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HomeMy WebLinkAbout2001- April File Copy • Jefferson County Board of Health Agenda • & Minutes • April 19 , 2001 • JEFFERSON COUNTY BOARD OF HEALTH Thursday, April 19, 2001 2:00 PM—3:30 PM Jefferson General Auditorium AGENDA I. Approval of Agenda II. Approval of Minutes of Meeting of March 15, 2001 III. " Public Comments IV. Old Business and Informational Items 1. Letter from Senator Jim Hargrove re: Rural Health Care Access 2. Board of Health Authority re: Long Term Care Facilities • V. New Business 1. Emergency Rule Adoption —Provisional Certification Onsite Sewage 0 & M Specialists Larry (30 min) 2. Legislative Update Tom (10 min) 3. 2000 Public Health Improvement Plan Jean/Tom (30 min) VI. Agenda Planning 1. Future Agenda Topics VII. Adjourn (Joint Board Meeting follows immediately after BOH meeting) Next Board of Health Meeting: May 17, 1:30—3:30 PM Jefferson County Health and Human Services Conference Room • JEFFERSON COUNTY BOARD OF HEALTH • MINUTES Thursday, March 15, 2001 Board Members: Sta,jjMembers: Dan Titterness.Member- County Commissioner District#1 Jean Baldwin.Nursing Services Director Glen Huntingford, Member- County Commissioner District#2 Lara Fad., Environmental Health Director Richard!i"'ojt,Member- County Commissioner District#3 Thomas Locke.MD. Health Qlllcer Geol re Masci,Member-Port Townsend City Council Jill Buhier. Chairman-Hospital Commissioner District#2 Sheila tF esterman, I -ice Chairman- Citizen at Large (Cit) Roberta Frissell- Citi.�en at Large (County) Chairman Buhler called the meeting to order at 2:30 p.m. All Board and Staff members were present with the exception of Commissioner Wojt. APPROVAL OF MINUTES In the February Minutes, under the Section "Approval of Minutes," the sentence that reads "In paragraph three, Member Westerman seconded the motion" should instead read "In paragraph three, Member Westerman seconded the motion instead of Commissioner Wojt, noting that Commissioner Wojt was not in attendance." Member Masci moved to approve the February minutes as corrected. Member Frissell seconded the motion, which carried by a unanimous vote. PUBLIC COMMENTS Dale Wurtsmith spoke of his concerns about the lack of a program and test for the licensing of O&M specialists as provided for in the revised on-site sewage code. The creation of his new (O&M) business is dependant upon the completion of a test currently under development by the Washington On- Site Sewage Association (WOSSA), which the County would then administer. He asked the County to consider issuing a temporary license to experienced individuals who have met training guidelines. He also recommended that applicants have up to six (6) months to successfully pass the test and comply with State guidelines. Chuck Molisky, a representative of Goodman Sanitation, said while he is also supportive of instituting interim O&M licensing, his concern relates to new requirements for inspections at the time of ale. Goodman is interested in performing inspections of conventional systems along with other septic male. Allowing other trained personnel perform inspections would speed up the inspection process, facilitate real estate transactions, and allow the property owner access to one-stop shopping thereby HEALTH BOARD MINUTES — March 1.5. 2001 Page: 2 • lowering the cost of the service. He suggested that Staff establish inspection criteria, interim licensing procedures, and a filing fee for the Department to process and track the paperwork. To clarify the difference between an O&M inspection and a basic inspection, Larry Fay said that the same inspection procedure and form are used whether an inspection is triggered by a sale or is a routine inspection. The differences are the kind of system and the inspection frequency. AGENDA The agenda was revised to include an update regarding Linda Sexton's solid waste violation and a Discussion of the Peninsula Daily News article "Jefferson County may alter septic permit procedures." OLD BUSINESS Update re: Solid Waste Violation; Linda Sexton: Larry Fay reported that the Board directed staff to review the Solid Waste Rule and Enforcement Procedures and create an enforceable framework for such violations. Staff has since reviewed King County's code and specifically a chapter which outlines a uniform compliance procedure that applies to all rules and regulations adopted in the County. harles Saddler reported that in consideration of adopting a similar compliance code in Jefferson County, Staff has requested a cost estimate for code development and review. Grant funding for code development and prosecution of those in violation may also be available. Another idea discussed is expanding the commission of the animal control officer to allow citations on certain health code violations. Staff agreed to provide a brief update at the next meeting. Update re: Community Health Indicators: Jean Baldwin reported that Dr. Chris Hale has been involved in various meetings in the law and justice community. Aside from a steering committee meeting to decide what indicators to target, she also met with Domestic Violence and the coroner regarding their data tracking systems. Update re: Joint Board Workgroup Process and Preparation for 5/22/01 Health Access Summit: Dr. Tom Locke said the workgroup, including Member Masci, representing the Health Board and Chuck Russell, representing the Hospital Commission, has been planning a health access summit which is now tentatively scheduled for May 22, 2001. The work group will meet on March 27 and April 24 to finalize their recommendations. Dr. Locke distributed and reviewed an outline of the summit, including the agenda and the invitation list. He noted that the strategy being proposed is the development of a local health authority. Both the Health and Hospital Boards are being asked for their input. He believes it will be important to spend some time at the summit reviewing the problems and impacts to 40he community, including economic impacts. Vice Chairman Westerman and Member Masci suggested modifications to the invitation list as follows: HEALTH BOARD MINUTES — March 15, 2001 Page: 3 • Representative of Adult Family Homes, Journalists, PTTV, Hospital Staff(Nurses), Kiwanis/Rotary, Alternative Healthcare Providers, and Kah Tai Nursing Home Director. Member Frissell suggested the agenda be subtitled "Moving Towards Solutions" and that a list of healthcare problems in the community be provided. She suggested local ombudsmen for the adult homes be invited. The Board discussed its desire for the summit to be solution-focused as opposed to a continued discussion of the problems. There were suggestions to send an agenda packet in advance of the meeting to include a questionnaire for attendees to fill out. A summary of the responses could be compiled for distribution at the meeting. Another idea was to solicit assistance from the facilitators used by the Joint Board. In response to a question about what has happened with the information produced through the Joint Board process, Dr. Locke said minutes of the Joint Board meetings as well as workgroup notes are available if desired. He believes it may be more important to review the viable proposals that came out of that process. He noted that the latest version of the list of Critical Health Services was included in the agenda packet. Chairman Buhler said she still feels strongly about including prescription medications in this list. Commercial Shellfish Classification Upgrade: Larry Fay announced that the State Department of Health has taken formal action to upgrade the Duckabush River delta from "restricted to harvest" to "approved to harvest." This upgrade was based on good water quality measurements and shoreline survey information. In response to a request by Commissioner Huntingford, Mr. Fay agreed to investigate the fecal chloroform levels before closure in 1988. NEW BUSINESS On-Site Sewage O&M Licensing: Larry Fay provided background on the adoption of the on- site sewage code as well as the mechanisms that trigger inspections. He referred to a chapter in the ordinance that provides for licensing O&M inspectors, qualifying criteria, plus a licensing examination. Although, it was expected that the private sector would perform the work and that the Department would take responsibility for tracking inspections and results, an examination for licensing has not been developed. The Washington On-Site Sewage Association (WOSSA) expects to complete an industry- based certification program for O&M specialists by early 2002. Staff's recommendation is to support WOSSA's development of the certification program and requirements. Specialists who have met the criteria and received certification from WOSSA, coupled with bonding, insurance requirements, and payment of a licensing fee, could then perform O&M. A condition of the license would be to maintain certification with WOSSA. *he Board discussed the possibility of issuing an interim license for initial inspections of conventional systems that might later merge with the O&M licensing. HEALTH BOARD MINUTES — March 15, 2001 Page: 4 •Larry Fay expressed his support for the idea as long as there was an understanding that there would be a future requirement to maintain the license. He indicated that the state designer licensing program provides a structure for a limited practice license that requires a person to complete and received a license to practice statewide by a certain date or discontinue designing altogether. Chuck Molisky of Goodman Sanitation commented that he is encouraged about the possibility for O&M licensing within a few years. He acknowledged that O&M is complex and requires a lot of training and experience. He sees the basic inspection as the immediate problem. O&M specialists, engineers and designers are overqualified and generally not interested in performing basic inspections. He asked about the possibility for an interim permit to allow qualified individuals to work with the Health Department on these inspections? (Also See Public Comments) Member Masci moved to direct staff to draft a policy statement allowing for provisional licensing for on-site sewage inspections to be ready by the next meeting. Commissioner Huntingford seconded the motion. Dr. Tom Locke advised that the Board could adopt an emergency rule which would take effect right away. Member Masci amended the motion "to direct staff to draft a policy statement allowing for provisional licensing for on-site sewage inspection" replacing the words "to be ready by the next meeting" with "with the appropriate emergency rule making declarations." Commissioner Huntingford seconded the motion, which carried by a unanimous vote. Food Safety Training for Non-Regulated Events: Food Safety Inspector, Susan Porto "'provided a brief presentation on the training opportunities for people involved in food handling in the community. As of January 2000, state-mandated food safety training classes for food workers were expanded to include volunteer organizations. She noted that in the agenda packet was an announcement that will be mailed to a list of Jefferson County volunteer organizations inviting them to one of two training classes in April. She noted that a total of eight classes were held last year. Legislative Update—Town Hall Meeting: Dr. Locke announced that Representative Lynn Kessler will attend a town hall meeting on Saturday, March 17, 2001 at 4:00 p.m. in Port Townsend. She will also attend a meeting in Port Angeles focusing on health issues specifically related to Medicaid and Medicaid reimbursements early in the day. County Boards of Health are invited. Dr. Locke talked about the impending legislative budget crisis and reported that the Governor is proposing a 2% reduction in Medicaid reimbursements and the legislature is looking for a deeper cut. Chairman Buhler said the Hospital District has made plans with Olympic Hospital to be present. Local Board of Health Workshop Survey: Dr. Locke said the Board received a brief survey which solicits input on topics to be covered at this year's Board of Health workshop. Jean Baldwin asked that the forms be returned to her. She noted that the Workshop work group is made up of Board of "'Health members. HEALTH BOARD MINUTES —March 15, 2001 Page: 5 • Measles Outbreak— King, Island, and Clark Counties: Dr. Locke reported that because measles is a highly infectious, airborne disease with the possibility of serious complications, providers are in a mode of heightened vigilance for measles cases. Due to dropping rates of measles immunizations, an outbreak could extend more broadly. To prevent outbreaks, the community needs immunity levels above 95%. Member Frissell said it would be interesting to find out how the Health Department in Stanwood dealt with their outbreak and whether it had any impact on the public then becoming immunized. 2001 Washington State Legislature Priorities: The Board reviewed a letter concerning the 2001 Washington State Legislative priorities including revisions to include I-601 language. There was support for sending the letter to the State Representatives with a copy to be sent to Governor Locke. (See Attached) Peninsula Daily News Article "Jefferson County May Alter Septic Permit Procedures": At the request of Vice Chairman Westerman, Larry Fay described "a comprehensive site plan" as was mentioned in the article. He said when the County adopted the UDC, the desire was to create an integrated review that takes into account all of the other permitting issues and restrictions that might apply to developing the site, including shoreline, density issues, etc. The County also created a process �n the UDC called a Site Plan Approval Advanced Determination (SPAAD), which is a conceptual approval for situations where there may not be an immediate building plan, but a conceptual development plan for the site. The changes would allow an owner to get a septic permit without applying for a building permit, but only after having had a comprehensive site review and approval. Commissioner Huntingford emphasized his desire to try to find a way for property owners to be able to develop their property in stages. Currently, the UDC says the only way a septic permit can be obtained is to go through the SPAAD process and obtain a building permit. He talked about the desirability of lots that already have a septic system in place. Vice Chairman Westerman said her concern is that the change would lead the property owner to believe that they are vested. She also does not want real estate agents or others promoting property sales to imply a site is vested. She believes a time period needs to be disclosed in which property owners could be assured of having a reasonable certainty of being able to build. Chair Buhler questioned whether this discussion was a Board of Health issue and suggested the Board move on with the agenda? • HEALTH BOARD MINUTES — March 15, 2001 Page: 6 • AGENDA CALENDAR/ ADJOURN Future Planning Topics: Emergency Rule on Licensing for On-site Sewage Inspections, Discussion of Joint Meeting with the Hospital Commission, Overview of the Family Planning Waiver, the Board of Health's Role Regarding Long-Term Care Centers. It was also suggested that under the topic of Healthcare Access, the Board discuss the Impact of Possible Cuts in Medicaid. Jean Baldwin noted that to help the Board and staff prepare for meetings a yearly schedule of meetings and deadlines was provided in the agenda packet. 2001 AGENDA ITEMS 1. CONTINUED STABLE FUNDING TO REPLACE MVET 2. ACCESS HEALTH CARE 3. PROGRAM MEASURES (Genetic Research and Public Health Implications) 4. METHAMPHETAMINE SUMMIT 5. PERFORMANCE STANDARDS & COMMUNITY ASSESSMENT 6. TOBACCO PREVENTION AND COALITION 7. FLUORIDE 8. TRANSIT AND PUBLIC HOUSING 9. BIOTERRORISM READINESS & PLAN gk0. AGING POPULATION 11. WATER 12. MATERNAL CHILD PREVENTION GOALS (0-3) Meeting adjourned at 4:35 p.m. The next meeting will be held on Thursday,April 19, 2001 at 2:00 p.m. at Jefferson General, followed by the Joint Board Meeting at 3:30 p.m. JEFFERSON COUNTY BOARD OF HEALTH Jill Buhler, Chairman Geoffrey Masci, Member (Excused Absence) Sheila Westerman, Vice-Chairman Richard Wojt, Member Glen Huntingford, Member Roberta Frissell, Member Dan Titterness, Member • • Board of Health Old Business Agenda Item # IV. , 1 • Senator Hargrove Letter April 19, 2001 • • Olympia Office: Washington State Senate +12-.A Legislative Building Telephone: PO Box f0+2+ Senator Jim Hargrove (360)786-7646 Olympia. WA 9850+-042-4 2 Ith Legislative District Toll-Free: 1-800-562-6000 .- . . March 27, 2001 _ Jill Buhler, Chair MAR 3 0 2Q01 Jefferson County Board of Health Castle Hill Center ._ • 615 Sheridan `s('aR'e Port Townsend, W a 98368 Dear Jill, Thank you for your correspondence expressing your priorities for the Legislature to deal with during this 2001 Legislative Session. Rural health care access and local public health funding are both high on my priority list of needs for the 24th district. We will begin to deal with budgets in the near future and, at that time, I will work to preserve and enhance funding for health care needs and will try to maintain the full • amount requested in the Governor's budget for a Universal Vaccine Distribution System. I appreciate your recognition of the challenge before us as we grapple with the constraints imposed by I-601 and the already spoken for funds as a result of the various initiatives passed last November. I'll do what I can. Again, thank you for taking the time to give me your input. Sincerely, J.. Har• ave S- ator Dist ' 4 JH:lc • Committees: Human Services&Corrections, Chair • judiciary • Natural Resources, Parks&Shorelines ® 1• • Board of Health Old Business Agenda Item # IV. , 2 • BOH Authority re: Long Term Facilities • April 19, 2001 • April 12, 2001 To: Jefferson County Board of Health From: Tom Locke, MD, MPH, Jefferson County Health Officer Re: BOH Authority re: Long-Term Care Facilities Last month, a Jefferson County Board of Health member raised the issue of local board of health authority regarding long-term care facilities. The following is the results of my research of this issue. Regulation of Long-Term Care Facilities in Washington State: Washington State classifies 10 different types of facilities as Long-term Care (LC) [see WAC 51-40-313.1 attached]. In addition, extensive regulations are in place for skilled nursing homes (RCW 74.42.010). Regulatory authority is divided between two state agencies—the Department of Health and Human Services (DSHS) and the Department of Health (DOH). • Regulatory standards include construction standards, staff credentialing, health and safety standards, food safety requirements, and minimum service standards. Prior to 1989, all regulatory functions were consolidated under DSHS. When the separate agency DOH was created in 1989, responsibilities were split. DSHS has general authority with DOH concentrating more on the licensing of health professionals, food safety standards, and infection control standards. Over the past decade there has been a legislative trend to move DOH-regulated programs back to DSHS oversight (e.g. adult boarding homes). Local governmental agencies become involved in the regulation of LC's and nursing homes when they are impacted by a local regulation or ordinance (e.g. a zoning requirement or local fire codes). Local Board of Health Authority: The authority of local boards of health is very broad. RCW 70.50.060 confers jurisdiction "over all matters pertaining to the preservation of the life and health of the people". More specifically, a local board has the authority to "enact such local rules and regulations as are necessary in order to preserve, promote and improve the public health", "provide for the control and prevention of any dangerous, contagious or infectious disease", and"supervise the maintenance of all health and sanitary measures". LC facilities and nursing homes are bound by all local regulations in addition to various state and (increasingly) federal standards. A local board of health would be well within its authority to enact rules or regulations whose goal was to "preserve, promote and • improve" the health of LC facility workers or residents. As a general principle, if such regulations are less stringent than state or federal standards, the more stringent standard IIIwould apply. Thus, to have an impact, local regulations would either have to address an issue not covered by state/federal regulations or be more stringent than similar state/federal standards. In addition to enactment of rules and regulations, a local board of health can also exercise its authority through orders directed at "dangerous, contagious or infectious disease" or involving sanitary measures. It is this latter category, the control of disease caused by infectious or toxic agents, that a local board of health has its greatest authority. There is a long history of judicial deference to local boards of health in matters concerning the protection of populations against infectious or toxic threats to health. Conclusions: Local boards of health do not have specific statutory authority assigned by the legislature for the regulation of LC facilities or nursing homes. This statutory delegation of authority has been assigned to DSHS and DOH. Local boards of health do have broad authority to enact additional regulations that affect these facilities it they judge existing federal or state codes to be insufficiently protective of health. They also have the authority (as does the health officer) to take summary action affecting a LC facility when an immediate threat to health is created by some infectious or toxic agent. III REVISED CODE OF WASHINGTON http://www.leg.wa.gov/pub/rcw/RCW%2...TER/RCW%20%2070%20.%2005%20.060.htm RCW 70 . 05 . 060 Powers and duties of local board of health . Orach local board of health shall have supervision over all matters pertaining to the preservation of the life and health of the people within its jurisdiction and shall : (1) Enforce through the local health officer or the administrative officer appointed under RCW 70 . 05 . 040, if any, the public health statutes of the state and rules promulgated by the state board of health and the secretary of health; (2) Supervise the maintenance of all health and sanitary measures for the protection of the public health within its jurisdiction; (3) Enact such local rules and regulations as are necessary in order to preserve, promote and improve the public health and provide for the enforcement thereof; (4) Provide for the control and prevention of any dangerous, contagious or infectious disease within the jurisdiction of the local health department; (5) Provide for the prevention, control and abatement of nuisances detrimental to the public health; (6) Make such reports to the state board of health through the "local health officer or the administrative officer as the state board of nealth may require; and (7) Establish fee schedules for issuing or renewing licenses or permits or for such other services as are authorized by the law and the rules of the state board of health: PROVIDED, That such fees for services shall not exceed the actual cost of providing any such services . [1991 c 3 § 308; 1984 c 25 § 6; 1979 c 141 § 79; 1967 ex.s. c 51 § 10. ] • 1 04/12/01 12:13:35 http://search.leg.wa.gov/basic/text...Html&Item=1&X=412121708&X=4121217 16 • (Effective Until July 1, 2001. ) WAC 51-40-0313Section 313 -- Requirements for Group LC occupancies. •313 . 1 Group LC Occupancies Defined. Group LC Occupancies shall include buildings, structures, or portions thereof, used for the business of providing licensed care to clients in one of the following categories regulated by either the Washington Department of Health or the Department of Social and Health Services : 1 . Adult family home . 2 . Adult residential rehabilitation facility. 3 . Alcoholism intensive inpatient treatment service. 4 . Alcoholism detoxification service. 5 . Alcoholism long term treatment service . 6. Alcoholism recovery house service. 7 . Boarding home . 8 . Group care facility. 9 . Group care facility for severely and multiple handicapped children. •i0 . Residential treatment facility for psychiatrically impaired children and youth. EXCEPTION: Where the care provided at an alcoholism detoxification service is acute care similar to that provided in a hospital,the facility shall be classified as a Group I,Division 1.1 hospital. 313 .2 Construction, Height and Allowable Area. 313 .2 . 1 General. Buildings or parts of buildings classed in Group LC because of the use or character of the occupancy shall be limited to the types of construction set forth in this section. 313 .2 . 1 . 1 Type of construction. Except as provided herein, LC Occupancy buildings may be of any construction type allowed in this code and shall not exceed the limits specified in Sections 504, 505 and 506. Group LC Occupancies which are licensed for more than six clients and which are more than two stories in height or which have more than 3, 000 square feet (279 m2) above the first story shall not be less than one-hour fire-resistive construction throughout . EXCEPTION: Buildings which are licensed for not more than 16 clients may be of Type V-N construction provided: 1.The entire building has an interior wall and ceiling covering consisting of 1/2 inch gypsum wall board or an approved equal installed in • accordance with Section 2511;and, 2.An approved smoke-detection system,supervised by an approved central,proprietary or remote station service,is installed throughout the entire structure and is interconnected with any required sprinkler system. of 17 04/12/01 12:18:59 • Board of Health Old Business Agenda Item # V. , 1 • Emergency Rule Adoption Provisional Certification Onsite Sewage O&M Specialists • April 19, 2001 • Jefferson County Board of Health Agenda Item Information / Description Regular Business ilor Month of: April, 2001 Description - a brief description of the agenda item: please include project, road, contract, grant, etc. Draft amendment to the Jefferson county Onsite Sewage Code dealing with certification of Operations and Monitoring Specialists Issue - a short outline of the issue: including policy issue falls within; strategy or objective issue supports; key reference areas (law/policy/regulations) : The recently adopted onsite sewage code provides for, among other things, the certification of specialists authorized to conduct operations and monitoring inspections and to engage in maintenance activities . Under the rule, applicants for certification must demonstrate work experience, meet minimum training requirements and pass a written exam. This amendment would allow the department to issue provisional certificates valid until an exam is available. Provisional certificate applicants would need to meet all other qualifying requirements and would hold the certificate only until an exam is available, at which time they would be required to have taken and passed the exam to retain their certificate. Opportunity Analysis - what is the type of action Board is being asked to take: .cussion/decision - if decision - what is the range of possible solutions sidered by the department in preparing its recommendation The Board is being asked to adopt the proposed amendment. The board had suggested that an amendment could be handled under emergency rules procedures . Under administrative procedures laws emergency rules may be adopted without notice and public comment provided that the agency finds that the rule or amendment is necessary for the preservation of the public health and observing the time requirements for notice and comment would be contrary to the public interest. The agency' s finding and concise statement of the reasons for its finding shall be incorporated in the order for the adoption of the emergency rule or amendment. Emergency rules are limited to 120 days generally may not be adopted in sequence An alternative to the emergency rule procedures is an expedited rule process . The expedited rule procedure requires a public notice of at least twenty days . The notice must include a statement that the rule is proposed to be adopted under and expedited process. The expedited process does not require public hearing. The expedited process may be used when the rule or amendment is proposed to clarify language without changing its effect or when the proposed amendment has been subject to a process involving substantial participation by interested parties. Specific Departmental Recommendation - why was the action recommended and what would be the impact of not taking the action: what specific action is necessary •the BOH approval - adoption - deny - remand back to department Staff recommendation is to adopt the proposed amendment using the expedited process during the May BOH meeting DRAFT • New Section 8.15.140(12)Provisional Monitoring Certificate Until such time as the Department has developed a valid Operations and Monitoring Examination, or equivalent examination options are available,the Department may issue Provisional Monitoring Certificates. Individuals receiving Provisional Monitoring Certificates must meet all the requirements established for a Monitoring Specialist Certificate excect that they need not have taken and passed a written examination. Holders of a Provisional Certificate are subject to all authorities and limitations of a Monitoring Specialist Certificate,including payment of fees, scope of practice,reporting, continuing education,bonding and insurance. A Provisional Certificate holder must take and pass the approved operations and monitoring written examination within 180 days of the exam becoming available.Provisional Certificate holders receiving a passing score on the examination will receive a Monitoring Specialist Certificate.Provisional Certificate holders not receiving a passing score on the examination will have their certificates revoked and no longer be authorized to conduct operations and monitoring inspections. • New Section 8.15.150(6)c Owners of existing conventional onsite sewage systems may obtain operations and monitoring inspections from a Certified Monitoring Specialists in lieu of the Health Division,Licensed Designer or licensed professional engineer for the following inspection: (i) Routine O&M (ii) The sale or transfer of a property (iii)The application for a building permit that is not classified as an expansion. (note: subsections c and d of the current rule become d and e) • REVISED CODE OF WASHINGTON Page 1 of 2 RCW 34 . 05 . 350 • Emergency rules and amendments . (1) If an agency for good cause finds: (a) That immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest; or (b) That state or federal law or federal rule or a federal deadline for state receipt of federal funds requires immediate adoption of a rule, the agency may dispense with those requirements and adopt, amend, or repeal the rule on an emergency basis . The agency' s finding and a concise statement of the reasons for its finding shall be incorporated in the order for adoption of the emergency rule or amendment filed with the office of the code reviser under RCW 34 . 05 . 380 and with the rules review committee. (2) An emergency rule adopted under this section takes effect upon filing with the code reviser, unless a later date is specified in the order of adoption, and may not remain in effect for longer • than one hundred twenty days after filing. Identical or substantially similar emergency rules may not be adopted in sequence unless conditions have changed or the agency has filed notice of its intent to adopt the rule as a permanent rule, and is actively undertaking the appropriate procedures to adopt the rule as a permanent rule. This section does not relieve any agency from compliance with any law requiring that its permanent rules be approved by designated persons or bodies before they become effective. (3) Within seven days after the rule is adopted, any person may petition the governor requesting the immediate repeal of a rule adopted on an emergency basis by any department listed in RCW 43 . 17 . 010 . Within seven days after submission of the petition, the governor shall either deny the petition in writing, stating his or her reasons for the denial, or order the immediate repeal of the rule. In ruling on the petition, the governor shall consider only whether the conditions in subsection (1) of this section were met such that adoption of the rule on an emergency basis was necessary. If the governor orders the repeal of the emergency rule, any sanction imposed based on that rule is void. This subsection shall not be construed to prohibit adoption of any rule as a permanent rule. (4) In adopting an emergency rule, the agency shall comply with *section 4 of this act or provide a written explanation for http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20.%2005%20.350.ht 4/11/01 REVISED CODE OF WASHINGTON Page 2 of 2 its failure to do so. • [1994 c 249 § 3; 1989 c 175 § 10; 1988 c 288 § 309; 1981 c 324 § 4; 1977 ex.s. c 240 § 8; 1959 c 234 § 3. Formerly RCW 34. 04 .030. ] NOTES : *Reviser' s note: The governor vetoed 1994 c 249 § 4 . Severability -- Application -- 1994 c 249 : See notes following RCW 34 . 05 . 310 . Effective date -- 1989 c 175 : See note following RCW 34 . 05 . 010 . Legislative affirmation -- Severability -- 1981 c 324 : See notes following RCW 34 . 05 . 010 . Effective date -- Severability -- 1977 ex. s . c 240 : See RCW 34 . 08 . 905 and 34 . 08 . 910 . • • http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20.%2005%20.350.ht 4/11/01 REVISED CODE OF WASHINGTON Page 1 of 4 RCW 34 . 05 . 230 • Expedited adoption of rules -- Interpretive and policy statements . (1) An agency may file notice for the expedited adoption of rules in accordance with the procedures set forth in this section for rules meeting any one of the following criteria: (a) The proposed rules relate only to internal governmental operations that are not subject to violation by a person; (b) The proposed rules adopt or incorporate by reference without material change federal statutes or regulations, Washington state statutes, rules of other Washington state agencies, shoreline master programs other than those programs governing shorelines of state-wide significance, or, as referenced by Washington state law, national consensus codes that generally establish industry standards, if the material adopted or incorporated regulates the same subject matter and conduct as the adopting or incorporating rule; (c) The proposed rules only correct typographical errors, make address or name changes, or clarify language of a rule without changing its effect; (d) The content of the proposed rules is explicitly and • specifically dictated by statute; (e) The proposed rules have been the subject of negotiated rule making, pilot rule making, or some other process that involved substantial participation by interested parties before the development of the proposed rule; or (f) The proposed rule is being amended after a review under RCW 34 . 05 . 328 or *section 210 of this act. (2) The expedited rule-making process must follow the requirements for rule making set forth in RCW 34 . 05 . 320, except that the agency is not required to prepare a small business economic impact statement under RCW 19 . 85 . 025, a statement indicating whether the rule constitutes a significant legislative rule under RCW 34 . 05 . 328 (5) (c) (iii) , or a significant legislative rule analysis under RCW 34 . 05 . 328 . An agency is not required to prepare statements of inquiry under RCW 34 . 05 . 310 or conduct a hearing for the expedited adoption of rules . The notice for the expedited adoption of rules must contain a statement in at least ten-point type, that is substantially in the following form: • NOTICE http://search.leg.wa.gov/wslrew/RCW%20%2034.../RCW%20%2034%20.%2005%20.230.ht 4/11/01 REVISED CODE OF WASHINGTON Page 2 of 4 THIS RULE IS BEING PROPOSED TO BE ADOPTED USING AN 111 EXPEDITED RULE-MAKING PROCESS THAT WILL ELIMINATE THE NEED FOR THE AGENCY TO HOLD PUBLIC HEARINGS, PREPARE A SMALL BUSINESS ECONOMIC IMPACT STATEMENT, OR PROVIDE RESPONSES TO THE CRITERIA FOR A SIGNIFICANT LEGISLATIVE RULE. IF YOU OBJECT TO THIS RULE BEING ADOPTED USING THE EXPEDITED RULE- MAKING PROCESS, YOU MUST EXPRESS YOUR OBJECTIONS IN WRITING AND THEY MUST BE SENT TO (INSERT NAME AND ADDRESS) AND RECEIVED BY (INSERT DATE) . (3) The agency shall send a copy of the notice of the proposed expedited rule making to any person who has requested notification of proposals for the expedited adoption of rules or of agency rule making, as well as the joint administrative rules review committee, within three days after its publication in the Washington State Register. An agency may charge for the actual cost of providing a requesting party mailed copies of these notices . The notice of the proposed expedited rule making must be preceded by a statement substantially in the form provided in subsection (2) of this section. The notice must also include an explanation of the reasons the agency believes the expedited adoption of the rule is appropriate. (4 ) The code reviser shall publish the text 'of all rules • proposed for expedited adoption along with the notice required in this section in a separate section of the Washington State Register. Once the text of the proposed rules has been published in the Washington State Register, the only changes that an agency may make in the text of these proposed rules before their final adoption are to correct typographical errors . (5) Any person may file a written objection to the expedited adoption of a rule . The objection must be filed with the agency rules coordinator within forty-five days after the notice of the proposed expedited rule making has been published in the Washington State Register. A person who has filed a written objection to the expedited adoption of a rule may withdraw the objection. (6) If no written objections to the expedited adoption of a rule are filed with the agency within forty-five days after the notice of proposed expedited rule making is published, or if all objections that have been filed are withdrawn by the persons filing the objections, the agency may enter an order adopting the rule without further notice or a public hearing. The order must be published in the manner required by this chapter for any other agency order adopting, amending, or repealing a rule. • (7) If a written notice of objection to the expedited adoption of the rule is timely filed with the agency and is not withdrawn, the notice of proposed expedited rule making published under this http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20.%2005%20.230.ht 4/11/01 • REVISED CODE OF WASHINGTON Page 3 of 4 section is considered a statement of inquiry for the purposes of RCW 34 . 05 . 310, and the agency may initiate further rule adoption proceedings in accordance with this chapter. • (8) Subsections (1) through (8) of this section expire on December 31, 2000 . **an [An] agency is encouraged to advise the public of its current opinions, approaches, and likely courses of action by means of interpretive or policy statements . Current interpretive and policy statements are advisory only. To better inform and involve the public, an agency is encouraged to convert long-standing interpretive and policy statements into rules . (2) A person may petition an agency requesting the conversion of interpretive and policy statements into rules . Upon submission, the agency shall notify the joint administrative rules review committee of the petition. Within sixty days after submission of a petition, the agency shall either deny the petition in writing, stating its reasons for the denial, or initiate rule-making proceedings in accordance with this chapter. ** (11) Each agency shall maintain a roster of interested persons, consisting of persons who have requested in writing to be notified of all interpretive and policy statements issued by that agency. Each agency shall update the roster once each year and • eliminate persons who do not indicate a desire to continue on the roster. Whenever an agency issues an interpretive or policy statement, it shall send a copy of the statement to each person listed on the roster. The agency may charge a nominal fee to the interested person for this service. (12) Whenever an agency issues an interpretive or policy statement, it shall submit to the code reviser for publication in the Washington State Register a statement describing the subject matter of the interpretive or policy statement, and listing the person at the agency from whom a copy of the interpretive or policy statement may be obtained. [1997 c 409 § 202; 1996 c 206 § 12; 1995 c 403 § 702; 1988 c 288 § 203. ] NOTES: Reviser ' s note: * (1) 1997 c 409 § 210 was vetoed by the governor. ** (2) The breaks in subsection numbering were caused by vetoes by the governor to 1997 c 409 § 202 . IIIPart headings -- Severability -- 1997 c 409 : See notes following RCW 43. 