Beware of Convention Center Miracle Cures
All over the country, cities are chasing after fortune and a hot reputation by luring convention business. In 1989, for example, Detroit's Cobo Hall got a $200 million renovation.

Today--15 years later-- the facility still carries $140 million in debt, but according to one report, it is among the country's worst fiscal performers. Now the mayor wants to spend $1.3 billion the city doesn't have for a totally new facility.
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Hospitals Free to Cut Prices
One obstacle to injecting a cash-for-service model into health care (taken to the greatest degree by groups such as SimpleCare) has been the question of what prices hospitals should charge to people without insurance.

It's been common for hospitals to have very high list prices that are then discounted for HMOs, governments, and other third-party payers. The prices are in some ways artificial, since they are almost always discounted. However, people without insurance, or who would pay cash (say, from a Medical Savings Account) face the prospects of prices beyond their reach.

Hospitals have defended the practice, saying that federal rules require it. This week, the Department of Health and Human Services has said not so. In a letter to the American Hospital Association, Secretary Thompson responded to that interpretation:"Your letter suggests that HHS regulations require hospitals to bill all patients using the same schedule of charges and suggests that as a result, the uninsured are forced to pay 'full price' for their care. That suggestion is not correct and certainly does not accurately reflect my policy."

He further writes "hospitals can provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations. Nothing in the Medicare program rules or regulations prohibit such discounts."

The implications have yet to be worked out, but this is promising. It means that rational (not dictated by government) pricing can develop. Analogies always imperfect, but consider this: what would happen if half of all auto repairs were covered by a government insurance program, and you tried to pay for a new muffler outside that program? You may be looking at a bill of, oh, $900, simply because that was the "list price" set before government discounts.
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Formularies Cut State Medicaid Cost
The Boston Globe reports that after putting more bureaucratic restrictions in place, Medicaid spending on prescription drugs is down. Doctors now have to plead with MassHealth, the state Medicaid agency, for permission to dispense drugs that are not generics, or prescription drugs not on a preferred list.

This has brought some cost savings in prescription drugs, but one wonders about other costs this may impose.

"The process takes time, a precious commodity in many busy practices. Beyond that, said Modest, patients often have to wait a day to get the drugs they need. Some give up rather than wait and wind up going without their medicines." Says one doctor, ""For some patients this can be a disaster."

Money saved now may bring higher costs later.
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Outsourcing Out of Control?
I've been meaning to write some things about outsourcing, or as it is sometimes called these days, off-shoring. I've also resisted doing so. One reason: it's not exactly an issue of state-level policy, which I focus on here. There are plenty of other things to keep me occupied.

Another reason: there's not much that can be done about it. Sure, states can make symbolic gestures--no contracts to companies that then use offshore employees for, say, call centers. Off-shoring is the continuation of ages-old process of global economic change, in which the U.S. becomes proficient in one industry, loses its edge as another country takes over, and then develops new industries in the process.

What's got people set on edge these days, though, is the fact that global competition is becoming a fact of life for white collar workers--as when Reuters announced it would hire journalists in India to write some stories on the U.S. market. For the chattering classes, the closure of the steel mill was something to talk about. But now that their own jobs are threatened, well, now it's a lot more of a compelling story. And of course, politicians find that railing against greedy corporations for "sending jobs overseas" is a good way to demonstrate empathy and burnish populist credentials.

Anyway, in today's Spectator, William Tucker says that contrary to the claims of some, dead economists did anticipate today's controversy.

The charge: in the 19th century, "major factors of production -- soil, climate, geography and even most workers -- could not be moved to other countries. But today's vital factors of production -- capital, technology and ideas -- can be moved around the world at the push of a button."

Says Tucker: "Did you follow that? It's like saying force may not equal mass times acceleration anymore because Isaac Newton didn't envision automobiles.

Ricardo never argued or even imagined that soil, climate and geography would or wouldn't be moved from country to country. His point was that the factors of production could be duplicated."

Tucker then draws on the history of the Corn Laws, which were a political issue in Britain at one time. They were repealed ... and disaster did not strike. Markets changed, people adjusted, and overall, the country was better off. Same with off-shoring today, he argues.

