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Observation: New York’s Health Care Spending: Are We Getting What We Pay For? March 2010

New York’s Health Care Spending: Getting What We Pay For?

By Courtney Burke
Director, New York State Health Policy Research Center

Courtney Burke

A key feature of the newly enacted federal law extending health coverage to millions of Americans is expansion of the Medicaid program. But Washington only pays part of Medicaid, with states and counties picking up the rest. New York spends more than any other state on the program: over $51 billion in 2010-2011, under Governor David Paterson’s proposed budget. That represents more than a quarter of New York’s spending, and is larger than many states’ entire budgets.

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Courtney Burke is director of the Rockefeller Institute’s New York State Health Policy Research Center (HPRC). Her research focuses primarily on topics related to Medicaid and the Children’s Health Insurance Program, including long-term care issues. An earlier version of this commentary appeared in The Business Review.

All of which makes this a good time to ask: Are we getting what we pay for?

In some ways, yes. New York’s Medicaid program has generally richer services and insurance eligibility levels than many states. For needy individuals, those are good things.

But there is little question that, overall, the state is not getting maximum value from all those billions of dollars. Taxpayer resources often fund expensive procedures, in expensive settings, for preventable diseases that could be treated at less cost, earlier in the progress of an illness, in less expensive settings, with better health outcomes.

According to the Commonwealth Fund’s 2009 State Scorecard on Health System Performance, New York ranks 50th (i.e., worst) among all states for preventable hospitalizations. High numbers of preventable hospitalizations are an indication that a health system is not effectively managing chronic diseases like asthma, diabetes, chronic heart failure or chronic obstructive pulmonary disease.

New York State also ranks 36th out of 50 in both the percent of adult asthmatics with an emergency room or urgent care visit in the past year, and the percent of children without a medical home, which would provide coordinated health care through a team of providers. The state is hardly better in terms of the percent of adults with a medical home, ranking lower than 34 states in the Commonwealth Fund report. These data suggest that there is an opportunity for New York to improve care management both within its Medicaid program and within the health system overall.

There are many reasons why health care costs are growing, but if New York decreased its rates of preventable hospitalizations and hospital readmissions to those of the best performing states, and increased its use of medical homes, it could potentially save billions of dollars both in the Medicaid program and in the overall health system while also improving health outcomes.

In order to create a health system that invests in prevention (i.e., wellness) rather than treatment (i.e., sickness) the state could continue to shift more health care dollars to preventive and primary care.

To be sure, shifting health care dollars is no easy task. Health care institutions — hospitals and nursing homes — are a major economic development source in many areas of the state and play an important role caring for the sick. For decades, New York state health commissioners — including current Commissioner Dr. Richard Daines — have called for reducing the state’s dependence on hospital care. But political resistance makes such change difficult and slow. By at least one measure — total employment — the hospital sector has grown by 18 percent over the last decade. Hospital leaders would make the case that they must continue to provide care when the overall system lacks primary care capacity, and they have a point.

The state’s reliance on institution-based care is driven in part by current reimbursement levels for health care services and public expectation that encourage providers to order more procedures and treat illness, rather than manage care.

Once someone needs a procedure or test, there are many instances when it can only be conducted in an institutional setting. When a test or procedure occurs in an institutional setting, the cost and reimbursement levels are usually higher. Differences in the payments made to hospitals or clinics versus those made to primary care doctors for the same procedure are in part due to differences in the cost of providing services in each setting. But they may not be cost-effective or rational. As noted by the state’s former Medicaid director, Deborah Bachrach, “disparities in reimbursement among [various] settings drive capacity and utilization in arbitrary ways.”

Unfortunately, doctors aren’t always adequately reimbursed for providing wellness services. For instance, a physician may not receive extra or adequate compensation for taking time to instruct a patient on how to effectively monitor blood sugar levels for diabetes — yet a doctor would be paid for amputating a foot because diabetes was not properly managed.

New York’s reliance on providing health care in high-cost settings is reflected by the fact that nearly 40 percent of all Medicaid spending occurs in such settings and the state has a high rate of hospital inpatient days. A useful contrast is Oregon, which has half the inpatient days per 1,000 residents compared to New York, and far fewer hospital admissions. Many of these comparisons about New York’s institution-based system were outlined in a 2007 Institute paper.

New York State has been taking some steps over the past few years to reverse some of these trends. It has shifted dollars from inpatient care to outpatient care, encouraged the development of medical homes to improve the use of preventive services, raised Medicaid reimbursement levels for primary care doctors, and is promoting better management and prevention of certain diseases. In some cases, it is too early to determine the net impact of these initiatives. In fact, some are still pilot programs, and others are modest in size. There is more to be done to assure that New York is getting the best value — and the best health care — for its dollar.


The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.