22 . 051 . http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20.%2005%20.230.ht 4/11/01 r REVISED CODE OF WASHINGTON Page 4 of 4 Findings -- 1996 c 206: See note following RCW 43 . 05 . 030 . • Findings -- Short title -- Intent -- 1995 c 403 : See note following RCW 34 . 05 . 328 . Part headings not law -- Severability -- 1995 c 403: See RCW 43 . 05 . 903 and 43 . 05 . 904 . • • http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20.%2005%20.230.ht 4/11/01 • Board of Health Old Business Agenda Item # V. , 3 • 2000 Public Health Improvement Plan • April 19, 2001 ��_TATFit IAP9 • STATE OF WASHINGTON DEPARTMENT OF HEALTH 1112 SE Quince Street • PO Box 47890 Olympia, Washington 98504-7890 Tel: (360) 236-4010 • FAX(360) 586-7424 TDD Relay Service: 1-800-833-6388 RECEIVED MAR 2 2001 March 21, 2001 Jefferson County Health&Human Services Dear Public Health Partner: I am delighted to provide a copy ofPHIP 2000, our latest Public Health Improvement Plan. It gives me a moment to pause and reflect on how much we have accomplished in Washington State toward a goal of strengthening our public health system. This plan represents a tremendous investment of time and expertise by many public health professionals at both the state and local level. In addition to the Department of Health and local health agencies, the State Board of Health and the University of Washington Northwest Center for Public Health Practice were full partners in this effort. • PHIP 2000 is an action-oriented plan, based on a common vision established by a partnershipof public health leaders. Using that vision, the partners committed to carry out work that supports seven specific goals. The plan describes objectives that have been met for this biennium, and sets forth recommendations to guide our future work. I offer my sincere thanks to everyone involved in PHIP 2000 and for your continued support of our common mission: protecting and improving the health of the people of Washington State. Sincerely, /4( 4/Mary C. Selecky Secretary Enclosure • _iii w N N O u, W N --, 00 0 qty . a ?_'" y O l p Q rD rD y G p O �' 5 5-~°° O M o n T x ou r0o n �o ° a S. co a- e O m a.. rD ° rwr 2 - ° O g w 0 A CD n g. i 0. o� a • � � Cr. 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DJ - a A - 0' 0 0 ma .. 0 A C o 'e o o a w A' ,- CD = rn a rn K o 0 G a a a' a 0 C ate, 0 z, O CM °� • ' o rn o a �' 5" 2 �� IF S• ~b < n fD o -0 ° C• ° 0 0 rr CA y a a ° o� c CA 01CA • O P• p•, Q' a- pCi rn 0 a rr 5 n = O A- 0 r•rCA P0' raj, Q, N rnr V 5 a IP f D CD cn w a. a . . 0 c 3 w a a —h CD o °• o, a, .0 " O r, " 07 VI ,_ 3. a .0 , 6" -0 . -' p 2 O •.0 y — v -0 0 'fin b V `� 'J .`� I Os. ce a, a o-0 a cu -0 Q" b 0 <D c° E Fi ..0 -C au yclei o s,-trj a) u y o y -� 0 v) a4 • a a � d ° N d >a0 0co a N •, . 0 ^ ` -a s o ; D ¢. , +j" ° Cau ' bo 0 'b . N cOxawa a) = ' o > ° c) •a 2 -0 2 rrcr\ .., o 'te o U '-' S" VG v " U . U G U ..., • 0 N a; d O a, o ° o 0 5 b a a - ,.. g.., 00-) 0 �° U 0 2 0 g ci .0 t g 0 a 0 o Ln o ,2 0 Q ci d 1i g y :48 g+ C 6 U a) a_.. H v) w a Q W 3 U cd O 0 U a " 43 v a) dD v, .4 n co o s-y v; v, . y -�U. �, y .d 64 3; q ° ° °a) O o 7a to a ° vsbo 0 a �° o y rzt CD o a. a O O 0 q0 O O O u co -1-1 0 4. >," . 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'- a ° rD I n O 0 ° "ai �� rn O a n w a PY' T p w a w , „ w w n, 0,9 P �, •r w '", a- w vn "d w • n >r g w oro n -< ~C w ° 14 w r.. sr a P "O waL, n ", ar �, 5.".� ° ° "., a ar a n a a 5 a t'Ts O `, a P rD Cts a ° o ° p "0 Cl a p „7 " a '.i o a d• 5' a a n w rp a- ,,, °0 Do C' rD"b a a rD w I 0- 0 p. w ° a. a G n ,- C a p ° C`P <4. CD "e w rD w K „ ° "n 't ”, n ' Fr,' ° 'b �, a p rY CM a n 5 w n n `C cp R. tD 0- a < >= C O a "C o (D w a O n n n .-• rn CD o n c p 0' 0 ,'•.d w "'° 5."o P, rin° CD �° cn rY 5 a_ o w P,' w u, w '� 0 °�oa a a C rr 7q O g ° a 8 C 3 EE~"•' o = .',. n n a.. n a w a- "t n" '.o a',< w '0� 't 5" O rD o n rn c<D O .-,, ton et) 2'r , O n w 5 4- a n := M a p (* r-, � J to .. 3 d d d °-' O N w rn H o x r" . 5 5 = rri o 3 rDr2t $ flia 1 T fr,..,. .,iax 1,..,. -: : _P: ,,.,. , r_+.5-. 1 02: Iii2 o ~C -, a a o' P •" 0 5 qc ° N• n ` ' O w y 0 76 = CD C/) 4 n a w P•' rt 0 a O' a C cr O' r0� a o n a. a, „, /_J o a °+-' N r-j 1-1-, rri, 03 n `` "�" CL ° o a o fD a a o CD a • 0, o- "d a w a cn w "` pa C rt P' - a P �. w a rD a- C 73. bGDw0 w = dcip su O c 'v., CD M c Ma ro = 0 o CA ° 0 a - 1 rDcr n = _s 0 3 �0 < v„l m 0 d 0 UI = w ca a)° +3 a) � e a v a) , r • SI E , v e_ cd cit5Oo A ao' °a, or. m co a A � • do o b a Ea) a) • —. va a) - ) — U ) .. b p .- a) 0.. a. yU 'b re, 4`2 � o c Up Cq.Q ) O a...-5 y . > O yO O ym p >, ad y_ 71 "ti v a) `° ^G p : q a- ° ° c y ' Uy dao6 � ycobqdQa) o ' O • 00 A a) p v .Fd o � w a. • . _a) *.+ p a bo a • 4 ° d U 0 V 5 o ,. u 1'4Tri 0 eo .,4aF, a - o z -d z .2 to 0 ° 5 U 0 ' ' a) '.0 O s a) .0 U ta. 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D CD — v v' o .O O OC O • A> O d CD A C c O y A o 0 0 �~ A A) ea tA a 'CD' M r cn p 'rte . w v' •QJ+ Q° A n ,- y P CD* <D (D 0 O O rn La = d CCS O a u 00 4.0 E ' O' L 00 °00 in 0o uu w tn co CL CI IMC CO C) V 0 O 0 N c d E a) 0 L E a) u .n o_ a 0 0 0 N • Joint Meeting with Hospital District Commissioners Agenda • April 19, 2001 • • JOINT BOARD MEETING Jefferson General Hospital District Board of Commissioners Jefferson County Board of Health Thursday April 19, 2001 Jefferson General Hospital Auditorium Draft Agenda I. Approval of Agenda II. Health Care Access Workgroup Report 1. Minutes and Meeting Materials from Workgroup Sessions 2. Issues and Options Report III. Joint Board Discussion 1. Workgroup Report Options • 2. Health Access Summit: Yea or Nay IV. Health Access Summit Planning 1. Summit Agenda 2. Draft Invitation Letter 3. Summit Invitation List and Meeting Site V. Adjourn • • Jefferson Critical Access Project Next Steps May 16. 2000 Background The Commissioners for Jefferson General Hospital and the Board of Health for Jefferson County have been meeting to discuss and develop a course of action to improve access to health care in their community. Their joint meeting time is very limited — one or two hours per month. The Washington Health Foundation has granted Jefferson General Hospital $14,900 to establish a workgroup which will develop basic project goals and develop models for organizing the local heath system. This work will be presented to the joint Boards for review and comment as it is developed. The final work products will be presented and discussed at a local Health Care Summit. Workgroup Goals The goals of the Critical Access workgroup are: • Identify specific goals/outcomes for the Critical Access Project; • Identify models/options for E. Jefferson County that promise to achieve • the goals/outcomes identified by the workgroup: • Coordinate a local health summit to discuss and refine the models. Approximate time line: June through October, 2000. Sequence of Tasks Meeting 1: Overview of Project and Identify Goals Meeting 2: Review and Refine Goals/Final Outcomes Meeting 3: Present/Discuss Delivery and Financing Models Meeting 4: Continue Presentation and Discussion of Models Meeting 5: Development of Models Specifically for Jefferson County Meeting 6: Final Meeting — Refine Models and Identify How Each Would/Would Not Accomplish Goals Meeting 7: Summit Preparation 41PHealth Care Summit Critical Access Project Workgroup 41 The work roup will be composed of 10 — 15 individuals knowledgeable about health care financing. These individuals will represent a variety of geographic locations and constituent groups. Proposed composition: • Open to Hospital Commissioners • Open to Board of Health • Health provider-physician • Small business • Big business • County government • City government • Health insurance • Seniors (O3A) • Financially vulnerable (DSHS, CAC) • Washington Health Foundation Work will begin in early June and will include approximately 7 two hour meetings in addition to a day long Health Care Summit to be scheduled in October. • DRAFT Dear Community Leader, Our rural health care system is in distress. An increasing number of East Jefferson County residents do not have health insurance. People fortunate enough to have insurance have to pay more in premiums, deductibles and copayments. Many elderly can't afford the prescription drugs they need. Now there are new financial stresses on our health care providers. Across the state physician practices are going bankrupt because reimbursements for Medicaid, Basic Health and sometimes Medicare don't cover the administrative and professional cost of providing care. Next year Medicare will begin reducing payments to hospitals, further jeopardizing the stability of local health care services. To make matters worse, the State of Washington is in a budget crisis and will reduce funding for medical, dental and hospital care as well as mental health. People will still need services but our local providers will have to absorb the costs. There are no comprehensive solutions being discussed at the state or federal level. • Fortunately, the Jefferson General Hospital Commissioners and the Jefferson County Board of Health, along with a group of business and community leaders, have been meeting to look for local solutions. Data on local problems has been collected and analyzed, our rural health system issues have been discussed from a variety of perspectives and we are ready to propose action. To take the next step, we would like to invite you to participate in a Jefferson Health Access Summit on May 22, 2001 . The Summit will be held at ???from 9:30-3PM. Space is limited, so, whether or not you are able to attend, please return the attached registration as soon as possible. If you have questions you can call Kris Locke at (360) 683-9152. Sincerely, WHO?? 0 ISSUES AND OPTIONS FOR HEALTH SYSTEM REFORM • IN EAST JEFFERSON COUNTY Discussion Document for Health Access Summit SUMMARY 2 THE EXISTING HEALTH CARE SYSTEM 4 EAST JEFFERSON COUNTY INFORMATION 5 IDEAL HEALTH SYSTEM GOALS 6 A REFORMED HEALTH SYSTEM 7 WHAT COULD A LOCAL HEALTH AUTHORITY DO? 9 411 GOVERNANCE OPTIONS 10 TIMELINE — LONG TERM 12 TIMELINE - SHORT TERM 13 RECOMMENDATIONS 13 THE ARKANSAS MODEL 15 Issues and Options for Health System Reform in SEast Jefferson County Summary The Commissioners of Jefferson County Public Hospital District #2 and the Jefferson County Board of Health have been jointly meeting to discuss problems related to access to health care for residents of East Jefferson County. In the summer of 2000, a Workgroup was appointed to look at potential local solutions and organize a Health Access Summit. The Workgroup was comprised of representatives from business, local health care providers, agencies serving the poor and the elderly, charitable organizations, health insurance and government. The charge of the Workgroup was: • Identify specific goals/outcomes for the Access Project; • Identify models/options for E. Jefferson County that promise to achieve the goals/outcomes identified by the workgroup; • Coordinate a local health summit to discuss and refine the models. The workgroup reviewed written information from a variety of sources, discussed issues with invited speakers and gave a great deal of thought to potential solutions that could be implemented at a local level. This paper briefly summarizes their conclusions and recommendations. The Problem • The health care financing system is broken i Local health care providers are facing financial solvency problems—this will result in physicians leaving the county and services being curtailed An increasing number of residents lack health care coverage, forcing local hospitals and doctors to give more uncompensated care— further increasing their financial vulnerability An increasing number of residents can't afford out-of-pocket costs for services their health insurance doesn't cover State budget problems will continue to erode the level of reimbursement to providers State budget problems will also result in fewer covered benefits and decreased enrollment for Medicaid, Basic Health and categorical programs > Current financial incentives are determined by insurance companies and are focused on treating the sick rather than promoting the health of the community > Residents and local providers are increasingly frustrated by the complexity of paperwork and health plan restrictions There is a lack of state or federal leadership to solve these problems, which disproportionately affect rural areas Currently East Jefferson County does not have the organizational structure or resources to comprehensively coordinate funding and services to meet the needs of residents. The Solution > There is no perfect solution S2 • > Both short term and long term strategies are needed to deal with current problems > Building a better system will take time (3-10 years) > Everything that needs to be done can't be done all at once, priorities need to be set > Doing nothing will likely result in a continued erosion of the local health system Organizing community providers and interests through a local health authority has the potential to attract new funding and coordinate a variety of local strategies to improve both health and access to care > A local health authority has the potential to begin working toward accomplish the ideal health system goals: Improving Access to Care; Improving Quality of Care; Coordinating Funding Sources; Maximizing Spending Impacts; Maintaining Medical Practice Viability; Coordinating Incentives to Improve Health; Simplifying Administrative Functions; Encouraging Patient Autonomy; Promoting Physician Clinical Decision-making Autonomy; Monitoring External Factors; Planning for Future Demographic Factors; Promoting Personal Responsibility; Including Occupational Support. •• • 3 , , , , . , • Options and Issues for Health System Reform in East Jefferson County Discussion Document for Health Access Summit Workgroup Meeting April 10, 2001 DRAFT EXISTING HEALTH CARE SYSTEM The current health system is characterized by numerous programs— represented by the list on the left side of"The Existing System" figure (Medicare, Medicaid, employers, etc.) —each with its own ways of paying service providers and health plans, and interacting with consumers/ patients. The benefits of such a pluralistic system include high degrees of flexibility on the part of payers and health plans, the potential for competition among both payers and health plans, and the potential for consumer choice, all of which could increase innovation and moderate prices. (However, competition and consumer choice among health plans is rare in most rural areas.) The costs of the existing system include high administrative costs (both monetary and other types of resources) at all levels, enormous complexity, strong incentives for cost and risk shifting at all levels, frequent dislocation for both consumers and providers, and limited roles for consumers/ residents in governance. The following diagram depicts the complexity of the current health care system. The residents of Jefferson County are outside the system, with little controlling influence. Public health and 41) community services are disconnected. There is little or no communication or coordination at the center. THE EXISTING SYSTEM Patients / Consumers / Enrollees j ftMedicareIt MedleAid _�_ .11-1-.11111.111111111.111111.11„1117_'171-11i1iVir Health HosF itals �` Plan A ♦/ rI' Basic Health\ �` Health C arp _Q/ ,♦ Practitioners Insured Empl yerfi 4i , �I�♦ ` `_���0 1 Pharmacies -. Health Plan B � Other Providers Individuals �—_ // ♦� ♦ Community 1 I \\ I'1 SPrvi es II 1`, I I. * Grants for Health r Public Health Direct Service Plan C • 4 EAST JEFFERSON COUNTY INFORMATION S The People • About 25,000 people live in East Jefferson County • The proportion of residents age 65 and older(20%) is higher than the state average (11%) • There are wide disparities in income and educational attainment • Most health status indicators look similar to state averages • Population growth (estimated at 34,200 by 2010) is from people moving into the County • Port Townsend Paper, Jefferson County and Jefferson General Hospital are the three largest employers in the county. The Access Gaps • Many seniors on Medicare cannot afford the prescription drugs they need. • Between 3,000 and 6,750 residents do not have any type of health coverage. Residents under age 65, with incomes over 200% of the Federal Income Guidelines, and without employer insurance may not be able to afford health insurance. • Publicly sponsored enrollees (Medicaid, Basic Health, Medicare) may not be able to find providers willing to take them as patients because of the low state reimbursement levels. The Health Care System • One Public Hospital District, with a hospital in Port Townsend, primary care clinics in Port Townsend and Quilcene and a home health agency. • One local Health Jurisdiction, with a health department based in Port Townsend and satellite clinics on Port Hadlock and Quilcene • Additional private physicians mainly in PT including several specialists - urology, pediatric, internal medicine, general surgery, orthopedic surgery. • One nursing home, an assisted living facility, senior apartments. • Public and private mental health and substance abuse treatment providers • Additional basic health services—pharmacy, ambulance, physical therapy, etc. • Strong array of complementary alternative medical providers • Referrals for specialty care tend to go to Silverdale/Bremerton or Seattle • In 1998, 23% of residents had Medicare, 10%Medicaid, 6% Basic Health Plan. Between 48% and 33% had private health insurance. 12% - 27% of residents are uninsured. • The following chart shows estimates for the dollars spent by Jefferson residents in 1997 for health care, both in and out of county. Health care is obviously an important part of the local economy. The estimated $91 million spent on personal health care services comprised about 15% of the local economy. • 5 SJefferson County Estimated Uses of Health Care $s in 1997 Total Estimated Expenditures Amount Spent in Amount Spent Total Jefferson County outside Jefferson Spending County Hospital Care $18,492,659 $13,194,762 $31,687,421 Physician Services 1 $12,821,500 $5,494,929 $18,316,428 ;Dental Services 1 $3,791,501 $421,278 $4,212,779 (Other Professional Services $4,785,167 $251,851 $5,037,018 ;Home Health Care $2,610,091 $137,373 $2,747,464 Drugs and Other Non-Durable $7,317,413 $1,291,308 $8,608,721 !Nursing Home Care $5,568,1941 $1,392,0491 $6,960,243 Other Personal Health Care $1,904,909 $476,227! $2,381,136 Vision Products and Other Durables 1 $952,454 $238,1141 $1,190,568 !Program and Private Health $228,955 $4,350,152; $4,579,107 Insurance Administration 1Government Public Health Activities I $1,511,105 $1,511,105; $3,022,211 Research and Construction $851,7141 $1,987,332 $2,839,046 Total Health Care Expenditures on 1 ;Behalf of Jefferson Residents $60,835,662 $30,746,4801 $91,582,1421 Source: National Medical Expenditure Survey. Chart developed by Larry Thompson, 1999. IDEAL HEALTH SYSTEM GOALS To make sure the health care system changes are directed toward long term improvements, the Health Access Summit Workgroup developed a list of ideal health system design goals. Many sources were used to draft the following goals including: discussions with Jefferson General Hospital Commissioners and Jefferson County Board of Health;A Vision for Health Reform Models for America's Rural Communities, National Rural Health Association, February 1998; Health Care Financing and Delivery System Options:An Impartial Evaluation, Washington State Medical Association, July 2000; and Ideal Health System Characteristics, Jefferson County Joint Boards, January 2000. Access to Care - The broadest range of services that can be provided locally will be available to all East Jefferson County residents, particularly the most physically and financially vulnerable. Quality of Care-The quality of health services will be continually improved. • 6 Funding Sources - To the greatest extent possible, funding sources will be organized to better support the local health care system. Spending Impacts - Health care system funding will be directed to improve the health and quality of life of East Jefferson County residents. Medical Practice Viability - East Jefferson County providers will be supported by the community to ensure the continued availability of their services. Incentives to Improve Health - Prevention and public health will be important components of the model. Administrative Functions - A local, publicly accountable entity will manage administrative functions in a way that improves access, reduces complexity, supports local health services and redirects as much funding as possible to direct heath care services. Patient Autonomy- Patients should have the greatest range of choices possible within the financial limitations of the system. Physician Clinical Decision-making Autonomy- Cost containment and clinical autonomy will be balanced through quality improvement activities. External Factors - External factors (e.g. state funding, policy changes) will be continually monitored to take advantage of beneficial developments and address disadvantageous changes. Future Demographic Factors - Health System changes should be designed to accommodate the changing demographics and needs of the East Jefferson County population. Personal Responsibility - Incentives should be built into the system to encourage individuals to take personal responsibility for their health and the services they need. Occupational Support- The system will incorporate special programs and services that will help impaired and disabled East Jefferson County residents maintain or regain physical functioning to participate as members of the local workforce and community. A REFORMED HEALTH SYSTEM A vision of a reformed health system in East Jefferson focuses on improved health, assuring access to needed health and social services for all area residents (regardless of insurance or income status), supporting financially strong and sustainable local providers, promoting high quality services, and encouraging efficiency through greater coordination and less duplication. These goals suggest that a reformed health system should: • 7 • Direct more resources toward improving both community-wide and individual health • • Assure access to basic health care for all residents • Use existing resources more efficiently • Reduce complexity in eligibility, financing, and payment • Provide more consistent, predictable, and adequate revenue for providers • Strengthen the role of residents and providers in governing the local health system • Maintain the availability of primary care and select specialty services locally. The figure below, titled "The Organizational Link - Local Health Authority Model," shows, in general, how a new organization could help to build these system attributes by funneling resources from various financing programs and directing those resources in more consistent and predictable ways to local service providers and community health initiatives. THE ORGANIZATION LINK People A 410 Medicare Public Health Medicaid C ��- Community tiO Services CORE PUBLIC HEALTH BHP Pharmacies OTHER STRATEGIES AIMED Employers ►' AT IMPROVING HEALTH Health Care � A� Practitioners Individuals HEALTH CARE FINANCING �d &DELIVERY `V" y Hospital The Uninsured O�ti P —{V U-1NG & Other Providers • 8 • WHAT COULD A LOCAL HEALTH AUTHORITY DO? • A local health authority with the capacity to effectively organize and coordinate local health resources has the potential to accomplish many things that individual entities could not. Below are some examples of possible functions. 1. Stabilize local providers financially by supporting efforts to secure reasonable and fair reimbursement for all patients seen, irrespective of type of health coverage, and by aligning financial incentives with local health system goals. 2. Coordinate funding opportunities and administrative functions for all providers to maximize the amount of money available for basic health care. 3. Plan for the development of a local health care system that will best serve community priorities, including specific service issues like affordable dental care, mental health treatment and complementary and alternative medicine. 4. Organize and operate "disease management" programs to improve the coordination of preventive and primary care services for residents with chronic diseases. 5. Create an information system to monitor and evaluate the effectiveness of changes on improving local health status and access to basic health services. 6. Organize and fund specific programs to provide access to health care services for people who currently cannot afford health insurance. For example, the "Arkansas Model" (description and diagram at end of report) envisions a program where funding is pooled from a variety of sources to provide basic care and purchase catastrophic insurance for tertiary care. To design an effective program to assure access to health care services locally, several key questions need to be answered: What are the services? Who provides services? Who pays for the services? Who assumes risk for cost overruns? Services. Most important is that the priority of services be determined by local decision or choice, not exclusively by external market forces. There is an emphasis on prevention and assuring access to services for the most physically and financially vulnerable populations. Focus could initially be on providing "basic" services. Three possible models could be used for community to define "basic"—the State Board of Health's new list of"Critical Health Services"; State of Oregon system for rationing Medicaid services; or"basic" could be defined as what is currently available in East Jefferson County. • 9 Who provides. The fragile local system of providers needs to be maintained, at least for the • near term. The providers who are ultimately needed will be determined by the delivery model. The design of a delivery model needs to be looked at in more depth and in coordination with other community strategic planning efforts. The starting point should be what we have now. In the short term, there are opportunities to better coordinate services locally. Who pays. Currently health care is paid for by employers through private health insurance plans, Medicare, Medicaid and Basic Health. Individuals also are paying an increasing amount themselves through individually purchased insurance and direct self-pay as well as increasing copayments and deductibles. There is also an array of state and federal categorical programs to pay for certain services to certain people (e.g. breast and cervical cancer screening). Funding to subsidize care for people who have no health care coverage will have to come from system savings, increased contributions or other community solutions. East Jefferson has a medical taxing district through the public hospital district which could theoretically provide a new source of funding, if supported by residents. Risk. If some type of prepayment is made for a future promise (insurance) there needs to be a way to financially guarantee that promise. Risk an individual provider takes is different that risk for all the services. In the past insurance companies did community pooling where everyone (sick and well) paid the same rate. This spread the risk for a catastrophic illness across many people, making it more affordable on a per person basis. More and more risk has been segmented or fragmented into specific lines of business. While this has allowed • healthier groups to pay less, the sicker groups may find health coverage unaffordable. From an insurance perspective, guaranteeing benefits to small groups of sick people is very expensive. The scope of the services or promises that are made also creates risk. There may be ways to limit services to basic. Depending on how a program for the uninsured is structured, there are several options for dealing with this complicated issue. GOVERNANCE OPTIONS Two general options exist for this new organization, a local governmental model and a private non-profit model. Other options might be designed by various combinations of these two models. To move toward either of these options, the community will need to address various critical issues and questions, some of which are unique to each model. 11111 10 • OPTIONS FOR CONTROL AT THE LOCAL LEVEL 1. 2. 37----Private Local / Market Government Private Model Models Non-Profit .___2 V v i Controlled by Controlled by Controlled by Market Forces Publically Elected Designated Board &Decisions Officials of Directors b.Current Dominant Model —` Options: —k Options: • Public Hospital District • Consumer Cooperative • County or City • Provider Based Network • Public Health (CHOICE) Department Jurisdiction • New incorporated community • Interlocal Entity group • • New Special Government Authorized by State Private Non-Profit Model- Organization Link through Shared Interest— Under this option, the local health authority would be a new community organization, which could be either a cooperative, a provider-based foundation, or a general private non-profit organization. A cooperative is governed directly by its members, anyone or any organization that pays membership "dues" (e.g., Group Health Cooperative or REI). In a provider foundation, providers own "shares" and thus have the right to participate in governance. A general private non-profit organization could have many forms and involve people and organizations in many different ways. ✓ Should the organization be a cooperative, provider foundation', or a private non-profit organization? ✓ What will motivate providers and consumers to participate? l Leaders in the Northeast Tri-County region of Washington are developing a hybrid foundation model in which the • hospital and physicians own shares,but whose governing board also includes community members. 11 ✓ Who should have the right to vote for the organization's governing board (i.e., individuals, organizations, members)? ✓ Should the governance structure explicitly provide for participation of specific stakeholders, such as consumers, providers, businesses, etc? If so, how? ✓ Should the authority have explicit relationships or agreements with local governmental entities (e.g., public hospital district, public health jurisdiction)? If so, for what purposes? Local Governmental Model- Organization Link through Publicly Elected Officials—Under this option, the local health authority could be an agency of city or county government, a public hospital district, a public health jurisdiction, a new interlocal government entity, or a new special purpose local government created by the state Legislature. ✓ Should the authority be an agency of an existing local government entity or should a new entity be created (either by interlocal agreement or legislative action)? ✓ Should the governance body of the agency be elected by community members or appointed by elected officials or some combination? ✓ Should the governance body explicitly provide for participation of providers or other stakeholders? If so, how? • TIMELINE - LONG TERM Change of the magnitude contemplated by leaders in East Jefferson County and elsewhere takes time. In addition, the scope and activities of the local authority (whether governmental or private non-profit) will likely evolve over time, as the community learns more about what it wants and what works. This organizational development process may take 3, 5 or 10 years. To develop a realistic timeline a number of questions need to be answered, including: ✓ What functions can or should be carried out by the local authority in the first years of its operation as steps toward the stated goals of reform? ✓ What interim relationships will be necessary with existing organizations to begin to work toward the goals of reform? ✓ Which of the potential changes will take place at which phase? This decision might depend on community priority-setting, fiscal and legal feasibility studies, etc. ✓ Building the organizational link will take place over time. Will a development plan facilitate building all the relationships and infrastructure over time or simultaneously? ✓ What role should local tax dollars play in the phase-in process? • 12 TIMELINE - SHORT TERM In addition to building a local health care authority, several short term activities could be undertaken simultaneously to improve access. Short term projects include: 1. Establish a local provider forum (hospital, health department, local clinics, etc.) to meet at least monthly, for the purpose of developing and implementing cooperative projects to better coordinate funding, administration and patient care. 2. Organize a local project to identify health insurance options for small businesses and self- employed individuals and develop and implement a plan to promote greater use of small group insurance plans to reduce the number of uninsured residents. 3. Use Behavioral Risk Factor Survey, census and other Jefferson County specific data, when available, to revise and supplement current information in order to better describe the population, health system and access barriers in Jefferson County. Based on new or updated data, develop and implement a plan to: • inform the public about key findings and their significance; • incorporate new data into local efforts to improve the health and health system of Jefferson County; • establish benchmarks for evaluating success of local efforts to improve access and strengthen the local health care system. • RECOMMENDATIONS The Health Access Summit Workgroup has identified three basic options for the Joint boards to consider: 1. Do nothing. This option will not address the increasing problems residents are having with access to health services or the deteriorating financial situation of local health providers. Since local health services are strongly linked to general economic activity of the community, repercussions of a declining local health system will also be felt in non-health sectors. 2. Delay any action until federal, state or regional options are created. Because there are no viable state, federal or regional proposals to solve any of the health financing problems, nor is there any political leadership to address rural problems, waiting for external rescue is similar to doing nothing. • 13 3. Organize the health system in Jefferson County by proceeding with development of a • local health care authority which could have the potential to: • Direct more resources toward improving both community-wide and individual health • Assure access to basic health care for all residents • Use existing resources more efficiently • Reduce complexity in eligibility, financing, and payment • Provide more consistent, predictable, and adequate revenue for providers • Strengthen the role of residents and providers in governing the local health system • Maintain the availability of primary care and select specialty services locally. If the recommendation to proceed with developing a local health authority is supported, additional recommendations are: Form a local coalition to support and secure major grant funding. Who should organize and maintain? Submit application(s) for major grant • Who (which legal entity) should be responsible to coordinate the work/receive grant? Submit applications for short term activities. Which ones are a priority? This document was drafted by staff of the East Jefferson County Health Access Workgroup with assistance from the Washington Health Foundation Future of Rural Health Program and the UW Health Policy Analysis Program. • 14 • The description below of a model under development in Arkansas is an example of how a program for people who are currently uninsured might be structured. The Arkansas Model The key feature of ARVRHC's community health plan is "extended partnering", wherein the partners in the plan — which will include the federal government, the state government, the local communities, the local health care providers, and the individual plan members —all share in the responsibility, the cost burden, the risk, and the benefits associated with membership in the plan. The financial model for the plan, shown above, resembles that of an HMO; however, the community health plan will not be an "insurance product." Rather, the plan and the supporting infrastructure will be organized as a cooperative, which will have three basic types of members— provider members, client members, and supporting members. The provider members will provide health care services to the Cooperative's client members on a reduced fee-for-service basis. Client members, i.e., enrollees in the Cooperative's community health plan, will pay monthly membership dues in exchange for health care services. As currently envisioned, membership in the health plan will be available to working, uninsured and underinsured non- elderly adults, regardless of income levels. For members with incomes above a certain level (e.g., 200% of the federal poverty level), membership dues will cover the full cost of the services • provided by the plan. However, the cost of plan membership for low-income plan members will be discounted on an income-based sliding fee scale. The balance of the per-member-per-month (pmpm) cost of the services provided to plan members will be paid for through a subsidy program. The subsidy program will match federal and state funds with funds raised in the local community, through private contributions and membership dues paid by the Cooperative's supporting members, which will include local churches, small and large businesses, and other cooperatives and associations (e.g. the Farmers Cooperative and the Cattleman's Association). The Cooperative will reimburse provider members for services provided to client members. Client members will also be required to make a small "co-payment" to the service provider at the time the service is delivered. In addition to paying for the services of the providers in the local network, part of the membership dues will go toward enrollment of member in a group insurance plan, negotiated by the Cooperative with a major insurance company, which will cover major medical services not available in the local service area. • 15 • • 57% Insurance Policy for Out of Network Services Membership Subsidy Fund 10% 60%(Avg) `: A:41.4 100% �- 33% Administration • Membership Dues Information&Assistance (Sliding-fee schedule) —) Education/Disease Management Fee-for-service Payments 40% (Avg) • Plan * Providers Member Co-pay,; Primary Care Providers Specialty Clinics Local Hospitals • • 16 • Board of Health Media Report • • April 19, 2001 Jefferson County Health and Human Services O MARCH — APRIL 2001 NEWS ARTICLES These issues and more are brought to you every month as a collection of news stories regarding Jefferson County Health and Human Services and its program for the public: 1. "Jefferson leaders consider economic cost of drug abuse" — Peninsula Daily News, 3/14/01 2. "Hospital health passes state test"—P.T. LEADER, 3/14/01 3. "Jefferson: Animal Shelter offers shot clinic Saturday" — Peninsula Daily News, 3/23/01 4. "State lawmakers rekindle debate on smoking ban" —Peninsula Daily News, 3/28/01 • 5. "Feral cat program initiated in Jefferson" —Peninsula Daily News, 4/5/01 • EH-o .-• - aro av� � 0a. CL"O n 7 ?0 F00 • 3 :) c ,�.b d E a / ° o. F - W.co �C�.°: E >)a>.?� 0.-r;01 a � �� OO 4. a s u = ,v o ,,--o o o °�-- aa',° . `' o t.eaO 0 (� , 3 csioo n �n7 �� = 0ya ^-4 °c°o �va� j�3 > ° yc v4 N cf ° y a� ,r cC ° L g-0 Oa` c o q L. — , ,.ti , c» >, ,n ci a 0 a� co�_, 3.ncc`ocd c v0 m o.- �.3 3 c ro � coovxa, xvL0 Jy _2 a) aE.4 ro dc >,yr 03L Q Eb � � E ... ° 0_Lao " C co rA C../J y o.