Administrators of the four local hospitals gathered with IBI to discuss various healthcare issues in the Peoria area and across the country. Norman LaConte of Proctor Hospital, James Moore of Saint Francis Medical Center, David Schertz of Pekin Hospital, and Robert Wierman of Methodist Medical Center participated.
Recent polls show Americans increasingly skeptical about the Clinton plan, which stressed security, simplicity, savings, choice, quality, and responsibility. Could the plan really facilitate all six elements? Are universal coverage, cost control, and choice incompatible, as many suggest?
Norm: Universal coverage, cost control are indeed incompatible. You might be able to achieve two of them, but to have all three would be very difficult. Providing everyone coverage and unlimited choice while controlling cost is just not practical. This plan promises far more than it can deliver, and the expectations of the American public are going to be unrealistically high. There is not a realistic approach to this issues of where the dollars will come from.
Dave: Clearly, you have to lay out what expectations consumers have when you start putting all these forces into play. The biggest fear I have is that, in talking about all of the new and expanded benefits, the providers are going to be on the hook to figure out how to provide those benefits with dramatically diminished revenue.
Bob: I would like to add a comment about the presumed simplicity of this plan. Nothing that I’ve seen so far would suggest that there’s anything simple about it. In fact it’s as complex – or perhaps more complex – than the current system. At least now there is some ability on the part of those who have insurance to identify who their insurer is, what their benefit package is and what providers they have access to. What I read about the Clinton plan indicates a multi-level bureaucratic structure with advisory committees and other players – suggesting the creation of something alongside Medicare that may be even more complex and confusing for the consumer than the system we now have.
Jim: Part of the difficulty in any health reform plan is consumer expectations. For example, when Clinton says “choice,” I think he means “choice of health plans.” To the public, “choice” in medical care means the ability to go where I want to go, when I want to go, as often as I want to go. That’s a big problem.
The government currently controls some 40 percent of U.S. healthcare through Medicare and Medicaid – culprits in the cost-shifting games which raises prices in the private sector. Given the government’s track record in these areas, how much faith do you have in its ability to effectively control the entire healthcare industry?
Jim: I have absolutely none. I think the government’s role in health reform should be to somewhat set the table. They could do something effective in insurance reform – for example, making it illegal to exclude people with pre-existing conditions. The details of running healthcare, however, should be as local as possible.
To be honest, I would be happier with the federal government running healthcare than I would with the State of Illinois running it. Clinton’s plan pushes a lot of authority to the state; so, in fact, the State of Illinois could actually choose to make healthcare a department of the state. They could say that public aid will be the purchasing alliance for the whole state. It’s a very scary thing because Illinois has demonstrated that it has no ability to deal with healthcare.
Norm: Much of what needs to be reformed in the current healthcare system is the direct results of government’s mismanagement of Medicare and Medicaid. The cost-shifting is the result of state and federal government’s unwillingness to stand up and adequately fund the programs they have already created. I have great concern about the government becoming more involved in healthcare, and have zero confidence that they can effectively reform the industry.
Dave: I think that pretty will encapsulates the concerns I have. If the government can spend $600 on a toilet seat, it isn’t going to run healthcare efficiently.
Bob: I don’t believe that government has taken advantage of opportunities it already has to be more effective in the health arena – for example, being willing to study combining Part A and Part B of Medicare. It appears there are increasing numbers of investigators and regulators being redirected from other efforts of national security to investigate what is “wrong” with healthcare. I find that very discouraging.
Dave: The numbers I’ve seen – on the heels of the plan by Mr. Gore and Mr. Clinton to eliminate a quarter of a million jobs from the federal government – show that the new healthcare bureaucracy would require about a half-million new workers. So much for efficiency.
Almost nobody expects a healthcare reform bill to emerge from Congress looking similar to the one President Clinton is currently presenting. What do you think the legislation that might eventually be passed will look like?
Bob: If I could guess correctly, I’m sure I could make a lot of investors very happy. How the plan emerges could be very dependent on some jurisdictional issues with which Congress is struggling. In the senate, it boils down to whether an eventual bill is heard in Kennedy’s committee or Moynihan’s committee (one having to do largely with labor and commerce issues and the other with taxation). In the House there is a similar division between Dingell’s committee and Rostenkowski’s committee. The philosophies of the chairmen of the principal committees where the final bill will be fashioned could have a great deal to do with the eventual shape of a bill that comes up for a vote. Changes to the Clinton plan are continuing to be made in subtle ways to influence which congressional committees have principal jurisdiction over the proposal.
Jim: I’ll predict there will be some kind of health insurance reform – probably including outlawing pre-existing conditions, since that’s something both Republicans and Democrats agree on. I think there will be a bill passed sometime next summer or fall, prior to the November 1994 elections, because expectations have been raised so high. I also think there will be some kind of an employer mandate, in order to have the promise of universal coverage fulfilled – but it may include a seven- or ten-year phase-in period. Outside of that I have no idea.
Dave: The Clinton proposal as introduced is going to collapse under the weight of compromise. Every additional compromise to assuage an interest group will press it down further. The cost of the package is going to throw up a lot of red flags; many moderates are going back to balk at the price tag. I hope to God there is some common sense and they realize that the bureaucratic structure will be almost impossible to implement.
Norm: There are some 670 special interest groups concerned about this bill, represented by thousands of lobbyists. You can bet that when these special interest groups and their PACs get through working on Congress, what we end up with is going to bear little resemblance to what was originally proposed. I don’t think the scope of healthcare reform will be as dramatic as envisioned in the President’s proposal. I agree there will be some basic changes such as eliminating pre-existing conditions and increasing access to the system; but the biggest thing we will probably see is a reduction of the government’s share of payment to both Medicare and Medicaid.
If you could write the healthcare legislation that might ultimately pass Congress, what would it in clued? Are there any particular broad initiatives (such as the “Oregon plan,” “medical IRAs,” etc.) that you favor as alternatives to the Clinton proposal?
Dave: There needs to be sweeping and specific changes in antitrust legislation. There are many ways, in specific regions, in which providers could sit down and fashion a more cost-effective model. We could reallocate resources in areas where there is a redundancy to areas where services need to be beefed up, but we are restricted now in many ways.
Tort reform is also a significant need, not so much in terms of impacting the cost of actual settlements, but in the cost of dealing with the numerous filings – in a system where it is much easier to win a lawsuit than the lottery.
The medical savings plan – which has become popular with many Republicans – gets at the real issue. Everyone is talking about the “R” word – rationing. The real “R” word is responsibility. We have basically become a no-fault society over the last twenty years – no responsibility. A medical savings account would be structured in such a way that the first $3,000 out-of-pocket expense is credited to an account, and whatever you have left over at the end of the year goes into your pocket. I can’t think of a better incentive for people to be prudent consumers and clean up their lifestyles.
Norm: I tend to favor an initiative similar to the Oregon plan. If your goal is to provide coverage to everyone, there ought to be some kind of agreement on a base line of coverage without a lot of the expensive optional services.
