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F I S C A L I M P A C T R E P O R T

SPONSOR Payne

DATE TYPED 3-2-05

HB HM 43

SHORT TITLE Public Notification of Hospital Changes

SB

ANALYST Collard

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB 762

SOURCES OF INFORMATION

LFC Files

Adverse Health Events in Minnesota Hospitals (

www.health.state.mn.us

)

Centers for Medicare and Medicaid Services

Kaiser Family Foundation (

www.statehealthfacts.kff.org

)

America’s Health Insurance Plan

Responses Received From

Department of Health (DOH)

Health Policy Commission (HPC)

SUMMARY

Synopsis of Bill

House Memorial 43 requests hospitals and health system associations in New Mexico work with

appropriate state agencies to develop a process by which hospital changes, relative hospital quality

and annual increases in charges of hospitals may be made easily available to consumers.

Significant Issues

DOH indicates the memorial seeks to develop a process to make hospital information regarding

charges and aspects of quality readily available to healthcare consumers to enable informed health-

care choices and to clarify confusing cost charge issues. Making this information readily available

could not only serve to better inform the consumer, but enhance hospitals’ accountability for

charges and aspects of quality.

House Memorial 43 -- Page 2

Since different state agencies have authority over different aspects of healthcare regulation, it is ap-

propriate that they work together with hospitals and the New Mexico Hospitals and Health Systems

Association to develop the process for making this information available to healthcare consumers.

FISCAL IMPLICATIONS

DOH notes there are no fiscal implications associated with this memorial and HPC notes the re-

sources involved in planning are within the current staffing levels of the HPC.

ADMINISTRATIVE IMPLICATIONS

DOH notes staff time will be needed to participate in the process development and indicates this

could be done within existing resources.

HPC notes the resources required would be meeting time, research and legal review, especially with

respect to the confidentiality requirements behind some of the quality information. However, other

states, such as Minnesota, do have public reporting of quality information of hospitals which could

be used as a template for New Mexico on quality reporting. HPC indicates this could be done

within existing resources.

RELATIONSHIP

House Memorial 43 relates to House Bill 762, which covers hospital quality information disclosure

requirements.

TECHNICAL ISSUES

HPC suggests deleting the word “annual” when used in reference to charge increases since in-

creases do not have to be made and are not always made on an annual basis.

HPC also notes the memorial does not ask for a report or any indication of progress towards com-

pletion of its goals and suggests a report to the legislative Health and Human Services Committee at

its October meeting.

OTHER SUBSTANTIVE ISSUES

DOH notes it is difficult and confusing for healthcare consumers and their families to obtain and

understand complex issues of hospital charges, especially when faced with emergency situations.

Also, there is no central location for information regarding the quality of hospitals to assist health-

care consumers in making informed medical decisions. Therefore, it is important that this informa-

tion is easily accessible and understandable through a variety of resource locations such as local

hospitals, appropriate state agencies.

HPC indicates without a legal change, the current Hospital Inpatient Discharge Data information

collected by HPC could not be used as comparative data as is desired in this memorial. Also, the

data collected by HPC is inpatient data only and is not charge element specific. Consequently, the

memorial asks that a new process be developed by which charges are made easily available to the

public as well as increases in charges.

HPC research shows hospital charges are a significant amount of the total health spending in New

House Memorial 43 -- Page 3

Mexico and, consequently, a significant amount of the health insurance premium dollars. The latest

data that compares New Mexico with other states is dated 1998, but it shows New Mexico’s total

hospital spending per capita as $1,389. This is higher that that of surrounding states. Utah’s spend-

ing per capita is $1,016, Arizona’s is $1,085, Colorado’s is $1,147, and Texas’ is $1,274.

The inpatient use rate for hospitals (discharges per 1,000 population) would be another variable in-

creasing total hospital spending, but the data shows New Mexico’s rate at 90 per 1,000 population,

Utah at 89, Arizona at 106, Colorado at 93, and Texas at 115. Assuming length of stay and resource

intensity per case as constant, it would appear that a variable driving higher hospital spending in

New Mexico is rates, not inpatient utilization.

It is possible that part of the higher number in total spending in New Mexico is a higher use of out-

patient hospital services and outpatient hospital rates compared to other states. 1999 data for Medi-

care outpatients only showed Medicare hospital outpatient services per 1,000 Medicare beneficiar-

ies at 738 in Utah, 559 in Arizona, 723 in Colorado, 632 in Texas and 678 in New Mexico. The

data is incomplete on the components of hospitals spending as to whether it is rates, intensity of

service, or utilization of services driving total spending for hospital care.

Also, the percent of the total health care spending on hospital care in New Mexico was 43.3 per-

cent, compared to Utah’s 37.2 percent, Arizona’s 35 percent, Colorado’s 34.4 percent, and Texas’

37.5 percent. The national percent was 37.4 percent. Total health care spending would include

home care, nursing home, physician, drug as well as hospital spending.