°J w 3_E a� cd ° ° = 'n' o os -- ' a' ° T" b �J ° = C__ - 5. a ^ U`° 2 as 1—'9. —5 v a t f C c�w N. y...- O y cd 0 ° 0 u7 LO L 1] Q. 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E -- o a — uc c a 3 ° n. o u Etc, ° v o c E 0 '�- t- i r = CIO '. qj 0 CZ 171' . 30 °a v .c o O • ° tc > ° QL v n o Q coo-C o .� ai o ar) 3 C o o L o s ° = o -c ., �, u E- od E ° _ - • C • _ , i fi Jefferson: Animal shelter offers shot clinic Saturday The Jefferson County Animal Shelter in Port Townsend will conduct a rabies vacci- nation clinic on Saturday from noon until 2 p.m. Vaccinations will be free to owners who license their pets at the shelter that day. For pets not spayed or neutered, the cost of licensing is $38 for dogs, $14 for cats. For animals that have been sterilized, the cost is $16 for dogs, $6 for cats. Seniors' licensing fees are 5a percent off for pets already spayed or neutered. For pets already licensed, the vaccination fee will be $10. The Animal Shelter is at 112 Critter Lane, off Jacob Miller Road near the landfill. • strammiunimuni rbk, 3 a3 • . . State lawmakers rekindl e debate on smoking ban • BY ELIZABETH MURTAUGH it's a vital part of our business.' THE ASSOCIATED PRESS "Its not a healthful thing to do, Senate Bill 5993 passed the upper OLYMPIA — Democrats and but If S a vital part of our chamber 35-14 earlier this month and Republicans are working together to business." now faces an evenly split House pass a bill that would ban smoking in ALAN MCWAIN It would expand the state's Clean restaurants, bowling alleys and other Indoor Air Act. ""ilei'SPar CafeIt would clear the state Depart- places frequented by children,but the tend that limiting where people can ment of Health to adopt recommen- measure got mixed reviews at a p light up would drive away business dations from a task force with mem- House committee hearing Tuesday. Supporters from both sides of the and could lead to an outright ban on bers of the Washington Restaui an; political aisle tout the bill as a corn- smoking in public places. Association and the Washington mon-sense step toward curbing the "I know it's not popular,"said Alan Alliance for Tobacco Control and Chil- dangers of secondhand smoke. McWain, owner of the Spar Cafe, a dren's Health. The new rules would Opponents — from bingo parlors, landmark cigar shop and restaurant. take effect July 1, 2003. race tracks and restaurants — con- "It's not a healthful thing to do, but 'I'l:RN ru SMOKING _\, Smoking: Ban bill CONTINUED FROM Al rate lounges for smoking, but Lawmakers backing the some say small businesses measure call it a fair compro tWould have trouble covering mise reached by a coalition of the remodeling costs. • anti-tobacco advocates and A smoking ban could also restaurant industry leaders. steer business away from "It's a public health issue. bingo parlors, where most It's a child safety issue. And patrons smoke and there is nor D ki it's also a worker safety issue," age limit, said Ric Newcard, a said Rep. Laura Ruderman, D- spokesman for the Washington 3- 2 v _C, / Redmond. Charitable Gaming Associa- Bill sponsor Sen. Bob Oke, tion. R-Port Orchard, asked his fel- Current law allows restau- low lawmakers to picture the rants and other establish- Rose Bowl filled with 100,000 ments to have designated people, then multiply it by smoking areas,but bans smok- four and remember that's how ing in public buildings, buses, many people die from smok- taxis, office reception areas, ing-related illnesses each year. classrooms, hospitals and doc- When those customers are tors' and dentists' offices. gone, "The tobacco industry State regulations also require has to fill every one of those many workplaces to be smoke- empty seats with teen-agers," free. Oke said. "How can we in this Anti-smoking advocates country allow that to continue consider California's 1998 law to take place?" barring smoking in all public A former smoker himself, places a success story Wash- Oke said fewer young people ington should emulate, but will get hooked if they see opponents say a California- fewer adults smoking in public style ban would be too restric- places. Despite opposition from tive. some restaurant owners, the Lawmakers behind the bill Washington Restaurant Asso- ciation supports the bill. skeptics out there, but say "We know this is a contro- l) they're upbeat about its versial issue, but we believe chances in the House. it's a risk worth taking," said "As long as we stay focused association lobbyist Michael on protecting children, then Transue. we're on the right side of this The measure would allow issue and we will win," Oke res'.aurants to close off sepa- said. . . . - - Feral cat program initiated in Jefferson •ENINSU DAILY NEWS mal Services Auxiliary has wanted to implement this pro- equipment, funding and PORT TOWNSEND vol- launched the Feral Cat Rescue gram for quite some time — unteers to fully implement Program to control wild and and finally we have a core this exciting new program. We Unwanted feral cats won't be feral cat colonies. group of volunteers with the still need cash contributions to able multiply exponentially if' Under the program, feral commitment and knowledge pay our veterinarians for their a new program to spay and cats will be trapped, spayed or to help make it a reality,"Aux- neuter stray cats proves suc- neutered, and place in a safe iliary President Rose Ann Car- services and we need portable cessful. environment. roll said. "That doesn't mean kennels to transport the cats." The Jefferson County Ani- "Our board of directors has we have all the necessary The group is also relying on the Jefferson County residents to contact them regarding feral cats. "There are many locations where we know we have a huge problem, but we know there are lots we don't know about, ' Carroll said. For more information or to volunteer, contact Phyllis I1--f ,...– Becker at 379-3207. • • • Health Access Summit Workgroup Meeting One Monday, July 17, 2000 12 - 2 PM Lunch will be provided for you Jefferson County Health Department Conference Room 615 Sheridan, Port Townsend next to QFC AGENDA • Introductions • Brief History of Efforts to Improve Health Access (Attachment 1- will be sent to you Thursday, July 13th) • • Current Situation -Why here, why now, why you? (Attachment 2) • Goals of Workgroup (Attachment 3) • Discussion of Health System Design Goals for Jefferson County (Attachment 4 - will be distributed at the meeting on the 17th) • Discussion of Commitments/Participation • Schedule Meeting Series If you have any questions, please call Kris Locke at (360) 683-9152 or e-mail at thlocke@aol.com. • • ATTACHMENT 1 Improving Access to Health Care in Jefferson County Over the years, many programs and projects have been discussed and implemented to improve access to health care for residents of East Jefferson County. In 1985 a local report, titled The Poor Among Us: Health Care Equity in Clallam and Jefferson Counties, documented many of the health care access problems facing the uninsured poor. At that time an estimated 6% of Jefferson County residents were low-income and without health care coverage. A 1999 report, Factors Affecting Access to Health Care in East Jefferson County, Washington, estimates that 12.5% of residents did not have health insurance. Without the Basic Health Plan, a state-subsidized insurance program, the percent of Jefferson uninsured residents would increase to 18.5%. The number of people without health insurance (the traditional method to measure access) is growing, despite numerous initiatives to expand health coverage. State programs started since 1985 include: • Medicaid expansion: All children and pregnant women with family incomes • below 200% of the federal Poverty Level (FPL) qualify for comprehensive coverage. • Children's Health Insurance Program (CHIP): Children with family incomes between 200%-250% qualify for a federal/state program similar to Medicaid. • Basic Health Plan: State subsidized health insurance through managed care plans. Adults with incomes below 200% FPL are eligible. Local efforts since 1985 include: • Operation Bootstrap and Community Action Voluntary Referral Programs: Over the years programs have been organized to solicit charity care from local health care providers and then refer qualifying low-income people for episodic care. At times this program has also had limited funding to purchase some services. • Church and other charitable organizations: Various small programs to help pay for limited care. • JCMASH: Limited volunteer primary care clinic. Both the hospital and health department have developed local programs to bridge health care access gaps. The hospital provides outreach and education as well as charity care for residents who are uninsured and cannot pay. The hospital also operates a clinic in Quilcene and employs some community • physicians. The health department provides family planning services, clinics for sexually transmitted diseases, maternal support and health screening for • children. In the past. access to health care was largely focused on the poor and uninsured. Today access issues have mushroomed and also include: • Unaffordable costs of prescription drugs for elderly on Medicare; • Physicians leaving practice due to low income/inadequate reimbursements: • Instability of health insurance companies: • Collapse of individual insurance market in Washington State; • Increasing premium costs for employers: • Increasing out-of-pocket costs for enrollees. There is a growing consensus that: • The health care financing system is broken. • Symptoms of this breakdown are affecting rural areas disproportionately. • Leadership or solutions are unlikely to come from either the federal or state government, so answers will have to arise from local initiatives. • The money being paid into the health care system needs to be redirected to support and improve local health systems. The Commissioners of Jefferson General Hospital and the Jefferson County • Board of Health have been meeting to discuss strategies for dealing with this 'rural health crisis". Discussions about the situation in Jefferson County have also taken place with representatives from: Department of Health. University of Washington, Washington Health Foundation. Office of the Insurance Commissioner. State Board of Health. Governors Office as well as legislative representatives. There is a significant amount of support for assisting Jefferson County pursue an alternative local health care delivery and financing model. However. before requesting this support, the community needs to come to a basic consensus about their goals for improving the health system and a general model or structure for making these changes. • • ATTACHMENT 2 Health Access SummitWorkgroup.Members July 10, 2000 Co Chairs: Vic Dirksen, Jefferson General Hospital Dr. Tom Locke. Jefferson County Health Department Members: Dr. Geoff Masci, City or Port Townsend Charles Saddler. Jefferson County Tim Caldwell, Port Townsend Chamber of Commerce Dr. Claus Janssen. Chief of Staff, Jefferson General Hospital Chuck Russell, Commissioner, Jefferson General Hospital Bob Pieden, United Good Neighbors David Beaty, Olympic Area Agency on Aging Brent Shirley, Brent Shirley Insurance Dan Wollam, Clallam Jefferson Community Action Council Bruce McComas, Port Townsend Paper Julia Danskin, Jefferson County Health Department Lorna Stone, Washington Health Foundation • Staff/Coordinator: Kris Locke Jefferson General Hospital Commissioners: Kathy Hill, Jill Buhler, Joe Wheeler. Tony De Leo, Chuck Russell. Jefferson County Board of Health: Roberta Frissell. Richard Wojt, Dan Harpole. Glen Huntingford, Shelia Westerman, Geoff Masci, Jill Buhler. • • ATTACHMENT 3 Health Access Summit Workgroup Background The Commissioners for Jefferson General Hospital and the Board of Health for Jefferson County have been meeting to discuss and develop a course of action to improve access to health care in their community. Their joint meeting time is very limited — one or two hours per month. The Washington Health Foundation has granted limited funds to establish a workgroup which will develop basic project goals and develop models for organizing the local health system. This work will be presented to the joint Boards for review and comment as it is developed. The final work products will be presented and discussed at a local Health Care Summit. Workgroup Goals The goals of the Health Access Summit workgroup are: • Identify specific goals/outcomes for the Jefferson Access Project; . • Identify models/options for E. Jefferson County that promise to achieve the goals/outcomes identified by the workgroup; • Coordinate a local health summit to discuss and refine the models. Approximate time line: June through November, 2000. Sequence of Tasks Meeting 1: Overview of Project and Identify Goals Meeting 2: Review and Refine Goals/Final Outcomes Meeting 3: Present/Discuss Delivery and Financing Models Meeting 4: Continue Presentation and Discussion of Models Meeting 5: Development of Models Specifically for Jefferson County Meeting 6: Final Meeting — Refine Models and Identify How Each Would/Would Not Accomplish Goals Meeting 7: Summit Preparation 1111 Health Care Summit LThc New England Journal of Medicine `)Cl 3/4 0 (6)] ----- ---- tional guidelines.'•' Underuse also occurs in acute • 17lealth Policy .Report care. The failure to use effective therapies for acute myocardial infarction may lead to as many as 18,000 preventable deaths each year.` THE AMERICAN HEALTH CARE • Misuse is a pervasive problem. An estimated SYSTEM 130,000 people die each year partly as a result of in- juries caused by physicians.' Fatal adverse drug reac- tions in hospitalized patients caused an estimated The Movement for Improved Quality in Health Care 106,000 deaths in 1994.6 Fatal medication errors among outpatients doubled between 1983 and 1993.' THOMAS BOOENHEIMER, M.D. i The quality of care within hospitals has been found to be inferior for blacks and the uninsured.s•' To deal with the problem of misuse, the movement for AVIBRANT movement to improve the qual quality has begun to target issues of patient safety. edof health care has sprung up in the Unit- ed States. Report cards on health plans, hos- MEASURING QUALITY pitals, medical groups, and even individual physicians The Institute of Medicine has defined quality as have appeared on the front pages of newspapers, on "the degree to which health services for individuals television, and on the Internet. Projects to solve and populations increase the likelihood of desired problems of quality within health care institutions health outcomes and are consistent with current dot the health care landscape. A small but deter- j professional knowledge."' How does an individual mined cadre ofphysician leaders has developed a sci- physician, medical group, or health maintenance or- ence of health care quality and is working to trans- ganization (HMO) know whether it is providing form that science into a national movement. care of average, below average, or superior quality? Two main strategic threads intertwine to create The measurement of quality is an elusive but achiev- the present and future agenda of the movement to able goal.10•" Health care is not a single product, like improve quality in health care. First,activists are per- a toaster or a lamp. It includes such diverse compo- suading the purchasers of health care — large em- nents as performing screening mammography in a III plovers and the government — to demand high- healthy woman, optimally treating a patient with a quality care from managed-care plans and health care ! myocardial infarction and cardiogenic shock, and providers. Second, leaders are attempting to inspire ! counseling a depressed patient. Each intervention health professionals to create a "culture of quality" requires its own particular measurements of quality; within their health care institutions. A description some elucidate the processes of care,and some focus of these interrelated strategies is the subject of this on outcomes. For patients with diabetes, the rele- Health Policy Report. The report is based on inter- vans measures might include the percentage of pa- views with experts on the quality of health care in tients who undergo an annual retinal examination (a academic medicine, business, and government and measure of process) and the percentage with normal with the leaders of organizations that focus on qual- glycohemoglobin levels (a measure of outcome). ity in health care. Before describing the two strate- For patients with coronary heart disease, measures gies of the movement, I will briefly review the na- might include the percentage receiving aspirin and lion's main problems with the quality of health care, j beta-blockers(process) and the percentage who have how it is measured, and the most important organi- myocardial infarction or sudden death from cardiac zations concerned with the quality of health care. causes (outcomes). Even when considering only one health care intervention — for example, coronary- PROBLEMS WITH QUALITY artery bypass surgery—it is treacherous to compare Problems with the quality of health care can be cat- the outcomes of one surgical team with those of an- egorized as overuse, underuse, and misuse.' A num- other without adjusting for the age of the patients ber of studies have demonstrated overuse of health and the severity of their illness. care services; for example, from 8 to 86 percent of Different groups in the health care system have operations — depending on the type — have been different issues of concern regarding the quality of Found to be unnecessary and have caused substantial health care and are interested in different measures avoidable death and disability.'- Underuse is preva- j of performance. Physicians view quality in health lent in the care of patients with chronic disease. For ! care as the application of evidence-based medical instance, many patients with diabetes do not have knowledge to the particular needs and wishes of in- regular glvcohemoglobin measurements and retinal dividual patients. Patients may- place more impor- 11111 examinations, and from 1993 through 1995, only 14 tante on how clinicians communicate with them, or percent of patients with cardiovascular disease had ; how long they are kept waiting for appointments, achieved the serum lipid levels recommended in na- H than on the technical accuracy of the advice offered, 488 • February 11, 1999 i . t , I 'irs;`.,`„ HEALTH POLICY REPORT ' though a new wave of health-conscious consumers the NCQA, the plans that refuse to allow publica- . . '3'e is developing technical sophistication. HMOs may tion of NEDIS data have significantly lower scores value patient satisfaction and the use of preventive than the plans that permit publication. ' services above clinical outcomes because satisfied pa- j The Joint Commission on Accreditation of tients are less likely to leave the health plan and be- Healthcare Organizations (JCAHO), founded in cause the application of preventive services is a meas- 1952 under the aegis of the American Hospital As- ure on which HMOs are currently judged. sociation and the American Medical Association (AMA), has the authority to terminate hospitals' ORGANIZATIONS CONCERNED ; participation in the Medicare program if the quality WITH QUALITY of care•is found to be deficient. Revenues for the The National Committee for Quality Assurance I commission come chiefly from tees paid by hospi- NCQA was formed in 1979 by managed-care trade tals, home care agencies, and other facilities that it associations hoping to fend off federal monitoring of accredits. For years, the JCAHO attempted to launch health plans. In 1990,in order to reduce competition outcomes-based accreditation standards that would from newer,presumably lower-quality HMOs,a group allow the public to compare hospitals. Because of re- of HMOs in coalition with some large employers en- j sistance from hospitals, this effort has been scaled gineered a restructuring of the NCQA's board, trans- j down and converted to the ORYX program. ORYX forming the organization into something more than I allows a hospital to pick two measures of Perform- a mere advocate for the interests of HMOs.`= I ance from a long list, including such items as mor- The NCQA has two main voluntary activities: the talky after coronary-artery surgery or the percentage accreditation of HMOs and the publication of meas- of patients with diabetes who receive dietary coun- ures of performance in the Health Plan Employer soling, as long as these measures arc relevant to 20 Data and Information Set (HEDIS). As of October percent of the hospital's patient population. Over 1998, 48 percent of the nation's approximately 650 time, hospitals must report more measures, but there HMOs had requested accreditation surveys from the is no requirement for the type of uniform reporting NCQA; 96 percent of those surveyed have received that would help the public compare one hospital with three-year,one-year,or provisional accreditation.Thir- another. Ey large corporations, including Xerox, General Mo- The Health Care Financing Administration(HCFA) i ti tors, and IBM, will not contract with health plans is responsible for ensuring that institutions provid- ADthat are not accredited by the NCQA, but most em- i in services to Medicare and Medicaid beneficiaries ployers do not make accreditation a requirement. Em- I meet certain standards of quality. In the past few ployers concerned with the quality of health care years, HCFA has accelerated its quality-related activ- tend to be companies that have been forced by in- ities and may soon be the nation's most influential ternational competition to improve the quality of organization working to monitor and improve the their own products. Forty percent of the NCQA's quality of health care.The Quality Improvement Sys- budget comes from fees paid by HMOs for accredi- tern for Managed Care(QISMC),established in 1996, tation surveys;the rest comes from foundation grants, I sets quality standards for Medicare and Medicaid contracts, educational programs, and publications. managed-care plans. In contrast to the NCQA,which The current data'set from the NCQA, HEDIS reports HEDIS data only when health plans wish 3.0/1998, includes more than 50 measures of per- them to be released, HCFA has the authority to formance, including patient satisfaction, rates of make public such data for all Medicare HMOs, but childhood immunization,percentages of enrollees of it has not yet done so. HCFA may eventually require certain ages receiving screening for cervical and hospitals that participate in Medicare to submit data breast cancer, and percentages of patients with dia- on standardized measures of quality that consumers hetes who undergo retinal examinations." Ironically, i can use to compare hospitals, bypassing the more although employers tend to associate higher quality i cautious approach of the JCAHO. HCFA is consid- with lower costs (achieved by reducing overuse andering a similar approach for independent practice as- misuse of services), the NCQA's HEDIS measures I sociations and group practices. focus mainly on the underuse of health care, the In 1972, Congress created professional standards correction of which raises costs. The NCQA agrees j review organizations,supplanted in 1982 by peer re- that the HEDIS measures include few items related view organizations (PROs), one in each state, which to chronic illness;the group hopes to add such items are authorized to monitor quality in the Medicare for the year 2000 data set. j program. A 1990 study found that PROs used inef- A health plan can refuse to disclose its HEDIS fective punitive methods such as retrospective case profile to the public. A total of 329 HMOs (51 per- review with denials of payment and warnings to phy- ` cent of all HMOs) allowed the 1996 data to be pub- j sicians.'+ In 1992, HCFA transformed the PROs `• licized, but only 292 plans (45 percent) permitted into organizations with staffs of medical profession- public reporting of the data for 1997. According to I als, trained in quality improvement, who analyze Volume 340 Number 6 • 489 The New England Journal of Medicine patterns of care through the large Medicare data ! care institutions internally and fostering an external base and teed these data back to physicians and hos- environment that encourages improvements in quality. pitals in order to improve care for patients with corn- 1 The Consumer Coalition for Quality Health Care mon illnesses such as myocardial infarction, conges- , in Washington, D.C. — formed in 1993 through the tive heart failure, stroke, and pneumonia." PROs efforts of the American Association of Retired Per- review individual cases in the event of complaints sons and other consumer groups — represents labor, from patients and can deny payment for unnecessary ; the elderly,and advocacy organizations and intends to services, but these constitute a small proportion of i bring the perspective of consumers to legislative and their work. Experts on quality inside and outside private initiatives to improve the quality of health care. HCFA are concerned that Congress, intent on re PRESSURING INSTITUTIONS ducing fraud and abuse in the Medicare program,re- PRESSURING FROM THE OUTSIDE may require the PROs to return to their previous payment-denial practices and thereby compromise Accreditation, whether voluntary or compulsory, their quality-improvement activities.16 makes health care institutions satisty a minimal stand- The Foundation for Accountability (FACCT) in and of quality, thereby placing demands on these insti- Portland, Oregon, was created in 1995 on the ini- tutions to improve.The goal of the publication of per- tiative of Paul Ellwood. In contrast to the NCQA, j formance measures, or report cards, is to put pressure an accrediting organization, FACCT is a think tank on institutions in two ways. First,low scores on report and educational vehicle whose purposes are to devel- cards may steer consumers or employers away from op measures of performance that are relevant to I health plans,medical groups,or hospitals,and second, consumers and to educate consumers about how to physicians within institutions that score poorly on re- use this information. FACCT persuades the NCQA, port cards may be embarrassed into doing better. JCAHO, HCFA, state governments, and employers Leaders in the movement for quality in health care, to use its measures of performance. including those within the NCQA, view the commis- For 10 years, the Institute for Healthcare Im- lion's report cards as a first step toward improving provement (IHI) in Boston, founded by Donald j quality,but they cite several limitations of the program: Berwick, has organized an annual National Forum Report cards may not channel most consumers • on Quality Improvement in Health Care; it has also to higher-quality health plans. Forty-seven per- developed a Breakthrough Series, bringing together cent of employees in large companies and 80 percent leaders in health care organizations who are corn- in small firms have no choice among health plan's; mitted to solving problems of quality. The Break- data on quality would therefore be of no use to through Series focuses on several collaborative ef- them. Moreover, only 11 percent of 1500 employers forts to improve care within institutions; the goals recently surveyed relied on data on quality in select- include reducing waiting times in emergency de- ing health plans; cost is the driving factor in most partments, preventing adverse events due to medica- decisions by employers.19 tions, and improving care for low back pain. Tens of millions of people receive health in- The National Patient Safety Foundation, located at surance through preferred-provider organizations, offices of the AMA in Chicago,was established by the which are not included in the reporting on per- AMA in 1997 to change the attitudes of health pro- formance. fessionals and the public regarding medical errors.17 ! Patient satisfaction, an important component The foundation, with start-up hands from the AMA, of HlvIO report cards for marketing purposes, is sponsors research and educational efforts based on a questionable measure of the quality of care.20 the assumption that errors are not personal failures Patient satisfaction is an unreliable indicator because deserving punishment but, rather, inadequacies of positive ratings from the great majority of enrollees— systems,which must be redesigned to help prevent er- '', who are healthy and rarely use services — can dwarf rors. Leaders of the NCQA, JCAHO, FACCT, and the legitimate complaints of those who are sick.21 IHI sit on the foundation's board of directors. Gathering NEDIS data is costly to health plans The National Roundtable on Health Care Quality, and provider organizations, and the cost is ulti- involving representatives from academic, business, mately shifted to purchasers and consumers. The consumer, provider, governmental, and publishing I movement for quality in health care brings profits to organizations,was convened by the Institute of Med- consultants as well as to the newest suppliers of health icine in 1995 to heighten awareness of issues related care products: computer and software companies. to quality in health care. Funded by the federal goy- j If report cards truly channeled patients to ernment and private sources, the roundtable's 1998 higher-quality plans, those plans might attract a S report concluded that"serious and widespread quality sicker, more expensive population of patients. problems exist throughout American medicine."' The i The higher-quality plans would thus be punished Institute of Medicine is continuing the roundtable's rather than rewarded by the market, which does not work,looking at the dual strategies of changing health adjust HMO premiums for severity of illness. 490 • February 11, 1999 I HEALTH POLICY REPORT Although the impetus provided by report warnings in cases of drug interactions, known drug • cards may boost quality within H.MIOs,22 only allergies, and incorrect dosages.28 Employers could items measured by HEDIS are affected. As pres- create contractual requirements, incentives, or con- sure to reduce costs intensities and the time patients sumer expectations for computerized physician-order spend with physicians decreases, overall quality entry systems. could suffer even as HEDIS scores soar.2° j The Leapfrog Group is intent on pushing the What is the community of professionals con- movement for quality forward in two ways: by cerned about the quality of health care doing about bringing the safety of patients to the forefront of the these shortcomings? i consciousness of purchasers, and by going beyond Some groups of employers, in particular the Pacific the reporting of performance measures of health Business Group on Health (PBGH) and the Min- plans to make attention to quality improvement part nesota-based Buyers Health Care Action Group of health plans' and providers' contractual obliga- (BHCAG), are publishing report cards on medical tions and market rewards. groups and integrated care systems rather than fo GATING A CULTURE OF QUALITY cusing solely on health plans. A few purchasers are I INSIDE INSTITUTIONS creating financial incentives aimed at improving the quality of care. PBGH pays health plans more money External pressure from private purchasers and if they achieve negotiated preventive-services scores I government regulators is necessary but not sufficient on HEDIS.23 The huge Federal Employee Health for improvement in quality.29 Leaders in the field ar- Benefits Program is considering a similar move. gue that a fundamental change is needed within in- General Motors reduces premiums for employees stitutions to bring both a science and a culture of who choose high-quality plans. quality to U.S. medicine that are currently lacking in A far more effective step is for employers to place most hospitals and physicians' organizations. clauses in contracts with health plans that require For years, experts on quality, most prominently specific improvements in quality. This development j Donald Berwick and Lucian Leap:, have translated comes from a leading-edge group called the Leapfrog quality-enhancing techniques from other industries Group. This is an informal think tank of several large to health care.5•3° Mark Chassin, cochair of the Insti- employer organizations, including PBGH, BHCAG, Lute of Medicine's National Roundtable on Health and General Motors, whose goal is to make a direct Care Quality, challenges the medical profession to assault on targeted issues related to patients' safety. strive toward "six sigma quality."31 The six-sigma goal The group, whose "epidemiology of opportunities means tolerating fewer than 3.4 errors per 1 million for improving quality" is researched by PBGH mcd- events — a rate that lies outside six standard devia- ical director Dr.Arnold Milstein,has picked two issues ; tions of a normal distribution. Currently, the fre- as its initial focus on safety. The first is "evidence- quency of deaths during anesthesia has been reduced based hospital referral" — that is, the channeling of to 5.4 per million, close to the six-sigma goal. In patients to certain hospitals for conditions and pro- contrast, 580,000 per million patients with depres- cedures (including coronary angioplasty and bypass sion (58 percent) arc not given the correct diagnosis surgery, carotid endarterectomy, and repair of ab- or treated adequately,and 790,000 eligible survivors dominal aortic aneurysm) for which clear evidence of heart attacks per million (79 percent) do not re- exists that a higher volume of procedures or teach- ceive beta-blockers; these rates are in the neighbor- ing status is associated with better outcomes.24-27 hood of one sigma.31 After learning that this program could save 500 to Physicians, nurses, pharmacists,and other care giv- 1000 lives per year in California, PBGH (which is ers cannot individually perform at a six-sigma level made up of employers that purchase care for a total li of reliability; meeting this goal requires building sys- of approximately 3 million employees and their de- terns designed to prevent adverse consequences of pendents) is asking its California HMOs to use new unavoidable human errors.' For example, the use of performance standards for physician groups, hospital information-and-reminder systems increases the pro- precertification, and enrollee education to advance portion of patients with diabetes who regularly un- evidence-based hospital referral for an initial sub- I dergo glycohemoglobin tests and retinal and foot group of these interventions, beginning in urban ar- examinations.32 The implication is that clinical care eas. Although PBGH is beginning this effort with its I should be redesigned according to a team approach, HMOs, the intention of PBGH and the rest of the so that goals for acute, long-term, and preventive Leapfrog Group is to make these changes for all care can all be met. forms of health insurance. Some institutions are beginning to strive for six- The Leapfrog Group's second focus stems from sigma quality in specific areas. LDS Hospital in Salt research suggesting that medication errors at hospi- Lake City designed computer programs to assist phy- ;. tals can be substantially reduced by installing corn- sicians in prescribing antibiotics and thus reduced puterized physician-order entry systems that display mortality among patients treated with antibiotics by Volume 3.0 Number 6 • 491 . The New England Journal of Medicine I el • • 27 percent.-i3 A northern New England multihospital to re project used quality improvement techniques3. Weiner JP, Parente ST,Garmck DW,Fowles F.L.,wthers AG,Palmer RH. Variation in office-based quality. JAMA 1'195;27.3:1303-8. 4. McBride P,Sehrntt HG,Plane MB,Underbakkc G,Brown RL.Primary duce mortality among patients undergoing cardio- care practice adherence to National Cholesterol Education Program guide- vascular surgery by 24 percent in three years The loos for patients with coronary heart disease.Arch Intern`led 1998;133: 1238-44. i,!1 Community Medical Alliance in Boston has rede- 5. Leapt LL. Error in medicine. JA IA 1994;272:1851-7 signed systems of care for patients with severe chron- j 6. Lazarou F.Pomeranz BH,Corey PN. Incidence of adverse drug rear- IC disease by providing a wide range of Services at tions in hospitalized patients. JA A 1998;_79:1200-5. 7. Phillips DP,Christenfeld N,Glynn LM. Increase in L5 medication- home and greatly reducing the need for hospitals, error deaths between 1933 and 1993. Lancet 1998;351:64.3-4. • specialists, and ambulances.' The IHI's National 8• Kahn K1-,Pearson`IL,Harrison ER,et al. Health care for black and Forum and Breakthrough Series allow institutions ! poor hospitalized Medicare patients. J.1MA 1994:27L11o9-74. 9. Bursrin HR. Lipsitz SR,Brennan T-A.Socioeconomic status and risk across the country to learn from one another's qual- for substandard medical care. JAMA 1992;268:2383-7. ity-improvement projects. Given the tens of thou- 10. Brook RH,McGlynn EA,Cleary PD.Measuring quality of care. N Engl I Med 1996;335:966-70. sands of hospitals and medical practices in the na- tion, it I 11. Eddy Det.Performance measurement:problems and solutions.Health : i 1 i. tion, many of which do not have leaders capable of Aff(Millwood) 1998;17;4):7-25. carrying through major quality improvement projects, 1z. `l'Bens°"ML.Demanding medial excellence.Chicago:University of Chicago Press, 1997. this strategy has had limited effects thus far.' 13. Epstein A.1.Rolling down the runway:the challenges ahead for qual- ity in the movement for quality in health care tty report cards.JAMA 1998;279:1691-6. 14. Rubin HR,Rogers WH,Kahn KL. Rubenstein LV,Brook RH. emphasize that health plans and providers will work Watchingthe doctor•watchers-how well dopeer review organization meth- • toward six-sigma quality on a large scale only if they i ods detect hospital care quality problems? JAMA 1992;267:2349.54. are rewarded in the market for doing so; currently, 15. Jencks SE Wilcnsky GR.The health cart quality improvement initiative: financial rewards favor low cost over hi a new approach to quality assurance in Medicare.JAMA 1992;268:900-3. 5h quality. Even 16. Prager LO.PROs aim to help curb payment errors.American Medical with a fundamental change in the market, however, News. December 7 1998:1,38. ' 17. Leapt LL,woods DD,Hallie VU,Kizer Kw,Schroeder SA,Lund• this level of quality is difficult to achieve. Physicians berg GD. Promoting patient safety by preventing medical-cant. JAMA ' i offices,still the main site of clinical practice,arc hard- 1998;280:1444-7 er to redesign than larger multispecialty groups,which 18. Gabel JR,Ginsburg P11,Hunt KA.Small employers and their health arc• more able to invest in information-and-reminder ! benefits, 1988-1996:an awkward adolescence. Health Alt'(:vlillwood) systems and to create team-based clinical care. 19. Prager LO.Top aecreditor ties accountability to higher HMO quality. li American Medical News.October 19,1998:10, 13. • CONCLUSIONS 20. Brook RH,Kamberg CI,McGlynn EA. Health system reform and quality. JAMA 1996;276:476.80. Why is the movement to improve the quality of 21. Angell M,Kassircr JP.Quality and the medical marketplace-follow- ing elephants.N Engl J Med 1996;335:333.5. health care active in the United States at time when I' I 22. Lunge DR,Land G,Schramm w,Fraas J,Hoskins 3,Howell V.Con• cost containment dominates the health care agenda? sumer reports in health care:do they make a difference in patient are? To some degree, improved quality can reduce costs, JAMA 1997;278:1579.84. 1 particularly costs due to overuse and misuse of sere 23. 5ehautflcr HH,Rodriguez T. Exercising purchasing power for proven• rive care. Health Aff(Millwood) 1996;15(11:73-85. ices.31 But substantial investment is needed to reduce 24. Jollis JG,Peterson ED,DeLong ER,et al.The relation between the misuse, and more tends are needed to address un- volume of coronary angioplasty procedures at hospitals treating Medicare deruse. One cannot CX (alt Che Cx1SCCACe Ot Chl' mOVI' beneficiaries and short-term mortality. N Engl J Med 1994:33L1625.9 . p 25. Grumbach K.Anderson GM,Luft HS,Roos LL,Brook R. Region- ment simply as a cost-containment activity. A small alization of cardiac surgery in the United States and Canada:geographic • number of people, mostly physicians, have brought a1eCss•choice,and outcomes.'AMA 1995;274:1_'32.8. 