I agree that any reform must deal with the liability issue. Recent studies indicate that two-thirds of all malpractice suits filed have no merit and are never paid, and 80 percent of the ones that do go to court are decided in favor of the hospital or doctor. Those numbers suggest a lot of frivolous, baseless claims. Such claims are very expensive for hospitals, doctors, and their insurance carriers to defend, and do nothing but compensate lawyers.
Bob: I would make an effort to recognize the extent to which we have medicalized many of our social problems in this country. Each low birth weight infant represents thousands of dollars spent in the healthcare system. The question is, “What is the root cause of that low birth weight infant?” A gunshot wound now costs the system an average of $200,000. What are the root causes of the things producing this escalation of costs and consumption of resources over the last twenty years? Some attention ought to be given to that.
Jim: I would repeat the need to deal with malpractice and antitrust issues; and I do believe that any basic plan has to guarantee access to all people. I also thing the current system is economically perverse. Whatever system prevails, the motivation of caregivers should be to keep the community healthy – not make money by treating disease, which is what we do now. We are rewarded for treating disease, but we are not rewarded for making sure health problems are addressed.
As Bob said, we have socialized our problems. When people talk about health reform, they talk about how much money doctors and hospitals consume. But they don’t address guns, teenage pregnancies, and hunger. We can become the most efficient provider in the world for children with pneumonia, then send them back to a home where there’s no heat or food, and they’ll come right back into the system. When addressing health, you need to address social problems also.
How much are healthcare costs actually inflated by administrative paperwork and would the Clinton plan really reduce it? What changes could be made under the current system to help you cut administrative costs?
Bob: Estimates are that from 18-25 percent of the costs in our current system are related to administrative functions. Typically, we are compare with the 8-11 percent in the Canadian system. I don’t believe that the implementation of a so-called single claim form – whether it’s one page or multiple pages – is really what we’re talking about in the paperwork issues. That’s just the tip of the iceberg of what’s required of providers in administrative paperwork. The hospital industry is regulated by most every government agency from OSHA to the FDA to the Nuclear Regulatory Commission.
Dave: Studies have shown that something like 16-20 cents of every healthcare dollar is actually spent on direct caregiving; the rest of it goes toward meeting the paperwork requirements and maintenance of operation. It’s obvious we carry a lot of operational costs, much of it associated with paperwork. As far as the Clinton plan being able to reduce paperwork…the government is like a Hydra – you cut off one head and it grows back two. I can’ see the government reducing paperwork.
How much are healthcare costs increased by fraud and abuse? Wouldn’t the elimination of some of the paperwork (which Clinton proposes) potentially increase fraud and abuse?
Norm: Fraud and abuse gets a lot of headlines when an unscrupulous healthcare provider surfaces; it’s always spectacular news when a laboratory or doctor is caught defrauding the government. In reality it is a very minute percentage of the total healthcare dollar. While fraud and abuse makes for very good political rhetoric, I don’t really believe it’s significant in the overall scheme of things.
Jim: It’s very antidotal. There are charlatans in every industry, and we have ours. They are the exception. The administrative cost we incur because of the fear of fraud and abuse is probably hundreds of times greater than the actual costs of these isolated instances.
Dave: As far as fear of rampant fraud and abuse if you don’t have all of the paperwork, there are too many safeguards built into the system to allow that to happen.
Bob: I with there were as much publicity about institutions fulfilling their community missions and charity care as there is about fraud and abuse.
If the Clinton plan in its current form were enacted tomorrow, what effect might it have on medical care (hospitals in particular) in the Peoria area?
Dave: Assuming that it were enacted in its current form – which it won’t be – it would include a $238 billion reduction, over a five-year period, in Medicare, which is the lion’s share of business for any hospital. When reimbursements go down, you have to reconfigure services to match that. I think you would see, assuming there were some latitude to do this sort of thing, some redefinition of levels of service to be provided at specific institutions. You would immediately see more joint venturing in terms of access to technology.
People’s expectations would have to change. Today, if a patient says “I’ve had a headache for three days, doctor; I’d like an MRI,” the doctor may say, “We’ll get you scheduled for tomorrow at 9 a.m.” In the future, under a Clinton-like proposal, the MRI – or its equivalent in technology – would not be at every institution. You may have one, with the cost being shared by various hospitals. As a result, the doctor may have to tell the patient, “You’re on the schedule three weeks from now at 2:00 in the morning, so set your alarm clock.” If the revenues aren’t there, you have to downsize and reconfigure the system. That may mean more specific missions for institutions; it may mean the elimination of missions for some institutions. That remains to be seen.
Bob: I think it would begin to force some dialogue about how much care is enough. Dialogue would begin to center around issues addressed in the Oregon plan. At what point do you not perform certain kinds of medical care? Can a system that guarantees access to basic care also be a system that allows for the separation of Siamese twins at tremendous expense? From a purely business perspective, I think you would see providers up and down the system looking at aligning with each other and with insurance companies – perhaps regionally.
Jim: With the system as proposed, it’s likely many services would not survive – for example, medical education. Our community would probably lose a great number of the educational programs we currently have. It could affect our future insofar as even having a medical school located here. The fact is, the medical school is supported by institutions in this community to a great extent. The medical school is one of the reasons many specialists and sub-specialists are here. If the teaching environment goes, some of these specialists, particularly the younger ones, will leave the community. That affects what services would be provided locally and what you would have to travel three hours to get.
Current hospital bed occupancy rates nationwide are at approximately 64-66 percent. There are more MRIs in some American cities that in some European nations. Each Peoria hospital has an open heart surgery program, while all of Canada only has seven. Does the U.S. have excess healthcare capacity in major population centers? If so, what would be a good way to eliminate excess capacity?
Jim: The answer is “yes.” We do have excess capacity, but not only in major population areas; it’s throughout the system, including small towns. But it’s all in the eyes of the beholder. If you base it on demand for services (and right now our system is based on demand), then the answer is “no,” we don’t have too many MRIs in Peoria, even though we are probably one of the cities that have more than most nations. The demand for the service is there. We do a lot of MRIs. I’m not saying it’s right to do them all, but the consumer expects it. Not only do they expect it – they expect it now!
It gets back to unrealistic customer expectations. Most rational people would say, “Yes, we have too much.” But the sick consumer, who wants it all and wants it now, will say “No – we don’t.” To deal with this, you have to change the economic incentives – something which is not popular with most hospitals or doctors. Right now we are rewarded on the basis of piece work. We get paid when we do something, and we don’t get paid when we don’t. As long as we have that system, we will figure out ways to sell more pieces. I believe we have to focus on community health, take ourselves off piece work, and say that we’ll be rewarded when we keep the community healthy – which means some form of capitated payment. On the east and west coasts, where they have a large penetration of capitated payment, use rates are significantly lower.
Dave: I received a phone call from a patient who proceeded to take me apart because she didn’t get an MRI during her trip to the emergency room. There were no indications in preliminary tests that an MRI was called for, so the doctors were trying to proceed in a way that would not cost as much. Yet the response was, “I’ve been cheated out of something. Why didn’t I get it?”
Yes, there’s excess capacity when you define it in terms of specific need. As Jim mentioned, if you compare utilization here to other parts of the country where capitated systems have been aggressively involved in managing care for a number of years, their utilization rates are lower. Utilization rates are lower in other countries. However, the expectation level is different. People in other countries may gripe about it, but they don’t think twice about the fact that they have to wait six months for a knee operation.
