Getting More for Our Money in Education and Health Care

The recession has forced consumers and businesses to pursue greater value – lower cost and higher quality – in everything they do. With less discretionary income, consumers have had to seek out higher-value products and services. This, in turn, has forced businesses to find more efficient methods of production while maintaining or improving the quality of their products and services.

The public sector is now facing the same kinds of challenges the private sector has faced – how to deliver effective public services with dramatically lower revenues. Facing a $4.1 billion budget deficit – a 14% shortfall –Governor Corbett has proposed significant cuts in many state programs, particularly education.

Although the Governor’s proposal would increase the amount of state tax revenues for K-12 education by nearly a quarter billion dollars (2.6%), the net effect on public schools is a $1.3 billion cut because schools will no longer receive $1.5 billion in federal stimulus funds that Governor Rendell had used to substitute for state funds. Although that sounds like a big cut, it represents less than a 6% reduction in total school spending, just slightly more than the increase which had occurred over the past two years.

Many education advocates would like to see more state funds allocated to offset these cuts, but their energies would be better spent helping schools do what hundreds of manufacturing businesses and other firms have done over the past two years – reinventing themselves to deliver greater value at lower cost.

Pennsylvania’s public school systems are hardly models of efficiency or high value. Public schools in Pennsylvania spend nearly $13,000 per pupil per year, 17% more than the national average. Yet they don’t deliver above-average results; the National Assessment of Education Progress found that fewer than 1/3 of students in Pennsylvania’s schools are proficient in basic skills, barely above the national average, and Pennsylvania high school students have the 9th worst college placement test scores in the country. While it is commonly believed that more spending on education leads to better results, the opposite is true in many cases. Indeed, some of the best performing schools in the Pittsburgh Region spend significantly below-average amounts of money.

A 6% reduction in total school spending would still leave schools spending well above the national average. The quality of education could be preserved or improved if the state revises the funding formula so that poor schools don’t face disproportionately large cuts, and if schools eliminate inefficiencies rather than cutting important programs like kindergarten. Only 75% of current school expenditures are actually used for instruction; the other $5 billion goes to administrative overhead, sports, and other non-instructional programs. In this year’s school board elections, voters should seek out candidates who are committed to make these kinds of changes.

In contrast, it’s harder to justify the Governor’s more than 40% cuts in higher education funding, particularly since Pennsylvania provides less support for higher education than most states. Although our colleges and universities could undoubtedly improve their efficiency, they already deliver higher value than those in most states. For example, Pennsylvania’s higher education institutions have the second highest graduation rates of any state in the country, and its public universities rank 10th in freshmen retention rates. Pennsylvania’s universities are also net importers of young talent into the state.

It will be increasingly hard to find money to avoid these kinds of cuts if we don’t solve what has been one the fundamental drivers of the state budget deficit – rising health care costs. One-fifth of the proposed state budget ($5.2 billion in state funds) is dedicated to the Medicaid program, a 22% increase in just three years, and this will increase in the future as federal health reforms bring more uninsured Pennsylvanians into Medicaid. Millions more in state funds go to provide health insurance for state workers and retirees.

Controlling health care costs doesn’t mean cutting physician fees or denying patients important services. It can be done by delivering higher-value care. A previous post identified maternity care as one major opportunity for higher-value care; others are helping patients with chronic diseases stay well and out of the hospital, and reducing hospital-acquired infections and other complications.

We know how to do these things; indeed, the Pittsburgh Regional Health Initiative has been a national leader in helping physicians and hospitals improve quality and reduce costs. The problem is the way we pay for health care. Today, health plans will pay for a chronic disease patient to be hospitalized, but won’t pay doctors to hire nurse care managers who can help patients stay well. Health plans pay hospitals more when patients get infections and other complications, and often financially penalize them for providing higher-quality care.

Fortunately, there are better ways to pay for health care. Episode-of-care and comprehensive care payment systems give doctors and hospitals more flexibility to deliver the care patients need and reward them for controlling costs and improving patient outcomes. The state, as one of the largest purchasers of healthcare services, should only use health plans that implement these new payment approaches. Consumers and private sector businesses also need to demand these changes.

Let’s use the state budget crisis as a wake-up call to catalyze the creation of higher-value healthcare and education systems. Lower health insurance premiums, lower taxes, and better educated students will help our businesses be more competitive and create new jobs, and put more money in every family’s bank account.

(A version of this post appeared as the Regional Insights column in the Sunday, April 3, 2011 Pittsburgh Post-Gazette.)