26. Karp HR,Flanders D,Shipp CC,Taylor B,Martin D.Carotid end- , the movement into being, to some extent against I arterectomy among MedicareWbeneficiaries:a statewide evaluation of•appro- considerable odds. Overall,the movement for quality priateness and outcome.Stroke 1998;29:46-52. • in health care expresses a human desire to do the 27. Hannan EL,Kilburn H Jr,O'Donnell IF,et al.A longitudinal analysis of the relationship between in-hospital mortality in New York State and the ; right thing. volume of abdominal aortic aneurysm surgeries performed. Health Seri The movement has major barriers to overcome. Res 1992;27:317.42- Corporate purchasers and governments have reduced 28. Bates DW, Leape LL,Cullen DJ,et al. Effect of computerized physi- cian order entry and a team intervention on prevention of serious medica- rates of reimbursement to providers, leading to re- non errors. JAMA 1998;280:1311-6. duced staffing in hospitals and less time with physi 29. Berwick DM.Crossing the boundary:changing mental models in the service of improvement. Int I Qual Health Care 1998;10:•!•35-41. clans for patients. Investor-owned health plans and 30. Berwick DrNi.Continuous improvement asr an ideal in health care. j provider organizations have exacerbated these trends N Engl I Med 1989;320:53-6. by shifting dollars away from direct health services 31. chassis MR. Is health care ready for six sigma quality?Milbank Q 199876:563.91. , and toward profits and administration. Nonetheless, 32. McCulloch DK,Price MI,Hindmarsh 51,Wagner EH.A population- ! the goal of improving the quality of care has gained based approach to diabetes management in a primary care setting.Effective a prominent place on the nation's health care agenda. Chin Pract 1998:1(1):12-22. 33. Pestotnik SL,Classes DC,Evans RS,Burke JP Implementing antibi- t otic practice guidelines through computer-assisted decision support:dini- REFERENCES cal and financial outcomes.Ann Intern Med 1996;124:884-90. • 34. O'Connor GT,Plume SK,Olmstead EM,et al.A regional interven- 1. Chassin MR,Galvin RW.The urgent need to improve health care qual- tion to improve the hospital mortality associated with coronary bypass icy.JAMA 1998;280:1000-5. graft surgery.JAMA 1996;275:841-6. ( 2. Leape LL.Unnecessary surgery.Annu Rev Public Health 1992;13:363- # l 33. ©1999,Massachusetts Medical Society. 1 ick 492 • February 11, 1999 yl C. HEALTH POLICY REPORT A reduction in explicit coverage, most notably • Health Policy Report pharmaceutical benefits. Most plans cap outpatient pharmaceutical benefits. Prescription drugs now con- stitute the largest category of out-of-pocket payments for the elderly, and the costs arc rapidly rising. THE AMERICAN HEALTH CARE Greater de facto limitations on covered care, • SYSTEM especially by health maintenance organizations (HMOs). More stringent utilization reviews and eco- nomic disincentives forphysicians and hospitals are Tr' Health Insurance Coverage p' resulting in denial of care and shifting of costs to pa- `' RORER FI KUTTNER dents. • A broad shift from traditional HMOs requir- ing very low out-of-pocket payments to point-of- HE most prominent feature of American j service plans and preferred-provider organizations T health insurance coverage is its slow erosion, I g � (PPOs) requiring higher payments by patients. even as the government seeks to plug the Ostensibly, the rationale for this shift is to provide f gaps in coverage through such new programs as greater choice for consumers, but consumers often j Medicare+Choice, the Health Insurance Portability enroll in a PPO or a point-of-service plan not be and Accountability Act(HIPAA),expansions of state cause HMOs restrict choice but because they arc per- Medicaid programs, and the S24 billion Children's ceived as restricting care. By 1997, there were more Health Insurance Program of 1997. Despite these than twice as many Americans enrolled in point-of- efforts, the proportion of Americans without insur- service plans or PPOs as there were in HMOs.1 ante increased from 14.2 percent in 1995 to 15.3 Loss of Medicaid coverage due to welfare re- percent in 1996 and to 16.1 percent in 1997, when form. The 1996 welfare-reform law separates Med- • 43.4 million people were uninsured. Not as well ap- icaid eligibility from eligibility for public assistance, f. s preciated is the fact that the number of people who but it also pushes many former welfare recipients are underinsured, and thus must either pay out of into low-wage employment that does not provide pocket or forgo medical care, is growing even faster. health insurance. Although the termination of wel- This report addresses several trends that account fare benefits does not necessarily entail loss of Med- .or the erosion of health insurance coverage. The icaid coverage, preliminary reports suggest that in most important trend is the deterioration of employ- practice the added administrative complexity is lead- er-provided coverage, the source of health insurance ing to reduced enrollment in Medicaid.' for nearly two in three Americans.1 I will discuss this The rising cost of"Medigap" coverage for the cause in detail in the next article in this series. To elderly,which leads to substantial underinsurance. _ summarize briefly for now, a few employers have elim- I In some states, such as Massachusetts, comprehen- inated coverage entirely because of the escalating sive Medigap policies are now in a death spiral: only costs of premiums. Most employers have narrowed a small number of persons with high medical ex- the choice of plans and shifted costs to employees by penses find it cost effective to buy such policies, and capping the employer's contribution, choosing plans low enrollment, in turn, leads to even higher premi- with higher out-of-pocket payments, or both. These j urns and lower enrollment. changes, in turn, have cau'sed some employees to The crackdown on illegal immigrants and the forgo coverage for themselves and their families and reduction in services to legal immigrants. These 11 have also led to underinsurance, since many employ- policies are forcing many immigrants to forgo Med- ees, especially those who receive low wages, cannot icaid and other forms of health coverage that arc le- afford the out-of-pocket charges. gaily available to their children who are citizens. The following trends are also eroding insurance The trend away from community rating of in- coverage of all types. dividual insurance premiums, which results in Rising premium costs, both for persons who rising costs and, hence, reduced rates of coverage have access to insurance through their employers ! for middle-aged persons. For the 8.7 million Amer- and for those who buy insurance individually. icans who buy insurance individually, premiums are Costs will rise in 1999 for both groups, but more partly adjusted for age and are also adjusted for prior sharply for persons with individual coverage.=•3 medical conditions. The trend toward temporary and part-time As a result of these trends, lack of insurance and work, which seldom includes health care cover- underinsurance are becoming more widespread prob- age. In 1997, about 29 percent of working Ameri- j lems. Not surprisingly, it is lower-income Americans cans held "non-standard" jobs, a category that in- who bear the disproportionate costs, since as com- ludes temporary, part-time, contract, and day-labor pared with higher-income Americans, they arc more • ositions.4 likely to work for employers who do not provide �i 1� ..17.1�-�! 7:;',.0 .t."t `1 i .Li • iVolume 340 Number 21 • 163 d. /. Y1 1=4 i i .` i ..:41., The New England Journal o[ Medicine a,. . I{: it u `' health care coverage or who require employees to I make sizable contributions to insurance premiums, TABLE 1.TYPE OF HEALTH INSUR♦NCE •j they arc more likely to have part-time or temporary AND COVERAGE STATUS, 1997.• �• jobs with no health care coverage, and they are less able to afford individual insurance or high out-of- STATUS ANO TYPE TNouwANos OF COVERAGE OF PERSONS I%l pocket payments. ,, Surprisingly, unemployment is scarcely implicated All persons . , in these trends. Indeed, all of them have occurred Total 269,094(100.0) while unemployment rates have been declining. Oth Covered 225,646(83.9) er things being equal,a decline in the unemployment P Emp 138,533(70.1) Employment-based :65,092(61.4) rate should bring an increase in health insurance Government 66,685(24.5) coverage, given the prevalence of employer-provided Medicare 55,590(13.2) Medicaid 23,956(10.8) (. i coverage. But the low unemployment rates of the Military 3,527(3.2) late 1990s have not been sufficient to offset the above= Not covered 43,448(16.1) 1 mentioned trends. Today, the vast majority of unin- Poor persons '- sured persons are employed. Total 35,574(100.0) Covered 24,336(68.4) THE UNINSURED Private 3,264(23.2) y Employment-based 5,521(15.5) =A: Government 18,58$ The number of uninsured persons rose from 41.7 (52.2) ;,.; ( million (15.6 percent) in 1996 to 43.4 million (16.1 Medal 5,386(13.3) Medicaid 15,386(43.3) percent) in 1997, according to a September 1998 Not covered 11,238(31.6) :. Census Bureau report(Tables 1 and 2).6 This widely publicized increase tends to understate the extent of •Data are from the U.S.Census Bureau.° people the problem, however. The Census Bureau also cal- culated that a much larger number of Americans, about 71.5 million, lacked insurance for at least part " `s p of the year. The latter figure was based on a study conducted from 1993 through1995.'Poor and low- income persons, as well as members of minority FOR THE ENTIRE YEAR,ACCORDING TO SELECTED groups, were most likely to have periods without CHAR.AcrERIsncs, 1997.• coverage.Twenty-five percent of non-Hispanic whites ' ' I d had at least one month without cove age, IN as tom UNSURED pared with 37 percent of blacks and 50 percent of CHARACTERISTIC ALL PERSONS PERSONS `'j Hispanics. thousands of persons 1%) Lack of insurance is very closely correlated with ei, f' low income. Whereas 8 percent of Americans with Total 269,094 43,448(16.1) se li; incomes over$75,000 and 16.1 percent of all Amer- sex 131,705 23,130(17.6) - i' 'EI icans lacked health insurance in 1997, 24 percent of Female 137,390 20,319(14.8) '.t C it those with incomes of less than $25 000 had no Ag`(y`) <13 71,682 10,743(15.0) coverage. Fifty percent of persons with incomes be- 18-24 25,201 7,582(30.1) it C low the poverty line had at least one month without 25-34 39,354 9,162(23.3) !) insurance, as tom aced with 27 OF those 35-44 44,462 7,699(17.3) I p percent45-64 56,313 7,928(14.1) i with higher incomes. Despite Medicaid, 11.2 million ;•65 32,082 333(1.0) persons with incomes below the poverty line, or Race or ethnic group White 221,651 33,242(15.0) j; 31.6 percent of all the poor, had no health insurance Non-Hispanic white 192,179 23,135(12.0) ;::'I. at all in 19976 . Black 34,593 7,432(21.5) The high cost of health insurance relative to . Asian or Pacific Islander 10,492 2,172(20.7) Hispanic 30,773 10,534(34.2) 3I '!' come is the main reason for high rates of uninsur- ii j; ante among poor and low-income persons. A study Data are from the .S.Census Bureau.' conducted by IC‘IPG Peat Marwick for the Com- monwealth Fund found that a person with an annual ri 'iincome at the poverty threshold would need to pay fordable unless it is provided by employers or the 26 percent of that income to purchase health insur- government. i ance. In more expensive markets, this cost rises to Lack of insurance is also correlated with loss of 40 percent of income for a family of four.' Since employment. According to the Census Bureau, dur- such families are barely able to pay for food and shel- ing the period from 1993 to 1995, 44 percent of �' ID' ter, these figures suggest that for poor and low- persons who lost their jobs also reported loss of in- income persons, health insurance is effectively unaf- surance coverage. At the same time, however, almost 164 • January 14, 1999 HEALTH POLICY REPORT half(49 percent) of fully employed people with in- i coverage for the entire two years lived in households comes below the poverty line had no insurance.' where the breadwinners were employed all or part of The figure was even higher in 1996, when 52 per- the 24-month period. Lack of insurance was more `-4A cent of poor full-time workers had no insurance.This closely correlated with low income. Fifty percent of •e'i study was conducted before the enactment in 1996 children with family incomes between 315,000 and of the HIPAA, which makes it easier for persons 325,000 had no health care coverage. For the very 'y. who have lost employer-provided insurance to qual- poor, Medicaid in principle provides coverage. Ac- iiy for other coverage. i cording to the General Accounting Office, however, However, to the extent that loss of insurance cov- nearly 3 million children who are eligible for Med- erage is the result of lost purchasing power due to icaid are not enrolled in the program's because of job loss, HIPAA is of no help, because it provides inadequate outreach, fears on the part of immigrants no subsidy and does not regulate price. The 1985 that enrollment will lead to problems with the au- Consolidated Omnibus Budget Reconciliation Act thorities, and other barriers. (COBRA),which allows people leaving employment On the basis of a survey of health care coverage ` . to pay insurance premiums out of pocket for up to for children, the Census Bureau reported that the 18 months in order to retain their coverage, likewise proportion of children lacking insurance rose from fails to address economic barriers to coverage. More- 12 percent in 1989 to 15 percent in 1996,16 a period `•: over, although HIPAA prohibits outright denial of of increasing prosperity in general,decreasing unem- J1 insurance because of previous medical conditions, it ployment, and nominal expansion of eligibility for allows insurers to charge people with previous con- Medicaid. Noting that the number of poor children 1 ditions substantially higher premiums, thus sharply covered by Medicaid fell from 16.5 million to 15.5 limiting effective coverage.9 Although in principle million between 1995 and 1996, the Census Bureau .7,*4' HIPAA protects as many as 25 million people from observed, "The growth in the number of children s loss of insurance, in practice it benefits only a few lacking health insurance is largely attributable to the , hundred thousand.10 fall-off in Medicaid coverage."'6 Some 34 percent of A 1997 national survey of health insurance con- the survey respondents whose children did not re- ducted by Louis Harris Associates for the Henry J. ceive regular medical care reported that the reason `i Kaiser Family Foundation and the Commonwealth was that they had no insurance and could not afford Fund confirms these trends. According to the sur- visits to doctors." Approximately 800,000 children vey, one in three adults between the ages of 18 and were taken to emergency rooms for all their care.18 -3, 64 years had been without insurance at some point In 10 jurisdictions, at least 37 percent of children in the previous two years. The survey confirmed went without insurance for some portion of the pe- .:. i,,,, that persons with low incomes were most likely to riod from 1995 through 1996: Texas (46 percent), `r lack coverage: 59 percent of adults with incomes be- New Mexico (43 percent), Louisiana (43 percent), low $20,000 had been without coverage, as corn- Arkansas (42 percent), Mississippi (41 percent), the +l; pared with 8 percent of adults with incomes above District of Columbia(39 percent),Alabama(38 per- 360,000.11 The survey also confirmed that lack of cent),Arizona(38 percent),Nevada(37 percent),and insurance was more often due to the high cost of California (37 percent).19 coverage (reported by 51 percent of respondents) Not surprisingly, several studies confirm that chil- 'J ) than to job loss or the employer's failure to provide dren without health insurance receive less care in the • )1-., access to coverage (reported by 25 percent). Fifty- form of diagnostic,screening,and immunization serv- seven percent of respondents without insurance ices than children with coverage. Uninsured children were employed full time.12 The survey also showed have fewer checkups, are less likely to be treated for considerable discontinuity of coverage,with one third chronic conditions such as asthma and recurrent ear of insured adults reporting that they had been en- j infections, are less likely to be treated by doctors for rolled in their current health plan for less than two injuries, and are more likely to go without eyeglasses years.13 or prescribed drugs.20 CHILDREN WITHOUT INSURANCE THE UNDERINSURED Several reports have documented high and rising The increasing prevalence of underinsurance may rates of uninsurance among children. According to well be the more serious trend. Underinsurance here a March 1997 Families USA report based on Census refers to medical needs that either are not covered =a data, approximately one child in three had no insur- by health plans at all or are covered but with high i. ante coverage for one or more months during 1995 copayments that force beneficiaries to forgo treat- and 1996.14 Almost half these children (47 percent) merit. Stringent "management" of care that results were uninsured for a year or more. Unemployment in denial of medically necessary treatment may also f,- of the family breadwinner was not the main reason, be considered a form of underinsurance. •.- since 91 percent of the children who lacked health Studies by the Employee Benefit Research Insti- N k Volume 340 Number 2 • 165 The New England Journal of Medicine {' cute, several private consultants, and Consumers ' sources, however, is being cut back, either in dimin- j Union all document substantial cost shifting and ris- ished coverage or in diminished enrollment. In 1998, ing rates of underinsurance. A January 1998 study ! some Medicare HMOs quit the business and others conducted by the Lewin Group for Consumers Union capped or dropped drug coverage. In the case of found that 11 million families without elderly mem- Medigap plans, only 3 of the 10 standard plans man- bers (1 in 8 families) spend on average more than 10 dated by the 1990 federal Medigap legislation pro- f percent of their income on out-of-pocket health care vided any prescription-drug coverage, and only a costs and health insurance premiums not paid for by small minority of people who bought Medigap cov- employers.1' This figure rises to 20 percent for fam- erage purchased these plans.According to the Lewin flies with members who are 55 to 64 years old, and Group, the proportion of employer-provided sup- to 50 percent for families with members who are 65 plemental plans for retirees that included prescrip- or older. Among all age groups, the 10 percent of tion-drug coverage declined from 90 percent in people with the most serious health problems spend j 1989 to 81 percent in 1995.28 And the proportion an average of 521,000 a year in premium and out- of employers offering retirees supplemental health of-pocket payments.51 I coverage declined from over 60 percent in the 1980s In addition, recent trends in both employment li to less than 40 percent today, according to the Gen- . ! and health insurance have made ties between pa- eral Accounting Office.29Y. tients and doctors less stable.The Kaiser—Common- Virtually all supplemental plans for the elderly re- ,' wealth survey found that 34 percent of insured quire copayments for prescription drugs. In 1998, adults under the age of 65 had been enrolled in their only 9 percent of Medicare beneficiaries who were ; - current health plan for less than two years.22 Only enrolled in HMO plans had unlimited prescription- . 36 percent had had the same primary care doctor for drug benefits; 43 percent were in plans that had no five years or more.23 Respondents with conventional annual dollar cap but that limited coverage to gener- =s; Medicare or Medicaid coverage actually had more is drugs or drugs on an approved formulary. In the stable relationships with providers than those in man- case of plans that provided coverage for brand-name ; • aged-care plans, a finding that is largely due to the drugs, more than half of enrollees had an annual cap fragmentation and turbulence of the managed-care of$1,000 or less.3° industry. McCormack et a1.31 reported in 1996 that 84 per- cent of Medigap policies in six states provided no 1,/ PHARMACEUTICAL COVERAGE drug coverage at all, and only 7 percent provided "high-option" with an annual The costs of prescription drugs continue to rise high option coverage (Plan J), i faster than the costs of other components of health benefit cap of 33,000. Such plans cost over$200 per care, and they arc increasingly less likely to be coy- month, which few elderly people can afford. The R . ered by insurance. Total expenditures for prescrip- lower-option policies (Plans H and I) required a tion drugs increased by 85 percent between 1993 5250 annual deductible for drug costs, a 50 percent 3 and 1998, with an estimated 17 percent increase copayment, and a 51,250 annual cap. The Lewin # from 1997 to 1998 alone, or more than four times Group, using a different method, found that 28 per- the rate of increase for all health care expenditures cent of persons with Medigap policies had some •:J ,� in that period.24 In 1995, more than half of all phar- pharmaceutical benefits but confirmed `'-__most did maceutical costs were paid out of pocket,25 and the not have the high-option plan. Medigap policies proportion is almost certainly higher now. paid for only 3 percent of all prescription-drug costs l• The elderly are most dependent on prescription for the elderly. The largest source of insurance cov- drugs, which Medicare does not cover. More than erage, accounting for 21 percent of the costs, was i 19 million elderly persons, or about half of all Medi- employer-provided supplemental plans; 52 percent care enrollees, have no drug coverage. Press reports of drug costs were paid out of pocket.32 Obviously, 1 indicate that countless prescriptions go unfilled be- as drug prices keep rising, the relative value of the 1 ; cause elderly patients cannot afford to pay for them.26 covered benefit declines. The drug industry contin- Expenditures for prescription drugs account for 34 ues to resist efforts by Representative Pete Stark percent of medical expenditures by the elderly, rep- (D-Calif.) and others to add drug coverage to Medi- j•^• resenting a larger proportion of expenditures than care by using federal purchasing power to buy dis- ` ; that for either hospital charges or physicians' servic- counted drugs,and such measures currently have lit- 1 es,according to the American Association of Retired tle chance of enactment. l ! Persons. THE OUTLOOK In 1995,elderly people with some pharmaceutical ' . benefits received them through HMOs (12 percent), Few of these trends toward increasing numbers of I; Medicaid(6 percent),employer-provided supplemen- ! uninsured and underinsured Americans show signs 0 tal policies for retirees (26 percent), or privately pur- of abatement or reversal. Although managed care ( ? • chased Medigap policies (9 percent).27 Each of these dramatically reduced the inflation in health insur- i :. i: If ; 166 • January 14, 1999 .. HEALTH POLICY REPORT `:i , ...4 ance costs for employers in the mid-1990s, this seems I to expand Medicaid, and others arc setting up new, to have been a one-time savings. The underlying i parallel children's programs. ...?l demographic and technological trends are unchanged, I However, the interactions among Medicaid, the and employers and benefit consultants report sharp- . welfare-reform law, and the Children's Health Insur- lv rising premium costs in 1999.3 Employers, facing ance Program are highly complex and confusing. ." t little resistance from unions or public policy, are con- For example, most children whose mothers will lose ,ia• tinuing both to reduce the options for coverage and Medicaid coverage under welfare reform may retain to shift costs to employees, leading to both lack of their eligibility for Medicaid, but coverage is not au- '' insurance and underinsurance. tomatic. Moreover, press reports indicate that immi- ft Likewise, despite the early promise of Medicare grants, both legal and illegal, are reluctant to obtain -= HMOs, the gaps in Medicare coverage are growing coverage for their children for fear that enrollment larger. Even before the implementation of Medi- will bring investigations by the immigration author- care±Choice (which allows the insurance industry ities. As of November 1998, California, which has a to market a wider variety of point-of-service plans complex 28-page application for coverage that in- and PPOs), private insurers had already begun to re- eludes several questions about immigration status, duce benefits or withdraw from selected markets. In had enrolled only 4 percent of 580,000 eligible chil- ;h ; October 1998, insurers announced they were drop- dren,36 despite a payment of$25 to S50 to insurance •"7 ping coverage for some 400,000 of the approximate- vendors for every child they enroll. The Congres- . .w ly 6 million enrollees in Medicare HMOs.33•34 sional Budget Office estimates that the net effect of With premium costs continuing to rise, more em- the welfare-reform law, the Children's Health Insur- -li �3, ployers are dropping or reducing coverage than are ance Program, and Medicaid expansions will be to y.j expanding it. Health care coverage is seen as a par- extend coverage to some 2 million of the 10.6 mil- :` titular burden by smaller businesses,which represent lion children who were uninsured as of 1997.37 the fastest-growing sector of American employers.33 With unemployment rates approaching a 30-year ' - .: And as the shift from full-time to part-time and tern- low, the overall trend in declining health insurance E `'; porary jobs continues, more employees are likely to coverage is, if anything, understated. In the next re- find themselves with no benefits. cession, when the unemployment rate increases, loss Congress, in several budget resolutions beginning of coverage is likely to increase apace. Because all in 1989, has extended Medicaid eligibility, especially sources of coverage are eroding, the long-term trend 1 .4.1 to children who are living in poverty but arc not on is toward a continued decline in both nominal and welfare. Some states,such as Oregon and Tennessee, effective rates of coverage, unless there is a dramatic have sought to turn Medicaid into a nearly universal change in national policy. r ,khealth insurance program for the working poor as 4, well as the indigent. However, these programs entail REFERENCES -'3s, a degree of rationing, which is either explicit, as in 1. Fronsrin P.Features of employment based health plans.Washington, the Oregon program, or implicit, as in Tennessee's D.C.:Employee Benefit Research Institute,1998. '~, stringent approach to managed care, Rationing, in 2. Kilbom P.Premiums rising for individuals.New York Times.December 7. turn, gives people the "choice" payingOf for uncov- 5,1998A7. 3. Freudenheim M.Employees facing steep increases in health cart.New ered services out of pocket or doing without them. York Times.November 27,1998A1. The shift to Medicaid managed care suggests that al- 4• Mishel L,Bernstein J,Schmitt J.The state of working America,1998- -. i 99.Washington,D.C.:M. Economic Policy Institute,1998:243. though more people will be nominally covered,many 5. Greenberg Participation in welfare and Medicaid enrollment.Menlo r.= will in effect have less coverage. I Park,Calif.:Kaiser Family Foundation,September 1998. The expansions in Medicaid are also offset by the 6. Bureau of the Census.Health insurance coverage,1997.Washington, j D.C.:Government Printing Office,September 1998(P60-202). ? ; 1996 welfare reform law, Temporary Assistance to 7. Idem.Dynamics of economic well-being:health insurance,1993-1995. ‘,,.,..,_4-. Needy Families, which limits the duration of welfare Washington,D.C.:Government Printing Office,September 1998(P70- `; benefits. As the welfare limits gradually become ef- 64)' 8. Gabel J,Hunt K, Kim J.The financial burden of self-paid health insur- ?3_, festive in most states during 1999, millions of peo- ance on the poor and near-poor.New York:Commonwealth Fund,1998. pie will lose their eligibility for Medicaid along with 9. Kurtner R.The Kasscbaum-Kennedy bill-the limits of incremental- '. their welfare benefits. Manyheads of households am.N Engl J Med 1997;337:64-7. ;',:` 10. Department of Health and Human Services,Department of Labor, will take relatively low-paid jobs, most of which do Department of the Treasury.Rulemaking package implementing HIPAA. Washington,D.C.:Government Printing Office,April 1,1997:72. not offer health insurance; even those that do tend 11. Schoen C,Hoffman C,Rowland D,Davis K,Altman D.Working fam- .. to require high premium payments by employees. flies at risk:coverage,access,cost and worries.New York:Commonwealth One small bright spot is the likelihood that the Fund,1998. number of uninsured children will decline, thanks to 12. Idem.Working families at risk:coverage,access,cost and worries.New . York:Commonwealth Fund,1998:12. the new Children's Health Insurance Program. En- 13. Idem.Working families at risk:coverage,access,cost and worries.New acted as part of the 1997 Balanced Budget Act, the ! York: Commonwealth Fund,1998:6. program provides the states with $24 billion over a 14. One out of three:kids without health insurance,1995-1996.Wash- • ngton,D.C.: Families USA,1997 period of five years.Some states are using these funds 15. General Accounting Office.Health insurance for children:private in- Volume 340 Number 2 • 167 C i The New England Journal of Medicine t surancc coverage continues to deteriorate.Washington,D.C.:Government 28. Current knowledge of third parry outpatient drug coverage for Medi- Printing Office, 1996.(GAO/HEHS 96.129.) care beneficiaries. Fairfax,Vi.: Lewin Group,1998:7. 16. Bureau of the Census.Census brief:children without health insurance. 29. Closing the huge hole in Medicare's benefits package.Remarks by Washington,D.C.:Government Printing Office,1998. Congressman Pete Stark,C.S.House of Representatives.Washington, 17. Idem.Census britt:children without health insurance.Washington, D.C.,October 9,1998. D.C.:Government Printing Office, 1998:5. 30. Current knowledge of third parry outpatient drug coverage for Medi- . 18. Idem.Census brief:children without health insurance.Washington, care beneficiaries. Fairfax,Va.: Lewin Group, 1998:19. D.C.:Government Printing Office,1998:6. j 31. McCormack LA,Fox PD,Rice T.Graham ML.Medigap reform leg- 1, 19. One out of three:kids without health insurance.Washington,D.C.: islacion of 1990:have the objectives been met? Health Care Financ Rev Families USA,1997:5. 1.996;13(1):157-74. 20. One out of three:kids without health insurance.Washington,D.C.: 32. Current knowledge of third party outpatient drug coverage for Medi- Families USA,1997:9. care beneficiaries. Fairfax,Vi.: Lewin Group,1998:13. 21. Shearer G.Hidden from view:the growing burden of health care costs. 33. Pear R. HMOs are retreating from Medicare,citing high costs. New Washington,D.C.:Consumers Union,1998:3. York Times.October 2,1998:A17. 22. Schoen C,Hoffman C,Rowland D,Davis K.Altman D.Working tam- ( 34. Idem.Clinton to announce help as HMOs!cave Medicare.New York dies at risk:coverage,access,cost and worries.New York:Commonwealth I Times.October 3,1998:A20. • • Fund,1998:25. 35. National survey of small business executives on health care.Menlo 23. Item.Working families at risk:coverage,access,cost and worries.New Park,Calif.: Henry J. Kaiser Family Foundation,June 1983. York:Commonwealth Fund,1998:51. 36. Healthy Families Program subscribers enrolled by county. Sacramen- { 24. Tanouye E.C.S.has developed an expensive drug habit;now,how to co:California Managed Risk Medical Insurance Board,November 24, pay for it?Wall Street Journal.November 16,1998:A1. 1998. r 25. Current knowledge of third party outpatient drug coverage for Medi- 37. Congressional Budget Office memorandum:budgetary implications of care beneficiaries.Fairfax,Va.:Lewin Group,1998. the Balanced Budget Act of 1997.Washington,D.C.:Congressional Budg- • 26. Lagnado L.Drug costs can leave elderly a grim choice:pills or other i cc Office,December 1997:54. nerds.Wall Street Journal.November 17,1998:A1. M j 27. Current knowledge of third party outpatient drug coverage for Medi- care bencticiaries.Fairfax,Vi.:Lewin Group,November 9,1998:4. 01999,Massachusetts Medical Society. • • IY,,..., - Y q y t•• 4t�',' 4*6.1at4 '„e„i .:'nPV -041,,4 '" �-• l k.gyp. . 41 .'./, ».• *4.i.)Bila •'• ,� - '''•• ,,(.* _ . ' • ► j �tlt�o i °!�' 4 7• ,flG ,,''•'\. rte- 1r�` / ..S ` I"AIDE • 11 .t' RI n•'whin- • •! -n. ' .. �' �•.r T3y.„ .'.7...-+t�'�1+�'7 t'• '�f �I. '`'~ •,, 1 ► tri i t - ..,r., , e •74• - :. i . . v-... - • Of 1/ .:;�=7:'e.: �•a�i ► 116 1 _ (-� • I' f • " 1t 1 .. 4.10111. '".• e• Al.: � tore, ae ir 1, ... . s'Y 111 - L' •, + .• �, -'.. �� .•..0,3?;:....,,,• 1 .. -..44.;.:•'1..- ;.. . ': .• S,, ',kr ' lee 1.e. r- tic s (^ �� +tt •0,Al,t .M! Tkk 'd9, _• , .t. ,•. f.+: Y • k „, ' I 41'. ' ' - i I ' : •sy • _Glit:' �J 4. +( -,•ti�t•� -r %•1 j,'• �•. w ••-r� �."4 1r•`. •4•M.! i. 0a^44, i••••2� a !1 \� 1 ti • e. �. . � a �..• . r . �' •t ••�w7:• V• ...• , '4 1. •♦;I moi• t Waits River, Vermont ARTHUR T. SKARIN, M.D. tl Si• 1. 168 • January 14, 1999 1.;i 14, It HEALTH POLICY REPORT • the House Ways and Means Committee and its pow- erful chairman, Representative Wilbur Mills(D-Ark.), who favored the expansion of earlier federal efforts (embodied in the Kerr—Mills Act) to provide medical 1 assistance to elderly and disabled people. During the THE AMERICAN HEALTH CARE I congressional debate over the two programs,conser- SYSTEM vative legislators and the American Medical Associa- tion promoted a federal—state model for Medicare, but Mills instead chose this model for Medicaid.° Medicaid Wilbur Cohen, who worked closely with Mills in ' crafting the Medicaid legislation and later became sec- JOHN K.;I LEHART retary of the Department of Health, Education, and Welfare,wrote: "Many people,since 1965,have called Medicaid the `sleeper' in the legislation. Most people MEDIC AID is the largest health insurer in the i did not pay attention to that part of the bill. . . . United States, in terms of eligible benefici- I [It] was not a secret, but neither the press nor the cries, covering medical services and long- j health policy community paid any attention to it."' term care for some 41.3 million people.In 1997,Med- The structures of Medicare and Medicaid have little icaid expended $159.9 billion (12.4 percent of total in common, except that both are now administered national health care expenditures) to pay for covered at the federal level by the same agency, the Health services for low-income people who were elderly, Care Financing Administration (HCFA). Congress blind,disabled, receiving public assistance,or among made it clear in 1965 that providing health insurance the working poor. The vast majority of such persons to the elderly through Medicare was a federal respon- fall outside the employment-based insurance system, sibility. But the division of authority over Medicaid the mainstay of coverage for the working population. between the federal and state governments resulted This fifth report in the series on the American health in a persistent struggle over how to apportion pay- care system'-4 examines the federal and state roles in ment of the bill. In 1997, of the total expenditures Medicaid,program expenditures,eligibility for cover- of $159.9 billion, the federal share was $95A bil- l) age, and Medicaid managed-care plans. lion,and the states'contribution(combined in some In recent years, Medicaid has changed in impor- jurisdictions with local expenditures) was $64.5 bil- tant ways. The change that has affected the greatest lion. The federal share of expenditures is determined number of people is the expansion of the population by a formula based on each state's per capita income, eligible for Medicaid, from 28.3 million in 1993, with a legislatively set minimum of 50 percent and when I last wrote about the programs in a series sim- a maximum of 83 percent. States with relatively low ilar to this one, to 41.3 million today. The Republi- 1 per capita incomes receive proportionately more fed- can-controlled Congress enacted legislation to shift , eral funding. Medicaid expenditures represent about most of the responsibility for Medicaid to state gov- 1 40 percent of all federal funds received by the states. ernments, but President Bill Clinton vetoed the meas- ure in 1995. The growth in Medicaid expenditures, STATE MEDICAID PROGRAMS which almost tripled dyer the past decade, has slowed 1 Following broad national guidelines established in recent years, with the smallest annual increase 1 by Congress and monitored by HCFA, the states set ever in 1997. An increasing number of eligible ben- 1 their own standards of eligibility;determine the type, eficiaries have enrolled in or are being required to I amount, duration, and scope of covered services; es- join managed-care plans as a result of policies that i tablish the rate of payment for services;and adminis- no longer give them a choice of providers. However, ter their own programs. At first, a guiding principle none of these changes have made the program any I was to provide mainstream medical services to the more attractive to physicians, most of whom do not poor. But Medicaid was grafted administratively onto provide care for Medicaid beneficiaries because the state welfare programs,largely because the only social- payments to providers are low, and the associated service agency operating in every state at the time administrative burden can be quite large. was the welfare authority, and its clients were recipi- Although Medicaid and Medicare were the key el- ents of public assistance.8 Thus, the seeds of Medic- ements of historic legislation enacted in 1965 as part aid as a welfare program were sown at the beginning, of President Lyndon Johnson's Great Society,Medic- and ever since, it has been treated as a political step- aid was essentially a creature of Congress. After child by HCFA, the executive branch, and Congress. Johnson's landslide victory in 1964, the enactment of Nevertheless, Medicaid is the main public insurance 11111 Medicare seemed almost a foregone conclusion, al- program for many people of limited means. Studies though its final design reflected countless compro- I have found that poor persons enrolled in Medicaid are mises. Medicaid, however, was largely a product of I more likely to have a usual source of care,have a high- r"--r ►.;��- �'.CI 'GUI . ',a' )i .. ...:)Ll i_(t;_y Volume 340 Number 5 j• 403 L _ ;vb4 . gal J The New England Journal of Medicine r F i er number of annual ambulatory care visits, and have ' Elderly, DSH a higher rate of hospitalization than poor persons with + • F-, no public or private health care coverage.' Medicaid's Blind or ..,..,r_..,. -• eligible population comprises 21.3 million children, = -,:-....--- i "-.. - disabled, Elderly, i 9.2 million adults in families, 4.1 million elderly per- ! 16.2% J' 27.3910 dy, - sons,and 6.7 million blind or disabled persons. Over the past decade, the national expansion in Medicaid's Adults, - :; .."` eligible population was driven by federal requirements ! 