Bob: About two years ago someone estimated the number of excess hospital beds to be nearly 200,000. many of them were rural hospitals and non-teaching hospitals. I don’t know if that’s an accurate number or not, but it suggests that we have more beds than are needed.
One suggestion on how to eliminate excess capacity is to consider something similar to a Hill-Burton program in reverse. In the ‘40s and ‘50s, Hill-Burton subsidized communities to build hospital beds. Subsequently hospitals and communities often incurred substantial debt and overhead to support these beds. Perhaps there is a way that dollars could be saved and efficiency increased through a similar program that would close unneeded beds.
Norm: I agree that excess capacity, which nobody disagrees does exist, is the result of demand. Some of it was the result of the competitive posture that hospitals were forced to take during the ‘80s when it was thought that competition would solve all the problems. But there is another issue – the issue of defensive medicine. The cost of professional liability claims is a definite problem, but the real cost comes in the cost of defensive medicine. A good illustration is the use of CT scanners and MRIs to make absolutely sure an injury is not missed in an emergency room. Much technology is overused in order to provide protection for hospitals and practitioners. A good deal of the excess utilization would go away if there were some relief on the professional liability front.
Jim: Many compare utilization rates in this country to others but they never compare how many primary care doctors we educate versus how many primary care doctors other societies educate. It’s east to take isolated statistics and compare them, but this is a very complex multi-variable delivery system. You have to compare whole systems, and that includes social problems like homicide rates and teenage pregnancies and drug abuse.
Bob: We are a much more open society on some of these matters than many other nations.
Business and consumers are obviously interested in the recent announcement of an affiliation agreement between Methodist Medical Center and Proctor Hospital. What are the chances this will eventually lead to a merger? What are the possible effects of the cooperative agreement? Will it be enlarged to include other central Illinois hospitals?
Norm: We have essentially agreed to explore ways in which the hospitals might cooperate. That’s a pretty broad statement, because it really leaves the possibilities open for all kinds of things. I think the most important interest that we have is in addressing the issues we talked about earlier – the possibility of reducing costs through more efficient provision of services, and all kinds of opportunities for improvement of services to the community.
Bob: In some respects this represents our desire to take a leading approach to the kinds of eventual cooperation we hope will be allowed under whatever kind of reform comes down the pike.
Jim: I wish them well. Who knows? – someday is may involved more than the two of them. My experience is that it’s hard enough to get two people to agree at this stage. Only time will tell.
What exactly do current antitrust laws prevent hospitals from doing cooperatively?
Bob: We wish we knew. That’s one of the areas that continues to be murky. There are many conflicting signals. The Inspector General may say one thing and the Justice Department may be saying something else on the same question. It continues to be an area where healthcare providers have to be cautious as they work toward various kinds of relationships. Antitrust laws do say that you can’t fix prices or divide markets.
Jim: I’m not so sure about that anymore, with so many mergers. The only thing I know for sure you can’t do is fix prices. The Justice Department will tell you that of the 200 plus mergers with which they have been approached, they have only challenged five.
Norm: The Justice Department has come under a lot of fire because they are viewed as standing in the way of hospitals getting together, cooperating, and reducing costs. So they recently came out with some new guidelines attempting to clarify the issue. They tried to publish areas where, in fact, it is safe for hospitals to work together. Then they identified other areas where it might or might not be safe – where a written opinion from the Justice Department is suggested. Then, of course, they outlined the things that are absolutely prohibited. I think their effort was well-intended, but it really doesn’t go far enough in giving us guidance. Hopefully, we will seem them build on that effort to give us a little more comfort in terms of cooperating while being reasonably sure it will not violate the law. I do believe that there will have to be a revision of the antitrust statutes to give hospitals some relief.
Dave: We are in a comment period right now on the latest pronouncements. The Justice Department is soliciting feedback, and they need to listen to it. They shouldn’t be afraid of the healthcare industry helping them define things. It will lead to a number of positive outcomes.
Many experts agree that traditional market forces of supply and demand do not always apply to competition and cost within the healthcare industry. To what extent do they or do they not apply?
Dave: In the local market, many businesses would say they are getting a better value for their healthcare dollar these days because of marketplace competition. Quite frankly, it has been through vehicles that are merely transitional in nature, like discounting – increasing volume to be able to offer a deeper discount.
We’re still dealing with healthcare delivery competitively through historical perspectives. What can we do to change over from the “mechanic model” to the “gardener model” and work toward building a system that is geared toward improving the health of workforces – not just fixing things that are broken? Competition has forced a great deal of change; it does have an effect on the cost of what we provide and the evolution of our product.
Bob: The major difference that healthcare has experienced in terms of traditional market forces is that hospitals’ purchasing agents – the physicians – are really not part of the equation. As the emphasis moves away from patients and physicians controlling demand, to the payers and the politicians controlling it, there will be more traditional market responses by the industry, such as consolidation – things that you see in banking, airlines and other industries.
Norm: Traditional market forces do affect the industry. When you make modern consumers away of services and technology, they are sophisticated enough to be able to make judgments about availing themselves of particular services – thereby creating more demand and more cost within the industry. The increasing awareness of the consumer has a lot to do with increasing demand, thereby forcing the supply or services up.
Jim: Part of the problem with traditional supply and demand within our industry, unlike many others, is that the actual consumer has been insulated from price. You don’t get that direct supply-demand relationship when the consumer is insulated, and that causes a problem. I think competition has raised the level of service and accessibility. That’s part of the reason cost is high.
In the U.S., 85-year-old nursing home residents are transported to hospitals in ambulances for kidney dialysis. Heart by-pass operations are performed routinely on the elderly. Tremendously expensive medical procedures are performed with Medicaid dollars. The utilization of technology poses a complex ethical dilemma. How do we deal with that?
Jim: Utilization of technology would be much better under some kind of capitated payment with the focus on the health of the community. We must have better outcome statistics that tie back to the type of technology and the course of treatment used to justify using the technology. Today, technology is used because it’s there; you have to have the latest bell and whistle because the consumer expects the latest bell and whistle. If that could change, the assessment about what works effectively and what doesn’t could be better determined.
How we deal with the true ethical issue of the 85-year-old getting dialysis is a problem. Quite frankly, one of the things that is missing from this whole health reform debate is this discussion. I haven’t seen Clinton or anyone really address it. They will talk about the high cost of healthcare in the last six months of a patient’s life, because the Medicare population consumers 65 percent of Medicare expenditures in the last six months of life; but no one talked about what we are going to do about it ethically. Unfortunately, I think there is going to be a large punt – letting doctors and hospital ethics committees make these choices. Let’s face it – the politicians are not going to make these choices because they want to be re-elected. I think it will be left to families and doctors – which isn’t all bad as long as we have good patient education. With the education on living wills and healthcare power of attorneys in the past few years, we have made some progress.
One of the most frustrating things I hear physicians talk about is the 85-year-old who is dying in the ICU on life support; all the family has agreed that the life support should be removed; and all of a sudden a daughter from California flies in and refuses to go along with it – because she feels guilty that she hasn’t seen her mother in three years. That happens more times than you can imagine.