Some critics of off-shoring, such as Robert Reich, former economic advisor to the president, argue that key to any response to off-shoring is getting people ready to adjust to new realities, to take on new jobs. Tucker agrees that human capital is critical, and notes "There is one danger lurking in all this, of course, and this is that competition from India and China will expose America's glaring weaknesses in public education. ... It remains an idle curiosity that we rank only 19th in math and science (just behind Latvia), but someday this is all going to come home to roost."

Also today, the Detroit Free Press says that General Motors is eliminating some white collar contractor jobs. In itself, that's nothing new. But the measure is drawing fire because the company recently opened a white collar work center in Bangalore, India.

Tom Bray, a Freep columnist, says it is time to "Cool the hot rhetoric about exporting jobs." He notes that today's unemployment rate is about the same it was 25 years ago, when off-shoring was not an issue.

Meanwhile, Bruce Bartlett of the National Center for Policy Analysis, defends a current presidential advisor who has come under fire for saying that off-shoring has some beneficial effects.

"One would have a hard time finding a reputable economist anywhere who disagrees with this analysis. No nation has ever gotten rich by forcing its citizens to pay more for domestic goods and services that could have been procured more cheaply abroad. Nations get rich by concentrating on doing the things they do best and letting others produce those things they can produce better and more cheaply. It is called the specialization of labor and it is the foundation for economic growth. That is why even Democratic economists like Janet Yellen, Laura Tyson, Brad DeLong and Robert Reich have come to Mr. Mankiw's defense."

Bartlett reminds us that job relocation has a long history in the U.S. -- South Carolina textile firms now under competitive pressures from other countries got planted there because the work could be done more cheaply there than in New England. He concludes "It would be grossly unfair to say that it is OK to move manufacturing wherever production is cheaper, but wrong to subject information technology services to the same competition." Given the increased accessibility of communications, he says, it's also impossible to stop by fiat.

In other words, there's not much government can do, except make sure that people are getting educated so that they can be more productive. As I was saying ....
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Abolishing Co-Pays is a Step in the Wrong Direction
Lawmakers in Connecticut may abolish co-pay requirements for enrollees in Medicaid. Bad move. Doing so would turn Medicaid into a "free" program, in which beneficiaries--some truly poor, others, not--are passive participants in a government bureaucracy.

In short, the problem with eliminating copays is not, in itself, the extra amount that taxpayers will have to pick up. (Co-pay amounts are minimal). It's that it gives beneficiaries no financial stake; health care is back to being "spending someone else's money." Simply giving each person in the program a bank account they can draw on (vouchers), something similar to Medical Savings Accounts or the new Health Savings Accounts, would be much better than eliminating co-pays, or even keeping them in an unchanged system.
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New Blogs at Heritage
The conservative Heritage Foundation has two blogs running: the Policy Weblog and over at TownHall, C-Log, which is taken up with politics.
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Less Chance of Prison Time in Michigan?
Governor Jennifer Granholm is proposing, as part of a budget package, that "First-time offenders convicted of low-level crimes such as car theft or property destruction could be sent only to a county jail, community corrections program or probation." (If you 've ever been the victim of a car theft, as I have, you may not think of it as a "low-level crime," but that's for another day.)

Of people convicted of crimes in the lowest 5 categories in the state's sentencing guidelines, only 7 percent see time in a state prison, so it's not obvious that this measure will save a lot of money in the larger scheme of things. Still, officials in the Corrections department say that this could save them "tens of millions of dollars."
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TennCare, the Program that Ate Tennessee
Tennessee's version of Medicaid, called TennCare, has generally been a fiscal and policy disaster. In 2000, the Heritage Foundation criticized the plan for dramatically raising state costs, driving managed care organizations out of the state, and filled with fraud--including being populated by 16,500 people who lived out of state.) A report by the consulting firm McKinsey & Co estimated that 90 percent of new state revenue between 2004 and 2008 would have go to into the program just to keep it going as is.

Now, Gov. Phil Bredesen is set to announce a plan to keep the program at one quarter of the state budget, instead of the 40 percent it is on target to reach in a few years.

Among the changes: restrictions on use (10 doctor visits a year for some people, strong bias towards generic drugs) and increased co-pays. TennCare beneficiaries average over 30 prescriptions a year; for everyone else in the state, that number is closer to 10.

While they're at it, policy makers ought to consider where consumer-directed care fits into the mix.
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State Budget Situation Still Bleak
According to this account by Stateline, states around the country still face a bleak budget situation. Among the reasons: the economy isn't wildly soaring as it was in the late 90s, weakness in the manufacturing sector, and the one-time fixes have been used up (securitizing the tobacco settlement, accounting gimmicks, a federal bailout).