22.3% i i to increase health care coverage for pregnant women I or and children, state efforts to cover more uninsured disabled,Blind indor people of low income, and court-ordered expansions 36.4% I; in coverage for the disabled. On average, Medicaid I beneficiaries account for about 11 percent of a state's Children, Fi; population, but some jurisdictions have substantially 51.5% Adults, i" higher percentages, including Tennessee (21.7 per- 10.9% cent), the District of Columbia (17.8 percent), Ver- mont (17.4 percent), New Mexico (16.1 percent), Children, 15.6% New York (15.1 percent), West Virginia (14.1 per- t cent),California(13.6 percent), Michigan (13.6 per- Beneficiaries Expenditures cent), Washington (12.9 percent), Georgia (12.8 (total,41.3 million) (total,$155.4 billion) percent), Kentucky(12.8 percent), Mississippi (12.3 , Figure 1. Medicaid Beneficiaries and Expenditures in 1996, F percent), and Hawaii (11.4 percent).L0 I According to Enrollment Group. Beingpoor does not automaticallymake person a P Total expenditures exclude administrative expenses.DSH pay- eligible for Medicaid. Indeed, in 1997, Medicaid coy- ments denotes disproportionate-share hospital payments.Per- j eyed only 44.4 percent of nonelderly persons with centages do not sum to 100,because of rounding.Data provided an income of less than 513,3330 for a family of three by the Kaiser Commission on Medicaid and the Uninsured. i. 1 (Salganicoff A, Henry J. Kaiser Family Foundation: kpersonal communication). Most people become eli- i gible by meeting a federally defined criterion (i.e., ble 1). By comparison, payments to physicians made • advanced age, blindness, disability, or membership in up 25.4 percent of Medicare expenditures in 1996. a single-parent family with dependent children).With- According to the most recent study of Medicaid's in the federal guidelines, the states set their own cri- payments to physicians, in 1993 average payments teria for eligibility with respect to income and assets, were about 73 percent of Medicare payments and resulting in large variations in coverage from state to about 47 percent of private fees." state.Indeed,it is no exaggeration to say that there are Medicaid covers a broad range of services with actually more than 50 Medicaid programs-one in nominal cost-sharing requirements because of the lim- each state, plus the program in the District of Co- ited financial resources of beneficiaries. The benefit 1 lumbia and those in the U.S. territories-because the package extends well beyond the services covered by rules under which they operate vary so enormously. Medicare and most employer-sponsored plans. By fed- eral law, states must cover inpatient and outpatient THE CONCENTRATION OF ,MEDICAIDhospital services; care provided by physicians, mid- SPENDING . ,; wives,and certified nurse practitioners;laboratory and Although adults and children in low-income fam- radiographic services; nursing home care and home ilies account for nearly three fourths of Medicaid health care; early and periodic screening, diagnosis, beneficiaries, their medical care accounts for less than and treatment for persons under 21 years of age;fam- 30 percent of program expenditures (Fig. 1). Elderly ( ily planning; and care provided by rural health clinics and blind or disabled persons account for most of the I and federally qualified community health centers. expenditures because of their greater use of acute and Medicaid also acts as a supplementary insurance pro- long-term care services. In 1997, Medicaid's costs per gram for elderly and disabled Medicare beneficiaries of beneficiary were S9,539 for elderly persons, $8,832 low income, paying their Medicare premiums and for blind or disabled beneficiaries,S 1,810 for adults in . cost-sharing requirements and covering additional low-income families, and 51,027 for children (Hoff- services, most notably prescription drugs. The states man D,HCFA: personal communication).The figures have the option to cover additional services for Med- for elderly and blind or disabled persons do not in- icaid recipients and receive matching federal funds for elude Medicare payments. Payments to physicians i them. Items commonly covered by the states include represented only 5.9 percent of Medicaid's total ex- ' prescription drugs, clinic services, prosthetic devices, t penditures in 1996, less than the program paid out hearing aids, dental care, and services provided by • for home health services or prescription drugs (Ta- I intermediate-care facilities for the mentally retarded. 404 • February 4, 1999 l ib 1 HEALTH POLICY REPORT • TABLE 1. MEDICAID PAYMENTS FOR SELECTED FISCAL YEARS, ACCORDING TO TYPE OF SERVICE.' CATEGORY PAYMENrt DISTRIBUTION 1985 1994 1995 1996 IN 1996 millions of dollars Total 37,508 108,270 120,141 121,685 100.0 Inpatient services 10,645 28,237 28,842 27,216 22.4 General hospitals 9,453 26,180 26,331 25,176 20.7 Mental hospitals 1,192 2,057 2,511 2,040 1.7 Nursing facilities$ 5,071 27,095 29,052 29,630 24.3 Intermediate-care facilities$ 11,245 8,347 10,383 9,555 7.9 For mentally retarded persons 4,719 8,347 10,383 9,555 7.9 For all other persons 6,526 0 0 0 0 Physicians'services 2,346 7,189 7,360 7,238 5.9 Dental services 458 969 1,019 1,028 0.8 Other practitioners'services 251 1,040 986 1,094 0.9 Outpatient hospital services 1,789 6,342 6,627 6,504 5.3 Clinic services 714 3,747 4,280 4,222 3.5 Laboratory and radiologic services 337 1,176 1,180 1,208 1.0 Home health services 1,120 7,042 9,406 10,868 3.9 Prescription drugs 2,315 8,875 9,791 10,697 8.8 Family-planning services 195 516 514 474 0.4 Early and periodic screening 85 980 1,169 1,399 1.1 Rural health clinics 7 188 215 302 0.2 Other care 928 6,522 9,214 10,247 • 8.4 'Data are from the Health Care Financing Administration. S *Payments exclude premiums and capitation amounts.Total payments include payments for unknown services,which are not shown in this table.The percent distribution is based on rounded numbers. *Beginning in 1991,nursing facilities included skilled nursing facilities and intermediate-care facil- ities for all persons other than the mentally retarded. THE DEVOLUTION OF FEDERAL Medicaid as it had welfare, converting the program AUTHORITY from an open-ended entitlement program for eligi- When Republicans took control of the Congress ble beneficiaries to essentially a state-operated pro- in 1995, one of their overriding policy goals was to gram funded largely by a capped federal block grant. devolve federal authority and money to state govern- Clinton vetoed this measure and offered his own ments, particularly in the realm of social welfare. A counterproposal,which the Republicans rejected.Two year later, Republican's were successful in reforming years later, in the Balanced Budget Act of 1997, welfare policies, many of which had been enacted in Congress and the administration finally agreed on a 1935 as part of President Franklin D. Roosevelt's New new federal-state division of authority for Medicaid, Deal. The debate in Congress included "a massive re- although the debate on this subject continues.14-16 examination of who `deserves' public assistance."12 Among various provisions, all of which granted the The main decisions were that the states should decide states more authority, the budget law repealed the who is needy, welfare should be linked to work,13 Boren amendment (named after the Oklahoma sen- cash assistance should be temporary, and immigrants ator who initially sponsored it),17 which stipulated who arrive in this country after the law's enactment that the states must provide payments for services at should not receive full Medicaid benefits.'' Congress levels that meet the costs incurred by"efficiently and scrapped the federal guarantee of cash assistance for economically operated" hospitals and nursing homes. the nation's poorest children and granted states the THE ELIGIBILITY MAZE authority to operate their own welfare and work pro- grams, largely with federal resources. These changes Medicaid's complex eligibility policy,which "both were incorporated into the Personal Responsibility and states and the federal government have relied on Work Opportunity Reconciliation Act of 1996, which . . . as a tool for limiting their financial exposure • President Clinton signed into law over the vigorous for the cost of covered benefits,"18 makes the pro- protest of the liberal wing of the Democratic Party. gram difficult for its beneficiaries to understand and Congress also enacted legislation in 1995 to recast for the states to administer. Before welfare reform Volume 340 Number 5 - 405 4 . The New England Journal of Medicine 11 i was enacted,adults and children in low-income fam- aid have been brought under strict control and the °' H ilies that qualified for public assistance were auto- I economies of most states are booming. Total Medic- • 1 f matically eligible for Medicaid. The new welfare law j aid expenditures increased by only 3.8 percent in 1997, [ '14 severed this link between Medicaid and public assist- the slowest annual rate of growth since the program's G ance, with the goal of preserving Medicaid coverage inception. In its latest report on national health care for poor families facing possible cutbacks in public expenditures, HCFA's Office of the Actuary stated: assistance, but now one must apply to the program Average annual growth in Medicaid spending decelerated 4in order to be declared eligible for medical coverage. to 5.9 percent over the 1994-1997 period,compared with i' This policy has had an unintended consequence. As 12.7 percent for 1991-1994 and 19.5 percent for 1988— welfare caseloads have declined nationally,by about 42 ' 1991..The rapid growth over the 1988-1994 period is at- 1 i.. percent since 1994, there have been unexpected re- • tributable to three basic factors:(1)an increase in the num- ductions in the number of people seeking Medicaid ! ber of Medicaid enrollees, (2) an increase in nominal(not coverage. In recent meetings involving administrators adjusted for inflation)spending per recipient,and(3)explo- of state human-service agencies and specialists in sive growth in disproportionate-share hospital payments,a ' Medicaid eligibility, sponsored by the Kaiser Corn- substantial portion of which states used to supplement their mission on Medicaid and the Uninsured, the partic state treasuries in ways that Congress has now outlawed.24 ipants concluded that because many people now (Disproportionate-share payments, which totaled r' view public cash assistance as a temporary benefit, $15 billion in 1996, are made to compensate hospi- "even when Medicaid enrollment would be in the tals for the higher operating costs they incur by economic interest of the beneficiary, fewer potential j treating disproportionately large numbers of low-in- • recipients are likely to apply for coverage or to main- come and Medicaid patients.'-') min Medicaid enrollment."19 If the decline in Med- At the start of 1999, despite five straight years of icaid enrollment were explained by the transition from tax cuts and moderate increases in expenditures, all welfare assistance to jobs that offered health insur- the states except Alaska and Hawaii had healthy ance, neither HCFA nor the states would be con- j budget surpluses that collectively are estimated to � cerned, but most former welfare recipients who have total S31 billion. As a percentage of the overall found employment are in low-paying positions that budget for all the states, this surplus is twice that of do not provide health care coverage. the federal budget, according to a report issued by The number of people who are not taking advan- the National Governors' Association.26•27 Neverthe- '. • tage of Medicaid coverage is quite large,and the prob- less, many governors have adopted social policies de- ' nem speaks to the obstacles that many poor people signed to slow, if not prevent, further expansion of r face in trying to navigate publicly run systems. State , publicly financed insurance programs. For example, governments,in turn,have only limited success in per- California made an explicit decision under its former suading parents to enroll their children in the Med- I Republican governor, Pete Wilson, not to accept the icaid program,almost regardless of the specific circum- I full federal allotment of funds from the State Chil- stance. One recent federal study estimated that 4.7 dren's Health Insurance Program.Such policies reflect million children were uninsured despite their eligibility the concern that federal funding for Medicaid will for Medicaid, representing about 2 of every 5 unin- eventually decline, forcing the states to make up the sured children in the United States.`°A similar prob- shortfall. In addition, Republicans see little political nem faces the new State Children's Health Insurance gain in creating new publicly financed programs in Program, which authorizes the expenditure of S24 ! this era of limited government. Only Kentucky, Mas- i billion over a period of five years to extend coverage sachusetts, Nevada, and Vermont have said that they ` I! to low-income children who are not already eligible j plan to spend their full allotment of funds from the • for Medicaid.21422 Congress gave the states the option State Children's Health Insurance Program this year. of using this money to expand their existing Medicaid Many other states are in earlier stages of implement- programs, create new programs, or implement corn- ing the program and may not be able to spend all the bined approaches. Recognizing the challenge of ac- available program funds in 1999. wally signing up children, federal and state govern- MEDICAID MANAGED CARE ments and private foundations are investing hundreds it i of millions of dollars in outreach efforts to identify el- I Since the 1980s, many states have experimented igible children and enroll them in Medicaid or the with managed care, largely as a means of limiting -_i.: State Children's Health Insurance Program.' Medicaid expenditures, but they had no authority to require eligible beneficiaries to enroll in managed- ! THE STATES' BOOMING ECONOMIES j care plans. Moreover,the beneficiaries had no incen- 8 Although the states are grappling with the multiple live for enrollment, such as the extra benefits that - challenges of welfare reform, the State Children's elderly persons could obtain if they signed up with • Health Insurance Program, and Medicaid, they have health maintenance organizations (HMOs) under more room to maneuver because the costs of Medic- , Medicare.To make managed care mandatory,the states 406 • February 4, 1999 i HEALTH POLICY REPORT had to receive a waiver from HCFA. Under President aged care savings are modest because traditionally low Clinton, a former governor, HCFA adopted a liberal Medicaid fee-for-service payment rates make it difficult for policy of issuing such waivers,which enabled some 40 states to substantially slash capitation levels or for HMOs i to negotiate further discounts. In addition,safety net pro- states to make managed care mandatory in whole or viders that need Medicaid revenues to survive have received in part for certain groups of beneficiaries. The Bal special protections from states, which has both reduced anted Budget Act of 1997 eliminated the waiver re- potential savings and steered Medicaid beneficiaries to tra- quirement altogether, except for persons who are cli- ditional providers of charity care. The combination of low gible for both Medicare and Medicaid (disabled and capitation rates and protections for safety net providers elderly poor people), children with special needs, have limited the willingness of commercial HMOs in sev- and Native Americans.The budget law also eliminated eral states to contract with states, thus restricting the ex- the requirement that in HMOs with Medicaid bene- pansion of access to maintain providers.38 ficiaries, at least 25 percent of the members must A number of commercial HMOs that were en- receive coverage from third parties other than Med- rolling Medicaid beneficiaries have withdrawn from icaid. Congress had imposed this stricture as a proxy j the program in the past year, citing multiple reasons for ensuring that the plans would provide high-qual- j for their dissatisfaction.39'"0 In interviews conducted ity care. recently by Hurley and McCue at the Medical Col- Forty-nine states (all except Alaska) now rely on lege of Virginia, state policy makers, health-plan ex- some form of managed care to serve their Medicaid ecutives, venture capitalists, and stock analysts ex- populations. The proportion of Medicaid beneficiar- pressed little optimism that commercial HMOs would ies enrolled in managed-care plans increased from continue to enroll Medicaid beneficiaries, particu- 9.5 percent (2.7 million people) in 1991 to 48 per- larly in states with very low per capita payment cent (15.3 million) in 1997. The states use one of rates. Citing the views of stock analysts, Hurley and three forms of Medicaid managed care: arrange- McCue note: ments with primary care physicians to act as gate- . keepers, approving and monitoring the provision of The early promises of profitable market opportunities were services to individual beneficiaries in return for a overshadowed by unexpected rate rollbacks, contracting ilio fixed fee; enrollment of beneficiaries in HMOs that volatility, and administrative burdens which soured five ana- assume the full financial risk of providinga compre- hensive lysts and investors on the Medicaid market. . Given this history, stock analysts see limited opportunities for package of services; and contracts with med- ical clinics or large group practices, which provide aid market as evidence of management's desire to enhance services but do not assume the tull financial risk for stockholder wealth.}' them. In areas where HMOs are prepared to assume the full financial risk of enrolling Medicaid benefici- CONCLUSIONS aries, the states are choosing this approach and turn- j Medicaid underscores the ambivalence of a society ing away from the other two. j that continually struggles with the question of The most comprehensive examination of the cf- which citizens deserve access to publicly financed fect of Medicaid's growing relationship with man- medical care and under what conditions. On a more aged care is being conducted by researchers at the positive note, Medicaid now provides health insur- Urban Institute as part of an ambitious project j ance to a larger population of poor persons than ever called Assessing the New Federalism.'-8 The project, before, reflecting the strength of a bullish economy funded by private foundations, is a major new effort and expanded criteria for eligibility. Yet, nationally, to understand changes in health care and social pro- ! the number of uninsured people grew to 16.1 per- grams at the state level.29-37 Researchers have exam- ! cent of the population in 1997, the largest level in a fined the effect of Medicaid managed care in 13 decade, because employer-sponsored coverage has states (Alabama, California, Colorado, Florida, Mas- eroded.2'3 This divergence prompts a question: What sachusetts, Michigan, Minnesota, Mississippi, New i potential does Medicaid have for further expanding Jersey,New York,Texas,Washington,and Wisconsin). , its eligible population so that poor families with in- Their preliminary conclusions, reached three years comes that minimally exceed the federal poverty ley- after the start of the study, which will continue for el could be insured through this program? Some another three years or more, are as follows: states (Massachusetts, Minnesota, Oregon,Tennessee, and Wisconsin are examples) have used public funds The Medicaid managed care revolution has been more of to broaden private coverage through managed care, a skirmish than a revolution. The goals of Medicaid man- and the welfare reform law permits the states to aged care were to expand access to mainstream providers raise the threshold for income and assets so that and to save money, but success on both fronts has been iiilimited. Medicaid managed care is predominantly limited to I more beneficiaries will be eligible for Medicaid. But 7 children and younger adults; few states have extended en- many states have shifted to managed care without roilment to more expensive elderly and disabled enrollees, expanding coverage for the working poor, a popula- limiting potential savings.States are also finding that man- ' tion that constitutes the bulk of the uninsured pop- Volume 340 Number 5 • 407 ,'?.‘i: r f The New England Journal ofMedicine I t. !. ulation, and rates of payment to providers remain 16. Bartels PL,Boronicc P. BadgerCare:a case study of the elusive New Federalism. Health Aff(Millwood) 1998;17(6):165-9. t• woefully low. 17. Wiener)M,Stevenson DG.Repeal of the"Boren Amendment": Medicaid's architects envisioned a program that I implications for quality of care in nursing homes.Series A,no.A-30.Wash- would provide poor people with mainstream medi- ington,D.C.:Urban Institute,1998. 18. Schneider A,Fennel K,Long I'.Medicaid eligibility for families and cal care in a fashion similar to that of private insur- children.Washington,D.C.: Henry J. Kaiser Family Foundation,1998. ance. As the decades have passed, that vision has 19. Smith VK,Lovell RG,Peterson ICA,O'Brien MJ.The dynamics of cur- largely faded, and several tiers of care have emerged. rent Medicaid enrollment changes:insights from focus groups of state human service administrators,Medicaid eligibility specialists and welfare agency Mainstream medical care is provided to people coy- analysts.Washington,D.C.:Henry J.Kaiser Family Foundation,1998. ered by private insurance or Medicare. For the most 20. Selden TM,Banthin JS,Cohen JW.Medicaid's problem children: eligible but not enrolled. Health Aff(Millwood)1998;17(3):192-200. part, poor people continue to rely on providers that 21. Budetti PP.Health insurance for children-a model for incremental ' make up the nation's medical safety net: public and health reform?N Engl J Med 1998;338:541-2. I some private not-for-profit hospitals and clinics and 22. Ncwacheck PW,Stoddard JJ,Hughes DC,Pearl M.Health insurance and access to primary care for children.N Engl J Med 1998;338:513-9. their medical staffs that, by virtue of their location 23. Kenesson MS.Medicaid managed care:outreach and enrollment for or their social calling, provide a disproportionate special populations.Princeton,N.J.:Center for Health Care Strategies, amount of care to the poor. These providers are in 1998. 24. Lcvit K,Cowan C,Braden B,Stiller J,Scnsenig A,Lazenby H. creasingly stressed as Medicaid diverts funds to man- National health expenditures in 1997:more slow growth.Health Aff(Mill- aged-care plans. The United States remains the only wood) 1998;17(6):66-110. 25. Coughlin TA.Changing state and federal payment policies for Medic- industrialized nation that has never settled on a so- aid disproportionate-share hospitals.Health Aff(Millwood)1998;17(3): cial policy that,however policy makers choose to ac- 118-36. complish it, offers a basic set of health care benefits 2,6. Broder DS.States pass their fiscals:they're trimming taxes,beefing up rainy day'funds.Washington Post. December 31,1998:A25. to all residents regardless of their ability to pay - 27. Broder DS.Golden years for governors.Washington Post.January 3, 1 certainly a regrettable failure in a nation blessed with I 1999:C7. 28. Kondratas A,Weil A,Goldstein N.Assessing the new federalism:an SO many resources. introduction.Health Aff(Millwood)1998;17(3):43-63. 29. Holahan J,Zuckerman S,Evans A,Rangarajan S.Medicaid managed REFERENCES care in thirteen states.Health Aff(Millwood)1998;17(3):43-63. ; • 30. Nichols LM,Blumberg JL.A different kind of'new federalism'?The 1. Iglehart JK.The American health care system-expenditures.N Engl ' gp g Health Insurance Portability and Accountability Act of 1996.Health Aff • j J Med 1999;340:70-6. (Millwood)1998;17(3):25-42. 2. Kutzner R.The American health care system-health insurance coy- 31. Wall S.Transformations in public health systems.Health Aff(Mill- cragc.N Engl J Med 1999;340:163-8. wood)1998;17(3):64.80. • 3. Idem.The American health care system-employer-sponsored health 32. Wiener JM,Stevenson DG.State policy on long-term care for the dd- . ; coverage.N Engl J Med 1999;340:248-52. erly.Health Aff(Millwood)1998;17(3):81-100. • 4. Iglehart JK.The American health care system-Medicare.N Engl 33. Rajan S.Publicly subsidized health insurance:a typology of state I Med 1999;340:327-32. approaches. Health Aff(Millwood)1998;17(3):101-17. 5. Idem.The American health care system-Medicaid.N Engl I Med 34. Norton SA,Lipson DJ.Portraits of the safety net:the market,policy I1993;323:896-900. environment,and safety net response.Occasional paper no.19.Washing- 6. Tallon JR,Brown LD.Who gets what? Devolution of eligibility and ton,D.C.:Urban Institute,1998. benefits in Medicaid. In:Thompson F),Dilulio JJ Jr,eds.Medicaid and 35. Bovbjerg RR,Marsteller IA.Health care market competition in six devolution:a view from the states.Washington,D.C.:Brookings Institu- states:implications for the poor.Occasional paper no.17.Washington, tion Press,1998. D.C.:Urban Institute,1998. l 7. Cohen W.Reflections on the enactment of Medicare and Medicaid. 36. Wiener JM,Stevenson DG.Long-term care for the elderly:profiles of Health Care Financ Rev 1985;Suppl. thirteen states.Occasional paper no.12.Washington,D.C.:Urban Insti- 8.a Friedman E.The little engine that could:Medicaid at the Millennium. I cute,1998. I Front Health Sery Manage 1998;14(4):3-24. 37. Idem.Controlling the supply of long-term care providers at the state 9. Berk ML,Schur CL.Access to care:how much difference docs Medicaid level.Occasional paper no. 22.Washington,D.C.:Urban Institute,1998. I • make? Health Aff(Millwood.)1998;17(3):169-80. I 38. Holahan J,Wiener J,Wallin S.Health policy for the low-income pop- • I 10. Fronstin P.Sources of health insurance and characteristics of the unin• ulation:major findings tcom the Assuring the New Federalism case studies. surcd:analysis of the Much 1998 current population survey.EBRI issue Occasional paper no.13.Washington,U.C.:Urban Institute,1998. 1,; brief no.204.Washington,D.C.:Employee Benefit Research Institute,1998. 39. Aston G.Widespread HMO defections starting to hit Medicaid,too. - -, ;, 11. Colby DC.Medicaid physician fees,1993. Health Aff(Millwood)-. American Medical News.December 14,1998:5. 1994;13(2):255-63. 40. McCue MJ,Hurley RE,Draper DA,Jurgensen M.Reversal of for- 12. Ellwood MR,Ku L.Welfare and immigration reforms:unintended tune:commercial HMOs in the Medicaid market.Health Aff(Millwood) side effects for Medicaid.Health Aff( iliwood)1998;17(3):137-51. 1999;18(1):223-30. 13. Pear R.Most states meet work requirement of welfare law.New York 41. Hurley RE,McCue MA.Medicaid and commercial HMOs:an at-risk Times. December 30, 1998:A1. relationship.Princeton,N.J.:Center for Health Care Strategies,1998. 14. Spitz B.The elusive New Federalism. Health Aff(Millwood)1998; 17(6):150-61. 15. Weil A,Wiener JM,Holahan J.`Assessing the New Federalism'and state health policy.Health Aff(Millwood) 1998;17(6):162-4. c©1999,Massachusetts Medical Society. Ii 408 • February 4, 1999 The New England iournal of Medicine 'I OI 3L C r�i ..'`-t.i, , j °(��%g� • Hper enrollee increased by 213 percent in inflation- a: ' Policy R p u r i adjusted dollars, while the inflation-adjusted gross domestic product per capita rose by just 17 percent.' The increased costs were simply passed along by in- surance plans to employers, in annual premium in- THE AMERICAN HEALTH CARE creases. In one year alone, 1983-1989, employers' SYSTEM health insurance costs rose by 18 percent.' Between 1980 and 1993, spending by employers on health care as a percentage of total compensation to work- Employer-Sponsored Health Coverage ers increased from 3.7 percent to 6.6 percent.' RoaEa-lKurvEa Aggressive cost-containment and cost-shifting 1` measures have stanched this escalation of employers' • costs. Since 1993, inflation in health insurance costs to employers has slowed to roughly the overall rate MOST Americans rely on their employers of inflation, and in some years the inflation-adjusted for health insurance. In 1997, of the 167.5 million nonelderly Americans with private cost has actually declined. Indeed, employers' health ! insurance costs as a percentage of total compens-a- health insurance, 151.7 million belonged to em- j tion to workers declined from a peak of 6.6 percent plover-provided health plans.' In response to the es- in 1993 to 5.9 percent by 1996.3A survey by KPMG calating cost of health insurance coverage in the Peat Marwick of 1000 randomly selected large and 1980s, employers began devising new strategies of small employers found that their annual increases in cost containment. These included contracting with , health insurance premiums gradually declined from health plans that practiced a stringent form of man- I 11.5 percent in 1990 to 3.0 percent in 1992, 4.8 aged care, substituting cheaper forms of health coy- percent in 1994, and 0.5 percent in 1996.' erage for more expensive ones, limiting employees' ; Since the underlying sources of inflation in mcdi- choice of health plans, and shifting costs to employ- cal costs have, if anything, intensified during this pe- ees in a variety of ways. These measures have stabi- riod — most notably, new technology and an aging lized health insurance costs for employers. 1-iowev- population — it is evident that this impressive cost IIIer, they have left many employees paving more out containment has come less from a shift to more ef- of pocket and often with inferior forms of health ; ticient uses of health dollars than from limiting the coverage, and they have contributed to an overall j care actually provided or shifting costs to employees. incrcase in the proportion. or Americans '.vlio arc Moreover, since 1997 there have been preliminary uninsured. signs that the relatively easy gains due to managed The percentage of nonelderly employees who re- care and cost shifting have now been realized, and ceived their health insurance from their employers employers' costs have begun rising again. The Wall declined sharply from 69.2 percent in 1987 to a low Street Journal recently cited a survey of Fortune 500 point of 63.5 percent in 1993 and then increased benefits managers, who anticipate premium increas- slightly to 64.2 percent in 1997, according to the es averaging 10.3 percent for 1999, as compared Census Bureau.' Slightly more employers arc offer- ! with 5.9 percent for 199.' Small businesses'Posts ing health insurance, btrt fewer workers are taking it, a:, c:!:c.":,i „vea faster. either because of economically onerous cost shifting to employees or because relatively more workers are MANAGED CARE AND DIMINISHED part-time or temporary employees who do not qual- CHOICE if\:'for insurance benefits. The percentage of workers Employers have achieved the cost containment whose employers offered health insurance increased that marked the mid-1990s in several ways. The from 72.4 percent in 1987 to 75.4 percent in 1996. most powerful method has been a shift from tradi- But the "take-up" rate — that is, the proportion of tional unmanaged indemnity insurance to tightly workers who actually got the insurance — fell from managed plans, both health maintenance organiza- 83.3 percent in 1987 to 80.1 percent in 1996.2 tions (HMOs) and point-of-service or network plans. EMPLOYERS' COSTS These plans have in common, of course, strict con- REDUCINGtrots on the use of medical services, as well as tinan- Employers' new strategies began to have a dramat- cial incentives to physicians and hospitals aimed at is effect in 1993. By 1996, they had virtually elimi- cutting both services and costs. nated the seemingly chronic escalation of health in- Between 1984 and 1993, the proportion of em- surance costs to businesses. Before the managed-care ployees enrolled in HMOs increased from 5 percent • revolution, the annual costs of health coverage to em- j to 50 percent.4 By 1998, 85 percent of employees plovers regularly escalated at double-digit rates. Be- with health insurance coverage were in some form tween 1930 and 1993, private health insurance costs i of managed-care plan, whereas 15 percent were in 248 • January 21, 1999 1 HEALTH POLICY REPORT fee-for-service indemnity plans (employees were ryp- employees to choose employee-only, as opposed to • ically charged more for such plans).' Meanwhile, the family, coverage. The widespread shift to "cafeteria" percentage of employers who even offered indemni- benefits packages essentially gives each employee a tv plans gradually declined from 89 percent as re- fixed dollar amount that the company will contrib- cently as 1989 to 57 percent by 1996.4 ute for benefits. Since family coverage costs about The shift to stringently managed care has stabi- three times as much as individual coverage, employ- lized costs to employers, though not to employees. ees with families generally exhaust the cash value of After steadily increasing during the 1980s and early their employer-provided benefits and must either tap 1.990s, the average premium charged to employer- their salary income to pay the additional costs of sponsored plans began declining in the mid-1990s. family coverage or do without. Most employees with The monthly cost of an employee-only HMO ben- !. capped benefits finance much of the coverage for efit declined from 5166 a month in 1994 to 5157 a ! their families out of their own pockets.4 Some 5 per- month in 1996. The average monthly cost of HMO cent of firms do not offer family benefits at all, even family benefits fluctuated narrowly between 5453 in • if the employee pays the full cost.} 1994 and 5448 in 1996.4 Even the costs of indem- I As recently as the mid-1980s, large corporations nits plans declined by approximately the same per- that provided comprehensive health insurance usual- tentage, reflecting the fact that many of the same I ly paid the full cost. But in the past decade, cost cost-containment strategies (utilization review and ' sharing with employees became widespread. Indeed, physician profiling, steeply discounted fee-for-serv- reductions in health insurance coverage were the ice schedules, and shifts from inpatient to outpatient single largest cause of labor disputes in that decade. settings) have been incorporated into relatively un- By 1990,the percentage of employers paying the full managed indemnity policies as well. cost of employees' health care coverage declined to Historically, most large employers offered workers 27 percent in the case of indemnity coverage and 30 broad medical choices through indemnity insurance. percent in the case of PPOs. By 1995, that share had As recently as 1990, according to Hewitt Associates, declined further to just 7 percent and 11 percent, re- 69 percent of the 681 large employers in their sur- spectively. For workers who also obtained coverage vey offered both HMO and indemnity plans. By for their families, the employee was required to share 1995, that percentage had dropped to 22 percent.' costs in nearly all cases.' Instead, by the mid-1990s, firms were offering coy- Cost shifting takes a variety of forms. It includes erage through traditional HMOs, point-of-service capping the employer's total benefit contribution Ml, :r: i pr `.0 Ltiocs(""Os',. a :hus - nm cqu. ng the employee to trade off health Today, the+main group of employees who still enjoy insurance against pension and other fringe benefits; broad choices are those in the public sector, through requiring employees to bear some of the cost of pre- such programs as the California Public Employees' miums; covering employees but not their family Retirement System and the Federal Employees Health members; offering only health plans that stringently Benefits Program. A small number of groups of pri- cap some services such as prescription drugs and vate-sector employers arc attempting to offer the nonemergency outpatient psychiatric benefits; and same kind of choice that is available to most federal increasing the amounts of deductibles or copayments and state employees,:but they still make up only a for indemnity and PPO plans. According to Hewitt tiny minority of employers. I Associates, 16 percent of employers offering indem- Often,employers contract with a single health plan nity plans in 1990 had individual annual deductibles but offer their employees more choices within that of S250 or more. By 1995, that percentage had in- plan. For example, an employee may choose a point- creased to 43 percent. For PPO plans, the percent- of-service option that allows a patient to pay extra age with such deductibles rose from 15 percent in for the privilege of going out of the network of pro- i 1990 to 32 percent in 1995.' eiders of a basic HMO plan.This trend is important, Moreover, the amount of the average employee's because the market model of health care, like all ` contribution to the cost of health insurance premi- markets, relies on consumer choice to discipline sup- urns also increased dramatically during this period, pliers. With the absence of such choice, the consum- I from 560 per month for family coverage in 1988 to ors' option of changing providers is precluded. 5107 per month in 1993. According CO Department of Labor statistics cited by the General Accounting COST SHIFTING TO EMPLOYEES ! Office, 16 percent of employees with coverage clas- Large employers, who began providing health in- I sifted as "employer-provided" actually pay 5150 or surance benefits to their employees in the 1940s, more monthly out of their own pockets.4 Hewitt As- typically extended such benefits to workers' families sociates, surveying 681 large U.S. employers, found as well. Today, according to several benefits consult- that the median contribution of employees to the • ants cited by the General Accounting Office,} em- costs of family coverage rose 64 percent in the case ployers increasingly give financial inducements to i of indemnity plans and 63 percent for PPO coverage Volume 340 Number 3 • 249 The New England Journal of Medicine • between 1990 and 1993.5 This was, of course, a far workers out of economically meaningful access to faster increase than that in employers' costs,suggest- health insurance. This, in turn, saves employers what ing substantial cost shifting. would otherwise be their share of coverage for such A Kaiser Family Foundation study, citing data workers, reducing employers' costs even further — from KPMG Peat Marwick, put the average contri- and displacing those costs onto the portion of the bution by employees at S 1,615 per year in 1996, or system that bears the expense of uncompensated about 30 percent of the total premium.' The Gen- care or forcing these employees and their families to eral Accounting Office found that escalating cost go without care altogether. shifting resulted in many lower-income and part- ! Employer-provided coverage for higher-wage work- time employees' deciding not to take the health coy- j ers has. also involved shifted costs and constrained erage, either for themselves or for their families, be- choices, but more affluent workers have been able to cause they could not afford it.4 For a low-income ! absorb these costs. In 1996, the proportion of high- worker,defined as one earning less than Si per hour, j wage workers (those paid 315 per hour or more) this average premium cost would represent about 12 who had employer-provided coverage was 90 per- percent of pretax income. cent, a decline of 3 percentage points since 1987? In addition to the employees' rising share of pre- Health insurance coverage provided by employers miums, deductibles, copayments, and other out-of- j also varies according to the size of the company. Ev- pocket costs have lately risen at a faster rate than cry Fortune 500 firm offers health insurance cover- health expenditures generally. In 1997, out-of-pock- age. However, only 49 percent of employers with et payments increased by 5.3 percent, whereas total fewer than 200 workers provide health insurance, health care costs rose only 4.8 percent.10 and smaller companies are more likely to offer less comprehensive plans. Among very small companies, SQUEEZING OUT LOWER-INCOME with fewer than six employees, only 30 percent pro- EMPLOYEES vide any form of health benefits.' Over a longer period, from 1.979 to 1993, the per- The General Accounting Office attributes much of the recent decline in health coverage to changing centage of all workers with employer-provided health insurance declined from 71 percent to 64 percent, a practices by employers—either dropping health coy- • r��n or cf+ifr:r_ Cnc'c �n •••-•-•,:•,••(%.•,•• drop of 7 DCrCCnra'C points, wh.errns coverage for -. _ - _... -_ ' those in the lowest income quintile dropped by 13 As employers dropped coverage or raised the cost of coy- percentage points, from 40 percent to 27 percent.l1 erage for employees and families, the percentage of people 1'_.'