I really don’t think Congress is going to pass a law that says that 85-year-old people can’t have dialysis – which other societies around the world have done. A lot of people make all these comparisons about how much we spend compared to Sweden or Canada – but these countries have also made a lot of other decisions that we haven’t made and probably won’t make.
Norm: Some of the cost problems would be dealt with automatically if there were a more rational, ethical, national policy toward the care of the elderly, dying, and the use of technology. This country has not had to face those kinds of decisions because it has essentially had a healthcare system with unlimited resources, and for the most part, unlimited access on the part of the elderly. Medicare has seen fit to ensure that. As we move into a system where we are seeking to restrain the use of technology and limit the cost of providing care, we are going to be forced very early on to set some standards similar to those of other countries. That is going to be very difficult for the American public to grasp, especially when they have one of their own loved ones involved in the decision-making process.
Dave: This quote has been used by several people, and it’s right on the money: “The United States is the only society on the planet that thinks death is optional.” That leads us to the heroic efforts. I think it has to be driven back to basics. Rather than prolonging life at any cost, let’s minimize pain and maintain dignity. That’s about as simply as you can get.
Bob: The dilemma is – should we do everything we are capable of doing? And for whom? It underscores the fact that healthcare is really a social process; what is being discussed most by Congress and others is an economic process. As a nation, our track record has not been good insofar as trying to impose an economic system to resolve what is essentially a social problem. We really only need look to the often-criticized welfare system for an example of the economic incentives we have put in place to try and resolve essentially social issues.
Health insurance has evolved from a hedge against catastrophic losses to first-dollar coverage; and when a third party pays the bill, there is little incentive to control costs. Would medical IRAs or similar concepts help recapture this fiscal responsibility?
Jim: To restate, you just cannot insulate the consumer from the economic risk. There has to be out-of-pocket exposure for the basic premium as well as the various services that are rendered. I think there should be a very high deductible in any health reform plan. Maybe a medical IRA would help solve the problem. I don’t think you will see any behavioral changes until there is economic risk.
Norm: We have a system for which nobody has responsibility. We have A – the doctor, spending B – the payer’s money, to help C – the patient. None of the three are really tied together with risk and responsibility. We are going to have to evolved some kind of system which brings all these parties together, sharing a common economic burden, whether that be a capitated system or some other form of risk-sharing. We have to become economically responsible for the provision of services under the system.
Dave: The three “R’s” are risk, responsibility, and reward. The impact will come from addressing these three factors.
Bob: Individual consumers have to have some reason to think about the usage of health services before they use them. One of those things is what it may cost them out of pocket.
How do you answer the small business owner who complains about paying full prices for services that are discounted to larger employers through preferred provider agreements?
Norm: I think small businesses and individuals do have a legitimate complaint. Anytime anybody gets a discount, that becomes a cost of doing business, whether you are at a hospital, a grocery store, or any other business. The whole issue of discounts and cost-shifting really got started with Medicare and Medicaid not paying the full cost of their programs. That cost was shifted on to employers who said, “Wait a minute, I don’t want to pay part of the government’s cost; I was a discount.” It has had a domino effect. Big companies started first, then smaller companies and then insurance companies. Now it’s to the point where everyone wants a discount. So small business has a legitimate concern. The issue of discounts is a major reason why healthcare reform has to succeed in some way or another. It causes hospital charges to be artificially inflated.
Jim: I agree that hospital charges are artificially inflated because of the cost-shifting of Medicare and Medicaid; hospitals are not even recovering their costs from those particular payers. But to me, the small business owner doesn’t have any more of a complaint about paying more than a larger consumer for healthcare than he does about a large consumer being able to buy anything else cheaper than a smaller one. Because of the quantities associated with size, there are economies of scale that can be achieved for the consumer. If the small business owner has a complaint, it could be that he needs to be in a pool or something that spreads his risk. With a large employer, you are spreading the risk of catastrophic types of exposure over a large population. With a small employer, a catastrophic case has a significant economic impact. They may have a complaint, but it’s basic economics. So, don’t’ argue with me; argue with the economists. It’s not that I’m unsympathetic toward small businesses; the fact is, small versus big makes a difference in purchasing, whether its healthcare or steel.
Price discounting is a short-term thing. It doesn’t do anything to control utilization. It may make people feel good because they save some money in the short-term, but in the long-term it doesn’t do anything if you don’t reduce consumption.
Bob: Many of the small employers have been group-rated by the insurance companies, which at times makes their rates much higher and imposes costs based on pre-existing conditions within their group. One of the things incorporated in the Clinton plan, and in some other reform proposals to some degree, is insurance reform to require community rating – allowing small businesses more competitive pricing.
Dave: The sophistication of the managed care market has finally worked its way down to some of the small employers. The question they have to ask for the future is “What’s the cost for me to provide health insurance to my employees now, as opposed to the potential 3.5 to 7.9 percent hit on total payroll that could be faced under the national healthcare reform currently proposed?”
It’s popular to blame malpractice suits and litigation for high healthcare costs. How much of a factor is it? How badly do we need tort reform?
Bob: In addition to malpractice suits and attorney contingency fees, etc., there is also the cost of insurance and the cost of defensive medical testing. I’m not sure anyone has put all those things together. Year-old figures suggest that physicians paid $6-7 billion annually in insurance premiums and ordered $15-20 billion in tests primarily for defensive purposes. Add to that the cost of hospital policies and procedures, and the cost of hospital liability insurance, and you come up with some significant numbers.
Jim: It’s a problem, and quite simply, it has to be included in any health reform or it’s not reform. If we get nothing else, we need malpractice reform. It is consuming many resources unnecessarily.
Norm: It’s as essential to healthcare reform as anything. As Bob said, you have the direct cost, but you also have the hidden costs of defensive medicine which are very significant by almost anyone’s estimation.
Over two years ago, the State of Illinois imposed a hospital assessment on providers to attract federal Medicaid dollars. How does that affect local hospitals?
Norm: I am particularly interested in that assessment. I refer to it as a tax, because that’s really what it is. The governor doesn’t cal is a tax because he promised he wouldn’t’ raise any new taxes. But it’s a tax, and it’s currently costing the four hospitals seated at this table almost $12 million a year in the aggregate. Much of that is going to finance care outside of our community – in Chicago and East St. Louis. It’s just a redistribution of hospital resources. It’s certainly taking away jobs from our community, and raising the costs of hospital care. It’s a tax that needs to be more broadly based if in fact there is a need for it. It should not be strictly focused on hospitals, which are already bearing a significant burden of caring for indigents and the poor. The three hospitals in Peoria cooperate in a number of programs to do that.
Jim: Even thought Saint Francis benefits to a certain extent because we are a disproportionate share hospital, we don’t’ recover what we pay out in taxes. It’s just bad policy, that we have fought from the day it was introduced. The fact is, if it’s a tax to us, it’s a charge to someone else – primarily the business community. I’m not sure the business community understands that. It’s illegal to list is on the bill as a tax – which is what I and many others wanted to do.