The Center for Budget and Policy Priorities (which leans towards expanding government) suggests that states will, collectively, have a $41 billion deficit by mid-year.

Of course, tough times are great opportunities for being forced to make hard and necessary decisions. A cynic would say that they are about the only time when officials actually do the right thing. There will be plenty of opportunities, it looks like, to streamline government, jettison poorly working or unwise programs, and rely on smart contracting measures.

On the other hand, as the National Association of State Budget Officers point out, there will plenty of groups asking for more and more from the public purse once they see a substantial recovery in budget numbers. "Pent-up demand," the group calls it. Sounds like the same-old business to me.
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States Seek to Game Medicaid System, Feds Push Back
States have engaged in various gimmicks and schemes to get more federal money for their Medicaid budgets. (One such example is a tax on hospital stays; the state collects the money, gets rewarded with federal money, and then gives the tax amount, and more, back to the hospitals.) The National Council of State Legislatures calls this an example of a "Medicaid maximization" strategy.

Another example? A nursing home borrows money, gives it to the state, which then launders it through counties, who repay the bank. The state then claims that it has spent the money on medical services, enabling it to get more federal matching funds.

Surely, but slowly, the feds are catching on, which is not good news for state managers. Last year, the General Accounting Office issued a report, Major Management Challenges and Program Risks, which identified Medicaid as one of several federal program "at high risk due to either their greater vulnerabilities to waste, fraud, abuse, and mismanagement or major challenges associated with their economy, efficiency, or
effectiveness." Further, it concludes that "Limited oversight has afforded states and health care providers the opportunity to increase federal funding inappropriately."

(Let's see. If that sort of activity happened at WorldCom, Enron, and .... Well, we know what would happen, but this is government, not the private market at work.)

Stating the obvious, perhaps as a warning shot, officials in HHS now say that states are shoring up their Medicaid budgets with "phantom dollars" in an attempt to attract federal matching funds.

While it's good to know that someone is paying attention in DC, the NYT says that the desire to approve a number of innovative, much needed (market-oriented, consumer-directed) reforms "has bogged down as federal officials try to ferret out improprieties in Medicaid financing."

It's all heading for a state-federal showdown. The Bush team wants states to document the source of state-effort funds before releasing more federal money. State officials, of course, object to the requirement--perhaps on federalism grounds, and perhaps because they fear that their schemes will be found out. But all this demonstrates the fact that federal funding comes with strings attached.
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If You Think We've Not Spent Enough on Education
An editorial in the Wall Street Journal (available here) compiles government numbers that suggest the problem with education is not a lack of sufficient funding. Two charts, comparing K-12 spending and reading scores, speak volumes.
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Time to Overhaul Teacher Training
The Teaching Commission recently released a report calling for an overhaul of teacher training. Among the highlights:

• Link pay to performance. Currently, successful teachers are paid in the same way as lesser-effective teachers: by years of service and number of college credits.


• Pay teachers more if they are in an academic field (math, science) with a shortage of teachers


• Emphasis academic qualifications of teaching candidates


• Streamline the procedures for getting a teaching license

The commission includes a teacher union president (who has tried to downplay many of the suggestions) and former education secretary under Clinton, so the proposals aren't as revolutionary as they could be. But it's a good start.

As the Wall Street Journal noted in an editorial on the report, "There is a long tradition of professional journalists, poets and others teaching college writing. But today Langston Hughes would be banned from instructing a Harlem high school English class until he obtained the proper New York licensing."
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The Perfect is the Enemy of the Good (Again)
Rising premiums for medical malpractice insurance--driven in large part by lawsuits--have meant that some patients who sue in the future won't be getting large payouts. They may get little at all, even.

The January 28 edition of the Wall Street Journal notes that a growing number of doctors and other health care providers are "going bare," or foregoing malpractice insurance. In effect, they are saying "So sue me." They're not stupid, of course. Five percent of doctors in Florida, knowing that their homes an annuities are protected from creditors by state law, and able to shelter their assets in trusts, are without insurance. (In Miami-Dade county, it's one-in-five.)

The downside for physicians: they may have trouble getting hospital privileges, or on the roster of an HMO.

Seeing the trend, the American Medical Association (AMA) no longer, as an official policy, recommends that physicians carry malpractice insurance.
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