-ough e:;pa"ions in .Medicaid eligibility and new with private health insurance declined. In 1989, 75 per- federal and stare programs aimed at providing cover- cent of peopie under 65 year: ' f age had private health in suranc : by 1Q95, this number had dropped to just under age for uninsured children have made up some of • pC:•eil:. .•.List of this deco:e was among dependents.4 this lost coverage, they have not filled the gap. One study attributed 83 percent of the decline in private Not surprisingly, the loss of health coverage was health insurance coverage to changes in employers' more dramatic among lower-income workers, for behavior and 17 percent to expansions of Medicaid, whom cost shifting represents a larger economic bur- mainly directed to pregnant women and children.'' den. Between 1989 and 1995, according to the Gen- The vast majority of employees who have lost private Oral Accounting Offic'e, the rate of private insurance i coverage provided by their employers neither pur- coverage declined from 89 percent to 87 percent of chase individual insurance nor qualify for Medicaid. the population under 65 years of age with incomes Nor is the loss of employer-provided coverage in excess of 200 percent of the federal poverty level, substantially related to unemployment (which has but it declined from 45 percent to 40 percent for declined in the 1990s). The vast majority of people 1 people with incomes at or below that income thresh- who lack health insurance — 79 percent — are in old.4 A September 1998 Kaiser Family Foundation families with at least one full-time worker.' But ei- 1 study found that the proportion of low-wage work- cher these workers are employed by companies that ers (those paid less than S7 per hour) who had access do not provide insurance or the cost-sharing provi- i to employer-provided insurance declined by 5 per- sions make such insurance prohibitively expensive centage points between 1987 and 1996, but the pro- for low-wage employees. 1 portion who actually accepted such coverage declined In sum, the primary reason for the lack of health 1 • by 13 percentage points.' insurance among millions of people and their fami- ' In other words, the proportion of employees who lies is that their employers either fail to provide it or could not afford to pay their rising share of the cost burden employees with onerous costs. The recent of nominally available coverage, and thus declined it, increase in the number of uninsured people reflects Srose more sharply than the proportion whose em- cost shifting more than it reflects termination of coy- ployers did not provide coverage at all. By cost shift- erage by employers. The percentage of high-income ing, employers effectively price many lower-income workers who have access to employer-provided plans 250 • January 21, 1999 t 1 HEALTH POLICY REPORT • has actually increased slightly, from 92 percent in includes more subtle cost shifting in the form of re- 1987 to 96 percent in 1996, whereas the percentage strictions on covered benefits. Although HMO coy- • of low-income workers with access to employer- erage is nominally comprehensive, with fewer de- provided plans fell from 60 percent to 55 percent. ductibles and copayments as well as more preventive The Kaiser Family Foundation calculated that even services and pharmaceutical coverage, it nonetheless if the rate of acceptance of insurance offered by em- tends to shift costs to consumers by displacing onto players were identical for low-income and high- patients and their families the burden of recuperative income employees, the percentage of low-income care, psychiatric care, and care for other conditions employees with insurance would rise only from 42 chat managed-care organizations do not deem eligi- percent to 51 percent — still far below the 90 per- ble for coverage. cent rate of coverage among high-income workers.' A generation ago,when there was more of a long- Low-income employees tend to be concentrated in term social compact between corporations and their companies that either do not offer insurance or offer ' employees, it was reasonable that companies would it in a form that is effectively too expensive for the ! function more or less as proxies for their employees employee. in purchasing health insurance on their behalf. In The Kaiser Family Foundation study found that the 1990s, although concern about quality is regu- the most dramatic erosion in the provision of health lady invoked by corporate benefits managers,corpo- insurance by employers occurred between 1988 and j rations today are more likely to pursue cost contain- 1993 and that the rate has been essentially stable !, ment as their paramount objective in negotiating since 1993.9 However, the intensification of man- with health plans and in structuring benefit packages aged-care cost-containment strategies and shifting of with employees. Moreover, despite the shorter job costs to employees have both continued. tenure that is characteristic of the 1990s and the Interestingly, although the price of comprehen- greater proportion of workers with temporary or part- sive basic health coverage is out of the reach of some I time jobs, workers are still highly reliant tuoe hi n hr li thei employees, employers are adding relatively low cost employers for their health coverage, g f,:aturc, such as vision care and dental care, to their j quality affordable individual insurance is even harder health plans.The fraction of employers offering these to obtain. additional benefits increased between 1990 and 1995, i Regulatory measures such as the Health Insurance 1 . :. iiay aro.: Accountability Act(the Kassebaum— c^. henneay act),w[ucn allows employees who have lost REDUCING BENEFITS TO RETIREES or changed jobs to purchase other health insurance Although the federal Medicare program provides without being excluded on medical grounds, do not basic health care coverage to the elderly, large cor- address the problems discussed here: the decision by porations have long supplemented Medicare in pro- ! some employers to drop medical coverage, to limit grams for their retirees. For corporations with static employees' choices, and to shift costs to employees. or diminishing work forces in an era of downsizing, The trends discussed in this article have no current the ratio of workers to retirees declines and the bur- j regulatory remedy. den of supporting retired workers increases. The spread of employer-provided health insurance Since the early 1990s, health benefits for retired resulted from the conjunction of three developments employees have followed the same downward trajec- during World War II.The war gave rise to wage and tory as coverage for current employees.The percent- price controls, worker shortages, and strong unions. age of employers that bear the full cost of retirement Under the regulations of the War Labor Board,corn- coverage declined from 27 percent in 1990 to 8 per- ! panics that were short of employees could not re- cent in 1995.8 In addition, more employers provide cruit workers by offering higher pay, but they were coverage to retirees only until the age of' 65. In ' permitted to lure them with fringe benefits, such as 1990, 85 percent of the companies in the Hewitt pension and health plans. Unions welcomed such Associates sample extended retirement coverage to benefits, which quickly became customary among people over the age of 65. By 1995, that percentage major corporations. By the 1950s, large employers had declined to 76 percent. generally had high-quality health plans for their (typically unionized) workers. Nonunion employers CONCLUSIONS matched and even exceeded the terms of such health The cost savings realized by employers since 1993 plans, partly as a way of avoiding unionization. has been greater than can be attributed to the over- In the 1990s, this logic has been thrown into re- all slowing of health cost inflation. Much of the say- j verse. Unions are far weaker, and despite low unem- ings is simply the result of shifting costs to employ- ployment, employees have relatively less bargaining ees and their families. In addition, the kind of power and less connection to the firm than in the insurance made available to employees is much more past.Although employers are no longer reliable sourc- likely to be some form of managed care,which often es of health coverage for employees and their fami- Volume 340 Numbcr 3 • 251 The New England Journal of Medicine . lies, teW consumers have other attractive alternatives. increase and tamih•coverage decreases.'+Vashtngtnn, DC.:Government The current pattern - shifting of costs to em loy tinting()tficc, February 1997: ,i;AO/HE-{S.r.ss.; p 5. Fronstin P. f=eatures of employment based health plans.1.Vashmgton, ces, paring of benefits, and resulting increases in the D.C.: Employee Benefit Research Institute. 1998:1. number of the uninsured and underinsured-is like- 6. Buss DD. Businesses'health premiums arc rising.Wall Street Journal. November 17, 1998.A2. I t lv to persist as long as the basic system of employer- 7. Facts on lob-based heaith,:are benefits and',cif-funded care plans.Ell RI provided health insurance continues. News. September 25, 1993. 8. Salaried employee aenetits provided by maiur(..:.S.employers in 1990 REFERENCES .tnd 1995. Lincolnshire, ill.: Hewitt Associates, 1996. 9. O'Brien E, Feder J. Medicaid and the❑ntnsured.Washington, D.C.: 1. Fronstin P.Sources of hcaith;nsurancc and characteristics of the until- Henry J. Kaiser Family Foundation,September 1998:2. cured:analysis or the March 1993 Current Population Survey.Washington, 10• Levit K,Cowan C, Braden B,Stiller(,Sensenig.\,Lazenby H.Na- D.C.:Employee Benefit Research lnsutute,December 1998.t Issue brief no opal health expenditures in 1997 more slow growth. Health.\1f IMill- 04.I 2 synod) 1998;17(0):108. 2. Cooper PF,Schone BS. More offers,fewer takers for employment. 11• Mishel L. Bernstein J.The state of working America: 1997-1998. based health insurance: 1987 and 1997 Health Alf(Millwood) 1997; Washington,D.C.: Economic Policy Institute, 1997. lot 67:144. 12. Cutler DM,Gruber J. Does public insurance crowd out private insur- 3. .\ttnual report to Congress. 1996.Washington. D.C.: Physician Pay- ince? NBER working paper no.5082.Camortuge,Mass., 1995. :Hent Review Commission, 1996:rigurc 1-2. 4. General Accounting Office.Employment-based health insurance:costs 51999,Massachusetts Medical Society. j 4:�:+.� .yF' tr+ 1n`a:tr •' •a. ityt U.f..- .. 1r'.:r�3.tlfF+„°' ' .I' .t r tr. ,I• ,,,.�1,,.t,r tt • -' y ;, �M. ',. of nK,�* s p44 5t r J +,.yy�t_s_1 ti+`i A : g, .. Y. { f f r 1.' .a � - `" ` 'i • t,-• rt :fr �, �y 1i-121 ti�, ,q,` , }� L. ' n:.'' •.1.- r' w iia- _r s''' r� - . .. ,[ ,g, �. r K 1.j g4"t-:t*•r. €S�*.Itr�i��+1.^ r. C : ritir. • ... ♦ L Oyu •,r $ ... • • +J iw: ' C .. .. ;1 • • . 7-24„0. * -.1.• :- . , .,..,.,-...Y.);a-5,,,;1.• .1 • • : r .. .. .. .t.- 4 '' .ii K _ 7`.. r T.i'`"'r 4£ `,.,t'I:zc 1'�i'T?•�j- 'YS'�f'.E'.'�Yr f[��. w "t.4. . •8 r,w : •', • } ` Jr• t a �, _ ! fir • • : ev..} t ply+` �..-- ` t / • F : y-i .} 4t ,,y7 s 1', • 21 r `,..�a t syaif'taJ V7. 1 j !f • r s 4 1 D t:. st! 1l a•'.'.......„.3.;-•• rk?s�Pn.Y r T' T' .t 3aY • .{ + J -ray Y. r.T 2 'F ! a 4 - F.Tr' :.`. - . 'i s .... J y ` M. +• ,fir;•.,ays rte . - •k tea,,...„...i.- , y� iy` g ' ��yk�fy ,• �• .,7 rt _ { Y r 7 i i ? u,5i�.Y,'.. +,,r T , aJ�'t?..t q ;4 tT ,; '. _ ,:::..:..,-.ii ktr Y h •=1.---..,-..;.4-4-,' ?-c.74..rte• y .P !j_ +s•"�cr'•� �' -T"�_`'Syd r+x'r J rT. - 5 r ul�71.!" "V,•'::3:, x ' - t ' "t :s.v -r "s;: �.~ab.il '? .k'". it.: -a� 4. . Z$4. iV 51",•;.4.'---"'t "'>� . Bathtub.bean R,rnorr/iia THOMAS E. RiCH'rSStI[ER, M.D. 11. It 252 • January 21, 1999 rl it Y S P The New England Journal of Medicine x 1 exceptions, for-profit hospital chains, HMOs, and. L1enlth Policy Report physician-practice-management companies underper- formed the soaring stock market. According to Busi- nessWeek's year-end tally, as of December 11, 1998, THE AMERICAN HEALTH CARE the Standard & Poor's 500 had yielded a total return i SYSTEM of 21.87 percent, whereas mutual funds consisting of health care stocks, broadly defined, had yielded Wall Street and Health Care only 13.09 percent' A finer lens reveals an even weaker performance: ROBER�KuTTNER the stocks of major hospitals, HMOs, and physician- ! practice-management companies actually declined r in value by 23 percent. By contrast, pharmaceutical ii URING the 1990s, the delivery of health and biotechnology companies recorded their usual care services was increasingly influenced by standout performance, with their stocks rising by 51 the demands of investors and investor-owned percent, or about double the stock-market average; firms. A growing number of hospitals, health main- the stocks of drug-distribution companies and med- I tenance organizations(HMOs),nursing homes,home ical-device companies also beat the market average.' care services, and hospices became for-profit compa- J.P. Morgan and Company reported that between I Hies, publicly traded on stock exchanges. Companies December 30, 1989, and December 18, 1998, the formed to fill particular niches, such as those that shares of for-profit hospital companies appreciated at manage physicians' practices and utilization-review about half the rate of the Standard Sc Poor's 500,4 firms, became Wall Street favorites. The buying and with an actual decline in stock values beginning in selling of health-industry assets, as fungible com- 1997 and accelerating in 1998. J.P. Morgan now modifies, intensified. In the meantime,traditional for- considers hospital stocks undervalued. profit entities such as medical-device and drug com- , The decline in the value of health care stocks was panics continued to thrive. In the early part of the the result of several factors. First, competition itself, decade, the performance of health care stocks ex- j the promised source of greater efficiency and cost ceedcd that of the market as a whole. j containment, intensified to the point where profit • In the case of HMOs, the proportion of members margins were seriously narrowed. In addition, man- who were enrolled in investor-owned health plans in- aged-care companies and the government succeeded ! creased from 42 percent in 1987 to 62 percent in in holding down payments to hospitals. The biggest i 1997.1 The market share of investor-owned nursing payers — Medicare and Medicaid — made serious homes and home-care companies also grew steadily. budget cuts. By contrast, the market share of for-profit community The average net profit margin of hospitals in 1998 hospitals,after an acquisition boom in the early 1990s, was unchanged from the previous year,at about 5 per- , has now plateaued at about 16 percent of all hospital cent,' and it could well decline in coming years.The beds.= However, all segments of the health care indus- 1997 Balanced Budget Act requires projected Mcd- try and profession, even those with a sense of mission icare expenditures to be cut by 5115 billion over very different from that of for-profit enterprises,found a period of five years. According to the Medicare themselves in a new world where the pursuit of market Payment Advisory Commission,6 the current profit I I share,the development of referral networks,the search margin for Medicare inpatients is over 15 percent, for profitable admissions and subscribers, relentless suggesting that Medicare subsidizes non-Medicare cost cutting, and other practices pioneered by share- patients and making Medicare payments to hospitals holder-owned firms came to predominate. a ripe target for further cuts. I:- _stry analysts ex- I In short, the trend toward investor ownership I pect additional cuts of at least $10 billion, on top of profoundly influenced the underlying "product" — j the $17 billion reduction in projected Medicare hos- the delivery of health care. Intensified competition pital payments required by the 1997 Balanced Budg- among health care companies and investors'pressure et Act.b Some of the private sector's own remedies 1 l'' for returns helped shape the general environment of for escalating costs,such as ambulatory surgery,home I cost containment and resulted in closer monitoring care, and hospice care, have reduced costs for the of health care professionals by nonphysicians. Wall system as a whole but have left hospitals with a mon- Street's greater role also resulted in more mergers, ev-losing oversupply of beds. acquisitions, consolidations, and spinoffs—the mar- In the case of HMOs, pressure from payers to ket's brand of trial and error. hold the line left most managed-care companies in a position where costs were rising faster than premi- FROM BOOM TO BUST urns. The medical loss ratio—the percentage of the IIIBy 1997,however,the stock-market boom in health premium dollar actually paid out in health care ben- care companies was largely over. With a few notable efits —increased for most managed-care companies - r . :_.raj 1 EL ALJ 3`VD($J j 664 • February 25, 1999 F. &6=1— 668J i'- ,.. \ y-'. HEALTH POLICY REPORT and eroded profits. Contracts with Medicare, a big result of the stepped-up pressure to contain costs favorite of the industry in the mid-1990s, in some and restore profitability. • respects proved too profitable and resulted in a back WALL STREET'S EFFECT lash. Widespread "cherry picking" and profiteering ON NONPROFIT ENTERPRISES by the more aggressive HMOs caused Congress to cut the Medicare-payment formula, leading in turn In this climate of intensified cost-containment ef- to an industry pullback.' forts and escalating competition, there have also been In addition, scandals and disastrous misjudgments serious setbacks for many nonprofit enterprises. Kai- led to the collapse of the stock of some of industry's ser Permanente, which booked its first annual loss in most celebrated entrepreneurial companies, such as 1997, continued to lose money in 1998. Health In- Columbia/HCA and Oxford Health Plans. In 1997, surance Plan (HIP) of New Jersey, one of the re- Oxford recorded S291 million in losses,and the corn- maining full-service,prepaid group health plans,found pang also predicted losses for 1998. Its stock, which itself overburdened with wholly owned clinics. In rose from 34 a share in 1993 to a peak of 389 a ' November 1997, HIP struck a deal to have a for- share in 1997, is now trading at around S19. These profit partner, Pinnacle Health Enterprises, deliver setbacks and scandals, in turn, led to stepped-up most of the actual care for a fee of 91.5 cents of each regulatory and investigative activity, which further premium dollar received by HIP. But Pinnacle disas- cut into revenues. Enforcement programs such as trously miscalculated the costs involved, and both the Health Care Financing Administration's "Oper- ! entities went bankrupt, leaving 194,000 New Jersey ation Restore Trust" not only resulted in costly fines I enrollees in limbo and physicians and hospitals hold- and settlements, but also further reduced income by ing uncollectible debt.9 causing hospitals to divert resources into more in- In Pennsylvania,a hastily assembled nonprofit con- tensive self-monitoring activities and legal expenses. 1 glomerate of hospitals and medical schools, the Al- As a result of all these trends, health care stocks legheny Health Education and Research Foundation, have been transformed from Wall Street's darlings to I tumbled into a spectacular S1.3 billion bankruptcy Wall Street's stepchildren. Although the industry has after a 10-year acquisition binge. In the first half of continued its consolidation and the number of hos- ! 1998, 68 percent of Blue Cross—Blue Shield plans pitals involved in mergers increased slightly in 1998, ' lost money on their core operations, according to the number of successful deals declined.' Since share I Weiss Ratings. Throughout 1997, 69 percent.of the (.4 value is the currency of acquisitions,a declining stock II plans lost money.10 All these losses provide confir- value reduces the capacity to consolidate. Health care mation that trends set in motion by the for-profit entrepreneurs arc also finding it much more difficult sector affect the nonprofit sector as well. Nonprofit to attract venture-capital investors and to take privately ! HMOs and hospitals, which rely on debt financing held companies public. The fact that the stock market ! in the bond market, had their bond ratings down- has been booming elsewhere gives venture capitalists I graded, on average, in 1998. plenty of alternative opportunities.The chief executive Traditional nonprofit visiting-nurse and home care of one large, privately held health-services company agencies have come under increasing competitive explained in an interview, "Venture capitalists expect ! pressure from for-profit home care agencies. As re- returns in the 25 to 30 percent range because of the cently as 1996, home care was seen as a highly prof- risk they are taking. Because of the combination of itable sector. However, increased competition and reimbursement cutbacks, fraud and abuse investiga- cost-control measures that include restrictions on re- tions, and the cost squeeze of managed care, returns imbursements have left most agencies with either re- of that magnitude are just out of the question." duced earnings or actual losses. And in this climate, Despite these setbacks, however, this is by no nonprofit and for-profit agencies alike have had to means a story of Wall Street's embrace and subse- stretch staff-to-patient ratios. As the social critic Su- quent abandonment of the health care industry. On zanne Gordon has observed, government regulates the contrary, even with such high-profile debacles as the permissible ratio of day-care providers to chil- those of Columbia/HCA and Oxford, the broad i dren, teachers to students,and even flight attendants shift of health care from the nonprofit sector to the to passengers, but not the ratio of nurses or nurses' for-profit sector shows no sign of a reversal. The j aides to patients." market transformation of what was once a sacred In 1998, the stocks of home care companies de- calling continues apace. If anything, as competition dined on average.The Balanced Budget Act cut a total intensifies and profit margins narrow, there is a more of 314.3 billion from Medicare's home care budget intensive search to find profitable niches.This,in turn, I for the next five years. In addition, the act instituted puts more pressure on clinicians. Indeed, though a new prospective payment system for nursing homes. Wall Street firms and investors may have had their i Medicare and Medicaid together underwrite about •fingers burned, virtually all the trends that frustrate ' three quarters of the costs of the S86 billion long- physicians and consumers alike are continuing, as a ! term care industry.`= Volume 340 Number 3 • 665 The New England Journal of Medicine • BRUISING LOSSES FOR HMOs sponded by seeking to amass market power. Some HMOs continued to acquire new members and to markets, such as greater Philadelphia, arc dominated increase their revenues in 1997 and 1998, but in by as few as two major health plans. In eastern Penn- most cases, their costs increased faster than their in- sylvania, Aetna U.S. Healthcare and Blue Cross to- come. In 1997, HMOs collectively lost $768 mil- gether control over 80 percent of what the industry lion, whereas in 1996 they had earned $700 million calls "covered lives." In such markets, health plans in profits, according to Weiss Ratings.10 For the first can dictate terms to hospitals and physicians, and are six months of 1998, 57 percent of HMOs lost mon- thus able to maintain tighter control over the use of ev, and the average medical loss ratio climbed to services and protect their profit margins. about 90 percent. This level is lower than that tvpi- Elsewhere, where markets are more fragmented, cally attained by nonprofit HMOs, but it is much managed-care companies are aggressively seeking this too high to give investor-owned HMOs the net in- sort of consolidation. However, there are two weak- come they need to cover both administrative and nesses in this strategy. Many individual companies underwriting costs and to give investors the earnings have increased their market share by underpricing they desire. Average HMO profits had fluctuated be- and overpromising in order to enroll consumers. This tween about 6 and 5 percent from 1991 to 1994 pattern of ruinous competition leads to a kind of and then plunged to 1 to 2 percent. In Florida, with j price war, in which all local managed-care companies its large Medicare population, HMOs operated at a ; try to match or surpass each other's price discipline, slight loss in the first six months of 1998.13 and most end up with reduced profit margins or According to an exhaustive study of the HMO in- losses. In this marketplace, the temporary winners are dustry,'4 "Since 1994 HMO profitability has steadily the companies that limit their costs most severely, ei- declined as revenues per member per month have ther through careful selection of whom they insure failed to keep pace with medical expenses per mem- or through stringent management of covered care. ber per month. In 1997 only about one third of I However, the strategy of acquisition and consoli- HMOs recorded a profit." HMOs have faced in- dation at some point runs into possible antitrust creased competition not only from each other but j problems. An example is Aetna's proposed takeover also from new hybrids such as physician-owned health of Prudential's health insurance business, which is • plans,plans sponsored by hospitals, and plans organ- opposed by medical and consumer groups. At this ized by large businesses that seek to bypass third- writing, the Justice Department has not yet ex- party insurers altogether. pressed an opinion on the proposed merger. Hospi- The managed-care industry's response to this prof- tals regularly oppose mergers of rival health plans, it squeeze has been twofold. First, the industry has just as health plans tend to oppose mergers of hos- sought to clamp down even more tightly on the use j pitals, since each is a bargaining rival of the other. of services and on costs. Second, the industry has 1 The more market power a hospital has, the more it sought to gain market power over hospitals,doctors, i can dictate terms of payment to an insurer. Con- and payers through consolidation and acquisition. versely, if an insurer dominates a local market, it has Each of these trends, however, has had unintend- i disproportionate power in bargaining over prices ed consequences. By tightening restrictions on care, with providers. In August, a proposed merger of the industry has stirpulated a consumer backlash, United Health Care Corporation and Humana col- which in turn has prompted a regulatory backlash. lapsed. Had the deal gone through, it would have Several versions of patients' rights legislation were created the nation's largest managed-care company. narrowly defeated in 1998, and the issue is high on Paradoxically, despite the intensified effort by both Congress's agenda for 1999. Judges have increasing- hospitals and man'a_cd-care companies to consoli- lv tended to rule in favor of the right of whistle- date, entrepreneurs pursuing profits keep inventing blowers to proceed at least to the stage of full legal new insurance "products," and the total number of discovery in cases filed under the False Claims Act. national managed-care companies has actually in- In addition, the dissatisfaction of consumers and creased, from 543 in 1994 to 65 1 in 1997.' physicians with the limitations of HMOs has led For 1999, analysts are forecasting a slight shift in many managed-care companies to turn to preferred- ' bargaining power in favor of insurance companies provider organizations and network plans that offer and managed-care plans. The consensus is that the consumers a wider choice of doctors and hospitals plans will succeed in extracting from payers a slightly as well as the further option of paying extra for an higher increase in premiums during the next two out-of-network provider. This innovation, however, years, which could moderately improve the profits of has undercut the original promise of HMOs to pro- managed-care organizations. However, since no res- vide closely integrated services and has relaxed some pite is in sight in the clash between, on the one • of the very cost controls that the prepaid group hand, demographic and technological trends that model offered in the first place. raise costs and, on the other, pressures by payers to The managed-care industry, as noted, has also re- cut costs, the managed-care industry as a whole is 666 • February 25, 1999 I HEALTH POLICY REPORT unlikely to be restored to robust fiscal health. Con- with its largest rival, Phycor, fell through, both corn- Hicting pressures by consumers and regulatory agen- panics announced quarterly losses. Several smaller cies will only intensify as well. companies,such as Physicians Resource Group of Dal- • las, a manager of eve care practices,and AmericaPath SPECIALTY COMPANIES of Rivera Beach, Florida, also experienced severe fi As HMOs and hospitals have seen their profit mar- nancial setbacks. Doctors Health,a Maryland firm that gins narrowed, entrepreneurs have turned to niche manages 374 primary care physicians' practices in industries. These include ambulatory-surgery corn- Baltimore and Washington, D.C., filed for Chapter panics,subspecialty companies that provide such wry- 11 bankruptcy.'s Stock analysts report that venture ices as eye care, oncologic care, and cosmetic plastic capitalists are now fairly skittish about practice-man- surgery; hospices; hospital-supply companies; and agement companies. PricewaterhouseCoopers calcu- consulting firms. A characteristic pattern is for a small j lated that venture capital for such companies had entrepreneur to devise a product that fills a niche, ! soared from $31 million and 6 deals in 1996 to market the product successfully, and then sell it to a $313 million and 62 deals in 1998, but that such conglomerate or make a public offering of stock. ventures are expected to decline in 1999.16 For specialty companies, the recent picture has As noted, the dramatic exception to this general been mixed. Some, such as for-profit chains provid- trend was pharmaceutical companies and, to a lesser ing oncologic care, have continued to do well tinan- extent, medical-device companies. Drug companies cially because managed-care companies, for the most benefit both from patent protection and from federal part, have lacked the nerve to dictate protocols to subsidies for research. Drug and biotechnology corn- oncologists or to deny treatments to patients with panics have continued to attract increasing amounts cancer(the exception being highly experimental and of venture capital. Year after year, stocks for the in- unproved treatment). Investor-owned chains have dustry as a whole outperform the stock-market aver- maximized their income by giving physicians incen- ages. For the most part, the drug industry has suc- tives to pursue patterns of practice that maximize re- ceeded in resisting cost controls. Some managed-care imbursements and by negotiating deals with drug companies have imposed formularies or insisted on companies in exchange for using particular chemo- I generic substitutes, but the so-called research phar- therapeutic agents. Since these chains typically en- maceutical companies continue to develop new drugs gage in less research than traditional teaching hospi- at such a rapid rate that managed-care companies tals, they tend to have lower operating costs and have usually not been able to deny patients access to hence larger profit margins. They also market their ! medically beneficial new drugs. Instead, they have services aggressively. held down costs by increasing the required copay- By contrast, 1993 was a particularly bad year for ments by patients and by putting pressure on the re- companies that manage physicians' practices, and tail-drug industry to reduce prices. The pharmaceu- many Wall Street analysts expressed skepticism about deal industry, thus far, has also successfully resisted the entire model. A physician-practice–management attempts by government payers (Medicare and Med- company essentially seeks to arbitrage the future val- icaid) to require large discounts for bulk purchases. ue of a physician's practice with its current, presum- THE OUTLOOK ably underpriced, value in the marketplace. In ex- change for the income from patient care,the company The decline in the profitability of investor-owned pays the doctor in the form of salary, stock, a share health care companies is likely to continue. For the of net income, or all three. By doing what doctors most part, for-profit hospitals that have gotten into generally do not do well — managing the adminis- financial difficulty have been sold to other for-profit trative details of their practices, gaining market pow- companies; very few have reverted to nonprofit sta- er to bargain with managed-care companies, and tus. Though the widespread conversion of nonprofit maximizing capitation or fee-for-service reimburse- hospitals to for-profit status in the mid-1990s has ment —physician-practice–management companies slowed considerably, nonprofit hospitals in financial hope to augment the value of the practice and pock- straits continue to be acquired by investor-owned et the difference. But many doctors do not react well ! chains. (Most components of the bankrupt Alle- to becoming employees.And the big companies,corn- igheny system, for example, have been acquired by peting to acquire a larger market share, have appar- Tenet.) Likewise, the investor-owned proportion of ently paid too much for many physicians' practices. the managed-care industry continues to increase. In November 1998, the biggest of the physician- Investor-owned firms are likely to protect their practice–management companies, MedPartners, an- profit margins by seeking greater market power and nounced it was quitting the practice-management consolidation. Yet these firms are under increasing business to focus on its more profitable pharmaceu- pressure from government and private payers to cut deal subsidiary. Its stock price was down by 79 per- costs. So although available profits are likely to be • cent from the previous year.' After a planned merger the object of intensified bargaining by rival man- • Volume 340 Number 3 • 667 The New England Journal of Medicine � • aged-care companies and hospitals, it is hard to see less a withdrawal, but from renewed demands for how profit margins can increase much overall. Para- greater quality of care, clinical autonomy, and access doxically, even while there are increasing efforts to to resources on the part of physicians, nurses, con- consolidate, we arc seeing more fragmentation as a , sumers, and their elected representatives. •3 result of the search for profitable niches, the effort to save money through "carve-outs," and a shift to REFERENCES networks rather than staff or group models of man- 1. The lntersrudv HMO trend report,1987-1997.St. Paul,Minn.: Inter- aged nteraged care. study,August 1998. For more than a decade, "market-driven health 2.1997 Hospital stat. 1996-1997 cd.Chicago:American Hospital Association,Association,on, care" has been advertised as the salvation of-the 3. A wide range in fund returns. BusinessWcek. December 28,1998:156. American health care system. In the early 199Os, en- 4. Hospital management companies.New York:J.P.Morgan 3c Co.,Janu- ary I1, 1999. trepreneurs succeeded in obtaining the easily avail- s. Blether MB. Even tighter times.Hosp Health Networks 1998;72(23- able cost savings, at great profit to themselves and 241:23. their investors. By the late 199Os, however, pressure 4,6., Hospitals fear additional Medicare trims.Modern Healthcare. January to protect profit margins had led to such dubious 7. Pear R. HMOs are retreating from Medicare,citing high costs.New • business strategies as the avoidance of sick patients, York Times.October 3, 1998;A20. the excessive micromanagement Ofh SIC1anS the 8. A year of more and less. Modern Healthcare.January 11, 999:48. p y 9. New Jersey regulators prepare for takeover of 1 financially troubled HIP. worsening of staff-to-patient ratios, and the outright BNA's Managed Care Reporter.November 4,1998:1086. denial of care. In an industry driven by investor- 10. Nearly 60 percent of HMOs lost money in 1997.Palm Beach Gardens, • Fla:Weiss Ratings,Augustrg31,1998. owned companies, the original promise of managed 11.-Gordon S. Unfairly taeting R.Ns. Boston Globe.January 8,1999. care — greater efficiency in the use of available re- 12. Haugh R.Pay daze. Hosp Health Networks 1998;72(23-24):32-4. sources and greater integration of preventive and 13. Florida HMOs barely break even in 1998 due to continued compcu- don,rising costs.BNA's Managed Care teporter.December 30,1998:1251. treatment services — has often degenerated into 14. HMO industry report 8.2. Part[I.Sc. Paul,Minn.: tntcrstudv,Octo- mere avoidance of cost. bcr 1998:59. 15MPPMs hit by financial bad news.Modern Healthcare.November All these trends,of course,will continue to under- 30,. 1998ore6. cut the autonomy of physicians and the resources 16. Hudson T.Capital crisis. Hasp Health Networks 1998;72(23-24):30. available for patient care. Counter-trends are likely • to come not from a reappraisal by Wall Street, much ©1999,Massachusetts Medical Society. • t • • • • • • - i I ' • • I • . 668 • February 25, 1999 The New England Journal of Medicine • Iweakening. As enrollment in PPOs has surged, the I Health policy Report . proportion of large employers' workers who are en- rolled in HMOs has dropped, from 33 percent in 1997 to 30 percent in 1998.' Suddenly, the out- come of the contest between physicians and man- THE AMERICAN HEALTH CARE aged-care plans is uncertain. SYSTEM In this report, I will discuss the interaction between physicians and managed care in relation to five topics: physicians' organizations, methods of compensating Physicians and the Changing Medical physicians,. the amount of time physicians spend Marketplace with patients, the relations between primary care pro- , viders and specialists, and the physician work force. THOMAS IBODENHEIMER, M.D. Is the pendulum swinging away from stringent cost control and the dominance of health plans? pi.S the 20th century closes, the practice of med- PHYSICIANS' ORGANIZATIONS icine in the United States faces challenges asManaged care has spawned a bewildering variety of great as it ever has. On the one hand, med- organizations within which physicians work, includ-' 1 ical science and technology have brought unimagin- ing independent practice associations (IPAs), inte- able benefits to the American population. On the grated medical groups, companies that manage phy- other hand, these advances have contributed to the • sicians' practices, physician–hospital organizations, escalation of health care costs above what many peo- and group- and staff-model HMOs. ple are able to pay. Physicians are caught in the middle IPAs —pressured by private and governmental purchasers of health care to keep costs down,while driven by the For several reasons, [PAs are the most numerous of public and their own professional standards to do physicians' managed-care organizations. By contract- • everything that might be beneficial for each patient. In the 1980s, employers and governments chose ing with IPAs that comprise hundreds of physicians, HMOs can cheaply create networks of physicians. As managed care as the preferred vehicle for cost con- loosely knit groups of self-employed physicians, IPAs tainment. By the mid-1990s, physicians and patients allow physicians to obtain contracts with HMOs alike were resisting the shackles that managed care without making substantial changes in their practices. appeared to have placed on them. Nearly 70 percent Physicians remain in their offices, caring for people of 6000 physicians in 22 markets surveyed in 1998 enrolled in several HMOs and PPOs as well as their characterized themselves as against managed care. non–managed-care patients. Forty-six percent said that they "often think about ! IPAs come in many shapes and sizes.Those on the leaving clinical practice."