Bob: I agree that it’s bad public policy. Hospitals should be proactive in education the Legislature and the public and the reasons why. That’s important for us to do over the next two years so that the Legislature can consider some relief when this particular tax expires. IBI
Recent polls show Americans increasingly skeptical about the Clinton plan, which stressed security, simplicity, savings, choice, quality, and responsibility. Could the plan really facilitate all six elements? Are universal coverage, cost control, and choice incompatible, as many suggest?
Norm: Universal coverage, cost control are indeed incompatible. You might be able to achieve two of them, but to have all three would be very difficult. Providing everyone coverage and unlimited choice while controlling cost is just not practical. This plan promises far more than it can deliver, and the expectations of the American public are going to be unrealistically high. There is not a realistic approach to this issues of where the dollars will come from.
Dave: Clearly, you have to lay out what expectations consumers have when you start putting all these forces into play. The biggest fear I have is that, in talking about all of the new and expanded benefits, the providers are going to be on the hook to figure out how to provide those benefits with dramatically diminished revenue.
Bob: I would like to add a comment about the presumed simplicity of this plan. Nothing that I’ve seen so far would suggest that there’s anything simple about it. In fact it’s as complex – or perhaps more complex – than the current system. At least now there is some ability on the part of those who have insurance to identify who their insurer is, what their benefit package is and what providers they have access to. What I read about the Clinton plan indicates a multi-level bureaucratic structure with advisory committees and other players – suggesting the creation of something alongside Medicare that may be even more complex and confusing for the consumer than the system we now have.
Jim: Part of the difficulty in any health reform plan is consumer expectations. For example, when Clinton says “choice,” I think he means “choice of health plans.” To the public, “choice” in medical care means the ability to go where I want to go, when I want to go, as often as I want to go. That’s a big problem.
The government currently controls some 40 percent of U.S. healthcare through Medicare and Medicaid – culprits in the cost-shifting games which raises prices in the private sector. Given the government’s track record in these areas, how much faith do you have in its ability to effectively control the entire healthcare industry?
Jim: I have absolutely none. I think the government’s role in health reform should be to somewhat set the table. They could do something effective in insurance reform – for example, making it illegal to exclude people with pre-existing conditions. The details of running healthcare, however, should be as local as possible.
To be honest, I would be happier with the federal government running healthcare than I would with the State of Illinois running it. Clinton’s plan pushes a lot of authority to the state; so, in fact, the State of Illinois could actually choose to make healthcare a department of the state. They could say that public aid will be the purchasing alliance for the whole state. It’s a very scary thing because Illinois has demonstrated that it has no ability to deal with healthcare.
Norm: Much of what needs to be reformed in the current healthcare system is the direct results of government’s mismanagement of Medicare and Medicaid. The cost-shifting is the result of state and federal government’s unwillingness to stand up and adequately fund the programs they have already created. I have great concern about the government becoming more involved in healthcare, and have zero confidence that they can effectively reform the industry.
Dave: I think that pretty will encapsulates the concerns I have. If the government can spend $600 on a toilet seat, it isn’t going to run healthcare efficiently.
Bob: I don’t believe that government has taken advantage of opportunities it already has to be more effective in the health arena – for example, being willing to study combining Part A and Part B of Medicare. It appears there are increasing numbers of investigators and regulators being redirected from other efforts of national security to investigate what is “wrong” with healthcare. I find that very discouraging.
Dave: The numbers I’ve seen – on the heels of the plan by Mr. Gore and Mr. Clinton to eliminate a quarter of a million jobs from the federal government – show that the new healthcare bureaucracy would require about a half-million new workers. So much for efficiency.
Almost nobody expects a healthcare reform bill to emerge from Congress looking similar to the one President Clinton is currently presenting. What do you think the legislation that might eventually be passed will look like?
Bob: If I could guess correctly, I’m sure I could make a lot of investors very happy. How the plan emerges could be very dependent on some jurisdictional issues with which Congress is struggling. In the senate, it boils down to whether an eventual bill is heard in Kennedy’s committee or Moynihan’s committee (one having to do largely with labor and commerce issues and the other with taxation). In the House there is a similar division between Dingell’s committee and Rostenkowski’s committee. The philosophies of the chairmen of the principal committees where the final bill will be fashioned could have a great deal to do with the eventual shape of a bill that comes up for a vote. Changes to the Clinton plan are continuing to be made in subtle ways to influence which congressional committees have principal jurisdiction over the proposal.
Jim: I’ll predict there will be some kind of health insurance reform – probably including outlawing pre-existing conditions, since that’s something both Republicans and Democrats agree on. I think there will be a bill passed sometime next summer or fall, prior to the November 1994 elections, because expectations have been raised so high. I also think there will be some kind of an employer mandate, in order to have the promise of universal coverage fulfilled – but it may include a seven- or ten-year phase-in period. Outside of that I have no idea.
Dave: The Clinton proposal as introduced is going to collapse under the weight of compromise. Every additional compromise to assuage an interest group will press it down further. The cost of the package is going to throw up a lot of red flags; many moderates are going back to balk at the price tag. I hope to God there is some common sense and they realize that the bureaucratic structure will be almost impossible to implement.
Norm: There are some 670 special interest groups concerned about this bill, represented by thousands of lobbyists. You can bet that when these special interest groups and their PACs get through working on Congress, what we end up with is going to bear little resemblance to what was originally proposed. I don’t think the scope of healthcare reform will be as dramatic as envisioned in the President’s proposal. I agree there will be some basic changes such as eliminating pre-existing conditions and increasing access to the system; but the biggest thing we will probably see is a reduction of the government’s share of payment to both Medicare and Medicaid.
If you could write the healthcare legislation that might ultimately pass Congress, what would it in clued? Are there any particular broad initiatives (such as the “Oregon plan,” “medical IRAs,” etc.) that you favor as alternatives to the Clinton proposal?
Dave: There needs to be sweeping and specific changes in antitrust legislation. There are many ways, in specific regions, in which providers could sit down and fashion a more cost-effective model. We could reallocate resources in areas where there is a redundancy to areas where services need to be beefed up, but we are restricted now in many ways.
Tort reform is also a significant need, not so much in terms of impacting the cost of actual settlements, but in the cost of dealing with the numerous filings – in a system where it is much easier to win a lawsuit than the lottery.
The medical savings plan – which has become popular with many Republicans – gets at the real issue. Everyone is talking about the “R” word – rationing. The real “R” word is responsibility. We have basically become a no-fault society over the last twenty years – no responsibility. A medical savings account would be structured in such a way that the first $3,000 out-of-pocket expense is credited to an account, and whatever you have left over at the end of the year goes into your pocket. I can’t think of a better incentive for people to be prudent consumers and clean up their lifestyles.
Norm: I tend to favor an initiative similar to the Oregon plan. If your goal is to provide coverage to everyone, there ought to be some kind of agreement on a base line of coverage without a lot of the expensive optional services.
I agree that any reform must deal with the liability issue. Recent studies indicate that two-thirds of all malpractice suits filed have no merit and are never paid, and 80 percent of the ones that do go to court are decided in favor of the hospital or doctor. Those numbers suggest a lot of frivolous, baseless claims. Such claims are very expensive for hospitals, doctors, and their insurance carriers to defend, and do nothing but compensate lawyers.
