Governor's Task Force Makes Recommendations On Reforming The State's Health Care Financing System
New York City, December 5 -- The Ad Hoc Task Force on New York's Prospective Hospital Reimbursement Methodology (NYPHRM), appointed by Governor George E. Pataki, today issued recommendations to advise the Governor on reforming the health care financing system in New York State.
"The Task Force recommendations represent significant change in the State's approach to health care financing, and provide a framework for achieving a more efficient and effective health care system within the changing health care environment," said State Health Commissioner, Barbara A. DeBuono, M.D., who chaired the Governor's Task Force. "Our primary mission was to establish principles and incentives for health care financing that will promote expanded access to health care and improved health care quality for all New Yorkers."
"There was unanimous agreement among task force members and those who testified at four public meetings that the current NYPHRM legislation does not meet the state's goals for health care in light of dramatic changes taking place in health care delivery through the emergence of managed care," the Commissioner said.
The NYPHRM hospital reimbursement system, initiated in 1983, was established to control hospital costs and medical inflation, provide funding for uncompensated care provided to the uninsured and ensure the financial stability of hospitals. Authorizing legislation for NYPHRM expires on June 30, 1996.
The Task Force believes that competition in the health care system will be more effective than NYPHRM in constraining the rate of growth in health care spending. Therefore, the Task Force is recommending that New York State no longer set hospital reimbursement rates for patients covered by private and commercial insurers, or for Medicaid patients enrolled in managed care plans.
New York State should, however, continue to finance public policy goals that are unlikely to be addressed through market forces, including care of the medically indigent and training of needed health care professionals. Funding for these priorities in the amount of $1.9 to $2.2 billion should be generated through a broad-based mechanism.
Consistent with its charge, the Task Force has focused on recommending principles that should guide the Governor, and has not outlined specific implementation strategies. The Task Force recommendations include the following:
New York Should Move Toward a System of Negotiated Rates
New York State should move from the current hospital reimbursement rate-setting system to a competitive, free market system in which all health care insurers negotiate payment rates for their insured populations directly with hospitals. Currently managed care organizations negotiate rates, but the State sets rates for other insurers. This recommendation would extend negotiated rates to all non-Medicare payors, including commercial and private insurers.
Hospital reimbursement rates would continue to be set by the state for Medicaid fee-for-service patients who are not enrolled in managed care plans, and the Commissioner of Health would be given authority to negotiate these rates with hospitals.
New York State Should Continue its Role in Assuring Quality and Access
As New York State moves to a market-driven health care system, it is important for the State Health Department to work in conjunction with health plans, health care providers and consumers to assure patient access and quality of care. The Task Force recommends that the Department of Health identify health outcome and access measures to aid in evaluating the quality of care provided to patients.
New York State Should Continue to Finance Public Policy Goals That are Unlikely to be Addressed Through Market Forces
Uncompensated Care: The Task Force agreed that financing care provided to the medically indigent represented the most important public good to be addressed by the State. But, the focus of such funding should shift from providing subsidies to health care providers for uncompensated care, to providing incentives to insurers and employers to insure more of the State's population. (Under NYPHRM, about $1.26 billion of funding is provided for care for the indigent, but it largely is paid out as institutional subsidies.)
It is recommended that $1.2 to $1.5 billion be devoted to care for the medically indigent, and that it be allocated in the following way:
- $225 to $300 million to expand the State's Child Health Plus program;
- $25 to $50 million to develop insurance initiatives and incentives to encourage employer-based insurance and/or to provide catastrophic health care coverage;
- $750 to $900 million for subsidies to health care providers who provide care to the medically indigent above a minimum threshold to be set by the State
- $200 to $250 million to support targeted programs to aid in the transition to market forces, including grants for rural health networks, primary care development, retraining of health care workers.
Graduate Medical Education: Task Force members and most of those testifying at public meetings agreed that some direct funding should be provided for graduate medical education. However, they also agreed that the number of medical residents trained in New York State should be reduced and that funding should encourage training of the appropriate number and types of health professionals, with greater emphasis on primary care.
The Task Force recommends that the majority of costs for graduate medical education should be negotiated by hospitals with payors. A $675 million Professional Education Fund would be established and divided among teaching programs based on their consistency with public health priorities and goals, including training of primary care physicians and in-state retention of graduates to serve in underserved areas.
Capital Financing
The Task Force recommends that the state's role in financing of hospital capital costs should be limited to assisting hospitals in debt restructuring and facilitating access to capital markets. Hospitals should cover capital payments in their rate negotiations with third party payors. This will motivate the institutions to assume more accountability for their business decisions on expansions and equipment acquisitions.
The state should create a pool of about $25 to 50 million to assist hospitals in restructuring or refinancing existing debt as they alter operations and respond to changes in the health care market place.
Funding Mechanism
"By moving to a system of negotiated rates, the state will need to come up with a new financing mechanism to generate the approximately $2 billion needed to finance care for the medically indigent and other public health goals," Commissioner DeBuono said. "While it is recommended that the majority of graduate medical education and capital costs should be covered through negotiated rates with health insurers, we must generate revenue to finance public needs goals."
The Task Force evaluated a number of potential funding mechanisms, including a tax on insurance premiums and payor surcharges. Three possible approaches were outlined by the Task Force for raising the necessary funds through a payor surcharge:
- 12 percent surcharge on non-Medicare hospital payments;
- 11.5 percent surcharge on non-Medicare hospital and clinic payments;
- 7.6 percent surcharge on non-Medicare hospital, clinic and physician payments.
The Commissioner praised the 19 member Task Force for its diligence in focusing on some very complex and controversial issues, and arriving at a consensus on key principles and recommendations to guide the Governor in developing legislation to replace the State's outdated health care financing system.
12/5/95-136 OPA
Contact: Claudia Hutton, Director, Public Affairs (518) 474-7354New York State Department of Health, Posted: January 17, 1996
