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December 10, 1998 

Council's health-care expert urges efforts to contain health costs

The transition to deregulated hospital rate-setting in New York is working as planned, so New York should continue moving toward a fully deregulated environment, according to The Business Council's specialist in health-care issues.

That means that $1.38 billion in "temporary" surcharges on health-care bills should expire on schedule at the end of next year, Elliott Shaw, director of government affairs, said in a speech at a conference on health care at Pace University.

Shaw's remarks included an answer to comments by hospital interests on Misguided Money, a new report by The Public Policy Institute on $1.38 billion in health-care taxes.

The old state-driven rate-setting mechanism gave hospitals little incentive to contain costs and increase efficiencies. Automatic rate increases were supplemented by bonuses from the state legislature, Shaw added.

The result was a costly health-care system with an excess capacity that in 1996 was estimated at 20 percent of all hospital beds, he said.

Lawmakers passed the Health Care Reform Act of 1996 (HCRA) to join 48 other states by beginning deregulation. Shaw noted that HCRA's approach was designed collaboratively by groups representing hospitals, doctors, businesses, advocates for the poor, labor, consumer groups, insurers, and government.

"HCRA is the right approach," Shaw said. "The Business Council helped conceive the idea. We were there when it was born. We want the move to full deregulation to unfold as planned."

To help ease hospitals' transition to market-driven rate-setting, Shaw noted, HCRA imposed $1.38 billion in "temporary" taxes on health care to support graduate medical education (GME), bad debt and charity care.

Those taxes are due to expire in 1999-and they should expire, Shaw said.

"Hospital finances are solid. Average lengths of stay are dropping. There have been some appropriate consolidations and mergers and other positive signs of an improving health-care delivery system," Shaw said.

"Perhaps most importantly, the sky didn't fall. There were dire predictions about many hospitals closing, going bankrupt, announcing huge layoffs-and those things just didn't happen."

Shaw noted that some hospital groups' news releases had misrepresented Misguided Money. That report concluded that the $1.38 billion taxes undermine the state's competitiveness, make health insurance less affordable, pay to train unneeded physicians, and come without sufficient accountability.

He added that Misguided Money criticized the GME surcharge as means of paying for training-but did not criticize graduate medical education itself.

He also noted that hospital groups' rejoinders to Misguided Money:

Shaw said business wants New York to contain costs by fully deregulating hospital rate-setting and by resisting cost-inflating mandates.

"Deregulation is working, and rising rates make market discipline and cost-containment more important than ever," he said.

Click here for the release on Misguided Money.