` ' West Coast often receive a per-member (capitation) Many physicians see themselves as engaged in a payment each month from an HMO and can be power struggle with managed-care plans. Until re- held financially responsible for most nonhospital ex- cencly, most observers picked managed care as the penditures. HMOs often delegate to these risk-bear- winner. A majority of Americans were enrolled in ing IPAs the responsibility to conduct utilization re- health maintenance organizations (HMOs) or pre- j view, the credentialing of physicians, and quality (erred-provider organizations (PPOs). Managed care improvement and to decide on physicians' compen- was given credit for the slowing of inflation in health cation. In contrast,on the East Coast,some IPAs are care costs from 1993 to 1997. The growth in physi- nothing more than panels of physicians with which clans' average annual net incomes dropped from 7.2 HMOs contract and that have little organizational percent for the period from 1986 through 1992 to structure.As these non–risk-bearing associations ma- 1.7 percent for 1993 through 1996.2 The stocks of ! cure, they can gradually be delegated responsibility for-profit HMOs scored big on Wall Street. ' for credentialing, utilization review, and quality as- In the past two years, a reversal has taken place. surance and can begin to assume financial risk. West Only one third of HMOs recorded a profit in 1997.' Coast and East Coast IPAs are not distinct models The value of HMO stocks has tumbled. Some but instead can be considered poles of a continuum HMOs have scurried away from less profitable mar- I (Oswald N, National IPA Coalition: personal com- j kers. Health care costs threaten to rise again, erod- munication). ing the confidence of purchasers that commercial IPAs have surprised pundits who previously viewed 1111 managed care is the answer. The public and mem- I them as a temporary step on the road to more co- bers of the medical profession are demanding that I hesive organizations of physicians. However,because legislators regulate managed-care plans. The control 1 of demand from consumers who prefer to choose exercised by managed care over clinical decisions is among large networks of physicians, IPAs are grow- s ivej,vi .,'='o(7) 584 • February 13, 1999 y5gy- 5-66 1 4 11 HEALTH POLICY REPORT Ij I %;i pl ing faster than other physicians' organizations. The their assets to physician-practice-management corn- ,,-- proportion of HMO enrollees who participate in IRAs 1 panics for cash or stock or can contract with them increased from 19 percent in 1984 to 42 percent in to obtain HMO contracts and management services 1997." i (e.g., billing, purchasing of supplies, personnel man- l Recently, many IPAs have fallen on hard times. 1 agement, and information systems). Many physi- 1'. Rates of capitation from HMOs have fallen, while ! cian-practice-management companies offer only sin- patients' demands for services have climbed. IPA.s tend gle-specialty care and make their specialty services to distribute their income to their physicians rather available to HMOs, PPOs, IPAs, employers, and hos- 1'. than build up large reserves to cover long-term ti- pitals. Others are multispecialty companies that con- I nancial losses. Several IPAs have failed, and others tract with payers to provide all clinical services.' face serious operating deficits.' ! In 1997, 110,000 doctors were affiliated with these ! companies.`= Medical Groups In 1998, two of the three large, multispecialty Medical groups are medium-sized or large multi- 1 physician-practice-management companies collapsed, specialty group practices of which physicians are cm- I leaving thousands of doctors scrambling to rebuild ployees or employee-owners. In 1980, there were their practices. In July, FPA Medical Management 1.41 large multispecialty groups(each including 30 or declared bankruptcy; it currently owes California more physicians), with a total of 23,000 physicians; ' physicians $60 million. In November, MedPartners in 1996,these numbers had increased to 387 groups, pulled out of practice management; its 10,000 affil- with 69,000 physicians.3 Sixty-four percent of large 1 iated physicians may choose to buy back their prac- medical groups are owned by physicians, 9 percent I rices from MedPartners, allow their practices to be by hospitals, 17 percent by universities, and 10 per- sold to a hospital or other buyer,or begin their careers cent by other entities.9 anew.13 Some physicians who had sold their practices Two generations of groups populate the medical to a physician-practice-management company for landscape: older, often prestigious institutions such $300,000 are now unable to buy the practices back as the Mayo Clinic in Minnesota,the Cleveland Clinic and arc left without office staff,equipment,or money in Ohio, and the Ochsner Clinic in Louisiana, and owed to them for previous services rendered. Those new groups, such as southern California's Health- who received stock in a physician-practice-manage- Care Partners Medical Group and Friendly Hills ment company rather than cash fared even worse; , Healthcare Network, which originated within the the value of McdPartners stock fell from $28 to $2 milieu of managed care. In the torrid marketplace of j per share, the value of FPA stock from $40 to $1, southern California in the 1980s, several medical and the value of PhyCor stock from $33 to $7. groups provided huge incomes for their physicians Physician—Hospital Organizations by negotiating capitation and risk-sharing agreements with HMOs and by reducing expenditures through Hospitals may form physician-hospital organiza- tight control on the use of hospital services.10 dons to contract with HMOs and PPOs on behalf The golden days of California's medical groups of both their own institutions and physicians. In ad- came to an end during the 1990s. California's em- dition, many hospitals have purchased physicians' ployers ratcheted down the premiums they paid to practices outright,although hospitals have been losing HMOs, and HMOs,in turn, reduced capitation pay- ( a median of$47,000 per physician per year by doing ments to medical groups. To preserve their ability to ( so.1* By forming physician-hospital organizations or negotiate with HMOs from a position of strength, acquiring practices, hospitals are attempting to en medical groups believed they had to grow. Most sold ; hance the loyalty of their medical staffs and thereby their assets to hospital systems or to investor-owned improve or protect their market share. About one physician-practice-management companies.Although third of medical practices with three or more physi- some of the physicians who led the groups earned cians participate in a physician-hospital organization large sums of money from these sales, the average j for the care of at least some of their patients.9Many physician was confronted with new corporate owners, I physician-hospital organizations, having an excess whose eves were often turned toward Wall Street. I of specialists and an incentive to keep hospital beds € tilled, have high medical costs and are financially : Physician-Practice-Management Companies troubled.Yet these organizations are growing in some Physician-practice—management companies areareas of the country and may succeed in forming for-profit companies that own or manage physicians' 1 provider-sponsored organizations that contract di- practices and operate in multiple markets. Over the real,/ with employers and with Medicare. i past few years, these entities, such as MedPartners, Group-Model and Staff-Model HMOs EPA Medical Management, and PhyCor, have grown rapidly,purchasing physicians' offices, medical groups, Group-model and staff-model HMOs are a vener- 0 i and IPAs. Physicians and medical groups can sell able form of physicians' organization but have recently Volume 340 Number 7 • 585 The New England Iournal of Medicine • experienced stagnation in patient enrollment. In Many HMOs and IPAs brave relied on bonus in- group-model HMOs such as Kaiser Permanente, an i centive payments to reduce the use by primary care HMO contracts with one or more integrated mcdi- ! physicians of specialty, ancillary, and hospital services. cal groups rather than with a diffuse network of phy- In 1998, 57 percent of primary care physicians in sicians. Staff-model HMOs hire physicians directly. managed-care organizations in Califbrnia reported A new generation of staff-model HMOs surfaced dur- i feeling pressured to limit referrals.'` Lately, large bo- in,r the past decade when Prudential, CIGNA,Aetna, nuses contingent on the restriction of services have Humana, and other HMOs hired physicians as em- come under attack from physicians and the public. A plovees. Most have sold off these staff-model efforts trend has emerged to tie bonus payments not only as financial failures. McdPartncrs bought, and is now to low-cost care, but also to measures of the quality selling, some of these staff-model organizations. of care and patient satisfaction. Individual Practices and Small Group Practices TIME SPENT BY PHYSICIANS According to the economist James Robinson, WITH PATIENTS "Medical groups and physician networks — the heart of the managed care system — arc fragile and Even as incentives Co restrict access CO care may be declining in importance, the pressure to increase pro- financially vulnerable. Practice revenues are declin- ductivity appears relentless. From 1.943 to 1985, the log as costs rise. Many physician organizations duration of the average visit to a physician's office fell arc bleeding red ink at precisely the time when they from 26 to 17 minutes.i,.2o Among family practition- face their greatest need for capital investments.' crs, the average visit in 1985 lasted 14 minutcs.- ,,, These risk-assuming organizations receive much at Whether or not there have recently been large reduc tendon,even though 65 percent of self-employed phy- tions in the time physicians spend with patients, 75 sicians practice in the same type of small office (fewer percent of primary care physicians in managed-care than four physicians) occupied by physicians 20 years practices in Califbrnia reported pressure to see more ago." Ninety-two percent of physicians have at least patients per day." one contract with a managed-care plan, but in most The shortening of patients' visits has consequences regions of the country these contracts come directly in terms of physician–patient relations. In one sur • from the HMO or PPO or arc routed through a sur- vey, half of the patients reported having left their loosely knit IPA and thus shift little risk to the phy physician's office not knowing what they had been sician. The staving power of private physicians' offic told or what they were supposed to do.=` Leifer es contrasts with the turmoil of physicians' organi writes, "The once-hallowed doctor/patient relation- zations that bear risk. ship has been reduced to mere sound bites ex- METHODS OF COcMPENSATING ! changed during hurried office visits, and therapeutic PHYSICIANS words of empathy have been replaced with Prozac scrips."22 Americans made 629 million visits to alter- During the early and mid-1990s, fee-for-service nae medicineractitioncrs in 1997, a number ex - payments seemed to be giving way to capitation or reeding the total number of visits to primary care salaries, particularly in primary care settings. Accord- I physicians.'' The growing popularity of alternative ing to a number of observers of medical practice, healers may be related to their spending adequate capitation peaked in 1998 as a mechanism of payment amounts of time with their patients.-, of primary care physicians,at least in urban areas.The proportion of physicians' revenues received from cap RELATION BETWEEN PRIMARY CARE itated contracts dropped from 8.4 percent in 1996 j to 7.0 percent in 1997.`5•'7 The standard managed- AND SPECIALIST PHYSICIANS care formula—capitation to primary care physicians In the late 1970s, HMOs initiated a gatekeeper sys- and fee-for-service to specialists—has been reversed tem that required patients to obtain authorization by a number of HMOs and IPAs. Primary care phy- from their primary care physicians to gain access to sicians often receive discounted fee-for-service com- providers of diagnostic evaluations and specialty care. pensation, and specialists are increasingly being com- Often, primary care physicians could grant such au- pensated by capitation. Since twice as many health thorization only by first obtaining approval from the care dollars are consumed in specialty care as in pri- HMO. Barriers to specialty care have been a promi- mary care, compensating specialists by capitation has nent subject of complaint by patients regarding considerable potential to reduce costs. In contrast,fee- managed care. for-service payment to primary care physicians may In response to the dissatisfaction of consumers and el save money for HMOs; in markets in which capitation physicians, many managed-care organizations have payments arc ample, physicians paid by capitation initiated open access to specialty care, abolishing the can earn more per average patient visit than those who gatekeeper system. Open access to specialists could are reimbursed on a discounted fee-for-service basis. increase costs to HMOs, IPAs, and medical groups 586 • February 18, 1999 HEALTH POLICY REPORT by an estimated 5 percent,25 not a small amount for the population. Between 1996 and 1997, the num- IPAs and medical groups on the edge of insolvency. bcr of members of underrepresented minorities en- Even without the gatekeeper system, primary care tering medical schools declined by 7 percent.34 physicians and specialists may remain in conflict be- I How does the surplus of physicians relate to the cause spending by managed-care organizations on I issues concerning managed care? First, if enrollment medical care is often limited by fixed budgets. If one in HMOs, particularly in group- or staff-model group of physicians receives more money, another I HMOs, grows slowly, perhaps the projection of the must receive less.As a result, many specialists are join- I need for physicians offered by the Council on Grad- ing single-specialty organizations, creating monopo- uate Medical Education, 185 per 100,000 popula- y lies for specialists' services within regional markets ; tion,will turn out to be more realistic than lower es- and gaining a better price for their services. To.what timates. Second, the observation that physicians degree such specialty "carve-outs" will disrupt or- I spend less time with patients is not consistent with ganizations that provide comprehensive care remains I the increase in the physician-to-population ratio. A to be seen. greater number of clinicians would be expected to mean that those clinicians were less busy. Yet in THE PHYSICIAN WORK FORCE many practices, patients wait days or weeks to get Of the 738,000 physicians in the United States in appointments — a peculiar phenomenon in an era 1996,600,000 (81 percent) were engaged in patient with a physician surplus. In a recent survey, 60 per- care. Of these, almost 70 percent were specialists.-6 cent of specialists and 70 percent of primary care By the year 2000,the number of physicians caring for physicians said they did not perceive that there is a patients will have increased to 203 per 100,000 pop- glut of physicians.35 This paradox has no clear expla- ulation,as compared with 115 per 100,000 in 1970.27 nation and should be a topic for further research. This growth in the physician-to-population ratio is WHAT NOW? attributable to increased numbers of specialists." Evidence that there is an oversupply of physicians, , The future is unsettled. For the past few years, particularly specialists, is strong." Moreover, physi- premiums paid to health plans have barely increased, cian's assistants and advance-practice nurses arc ex- whereas managed-care organizations' expenditures, petted to number 168,000 in the year 2005, further particularly for drugs, have grown. Perhaps for the reducing the need for physicians.29 In 1996, sub- next few years, premiums will increase, HMOs and stantial percentages of graduates of residency and physician organizations will prosper, and the man- subspecialty programs reported difficulty obtaining aged-care marketplace will stabilize. But perhaps employment: 56 percent of those in pulmonary and not. Employers and governments may balk at paying critical care medicine, 47 percent in anesthesiology, more, and their resistance may eventually cause 44 percent in gastroenterology, 41 percent in oph- commercial managed care to fade away.36.37 thalmology, 24 percent in general surgery, 23 per- Physicians' resistance to managed care will proba- cent in internal medicine,and 7 percent in family prac- bly continue.37 The American Medical Association tice.30 Extrapolating from data on staffing at the advocates an end to employment-based health insur- Kaiser Health Plan, Weiner suggested in 1994 that ancc and supports the implementation of medical only 112 physicians per 100,000 population would savings accounts as an alternative to managed care. be needed in the year 2000, rather than the 203 per However, the association no longer speaks for the 100,000 projected to be practicing at that time; he entire medical profession; only 43 percent of physi- forecast that there would be a total surplus of cians today are members, as compared with 82 per- 165,000 physicians in 2000.31 A more commonly cent in 1962. accepted estimate is that given by the Council on Some physicians' organizations may attempt to es- Graduate Medical Education, which proposed that tablish physician-run managed-care plans by opting to 60 to 80 generalists and 85 to 105 specialists (a total participate in programs such as Medicare±Choice. of 145 to 185 physicians) per 100,000 population I The fiscal collapse of physician-run health plans such would be needed by 2000.3'- as the California Medical Association's California Ad- Though many geographic areas have surpluses of I vantage plan poses doubts about whether physician- physicians, rural areas — where 20 percent of the , run organizations can succeed without adopting population lives — are served by only 9 percent of I managed care's cost-control mechanisms. the nation's physicians. Inner cities are similarly un- ! Some physicians may refuse to contract with man- derserved.'6 Although minority-group physicians are aged-care plans. Others will not let health plans dic- more likely than white physicians to care for under- tate the terms of their managed-care contracts; 400 served populations,33 only 12 percent of medical stu- physicians in Dallas recently terminated their con- dents are from the underrepresented minority groups tracts with Aetna's HMO. About 20,000 physician- (blacks,Mexican Americans,mainland Puerto Ricans, employees,many working in government institutions, • and American Indians) that make up 24 percent of have joined unions. Volume 340 Number 7 • 587 1 The New England Journal of Medicine • • Even if commercial managed care fails, the medical i 17. Physician marketplace statistics 1996.Chicago:American.Medical As- profession will not return to its status before man- 18. Grumbach K,Osmond D,Vranizan K,Jaffe D,Bindman AR.Primary 6; aged care. 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Hagland M.When iP.1s tail.Calif Med 1997;8(7):30.46. 1994;272:222-30. 8. Medical group practices in the US. 1999 ed.Chicago:American Med- 32. Council on Graduate Medical Education. Eighth report:patient care cal Association, 1999. physician supply and requirements:testing COGME recommendations. 9. Medical groups in the US. 1996 ed.Chicago:American Medical Asso- Washington, D.C.:Government Printing Office,July 1996. 1 ciation,1996. 33. Kumaromy M,Grumbach K,Drake M,et al.The role of black and III10. Robinson JC,Casalino LC The growth of medical groups paid Hispanic physicians in providing health care for underserved populations. through capitation in California.N Engl I Med 1995;333:1684.7. N Engl I Med 1996;334:131)5-10. 11. Robinson IC. Financial capital and intellectual capital in physician 34. Council on Graduate Medical Education.Twelfth report:minorities in practice management. Health Alf(Millwood) 1998;17(4):53.74. medicine.Washington, D.C.:Government Printing Office,May 1998. 12. Glabman M. Practice managers go from boom to lust. Physician's Fi- 35. Diogo S. HMO execs claim oversupply of doctors-but does don't nancial News. November 15, 1998:1,36.7. agree.American Medical News.September 7, 1998:9-11). 13. Tokarski C.Doctors weigh options with MedPartners'exit.American 36. Ginzberg F.,Ostow M.Managed care-.i look back and a look ahead. Medical News. December 7, 1998:1,38. N Engl I red 1997;336:1013-20. 14. Benoff M, Dubow SF. Improving the financial performances of IDS• 37. Raman A.The decline and till of managed care.Hosp Health Net- owned physician practices. Healthcare Financial Management.August works 1998;72(13):70,72. 'i 1998:38-40. 38. Kassirer In Doctor discontent. N Engl I Mcd 1998;339:1543.5. ( 15. Physician marketplace statistics 1997/98.Chicago:American Medical Association, 1998. 16. Socioeconomic characteristics of medical practice 1997/98.Chicago: American Medical Association, 1998. 31999,Massachusetts Medical Society. I i 1 • 0 I I . I I 588 • February 18, 1999 ;i 'I ii 1 • • HEALTH POLICY REPORT • tional indemnity coverage and was initially created Health Policy Report to win the support of Republicans for the program. Enrollment in Part B is voluntary, although the vast majority of beneficiaries sign on. Part B pays for physicians' services and outpatient hospital services, THE AMERICAN HEALTH CARE including emergency room visits,ambulatory surgery, SYSTEM diagnostic tests,laboratory services,and durable med- ical equipment. Under Part B. Medicare pays 80 per- 1 cent of the approved amount (according to a fee Medicare schedule) for covered services in excess of an annual . deductible of $100. Overall, 89 percent of Medi- JOHN K.,IGLEHART care's annual revenue now comes primarily from peo- plc who are less than 65 years old, through payroll taxes, income taxes, and interest on the trust fund, and 11 percent comes from the monthly premiums WHEN Medicare was enacted in 1965 as contributed by elderly beneficiaries. the health care linchpin of President Lyn- don Johnson's Great Society, its architects THE CHALLENGE FACED BY THE HEALTH considered this insurance program for the elderly CARE FINANCING ADMINISTRATION only an interim step toward the broader goal of uni- Medicare and Medicaid (which I will discuss in versal health care coverage.' That goal has never been my next report) are administered by the Health Care achieved, although Medicare is the nation's single Financing Administration(HCFA),a beleaguered fed- largest source of payment for medical care, insuring eral agency that is criticized by observers on all sides 39 million beneficiaries against the financial conse- as bureaucratic, rigid, and at times, overwhelmed by quences of acute illness. Since Congress established its administrative responsibilities, which have grown the program, the benefits covered by Medicare have exponentially in the 1990s. In contrast to its vast • remained largely unchanged, with the exception of charge, HCFA is a remarkably small agency, primar- • a few added preventive services,and they are certain- ilv as a consequence of"downsizing" that occurred ly inadequate by current medical standards. Medi- during the administration of President Ronald Rca- care expended $214.6 billion in 1997 in two large gan. Since HCFA's creation, its spending on behalf funding streams: Part A, for hospital services, and of Medicare beneficiaries has increased by a factor of Part B, for physicians' services. These two types of almost 10 (from 521.3 billion in 1977 to $214.6 bil- care are financed from four different sources, the lion in 1.997) and the population eligible for Medi- most important of which is mandatory contributions care has grown from 26 million to 38.6 million. But by employers and employees. The other three are the full-time—equivalent staff of the agency has re- 1 general tax revenues, premiums paid by beneficiar- roamed about the same, at roughly 4000 people.The ies, and deductibles and copayments. performance of HCFA will come under closer scru- Medicare is the subject of this report, the fourth tiny this year because the Republican-controlled Con- in the current series on the American health care sys- gress plans to conduct hearings on its performance. tem.2 4 Medicare's hospital-financing scheme,like that But in the view of 14 distinguished people from dif- of the Social Security program, is grounded in the ferent parts of the political spectrum, including three principle of social insurance, which requires all em- former HCFA administrators (Dr. William L. Roper, plovers and employees to make payments to a trust Leonard D. Schaeffer, and Gail R. Wilensky), the fund. Some 131 million employees make mandatory agency's problems are not all of its own making. The contributions to Medicare's Part A Hospital Insur- 14 recently urged Congress and the administration ance Trust Fund during their working years, with ' to reexamine what they consider the inadequate re- the promise of receiving benefits after they retire.The sources at HCFA's command: "The signatories to money contributed by employees that finances Medi- this statement believe that many of the difficulties care's Hospital Insurance Trust Fund is not set aside ' that threaten to cripple HCFA stem from an un- to meet their own future health expenses. Rather, it willingness of both Congress and the Clinton ad- is used to cover the medical bills of the people who ministration to provide the agency the resources and are currently covered by Medicare. All eligible ben- administrative flexibility necessary to carry out its eficiaries are automatically enrolled in Part A, which ' mammoth assignment."5 finances inpatient hospital services, continued treat- Despite HCFA's problems, Medicare is a highly ment or rehabilitation in a skilled-nursing facility, popular federal program,particularly among its ben- • and hospice care for the terminally ill. eficiaries, many of whom could not afford health in- Medicare's other major component, supplemental surance coverage if they had to pay its entire cost. medical insurance (Part B), was modeled after tradi- Medicare beneficiaries include 34 million persons over filfsf/111 Volume 340 Number 4 • 327 ciitil • ze., 1999 P 327_ 3321 111 j The New England Journal of Medicine 1 the age of 65, 5 million of all ages who are perma- sional staff member who was centrally involved in Wendy disabled, and 284,000 with end-stage renal the issue,wrote recently, "President Clinton used the • a disease.° In 1993, almost three quarters of elderly Part B premium issue to transform the debate."10 1 people reported annual household incomes of less MEDICARE'S FINANCIAL PROBLEMS than $25,000, at a time when per capita Medicare 1 expenditures averaged $4,083. In the estimation of In 1992, I reported chat Medicare's trustees esti- ' " a recently departed HCFA administrator, Bruce C. mated that the program's Hospital Insurance Trust Viadeck, Medicare is "an extremely powerful weap- • Fund would run out of money by 2001." With bank- on for reducing poverty for the elderly and dis- ! ruptcy looming, I concluded that Congress would • abled."7 But not all its beneficiaries support the pro- I have to soon decide how to close the gap between gram's role as a redistributor of income. On July j the program's income and its expenses. Its options 1, 1988, when President Reagan signed into law the I were further paring payments to providers, raising " Medicare Catastrophic Coverage Act, its financing I taxes, reducing benefits, asking beneficiaries to pay d mechanism represented a formal acknowledgment more of the costs, or some combination of these op- by Congress of the disparities in economic status I tions. Five years later, Congress followed a formula among the elderly. The law called for "an enormous that it has applied consistently over the past two dec- increase in beneficiary contributions"d by elderly peo- ades. In the Balanced Budget Act of 1997,1= Con- pie with greater means to help finance the care of gress extracted the vast bulk of savings to the Medi- people with lower incomes. Less than two years lat- care program ($116.6 billion over the period from er, on November 22, 1989, Congress repealed the 1998 through 2002) from future payments to pro- law after coming under pressure from a vocal minor- viders.To balance the budget and extend the solven- ity of relatively affluent elderly people, who resented cy of the hospital trust fund to 2007, Congress took paying higher premiums, and from the pharmaceu- 56.5 percent of the government-wide savings con- . tical industry, which was concerned that a new out- rained in the Balanced Budget Act from Medicare's patient drug benefit would lead to federal price con- estimated future expenditures,although the program trots. Since the law's repeal, there has been no cap I represents only 12 percent of federal spending. In the process of shaping the Balanced Budget Act, on beneficiaries' out-of-pocket liability. P g Public-opinion polls show strong and consistent Congress largely insulated beneficiaries from greater : support for Medicare9 and its intergenerational so- financial liability, but legislators also got a taste of till- tial compact;most beneficiaries who require medical the dilemma that looms ahead when the baby-boom care receive far more from the program than they population transforms Medicare's demographic char- '. contributed in payroll taxes,and far more than mem- acteristics13 and health care costs nearly double over bers of the baby-boom generation,the first of whom the next decade, as HCFA projects.'{ The Senate, will turn 65 in 2010, are likely to receive. For exam- whose members stand for election every six years, as plc, a couple retiring in 1998, with one wage earner compared with every two years for House members, who paid average Medicare taxes since 1966, would showed a greater willingness to ask beneficiaries to . aa‘,c cuntributed a total of$16,790, with interest, shoulder more of the financial burden. The Senate not including the employer's equal contribution.The voted to raise the age of initial eligibility for Mcdi- present value of future Part A benefits for such a care from 55 to 67 years,'51° to adjust a beneficiary's couple is estimated at$109,000, more than six times Part B premium on the basis of his or her income, the amount they paid into the trust fund(Foster RS, and to require copayments for home health services. • HCFA: personal communication). House members, always running for reelection and { Medicare is so popular that politicians who are therefore more sensitive to the concerns of elderly • seen as threatening it put themselves in jeopardy, as voters, rejected all three of these ideas, relying in- • Republicans learned to their regret in 1995. After stead on reductions in payments to providers. i newly elected Republican majorities took control of RESTRUCTURING MEDICARE the House and Senate and set out to cut the budget by trimming Medicare, their plan was vetoed by With the enactment of the Balanced Budget Act President Bill Clinton as too draconian and was of 1997, Congress and the Clinton administration strongly opposed by the elderly,who helped Clinton approved the most far-reaching reforms in the 34- vin reelection the next year. Whereas many billions year history of Medicare — some 300 provisions of dollars separated what Republicans and Demo- that are certain to add more complexity to the pro- crats were prepared in 1995 to excise from Medi- gram. In the process,Congress greatly expanded the icare's future growth, Clinton focused on a figure responsibilities of HCFA and the Medicare Payment i that ordinary Americans could comprehend: the ad- Advisory Commission, which Congress created to ditional $264 that Republicans wanted an elderly monitor the administration of the program.' The .1 couple to pay in annual Medicare premiums. As reforms were intended to expand the choices among Charles N. Kahn III, a former Republican congres- , private health plans that beneficiaries may select by , i 328 • January 23, 1999 I F i HEALTH POLICY REPORT ! 11 ' . creating the new Medicare+Choice program and to ical savings accounts that combine high deductibles strengthen Medicare's finances by including policies .with a tax benefit. Congress also required the agen- further constraining payments to providers in the i cy to develop a method of adjusting its payments to . traditional fee-for-service program and in managed- health plans so as to reflect more accurately the ac- care plans. tual health status or recent medical experience of pa- j. Although news reports have focused on problems ':, tients.=°-=2 In the 18 months since the enactment of in the early implementation of Medicare+Choice, the law, the policy Congress designed and HCFA ii most beneficiaries are still covered under the pro- has set about implementing to broaden participation gram's traditional component — that is, indemnity in the Medicare+Choice program has been fraught insurance combined with fee-for-service payments j with problems. to physicians, the model that prevailed when Medi- I As of last November, the date when HMOs in care began. The program's original structure re- which Medicare beneficiaries were already enrolled mains intact except for the imposition of adminis- were required to inform HCFA whether they planned tered prices through the prospective payment system I to continue their participation in the program,43 of for hospitals and the Medicare fee schedule for phy- the 347 plans announced their intention not to re- i' sicians' services. Under Medicare's traditional insur- new their contracts with Medicare for 1999, citing !� ance program, all physicians and hospitals that meet financial losses and other problems as the main rea- , Medicare's conditions of participation take part in sons. Another 54 HMOs announced plans to reduce the program without regard to whether they are af- the number of geographic areas in which they were tiliated with health plans or aggregated in medical prepared to enroll Medicare beneficiaries. These groups. In 1997, 33 million Medicare beneficiaries changes affect the coverage of some 406,000 bene- g were still in the traditional program, which cost an ficiaries. Because almost all these enrollees live in ar- 11 estimated $183 billion, representing 88 percent of eas where other HMOs operate, they have the op- total Medicare spending that year. tion of switching to another such plan. Beneficiaries I. Most of the provisions of the Balanced Budget j who do not live in areas with other HMOs will have Act of 1997 that applied to traditional Medicare to return to Medicare's traditional insurance pro- coverage reduced its growth instead of moving to gram and, in all likelihood, to purchase supplemen- 1 • upgrade it, as called for in a recent study by the Na tal coverage to pay for the additional benefits that I: tional Academy of Social Insurance.'s Congress di HMOs offered elderly enrollees (coverage of out- 1. rected HCFA to replace Medicare's cost-based reim- patient prescription drugs is the most expensive of 1 bursement method with more restrictive prospective these). The plans cited several reasons for withdraw- payment approaches that would apply to postdis- ing from Medicare or from selected services areas. charge services, the fastest-growing component of They considered HCFA's payment rates as reduced Medicare in the 1990s.J9 These services include care by the Balanced Budget Act too low and the law's in skilled-nursing facilities, hospital outpatient serv- new regulatory strictures as implemented by the agen- ices,inpatient rehabilitation services,and home health cy too burdensome. An estimated 87 percent of all care. The growth of home health services, one of beneficiaries affected by the withdrawals of insur- two major Medicare benefits for which there is no ance plans were enrolled in for-profit plans (as com- cost sharing by the beneficiary (the other is clinical j pared with 68 percent of all Medicare beneficiaries laboratory services), has been particularly explosive; enrolled in HMOs).23 total expenditures increased from S2 billion in 1988 Dr. Robert A. Berenson,director of HCFA's Cen- to more than S17 billion in 1997, largely because of ter for Health Plans and Providers, said in an inter- increased rates of use. In 1988, about 5 percent of I view that Medicare had been overpaying health plans beneficiaries received home health care services, with j that operate in markets with high per capita rates the average user receiving 23 visits. In 1997, 1 in 10 and that HCFA had no plans to support rate increas- beneficiaries received home care, and the average es, as sought by the industry: number of visits exceeded 80)' In 1999 payment rates will vary from almost$800 in Staten MEDICARE+CHOICE j Island, New York, to about $330 in many rural areas. The Medicare-related provisions of the 1997 Bal- • . . What we are witnessing is that HMOs are eager to en- anced Budget Act to which Republicans attached i roll Medicare beneficiaries in high-payment areas, but they the greatest ideological importance were those that are dropping out of marginal payment areas. . Each de cision to pull out of a service area makes sense as a narrow expanded the array of insurance plan choices beyond i business decision. But when you add up all of these deci fee-for-service indemnity coverage and health main- cions, the HMO industry is losing a reputation for reliabil- • tenance organizations (HMOs). Congress directed HCFA to offer options involving provider sponsored itv and stability. And that is a very unfortunate trend for the industry and the Medicare population. Indeed, it casts organizations, preferred-provider organizations, pri- in some doubt that a competitive market might be a solu- vate fee-for-service plans,and on a limited basis,med- tion to Medicare's long-term financial problems. } Volume 340 Number 4 • 329 I The New England Journal of Medicine iCONFLICTS AMONG PHYSICIANS I jMedicare's schedule of physicians' fees like the TABLE 1. CHANGE IN AVERAGE MEDICARE PAYMENT • ' RATES,ACCORDING TO AREA OF PRACTICE, prospective payment system that pits different kinds FROM1991 To 1997.' 