Bob: I would make an effort to recognize the extent to which we have medicalized many of our social problems in this country. Each low birth weight infant represents thousands of dollars spent in the healthcare system. The question is, “What is the root cause of that low birth weight infant?” A gunshot wound now costs the system an average of $200,000. What are the root causes of the things producing this escalation of costs and consumption of resources over the last twenty years? Some attention ought to be given to that.
Jim: I would repeat the need to deal with malpractice and antitrust issues; and I do believe that any basic plan has to guarantee access to all people. I also thing the current system is economically perverse. Whatever system prevails, the motivation of caregivers should be to keep the community healthy – not make money by treating disease, which is what we do now. We are rewarded for treating disease, but we are not rewarded for making sure health problems are addressed.
As Bob said, we have socialized our problems. When people talk about health reform, they talk about how much money doctors and hospitals consume. But they don’t address guns, teenage pregnancies, and hunger. We can become the most efficient provider in the world for children with pneumonia, then send them back to a home where there’s no heat or food, and they’ll come right back into the system. When addressing health, you need to address social problems also.
How much are healthcare costs actually inflated by administrative paperwork and would the Clinton plan really reduce it? What changes could be made under the current system to help you cut administrative costs?
Bob: Estimates are that from 18-25 percent of the costs in our current system are related to administrative functions. Typically, we are compare with the 8-11 percent in the Canadian system. I don’t believe that the implementation of a so-called single claim form – whether it’s one page or multiple pages – is really what we’re talking about in the paperwork issues. That’s just the tip of the iceberg of what’s required of providers in administrative paperwork. The hospital industry is regulated by most every government agency from OSHA to the FDA to the Nuclear Regulatory Commission.
Dave: Studies have shown that something like 16-20 cents of every healthcare dollar is actually spent on direct caregiving; the rest of it goes toward meeting the paperwork requirements and maintenance of operation. It’s obvious we carry a lot of operational costs, much of it associated with paperwork. As far as the Clinton plan being able to reduce paperwork…the government is like a Hydra – you cut off one head and it grows back two. I can’ see the government reducing paperwork.
How much are healthcare costs increased by fraud and abuse? Wouldn’t the elimination of some of the paperwork (which Clinton proposes) potentially increase fraud and abuse?
Norm: Fraud and abuse gets a lot of headlines when an unscrupulous healthcare provider surfaces; it’s always spectacular news when a laboratory or doctor is caught defrauding the government. In reality it is a very minute percentage of the total healthcare dollar. While fraud and abuse makes for very good political rhetoric, I don’t really believe it’s significant in the overall scheme of things.
Jim: It’s very antidotal. There are charlatans in every industry, and we have ours. They are the exception. The administrative cost we incur because of the fear of fraud and abuse is probably hundreds of times greater than the actual costs of these isolated instances.
Dave: As far as fear of rampant fraud and abuse if you don’t have all of the paperwork, there are too many safeguards built into the system to allow that to happen.
Bob: I with there were as much publicity about institutions fulfilling their community missions and charity care as there is about fraud and abuse.
If the Clinton plan in its current form were enacted tomorrow, what effect might it have on medical care (hospitals in particular) in the Peoria area?
Dave: Assuming that it were enacted in its current form – which it won’t be – it would include a $238 billion reduction, over a five-year period, in Medicare, which is the lion’s share of business for any hospital. When reimbursements go down, you have to reconfigure services to match that. I think you would see, assuming there were some latitude to do this sort of thing, some redefinition of levels of service to be provided at specific institutions. You would immediately see more joint venturing in terms of access to technology.
People’s expectations would have to change. Today, if a patient says “I’ve had a headache for three days, doctor; I’d like an MRI,” the doctor may say, “We’ll get you scheduled for tomorrow at 9 a.m.” In the future, under a Clinton-like proposal, the MRI – or its equivalent in technology – would not be at every institution. You may have one, with the cost being shared by various hospitals. As a result, the doctor may have to tell the patient, “You’re on the schedule three weeks from now at 2:00 in the morning, so set your alarm clock.” If the revenues aren’t there, you have to downsize and reconfigure the system. That may mean more specific missions for institutions; it may mean the elimination of missions for some institutions. That remains to be seen.
Bob: I think it would begin to force some dialogue about how much care is enough. Dialogue would begin to center around issues addressed in the Oregon plan. At what point do you not perform certain kinds of medical care? Can a system that guarantees access to basic care also be a system that allows for the separation of Siamese twins at tremendous expense? From a purely business perspective, I think you would see providers up and down the system looking at aligning with each other and with insurance companies – perhaps regionally.
Jim: With the system as proposed, it’s likely many services would not survive – for example, medical education. Our community would probably lose a great number of the educational programs we currently have. It could affect our future insofar as even having a medical school located here. The fact is, the medical school is supported by institutions in this community to a great extent. The medical school is one of the reasons many specialists and sub-specialists are here. If the teaching environment goes, some of these specialists, particularly the younger ones, will leave the community. That affects what services would be provided locally and what you would have to travel three hours to get.
Current hospital bed occupancy rates nationwide are at approximately 64-66 percent. There are more MRIs in some American cities that in some European nations. Each Peoria hospital has an open heart surgery program, while all of Canada only has seven. Does the U.S. have excess healthcare capacity in major population centers? If so, what would be a good way to eliminate excess capacity?
Jim: The answer is “yes.” We do have excess capacity, but not only in major population areas; it’s throughout the system, including small towns. But it’s all in the eyes of the beholder. If you base it on demand for services (and right now our system is based on demand), then the answer is “no,” we don’t have too many MRIs in Peoria, even though we are probably one of the cities that have more than most nations. The demand for the service is there. We do a lot of MRIs. I’m not saying it’s right to do them all, but the consumer expects it. Not only do they expect it – they expect it now!
It gets back to unrealistic customer expectations. Most rational people would say, “Yes, we have too much.” But the sick consumer, who wants it all and wants it now, will say “No – we don’t.” To deal with this, you have to change the economic incentives – something which is not popular with most hospitals or doctors. Right now we are rewarded on the basis of piece work. We get paid when we do something, and we don’t get paid when we don’t. As long as we have that system, we will figure out ways to sell more pieces. I believe we have to focus on community health, take ourselves off piece work, and say that we’ll be rewarded when we keep the community healthy – which means some form of capitated payment. On the east and west coasts, where they have a large penetration of capitated payment, use rates are significantly lower.
Dave: I received a phone call from a patient who proceeded to take me apart because she didn’t get an MRI during her trip to the emergency room. There were no indications in preliminary tests that an MRI was called for, so the doctors were trying to proceed in a way that would not cost as much. Yet the response was, “I’ve been cheated out of something. Why didn’t I get it?”
Yes, there’s excess capacity when you define it in terms of specific need. As Jim mentioned, if you compare utilization here to other parts of the country where capitated systems have been aggressively involved in managing care for a number of years, their utilization rates are lower. Utilization rates are lower in other countries. However, the expectation level is different. People in other countries may gripe about it, but they don’t think twice about the fact that they have to wait six months for a knee operation.
