Reforming American health care has been front and center in the 2008 presidential campaign. But even as Democratic and Republican candidates offer federal prescriptions for fixing things, some states compound our problems with needlessly bureaucratic state health-care systems that inflate costs and resist reform. New York State is a prime example.

New York has long had one of the nation’s most expensive, heavily subsidized state health-care systems, thanks to years of unwise government intervention. Starting in the early 1980s, New York began a misguided effort to control costs by fixing the price of every procedure performed at every hospital in the state. But the prices varied from hospital to hospital; to help financially troubled hospitals, as well as those with excess capacity, the system rewarded them with higher rates. Over time, the system grew bloated and expensive. It also encouraged hospitals and their workers to become politically powerful allies—lobbying for ever-greater government subsidies and extra spending on public programs like Medicaid, and against reform efforts that might slow the relentless rise in costs. As a result, the state pays for about half of all spending on personal health care in New York; other states pay an average of about 40 percent. One big culprit is the state’s Medicaid program, which spends more than twice the per-capita national average.

In 2003, trying to rein in state health-care costs, then-governor George Pataki appointed a bipartisan commission chaired by investment banker Stephen Berger, a Manhattan Democrat, to recommend ways to shrink the system and make it more efficient. The Berger commission called for, among other things, a modest state push to downsize the hospital and nursing-home industries by eliminating about 20 percent of excess capacity. When new governor Eliot Spitzer endorsed the commission’s recommendations early this year, the state finally seemed on the path to reform.

But not so fast. Several hospitals have gone to court to block closing orders, and only a few small institutions have actually seen their doors shut. Meantime, major commission-ordered consolidations and mergers haven’t happened. For instance, after two Elmira hospitals, St. Joseph’s and Arnot Ogden Medical Center, claimed that they couldn’t reach a merger agreement, the state let them remain separate. At the same time, even though the state has a hospital-bed surplus, some hospitals have actually been expanding to take advantage of other institutions’ potential closings. Thus, far from shrinking, New York’s hospital industry actually grew this year by nearly 6,000 jobs, or 1.8 percent, the seventh consecutive year that hospital employment has risen in the state.

The most recent Medicaid-spending data (from 2006) show that New York continued to hike spending, even as 22 other states were actually lowering outlays. New York now spends about 128 percent more on Medicaid, per capita, than the average state does. With 6 percent of the U.S. population, New York now accounts for 15 percent of nationwide Medicaid spending on hospitals and 19 percent of spending on home health care.

To entice New York to spend less, the Bush administration has dangled $1.5 billion in federal aid, tied to the state’s meeting spending-reduction goals. The federal aid was one reason why state officials accepted the Berger commission’s recommendations. But the feds have tried this approach before, unsuccessfully. In 1999, the Clinton administration handed over hundreds of millions of dollars to cushion the blow of New York legislation designed to shrink the health-care industry. Much of the money was to fund the retraining of workers who might lose jobs because of reform. But the state got rid of so few jobs that most of the aid sat unused, and eventually went to hospitals as bonus operating subsidies.

It’s no wonder, then, that New York’s health-care professionals are dragging their feet on the latest reform efforts. Experience has taught them that resistance pays off—as taxpayers keep getting soaked.


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