HPC also notes one of the main strategies to slow cost growth may be to give consumers financial

incentives to use less health care and to be sensitive to prices for services. One of the more signifi-

cant changes for the health care system this past year has involved changes in the benefit struc-

ture—primarily increased patient/employee cost sharing—for the health maintenance organization

(HMO) and preferred provider organization (PPO) products that privately insured people utilize.

Consumer driven health plans (CDHP) and health savings account (HSA) plans, which push this

approach further, will become more available this coming year as HSA products are developed in

New Mexico as a result of passage in 2003 of the federal Medicare Modernization Act.

HSAs build in a deductible incentive for the employee to shop around for the least expensive and

highest quality care, but the information for that decision is not easy to obtain or understand. HSAs

shift more first-dollar costs to employees, lower an employer's policy cost and reduce the amount of

premium paid by the employer.

Preliminary results show that Health Savings Accounts products are helping with the uninsured

problem. Preliminary results showed that 20 percent of individual HSA sales are for previously un-

insured.

Much of the New Mexico hospital market is one that could be characterized as monopoly or oli-

gopoly with considerable distances to the next hospital for many New Mexicans. Only Albuquerque

and Las Cruces currently have more than one acute care or specialty hospital. Monopoly markets

are usually defined as ones in which sellers have the ability to profitably maintain prices above (or

below) competitive levels for a lengthy period of time. In addition, barriers to entry are significant

because of the large capital required to build and operate a hospital.

Possible characteristics of hospital pricing in New Mexico which might be changed under the me-

morial are as follows:

House Memorial 43 -- Page 4

.

There is limited price competition (except possibly to large third party payers) and limited con-

sumer choice for many services. Much of the hospital competition is service and quality compe-

tition to doctors and patients. The insertion of information into the market may result in well-

informed consumers asking questions and obtaining better value for their hospital dollar. Infor-

mation may also lead to the discouragement of pricing that has adverse consequences on New

Mexico payers and consumers. The dynamics of the market could change with information

made available to consumers.

.

There is also limited public knowledge or information about pricing or quality. “Purchasers” in

many cases are not true payers. Patients and physicians are largely insulated from costs paid by

other third parties ($10 co-pays). There are also price distortions in the market with reimburse-

ment to providers almost always not what the list price is.

.

There is an inelastic, yet growing demand. However, price increases or decreases do not change

demand much, if any, as is the case with other industries and other services.

.

Pricing discounts without need for the service means nothing (e.g. there no discounted sales on

appendectomies and you do not procure one unless it is required to do so).

.

“Economic principles assume very different personalities in an industry where the product is as

personal as one own health or the health of a loved one.” (quoted from a NM Healthcare System

CEO). Few consumers would say “that cancer treatment does not fit into my budget so I’ll skip

it” in the same way you shop for other products.

The memorial may help diminish the dearth of information noted above. However, there can also be

negative effects associated with public reporting.

HPC notes a monopoly market may be good for quality outcomes through higher volume hospitals

obtaining better mortality/morbidity results. This conflicts with competition theory about quality.

However, there are numerous studies correlating positive patient outcomes with more volume.

.

Price reporting may increase rates in lower priced hospitals closer to higher priced ones. This

artificial inflation would be a negative consequence.

.

Consumer behavior through better knowledge may lead to higher, not lower utilization.

.

Increased patient awareness of hospital price differences might help slow rising costs, but dis-

closure of prices negotiated between health plans and hospitals would backfire by increasing

hospitals' bargaining clout with health plans which would then result in higher health insurance

premiums. This would be a negative consequence. Gross charges would need to be the focus of

any reporting.

.

Information on hospital care cost may be available only in forms that are so complex that even

the most sophisticated consumers can be baffled (e.g. ask for the list charge of a serum amylase

or a CT scan).

.

Hospitals charge on a fee-for-service basis that is highly detailed—down to charges for each pill

or service.

.

Patients all have different needs, so developing an estimate of what the charge would be for any

single patient is something that not all hospitals have been willing to do. It may be only a gross

estimate.

.

Gross charges may be limited in value to many but the uninsured.

.

Gross charges may not matter with health plans or consumers that have limited choice of hospi-

tals or live in one-hospital towns.

There would be some quality reporting information which may fit under the Review Organizational

Immunity Act (41-9-1) for peer review purposes that could not be disclosed. This issue would need

House Memorial 43 -- Page 5

to be researched. However, under the current statute, public hospitals in New Mexico are already

under some degree of access for quality reporting if requested. See (14-6-1c) –“Statistical studies

and research reports based upon confidential information may be published or furnished to the pub-

lic, but these studies and reports shall not in any way identify individual patients directly or indi-

rectly nor in any way violate the privileged or confidential nature of the relationship and communi-

cations between practitioner and patient.”

KBC/lg