Bob: About two years ago someone estimated the number of excess hospital beds to be nearly 200,000. many of them were rural hospitals and non-teaching hospitals. I don’t know if that’s an accurate number or not, but it suggests that we have more beds than are needed.
One suggestion on how to eliminate excess capacity is to consider something similar to a Hill-Burton program in reverse. In the ‘40s and ‘50s, Hill-Burton subsidized communities to build hospital beds. Subsequently hospitals and communities often incurred substantial debt and overhead to support these beds. Perhaps there is a way that dollars could be saved and efficiency increased through a similar program that would close unneeded beds.
Norm: I agree that excess capacity, which nobody disagrees does exist, is the result of demand. Some of it was the result of the competitive posture that hospitals were forced to take during the ‘80s when it was thought that competition would solve all the problems. But there is another issue – the issue of defensive medicine. The cost of professional liability claims is a definite problem, but the real cost comes in the cost of defensive medicine. A good illustration is the use of CT scanners and MRIs to make absolutely sure an injury is not missed in an emergency room. Much technology is overused in order to provide protection for hospitals and practitioners. A good deal of the excess utilization would go away if there were some relief on the professional liability front.
Jim: Many compare utilization rates in this country to others but they never compare how many primary care doctors we educate versus how many primary care doctors other societies educate. It’s east to take isolated statistics and compare them, but this is a very complex multi-variable delivery system. You have to compare whole systems, and that includes social problems like homicide rates and teenage pregnancies and drug abuse.
Bob: We are a much more open society on some of these matters than many other nations.
Business and consumers are obviously interested in the recent announcement of an affiliation agreement between Methodist Medical Center and Proctor Hospital. What are the chances this will eventually lead to a merger? What are the possible effects of the cooperative agreement? Will it be enlarged to include other central Illinois hospitals?
Norm: We have essentially agreed to explore ways in which the hospitals might cooperate. That’s a pretty broad statement, because it really leaves the possibilities open for all kinds of things. I think the most important interest that we have is in addressing the issues we talked about earlier – the possibility of reducing costs through more efficient provision of services, and all kinds of opportunities for improvement of services to the community.
Bob: In some respects this represents our desire to take a leading approach to the kinds of eventual cooperation we hope will be allowed under whatever kind of reform comes down the pike.
Jim: I wish them well. Who knows? – someday is may involved more than the two of them. My experience is that it’s hard enough to get two people to agree at this stage. Only time will tell.
What exactly do current antitrust laws prevent hospitals from doing cooperatively?
Bob: We wish we knew. That’s one of the areas that continues to be murky. There are many conflicting signals. The Inspector General may say one thing and the Justice Department may be saying something else on the same question. It continues to be an area where healthcare providers have to be cautious as they work toward various kinds of relationships. Antitrust laws do say that you can’t fix prices or divide markets.
Jim: I’m not so sure about that anymore, with so many mergers. The only thing I know for sure you can’t do is fix prices. The Justice Department will tell you that of the 200 plus mergers with which they have been approached, they have only challenged five.
Norm: The Justice Department has come under a lot of fire because they are viewed as standing in the way of hospitals getting together, cooperating, and reducing costs. So they recently came out with some new guidelines attempting to clarify the issue. They tried to publish areas where, in fact, it is safe for hospitals to work together. Then they identified other areas where it might or might not be safe – where a written opinion from the Justice Department is suggested. Then, of course, they outlined the things that are absolutely prohibited. I think their effort was well-intended, but it really doesn’t go far enough in giving us guidance. Hopefully, we will seem them build on that effort to give us a little more comfort in terms of cooperating while being reasonably sure it will not violate the law. I do believe that there will have to be a revision of the antitrust statutes to give hospitals some relief.
Dave: We are in a comment period right now on the latest pronouncements. The Justice Department is soliciting feedback, and they need to listen to it. They shouldn’t be afraid of the healthcare industry helping them define things. It will lead to a number of positive outcomes.
Many experts agree that traditional market forces of supply and demand do not always apply to competition and cost within the healthcare industry. To what extent do they or do they not apply?
Dave: In the local market, many businesses would say they are getting a better value for their healthcare dollar these days because of marketplace competition. Quite frankly, it has been through vehicles that are merely transitional in nature, like discounting – increasing volume to be able to offer a deeper discount.
We’re still dealing with healthcare delivery competitively through historical perspectives. What can we do to change over from the “mechanic model” to the “gardener model” and work toward building a system that is geared toward improving the health of workforces – not just fixing things that are broken? Competition has forced a great deal of change; it does have an effect on the cost of what we provide and the evolution of our product.
Bob: The major difference that healthcare has experienced in terms of traditional market forces is that hospitals’ purchasing agents – the physicians – are really not part of the equation. As the emphasis moves away from patients and physicians controlling demand, to the payers and the politicians controlling it, there will be more traditional market responses by the industry, such as consolidation – things that you see in banking, airlines and other industries.
Norm: Traditional market forces do affect the industry. When you make modern consumers away of services and technology, they are sophisticated enough to be able to make judgments about availing themselves of particular services – thereby creating more demand and more cost within the industry. The increasing awareness of the consumer has a lot to do with increasing demand, thereby forcing the supply or services up.
Jim: Part of the problem with traditional supply and demand within our industry, unlike many others, is that the actual consumer has been insulated from price. You don’t get that direct supply-demand relationship when the consumer is insulated, and that causes a problem. I think competition has raised the level of service and accessibility. That’s part of the reason cost is high.
In the U.S., 85-year-old nursing home residents are transported to hospitals in ambulances for kidney dialysis. Heart by-pass operations are performed routinely on the elderly. Tremendously expensive medical procedures are performed with Medicaid dollars. The utilization of technology poses a complex ethical dilemma. How do we deal with that?
Jim: Utilization of technology would be much better under some kind of capitated payment with the focus on the health of the community. We must have better outcome statistics that tie back to the type of technology and the course of treatment used to justify using the technology. Today, technology is used because it’s there; you have to have the latest bell and whistle because the consumer expects the latest bell and whistle. If that could change, the assessment about what works effectively and what doesn’t could be better determined.
How we deal with the true ethical issue of the 85-year-old getting dialysis is a problem. Quite frankly, one of the things that is missing from this whole health reform debate is this discussion. I haven’t seen Clinton or anyone really address it. They will talk about the high cost of healthcare in the last six months of a patient’s life, because the Medicare population consumers 65 percent of Medicare expenditures in the last six months of life; but no one talked about what we are going to do about it ethically. Unfortunately, I think there is going to be a large punt – letting doctors and hospital ethics committees make these choices. Let’s face it – the politicians are not going to make these choices because they want to be re-elected. I think it will be left to families and doctors – which isn’t all bad as long as we have good patient education. With the education on living wills and healthcare power of attorneys in the past few years, we have made some progress.
One of the most frustrating things I hear physicians talk about is the 85-year-old who is dying in the ICU on life support; all the family has agreed that the life support should be removed; and all of a sudden a daughter from California flies in and refuses to go along with it – because she feels guilty that she hasn’t seen her mother in three years. That happens more times than you can imagine.
