayor Rudolph W. Giuliani, two Republicans who have often been at odds.

“This would obviously have a negative impact on the H.H.C. hospitals,” said Maria Mitchell, who is Mr. Giuliani’s top health adviser and is also chairwoman of the Health and Hospitals Corporation, which runs the 11 municipal hospitals.

The Democrats who control the State Assembly also criticized the plan, saying it would give too much power to insurance companies and penalize consumers. Both houses of the Legislature must pass the proposal. It is intended to replace rules that expire on June 30.

Mr. Pataki expressed confidence that the plan could be passed before the deadline. But privately, leaders of both parties said that with the state’s budget on hold because of the Federal budget impasse, it is more likely that the Legislature will extend the old rules for a few months and then tackle the proposal in the fall. Both parties generally agree, however, that the rules governing hospital fees must be revamped.

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The Governor’s plan would allow private insurance companies to negotiate rates for services with hospitals directly, a right that managed care companies already have. It would not affect the rates for Medicaid and Medicare, which would continue to be set by the state and Federal governments.

Of the $28 billion in hospital revenues annually in New York, $16 billion are covered by the current rules.

Under those rules, the state sets a standardized fee for every procedure that a hospital performs. The State Legislature has periodically passed bills mandating these rules, which the Health Department has then turned into a list of required charges that it sends to hospitals.

Health care experts said that nearly a dozen states moved toward regulating hospital rates in the 1970’s to slow the steep increases in health care costs. But by the early 1990’s, most of them had reversed field, as Mr. Pataki is proposing, deciding that deregulated systems governed by market forces would be more effective in controlling costs. New York and Maryland are the only states that still set hospital rates.

But deregulation has not always worked smoothly. Among the states that have deregulated their hospitals in recent years, both New Jersey and Massachusetts have had trouble providing enough money to pay for care of the poor.

Today, insurance companies and business groups praised Mr. Pataki. The New York State Conference of Blue Cross and Blue Shield Plans said the plan was a “laudable, pragmatic direction for New York’s health care system that will help contain costs, enhance access to care and build on the quality of services delivered to citizens.”

The exact amount of the cut in financing for medical education was difficult to determine from the Governor’s proposal, but it could be several hundred million dollars. Nearly $3 billion is spent in New York on training doctors, including money from Medicare, Medicaid and a surcharge on the mandated rates that hospitals can charge.

Under the new system, the Medicare money would not be affected, but the state would allocate less from Medicaid for medical education. There would be a smaller surcharge, but hospitals would have to make up the difference through their own fees.

The Governor would also allow New York City to raise another $350 million for medical education at its hospitals through the city’s own surcharge on health care.

“Let me stress that we are not looking to maintain the status quo with regard to medical education in New York State,” said Dr. Barbara A. DeBuono, the State Health Commissioner. “We are looking to scale down the graduate medical education program in New York to reflect the place that the country is at in terms of physician supply and to reflect the changing needs in New York.”

Hospital executives said the new rules would put them at a disadvantage in negotiating with insurance companies. While they said they did not necessarily disagree with Mr. Pataki’s proposal to deregulate health care, they called on him to find a better way to finance medical education and care for the poor.

Kenneth E. Raske, president of the Greater New York Hospital Association, which represents 174 hospital and nursing homes in the New York City area, said the state should have some kind of tax on health insurance premiums so that such costs are not just borne by hospitals.

“The ability of hospitals to fight and get some of that money back, like economic gladiators — it is a frightening thought,” he said.

Source: NY TIMES