I really don’t think Congress is going to pass a law that says that 85-year-old people can’t have dialysis – which other societies around the world have done. A lot of people make all these comparisons about how much we spend compared to Sweden or Canada – but these countries have also made a lot of other decisions that we haven’t made and probably won’t make.
Norm: Some of the cost problems would be dealt with automatically if there were a more rational, ethical, national policy toward the care of the elderly, dying, and the use of technology. This country has not had to face those kinds of decisions because it has essentially had a healthcare system with unlimited resources, and for the most part, unlimited access on the part of the elderly. Medicare has seen fit to ensure that. As we move into a system where we are seeking to restrain the use of technology and limit the cost of providing care, we are going to be forced very early on to set some standards similar to those of other countries. That is going to be very difficult for the American public to grasp, especially when they have one of their own loved ones involved in the decision-making process.
Dave: This quote has been used by several people, and it’s right on the money: “The United States is the only society on the planet that thinks death is optional.” That leads us to the heroic efforts. I think it has to be driven back to basics. Rather than prolonging life at any cost, let’s minimize pain and maintain dignity. That’s about as simply as you can get.
Bob: The dilemma is – should we do everything we are capable of doing? And for whom? It underscores the fact that healthcare is really a social process; what is being discussed most by Congress and others is an economic process. As a nation, our track record has not been good insofar as trying to impose an economic system to resolve what is essentially a social problem. We really only need look to the often-criticized welfare system for an example of the economic incentives we have put in place to try and resolve essentially social issues.
Health insurance has evolved from a hedge against catastrophic losses to first-dollar coverage; and when a third party pays the bill, there is little incentive to control costs. Would medical IRAs or similar concepts help recapture this fiscal responsibility?
Jim: To restate, you just cannot insulate the consumer from the economic risk. There has to be out-of-pocket exposure for the basic premium as well as the various services that are rendered. I think there should be a very high deductible in any health reform plan. Maybe a medical IRA would help solve the problem. I don’t think you will see any behavioral changes until there is economic risk.
Norm: We have a system for which nobody has responsibility. We have A – the doctor, spending B – the payer’s money, to help C – the patient. None of the three are really tied together with risk and responsibility. We are going to have to evolved some kind of system which brings all these parties together, sharing a common economic burden, whether that be a capitated system or some other form of risk-sharing. We have to become economically responsible for the provision of services under the system.
Dave: The three “R’s” are risk, responsibility, and reward. The impact will come from addressing these three factors.
Bob: Individual consumers have to have some reason to think about the usage of health services before they use them. One of those things is what it may cost them out of pocket.
How do you answer the small business owner who complains about paying full prices for services that are discounted to larger employers through preferred provider agreements?
Norm: I think small businesses and individuals do have a legitimate complaint. Anytime anybody gets a discount, that becomes a cost of doing business, whether you are at a hospital, a grocery store, or any other business. The whole issue of discounts and cost-shifting really got started with Medicare and Medicaid not paying the full cost of their programs. That cost was shifted on to employers who said, “Wait a minute, I don’t want to pay part of the government’s cost; I was a discount.” It has had a domino effect. Big companies started first, then smaller companies and then insurance companies. Now it’s to the point where everyone wants a discount. So small business has a legitimate concern. The issue of discounts is a major reason why healthcare reform has to succeed in some way or another. It causes hospital charges to be artificially inflated.
Jim: I agree that hospital charges are artificially inflated because of the cost-shifting of Medicare and Medicaid; hospitals are not even recovering their costs from those particular payers. But to me, the small business owner doesn’t have any more of a complaint about paying more than a larger consumer for healthcare than he does about a large consumer being able to buy anything else cheaper than a smaller one. Because of the quantities associated with size, there are economies of scale that can be achieved for the consumer. If the small business owner has a complaint, it could be that he needs to be in a pool or something that spreads his risk. With a large employer, you are spreading the risk of catastrophic types of exposure over a large population. With a small employer, a catastrophic case has a significant economic impact. They may have a complaint, but it’s basic economics. So, don’t’ argue with me; argue with the economists. It’s not that I’m unsympathetic toward small businesses; the fact is, small versus big makes a difference in purchasing, whether its healthcare or steel.
Price discounting is a short-term thing. It doesn’t do anything to control utilization. It may make people feel good because they save some money in the short-term, but in the long-term it doesn’t do anything if you don’t reduce consumption.
Bob: Many of the small employers have been group-rated by the insurance companies, which at times makes their rates much higher and imposes costs based on pre-existing conditions within their group. One of the things incorporated in the Clinton plan, and in some other reform proposals to some degree, is insurance reform to require community rating – allowing small businesses more competitive pricing.
Dave: The sophistication of the managed care market has finally worked its way down to some of the small employers. The question they have to ask for the future is “What’s the cost for me to provide health insurance to my employees now, as opposed to the potential 3.5 to 7.9 percent hit on total payroll that could be faced under the national healthcare reform currently proposed?”
It’s popular to blame malpractice suits and litigation for high healthcare costs. How much of a factor is it? How badly do we need tort reform?
Bob: In addition to malpractice suits and attorney contingency fees, etc., there is also the cost of insurance and the cost of defensive medical testing. I’m not sure anyone has put all those things together. Year-old figures suggest that physicians paid $6-7 billion annually in insurance premiums and ordered $15-20 billion in tests primarily for defensive purposes. Add to that the cost of hospital policies and procedures, and the cost of hospital liability insurance, and you come up with some significant numbers.
Jim: It’s a problem, and quite simply, it has to be included in any health reform or it’s not reform. If we get nothing else, we need malpractice reform. It is consuming many resources unnecessarily.
Norm: It’s as essential to healthcare reform as anything. As Bob said, you have the direct cost, but you also have the hidden costs of defensive medicine which are very significant by almost anyone’s estimation.
Over two years ago, the State of Illinois imposed a hospital assessment on providers to attract federal Medicaid dollars. How does that affect local hospitals?
Norm: I am particularly interested in that assessment. I refer to it as a tax, because that’s really what it is. The governor doesn’t cal is a tax because he promised he wouldn’t’ raise any new taxes. But it’s a tax, and it’s currently costing the four hospitals seated at this table almost $12 million a year in the aggregate. Much of that is going to finance care outside of our community – in Chicago and East St. Louis. It’s just a redistribution of hospital resources. It’s certainly taking away jobs from our community, and raising the costs of hospital care. It’s a tax that needs to be more broadly based if in fact there is a need for it. It should not be strictly focused on hospitals, which are already bearing a significant burden of caring for indigents and the poor. The three hospitals in Peoria cooperate in a number of programs to do that.
Jim: Even thought Saint Francis benefits to a certain extent because we are a disproportionate share hospital, we don’t’ recover what we pay out in taxes. It’s just bad policy, that we have fought from the day it was introduced. The fact is, if it’s a tax to us, it’s a charge to someone else – primarily the business community. I’m not sure the business community understands that. It’s illegal to list is on the bill as a tax – which is what I and many others wanted to do.
Bob: I agree that it’s bad public policy. Hospitals should be proactive in education the Legislature and the public and the reasons why. That’s important for us to do over the next two years so that the Legislature can consider some relief when this particular tax expires. IBI