11 of hospitals against each other, provokes conflict be- tween medical generalists and specialists. These dis- putes' GROUP OF PHYSICIANS ANNUAL CUMULATIVE have grown in prominence ever since 1989, AND AREA OF PRACTICE CHANGE CHANGE when Congress directed HCFA to develop a sched- ule of physicians' fees.24 In search of savings and percent greater equality in Medicare payments to generalists Generalist physicians and specialists, Congress said the schedule should be Family and general practice 5.3 36.1 based on a resource-based relative-value scale that Internal s specs medicine 2.6 16.5 Medical subspecialists would take into consideration three distinct types of Cardiology -2.7 -15.0 cost that doctors incur: their time, energy, and skill Gastroenterology -2.6 -14.4 Other 2.4 15.3 (referred to as physicians' work); practice expenses Surgeons such as medical equipment and office space; and General surgery 0.0 0.1 premiums for malpractice insurance!' In 1992, the Dermatology 1.5 9.0 Physician Payment Review Commission estimated Ophthalmology -3.3 -13.4 Y Y Orthopedic surgery -0.3 -1.7 that by 1996, when the new payment schedule was Cardiothoracic surgery -1.6 -9.3 due to be fully implemented, fees paid to generalist urology 1.9 12.2 Other 0.7 4.1 physicians would be 39 percent higher than they would have been under the previous payment meth- *Data are from the analysis by the Medicare Payment Ad- od, whereas those paid to cardiothoracic surgeons vssory Comm sston of claims for a sample consisting of 5 percent of beneficiaries in 1991 through 1997(Hayes KJ, and ophthalmologists would be 35 percent and 25 Medicare Payment Advisory Commission:personal commu- I percent lower, respectively.t1 nication).Values shown arc average percent changes in pay- How accurate was the commission's 1992 estimate? ment rata. As Table 1 shows,family and general practitioners saw a cumulative increase of 36.1 percent in their average40_ payments from Medicare between 1991 and 1997. gists, and different types of surgeons) to file suit last But because Congress required separate but unequal November 4 in U.S. District Court to halt the im- relative-value-scale conversion factors for surgical plementation of what they called HCFA's "unlawful and nonsurgical services, many specialist physicians transition formula."26 The plan, scheduled to take fared better during this period than the commission effect January 1, 1999, would cost members of the had earlier estimated. For example, the cumulative 11 societies$495 million in Medicare payments over reduction in Medicare payments from 1991 to 1997 the next three years, the suit asserted. But a coalition for cardiothoracic surgeons was 9.3 percent and that of primary care medical groups, which formed the for ophthalmologists was 18.4 percent. As Table 2 Practice Expense Fairness Coalition, disagreed, say- shows, Medicare has reduced payments for many of ing in a letter to HCFA, congressional committees, the procedures performed by cardiologists, gastro- and others that if the plaintiffs won their court case, enter:�!Hgists, and opl thalmologists. The Balanced it would undo a compromise fashioned in the Bal- Budget Act of 1997 directed HCFA to cease to ap- anced Budget Act that had settled a divisive debate ply different conversion factors and established a sin- within the medical profession.26 gle conversion factor(payments to physicians are the The American Medical Association (AMA) has re- product of the number of relative-value units estab- mained neutral on this matter, recognizing that its lished for each service in the fee schedule and the physician members are divided by it. But, on other conversion factor). HCFA set this factor at $34.73 matters related to Medicare, the association has carved for 1999, a change that will most likely lead to fur- I out a unique relation with HCFA that holds both ther reductions in Medicare payments to surgeons. pluses and minuses for it. The AMA helped develop Recently,what has provoked the most controversy '1 Medicare's fee schedule and also publishes Current among medical organizations in regard to Medi- i Procedural Terminology, the widely used manual for care's fee schedule is the way in which HCFA plans I coding physicians' services. Moreover, according to to phase practice expenses into the payment form- Vladeck, the agency has "largely delegated to [the ula, as required by the Balanced Budget Act. The ALMA] responsibility for maintaining many of the sys- agency, believing it was following congressional in- tem's technical aspects. This requires the increasingly tent, proposed to phase in practice expenses in a way disputatious specialty societies to go through an ALMA that had the effect of granting generalist physicians process to achieve some of their objectives."7 On the 7 higher payments and specialists lower payments.The other hand, the AMA came in for sharp criticism dispute prompted 11 specialty societies (represent- over its role in the development of draft guidelines ing cardiologists, gastroenterologists, ophthalmolo- for documenting cognitive services (evaluation and 330 • January 28, 1999 ii HEALTH POLICY REPORT t1 AI • [n 1997, Medicare's indirect medical education ad ,i I TABLE Z. A��RACE MEDICARE PAv to TS FOR SELECTED , justment totaled$4.6 billion. In the Balanced Budget i 1 HIGH-VOLCME PROCEnt:REs, ACCORDING TO SPECIALTY, ', Congress reduced Medicare's indirect support I IN 1991 AND 1997.• I for medical education by 55.6 billion over the next four years by changing the tbrmula to make the pay- SPECIALT/AND PsOCEDUNE 1991 1997 CHANGE ments less generous. Medicare's direct payments for dollars graduate medical education totaled$2.2 billion in tis • - cal 1997. The budget legislation reduced Medicare's i•I.E Cardiology Echocardiography of heart 215.60 202.66 -6.00 direct payments over the next five years by an estimaC • Heart image(3D) multiple 531.91 469.16 -11.30 ed $700 million. The reductions in payments to Cardiovascular stress test 131.43 109.56 -16.64 teaching hospitals were partially offset by returning '1 Complete electrocardiography 29.70 27.44 -7.60 • to the hospitals a portion of the premiums Medicare I Doppler color-(low ultrasonography 94.45 107.73 14.10 Report on electrocardiography 12.23 11.04 -10.10 pays to managed-care plans. These funds, earmarked f', Doppler echocardiography of heart 104.39 91.24 -13.01 for education and amounting to some 54 billion,will Coronary-artery dilation 1,517.42 333.14 -45.10 be returned in annual installments of 20 percent over Gastroenterology the five-year period from 1998 through 2002. Colonoscopy and removal of lesion 567.40 406.67 -223.33 Although the Balanced Budget Act signaled the Diagnostic colonoscopy 352.01 264.64 -24.32 � Upper gastrointestinal endoscopy and 347.45 207.36 -40.32 j intention of Congress to cut back Medicare's corn- • biopsy mitment to financial support for teaching, several , Ophthalmology members of the National Bipartisan Commission on , Removal of cataract and insertion of lens 1.353.63 912.67 -32.31 the Future of Medicare have urged more fundamen- Eye examination and treatment 44.06 53.10 20.54 ' Eve examination for established patient 35.00 36.39 3.96 tal changes in federal policy as it applies to graduate i.1 Treatment of localized retinal lesion 702.75 740.98 5.44 medical education. Congress created the commission, Eve examination for new patient 50.33 74.51 43.05 a body whose deliberations have been contentious Treatment of extensive or progressive 733.29 363.33 13.49 retinopathy i because some of its 17 members were appointed by I Follow-up care after laser cataract surgery 517.51) 247.00 -52.27 Republicans and some by the Clinton administra- ultrasound examination of eye 66.35 67.99 2.47 tion. Its report to Congress is due March 1. Senator • •Dara arc from the analysis by the Medicare Payment Advisory Commis- Phil Gramm (R Tex.), who is a member of both the ;ion of claims for a sample consisting of 5 percent of beneficiaries in 1991 bipartisan commission and the Senate Finance Com- through 1997 (Hayes KJ, Medicare Payment Advisory Commission: per- onal communication). mittee, which has jurisdiction over Medicare, has proposed that support for graduate medical educa- i i it I tion be subject to the greater scrutiny of the annual appropriations process rather than take the form of management) in the medical record.=723 On balance, assistance to which teaching facilities are entitled ac • - Vladeck said, the relation between FICFA and the cording to a fixed payment formula.The Association AMA is "functional for both parties, although the of American Medical Colleges (AAMC) strongly op- f extent to which it protects the interests of practicing poses this proposal. With the departure of New York's I. physicians, even that fraction that belong to the two senators - the defeat last November of Repub- AMA, is subject to increasing question."' lican Alfonse M. D'Amato and announcement by Democrat Daniel Patrick Moynihan that he will re- GRADUATE MEDICAL EDUCATION tire when his term expires in 2001 - proposed Underscoring the increasingly precarious nature changes in federal policy on graduate medical edu- of Medicare's status as the largest explicit financing I cation that are opposed by the AAMC must be tak- .1 ii source for graduate medical education,Congress took en more seriously. For many years, D'Arnato and :1 a first step in the Balanced Budget Act toward chang- , Moynihan used their positions on the Finance Com- ing this policy by reducing the program's funding mittee essentially to veto any changes in Medicare's for this purpose:24 Of the federal programs and agen- , policy on support for teaching- cies that support graduate medical education (Medi- care, Medicaid, and the departments of Defense and ! FUTURE DIRECTIONS Veterans Affairs), Medicare is by far the largest single As the 21st century nears and the baby-boom source of such funds. Medicare recognizes the costs population heads closer to retirement, the changes of education in two ways. It provides direct medical- included in the Balanced Budget Act are strictly a education payments to hospitals that cover a share of down payment in terms of closing Medicare's fund- residents' stipends,faculty salaries,and administrative ing gap. Economist Victor Fuchs estimates that "if 411 expense, and it provides an indirect medical-educa the trends of the past decade or two continue until tion adjustment that reflects the added costs of pa 2020, the elderly's health care consumption in that tient care associated with the operation of teaching year will be approximately $25,000 per person (in programs.3° 1995 dollars), compared with $9200 in 1995."31 In Volume 340 Number 4 • 331 i The New England Journal of Medicine . P +7 r the short term, provoked by President Clinton's in 7. vladcck BC.The political economy of Medicare.Health alT(Millwood) i 1999;18(1):22-36. sistence that the current federal budget surplus be 8. Moon M.Medicare now and in the thrum.Washington,D.C.: Urban I used to shore up the financial base of Social Security, Institute Press, 1993. '11 Congress plans to consider replenishing the coffers 9. Bernstein J,Stevens R•1.Public ooinion,knowledge,and Medicare re- P g form. Health AAF(Millwood) 1999;13(1):180-93. of the Social Security program even though Medi- 10. Kahn CN III, Kuttncr H. Budget bills and Medicare policy:the poli- care is slated to run out of money first. When it does tics of the 3BA. Health Aff(Millwood) 1999;18(1):37.47. 11. The American health care system: Medicare.N Engl 1 focus on Medicare again, one proposal that may be Mcd Igleh1992;327art1K..1467.72. It considered seriously would make the government's iz. Balanced Budget Act of 1997,P.L.105-33.105th Congress.August 5, ' financial obligation more predictable and shift more 1997. r 13. McKusick D. Demographic issues in Medicare reform.Health Alf r of the risk to beneficiaries. It has gained the support (Millwood) 1999;18(1):194.207. of Senator John B. Breaux (D-La.), chair. of the 14. Smith S.Freeland M. Heller S,McKusick D,Health Expenditures National Bipartisan Commission on the Future of Proicction Team.The next ten,years of health spending:what does the tu- p tore hold? Health Atf(Millwood) 199817(5):123.40. Medicare, a number of commission members,32 and 15. Waidmann TA. Potential effects of raising Medicare's eligibility age. prominent economists of various persuasions.33,34 The Health Alf(Millwood) 1998;17(2):156-64. • 16. Sheik J,Stapleton D,Graus I,Fishman A. Rethinking the Medicare proposal would replace Medicare's commitment to eligibility age.Washington,D.C.: National Coalition on Health Care, provide a defined set of benefits to all eligible bene- 1998. ficiaries with a "premium support" system. All ben- 17. Medicare Payment Advisory Commission. Report to the Congress: it: eficiaries would receive a predetermined amount to met for a cs ry Co Medicare program.Washington,D.C.:Medicare Payment Advisory Commission,1998. be applied to the purchase of a health plan providing 18. Study Panel on Capitation and Choice.Structuring Medicarechoices. defined benefits. The amount would vary according Washington,D.C.:National Academy of Social Insurance,1998. 19. Welch HG,Wennberg DE,Welch WP.The case of Medicare home to the beneficiary's age, sex, geographic area, health- health care services.N Engl 1 Med 1996;335:324-9. a risk status, income and assets, and use of services. If 20. Kassirer JP,Angell M. Risk adjustment or risk avoidance?N Engl J Mcd 1998;339:1925.6. a beneficiary wanted benefits that went beyond those 21. [ezzoni LI,Ayanian JZ,Bates DW,Burson HR.Paying more fairly for that could be purchased with the voucher,the amount . Medicare capitated care.N Engl J Mcd 1998;339:1933-8. of which would probably be related to income, he or 22. Kuttncr R.The risk-adjustment debate.N Engl J Mcd 1998;339: 1952-6. she would be responsible for the additional cost. In 23. Neuman P Langwell K.M.Medicare's choice explosion?Implications many respects, the proposal resembles the Federal for beneficiaries.Health Alf(Millwood) 1999;18(t):150.60. Employee Health Benefits Plan. 24. Iglehart JK.The new law on Medicare's payments to physicians. p N Engl J Mcd 1990;322:1247-52. Beyond financial questions, Congress must con- 2s. Hsiao WC.Braun I;Yntema D,Becker ER.Estimating physicians' sider how to improve Medicare's benefits package, work For a resource-based relative-value scale.N Eng!I Med 1988;319: which is based on a model of acute care that is whol- 335.41. 26. Aston G.Specialists sue over practice expense rule.American Medical ly inadequate for the many elderly beneficiaries who News. November 23-30,1998:1. have chronic illnesses,35,36 A critical shortcoming is 27. Kassircr JP,Angell M.Evaluation and management guidelines-fatal: Iv flawed. N Eng!J Mcd 1998;339:1697-8. Medicare's failure to cover outpatient prescription I 28. Brett AS.New guidelines for coding physicians'services-a step drugs, particularly because most Medicare HMO en- backward.N Engl I Mcd 1998;339:1705.8. rollees do have such coverage.37!38 Congress has tak- 29. Iglehart JK.Medicare and graduate medical education.N Engl J Mcd . 1998;338:402-7. en note of this disparity and may well examine it this 30. Fishman LE.Medicare payment with an educational label:fundamcn- year. In any event, balancing the health care needs of tats and the future.Washington,D.C.:Association of American Medical the population eligible' for Medicare with the avail- I 3C1olleg. Fuchses, 1996.VR.Health ca-t for the elderly:how much?Who will pay for able resources will be a continuing challenge well it? Health AlT(Millwood, 1998;18(1)1-11. into the new millennium. 32. Serafini MW.Now,the hard part.National Journal. November 21, 1998:2774-80. REFERENCES 33. Aaron Hi.Reischauer RD.The Medicare reform debate:what is the next step? Health Alf(Millwood) 1995;14(4):8-30. 34. WilenskR v G ,Newhouse JP.Medicare:what's right?What's wrong? . 1. Ball RM.What Medicare's architects had in mind.Health Alf(Mill- I What's next? Health Atf(Millwood) 1999;18(1):92-106. wood) 1995;14(4):62-72. I 35. Cassel CK,Besdine RW,Siegel LC.Restructuring Medicare for the 2. Iglehart 1K.The American health care system-expenditures.N Eng! next century:what will beneficiaries really need? Health Alf(Millwood) J Med 1999;3.40:70.6. 1999;18(1):118.31. 3. Kutzner R.The American health care system-health insurance coy- 36. Whitelaw NA,Warden GL.Reexamining the delivery system as part • crag;. N Engl J Mcd 1999;340:163-3. of Medicare reform. Health Alf(Millwood) 1999;13(1):132-43. I 4. idem.The American health care system-employer-sponsored health j 37. Davis M,Poisal J,Chulis G,et al. Prescription drug coverage,utiliza- coverage. N Engl i Mcd 1999;340:248-52. tion,and spending among Medicare beneficiaries.Health Aft-(Millwood) 5. Butler SM.Danzon PM.Gradison B.Open letter to Congress&the 1999;18(1):231-43. Executive:crisis facing HCFA&millions of Americans.Health Alf(Mill- i 38. McBride TD.Disparities in access to Medicare managed care plans and i wood) 1999;18(1):3-10. their benefits.Health Alf(Millwood) 1998;17(6):170-80. 6. Nissenson AR,Rettig RA.Medicare's end-stage renal disease program: • current status and future prospects. Health Alf(Millwood)1999;18(1): 161-79. ©1999,Massachusetts Medical Society. •)1 1 • •I I 332 • January 28, 1999 11 1 1 • Health Access.Summit Workgroup Rescheduled - Meeting Two Tuesday, September 12, 2000 12- 2 PM Lunch will be provided for you Jefferson General Hospital Auditorium AGENDA • Summary of Last Meeting and Update (Attachment 1) • Continued Discussion of Health System Design Goals for East Jefferson County (Attachment 2) This item was briefly reviewed at the last meeting. Attachment 2 reflects the changes recommended at the July 17th meeting. We would like to discuss and revise this attachment so it describes, in broad and sirnpie terms: the most • important goals of health system changes. Although this document will remain "fluid" throughout the project, we need to have a good starting point for judging the relative merit of various system reform models. • East Jefferson County Fact Sheet (Attachment 3) This document briefly describes our community and facts about our health care system. It could be used in a variety of ways. One use will be to orient individuals who are invited to speak to the workgroup with the demographics and dynamics of East Jefferson County. Review and comment. Is there additional or more detailed information that workgroup members would like to have? • Discussion of Next 3-4 Meetings (Attachment 4) We would like to invite a series of speakers to the next few meetings. The purpose is to bring together a variety of ideas and information that will help in our model design. • Schedule Complete Meeting Series October 10 is the next scheduled meeting date. Could we schedule additional dates so we can arrange for specific speakers to meet with us? • If you have any questions, please call Kris Locke at (360) 683-9152 or e-mail at thlocke@aol.com. ATTACHMENT 1 • Meeting Notes Health Access Summit Workgroup July 17, 2000 Present: Vic Dirksen. Tom Locke, Dam Wollam. David Beatty, Lorna Stone, Geoff Masci. Charles Saddler. Tim Caldwell, Chuck Russell, David Beaty, Brent Shirley, Dan Wollam. Bruce McComas. Julia Danskin, Kris Locke. Introductions. Vic and Tom. as co-chairs, discussed a variety of factors creating health access problems in East Jefferson County. Many people agree that the health financing system is broken and something needs to be done by local communities. Jefferson County is in an advantageous position because of the work that has already been done and the high level of interest in improving the situation. The Board of Hospital Commissioners and the Board of Health have been meeting for several months to discuss the issue of access and are at the point where they need some technical assistance in setting a direction. The goal of this workgroup is to assist the work by recommending one or models that could be implemented in East Jefferson County and advise on the preparation of a local health leadership summit where these models could • be discussed by a broader group of community leaders. The attachment describing past efforts to improve access was discussed. A variety of issues were raised: • The uninsured and underinsured both face access problems. • A major problem is small employers (1-3 workers) and how they can afford to provide health insurance. • The rising cost of prescription drugs is hurting many Medicare enrollees because drugs are not a covered benefit. • Small employers have `sticker shock" when they see health insurance premiums. Maybe there needs to be more information for them about options. • Not only information but how to find the money to pay for health insurance. • Some employers who provide health insurance now wish they didn't because it has become so expensive. • After the Health Reform Act of 1993, the community put together a good effort to respond locally. • A complicating factor is that there are so many types of health insurance/coverage, and it will be important to involve business and retired people. • Many other places have more competition, more HMO's, more purchasing options. • People's incomes don't seem to be keeping pace with the cost of health care. BHP and Medicaid have helped but still have many of the same problems as 10 years ago. • • Now that the hospital employs some physicians, there is more capacity for Medicaid patients. This has also made it easier for health plans to negotiate locally. 2 • The mill. Safeway are the largest employers and have to negotiate health benefits • with unions. Sometimes the plans selected don't have many local providers. • There are concerns for health care access for the homeless, particularly children. Mental illness compounds problems for some homeless. • Jefferson county is experiencing a rural health crisis like many other communities. In some areas, physicians and hospitals are on the verge of insolvency. We've been busy with incremental tinkering and this has just shifted costs around. • There probably will not be any changes unless they are made locally. • Most solutions being discussed are just band-aids. Real changes will need to be lead and designed by local communities. • A single payer system is needed and in some ways the hospital could act in this capacity. • It seems time to ask if we want to continue incremental tinkering or try something more ambitious and innovative. Attachment 3 — the goals of the workgroup —was discussed. The workgroup will identify basic goals or outcomes for the project. review potential models for organizing the financing and delivery of services and prepare for a community summit perhaps sometime in November. • It might be useful to look at models from other countries. particularly France which is built around local hospitals. • We should try to keep this simple, workable and legal. • Legal yes, but we shouldn't limit ideas because waivers or new legislation could • enable options not currently available. • There are efforts underway to find a significant funding to move this project ahead. • Need to consider various constituencies carefully. Financing models will probably not be as big of an issue as delivery models. • Still not sure what to expect from the summit. We need to get a bit further into this work to see what seems possible and realistic. • The summit can serve as a public relations function and a method to engage the community in this effort. It might also be possible, at some future point, to do some type of referendum. The Handout Jefferson Health System Design Goals was circulated. Also attached was information developed by the Joint Boards (Hospital and Health Department) and the National Rural Health Association. The document was briefly discussed and will be a major topic for the next meeting. The attached revised draft (August 1) reflects initial proposed revisions: minor wording changes to Administrative Functions: additional items - Future Demographic Factors and Personal Responsibility. The category external factory was confusing and perhaps should be dropped. Next scheduled meeting dates: August 8, September 12 and October 10. • 3 ATTACHMENT 2 • East Jefferson Health System Design Goals August 1, 2000 Draft The goals or desired outcomes of re-designing the financing and delivery of health care services in East Jefferson County are broad value statements. The Health Access Summit Workgroup will use these goals to discuss and evaluate the relative merits of models or proposed system changes. Sources for this draft are: A Vision for Health Reform Models for America's Rural Communities, National Rural Health Association, February 1998; Health Care Financing and Delivery System Options: An Impartial Evaluation, Washington State Medical Association, July 2000; and Ideal Health System Characteristics, Jefferson County Joint Boards, January 2000. Access to Care The broadest range of services that can be provided locally will be available to all East Jefferson County residents, particularly the most physically and financially vulnerable. Quality of Care 41) The quality of health services will be continually improved. Funding Sources To the greatest extent possible. funding sources will be organized to better support the local health care system. Spending Impacts Health care system funding will be directed to improve the health and quality of life of East Jefferson County residents. Medical Practice Viability East Jefferson County providers will be supported by the community to ensure the continued availability of their services. Incentives to Improve Health Prevention and public health will be important components of the model. Administrative Functions A local, publicly accountable entity will manage administrative functions in a way that improves access, supports local health services and redirects as much funding as possible to direct heath care services. • Patient Autonomy Patients should have the greatest range of choices possible within the financial limitations of the system. 4 Physician Clinical Decision-making Autonomy • Cost containment and clinical autonomy will be balanced through quality improvement activities. Covered Services To be discussed further. External Factors External factors will be continually monitored to take advantage of beneficial developments and address disadvantageous changes. (This was confusing and could be deleted.) Future Demographic Factors Health System changes should be designed to accommodate the changing demographics and needs of the East Jefferson County population. Personal Responsibility Incentives should be built into the system to encourage individuals to take personal responsibility for their health and the services they need. I 1110 5 . Summary CURRENT SITUATION REPORT Factors Affecting Access to Health Care in East Jefferson County, Washington Full Report Prepared by: Larry Thompson Kris Locke November 29, 1999 I. Introduction: the Area Jefferson County is situated on the Olympic Peninsula in Northwest Washington. Overall. it is the 18th largest of Washington's 39 counties. This summary primarily concerns the eastern part of the county—the area included in 411 Jefferson County Hospital District #2. As a result. many data are adjusted to exclude the roughly 963 people residing on the Pacific slopes of the Olympics in West Jefferson County. District #2 encompasses the Quimper peninsula. where most of the population in the area can be found on the eastern slopes of the Olympics along the Hood canal. Roughly one half of the area's people live in the Port Townsend area zip codes (13.182 in 1999). The vast majority of the area's medical resources are located in Port Townsend near the hospital at the north end of the service area. About 10 miles to the south is the Tri-Area, consisting of three unincorporated communities. These are Chimacum, lrondale, and Port Hadlock and between them they have about 6.158 residents. Continuing south, at a distance of 25 miles from Port Townsend. is the Port Ludlow area with 2,709 residents. This planned community is resort. recreation, and tourism oriented. Along the Hood Canal. in the southern part of the district, are the communities of Quilcene (1,844) and Brinnon (1,087). From Port Townsend to Quilcene is about 25 miles and the distance to Brinnon is 37 miles. In recent years these areas have attracted retirees seeking rural living in the scenic area between the mountains and the Hood Canal. While the overall population density of Jefferson County is one of the least densely populated parts of the state, the East Jefferson area has a population density very close to the overall state average (86.5). In addition to the medical care services provided within the East Jefferson area, services are available in Sequim (31 miles to the west) and at Port Angeles (48 1 • miles). Located in Port Angeles is a significant concentration of consulting specialists as well as the Olympic Memorial Hospital—a Group 1 (rural) facility with roughly three times as many yearly admissions as Jefferson General. While some residents in the southern parts of the Quimper Peninsula and around Discovery Bay travel to Sequim for primary care. historic referral patterns have been to the east—to the Seattle area and Bremerton/ Silverdale areas. Tertiary and some secondary care patterns have long been established to Virginia Mason, Harborview, and University Hospitals in Seattle (50 miles including a ferry ride). More recently, growth of medical services and shopping in the Silverdale area (39 miles) have attracted Jefferson residents. Additionally, the large concentration of consulting specialists in the Bremerton area (49 miles). including a number who round to Port Townsend, have been in factor in the use of Harrison Memorial Hospital. Construction of a new facility near more accessible Silverdale transportation routes should accelerate the draw of Jefferson residents to Kitsap-based providers. This facility which will provide maternal and child health inpatient services and a wide variety of outpatient services. is scheduled for completion in January 2000. II. The People In 1999. the estimated total population of the East Jefferson area is 25,600. This was an increase of 30.4% over 1990 making it the 2nd fastest (in . percentage terms) growing county in the State. if the rate of growth were to continue at this pace the area would reach 34.200 people by 2010. Lack of job growth is the primary inhibiting factor and the also greatly shapes the age distribution of in-migrants. Although there is population growth in all major age cohorts. the most rapid growth, by far, is occurring in the 45-64 year old age group—the "baby-boomers". Comparing Jefferson's age distribution to the State as a whole reveals a relatively large proportion of elderly residing in Jefferson County. For example. in 1990 11.7% of the State's residents were over 65 but fully 20.7% were over 65 in Jefferson County. Population changes occur as a result of births, deaths. and migration. For the State as a whole. about 40% of its population increase results from an excess of births over deaths (natural increase). The other 60%. then. results from net in- migration. Jefferson County's pattern is strikingly different, showing a negative natural growth (excess of deaths over births) and all growth coming from in-migration. This observation is potentially significant for health services in several regards. First, demand for labor and delivery services is relatively low. Secondly, many of the in-migrants will have established care seeking patterns. habits. and expectations prior to coming to the county. Most of these new residents have come to the area from urban locations. Many will even have existing provider relationships, which they may be reluctant to break. S 2 • Socioeconomic Status Poverty. For the county as a whole, 13.5% of the population had incomes of less than 100% of the 1990 poverty level. This is a somewhat greater proportion than for the State (10.9%) but less than the average for Washington rural areas (15.1%). Income. Typical of areas with its kind of employment profile. Jefferson County's personal income has consistently been less than national and state averages. The local economy is disproportionately based on resource industries, services, small business, and transfer payments—all of which leads to below average household incomes. A striking phenomenon is that nearly 50% of local personal income is derived from transfer payments and investments, the second highest proportion in the State. Unemployment. While it is likely that the Basic Health Plan mitigates against this phenomenon. persons in the work force who are self-employed and unemployed tend to have less access to health insurance and therefore to medical care. In recent years the local unemployment rate has closely tracked the movement of the State's rate at levels 1%-2% higher. 41 Education. The county residents, on average, are well educated relative to other rural communities. Both high school graduation rates and percentages with college degrees meet or exceed statewide averages. III. The Economy The Local Wage Economy For a number of reasons, knowledge of the local economy is important for health planning purposes. Perhaps most importantly, access to health care is in large part driven by each family's employment status. In a macro sense, the adequacy of local funding for direct health services is highly related to the mix of employer- types in the area and conversely; by the mix of government sponsorship among those who are not in the workforce. Beyond its effect on the health insurance system, the economy also influences. to varying degrees, income and education, injuries and other occupational illness, and environmental conditions affecting health status. It is important to note that by 1997, a minority (only 47%), of total personal income in the county was derived from employment. This percentage has been decreasing over time. For example, in 1980, 55% of personal income came from employment. It is further estimated that about 17% of total earned income . derives from employment with firms outside of Jefferson County. Said another way, only 39% of total personal income is generated by the local economy. For 3 • health planning purposes, this means that the commercial insurance sector is relatively small, dependence on transfer source entitlement (Medicare, Medicaid, and BHP) is relatively large, and a good portion of the already small commercial market is actually sold outside of the county, reducing local provider leverage. The remaining part of this section now focuses on that local wage economy (39% of total personal income). While natural resources and value added processing (typical of rural Washington economies) continue to provide the base for the local economy, recent years have brought a growing diversity. According to the local Economic Development Council: "Small business has been the engine of recent growth. There are over 2,300 small businesses in the county and over 250 new firms have started in each of the last five years. Small businesses locate here for several reasons. First, and perhaps foremost, is the rural character with urban amenities offered by a Jefferson County location. Quality of life issues are paramount. Secondly, Jefferson County's proximity to large urban markets has attracted professional service firms and small manufacturers." The area's small business growth has fueled expansion in the services and retail trade sectors of the economy. This is also inter-related with a very strong tourism base in the economy. For health planning purposes this translates to large numbers of jobs in relatively low-paying sectors and with small employers—the • kind of employment which disproportionately offers reduced or no health care benefit. In addition to tourism, trade and services, and resource-based industries. the government sector is also important with its 26% of total employment and above average wages and benefits. The list below shows major East Jefferson employers and number of employees: Port Townsend Paper Corporation 420 Jefferson County 322 Jefferson General Hospital 294 Port Townsend School District #50 175 Chimacum School District#49 158 Quality Food Centers (two locations) 140 City of Port Townsend 121 Safeway 107 U.S. Navy 65 Port Ludlow Resort Conference Center 50 Quilcene School District 42 U.S. Post Office 39 The Inn at Ludlow Bay 35 Port Townsend/Jefferson Co. Leader 34 • Enclume Design Products 32 Seton Construction 30 4 • Thermionics Northwest 28 Puget Power 26 Coyote Found Candles 26 Coast Seafoods 22 Port of Port Townsend 21 Source: Economic Development Council of Jefferson County Transfer Payments Transfer payments derive from three sources—retirement including social security and pension plans. income maintenance or welfare programs, and unemployment insurance (UI). Together welfare and UI account for only 2% of total local personal income. Note however, that about 2% of local residents are unemployed at any point in time. These individuals will generally access COBRA benefits, sign up for the Basic Health Plan, or go without insurance. While only 1% of personal inccme derives from welfare, in 1994 nearly 11% of the Jefferson population accessed Medicaid as their health insurance source. All of this graphically demonstrates that Medicaid and BHP are far more important to the local medical economy than they are to the economy in general. Policy makers have been more willing to direct tax dollars to medical care than to general income maintenance. Fully 92% of transfer payments come from retirement sources. Retirement • sources alone account for about 22% of local personal income—about the same as the percentage of Jefferson residents over 65. Most of these retirees, of course, access Medicare, employer-based retirement plans, and supplemental insurance purchased by individuals and families. While income related to retirement accounts for 22% of total personal income locally, it probably accounts for 60-70% of the dollars spent on health care by Jefferson residents. This is due, of course, to disproportionate use of services related to age. IV. Health Status Overall. Jefferson County residents do not appear to have radically different health status than residents of the remainder of the State. Of significance for health planning purposes, in an average year, about 35% of Jefferson residents who die, do so in a location outside of the county. This is a high proportion relative to urban areas and even relative to many rural areas. For example. the comparable percentage in Clallam County is 8%. Relative to the State as a whole, the place of death for Jefferson residents is also more likely to be at home and less likely to be in a hospital or nursing home. Since hospitals tend to be associated with the beginning of life (births) and the end of life • (deaths), the location of births and deaths will have a disproportionate influence on the demand for hospital services. 5 • In general. the leading causes of death closely parallels other areas of the State. An exception to this is accidents where the local death rate is nearly twice the average. Since this is a long-term pattern, it points to accident prevention and other public health measures as well as to the development of trauma services. V. The Health and Medical Care System. Physicians and Other Professional Providers Currently there are an estimated 15 primary care physicians (family practice and internal medicine) practicing in East Jefferson County. It is estimated that 1/3 of these physicians practice 3 time, yielding 13.75 full time practices. Mid-level primary care practitioners include 3 nurse practitioners and 2 physicians assistants. The Health Department also employs 3 nurse practitioners who provide clinics for sexually transmitted diseases and family planning services. A podiatrist also has a practice that employs an additional physicians assistant. East Jefferson County has an estimated 3 optometrists. 7 chiropractors, 2 naturopaths and 11 dentists. The current estimated primary care physician to population ratio is 1:1,862. Adding two more primary care physicians would bring the primary care physician to population ratio to 1:1,625. The mid-range primary care ratio recommendation • of the Council of Graduate Medical Education (COGME) is 1 :1.428. Geographic Distribution of Providers Virtually all physicians practice in Port Townsend. Jefferson General Hospital operates a clinic in Quilcene, which is staffed by a nurse practitioner. There are an additional 8 consultant or specialty physicians. Although the internal medicine physicians are likely provide consultation as well as primary care, they are discussed in the primary care section. Specialties are: general surgery: neurology; PTIOT; orthopedic: psychiatry; and, urology. There is 1 physician assistant working in the orthopedic practice. Physician to Population Ratios COGME 1999 2000 mid- ; Jefferson Jefferson standard Primary Care Physician ' 1:1,862 1:1,625 1:1,428 Specialty Physician 1:3.200 1:2,844 1:1 ,053 Totat Physician I 1:1.177 1:1,034 j 1:606 410 6 • Health Care Facilities Within the geographic area of the East Jefferson District there are two major medical care facilities. The first of these is Jefferson General Hospital, a community general hospital licensed for 42 beds currently operating 37 set up beds. The second facility, also in Port Townsend, is the Kai Tai Care Center, which is licensed as a nursing home with 94 beds. Demand for inpatient care at JGH has trended generally upward since at least 1990. While occupancy has been low compared to all Washington hospitals, it is in the higher end range of all rural hospitals. Growth in demand is being driven primarily by population growth rather than by market share, which has remained fairly stable over time. Kai Tai Care Center experienced a relatively low 76% occupancy rate in 1998. State Nursing Home inspection reports for the most recent year show 18 deficiencies compared to a State average of 8 and a US average of 5 per facility. Financial data were unavailable. The facility does not have SNF capability or the ability to handle complex patients in lieu of hospitalization or as a `step-down" from hospital care. The data below demonstrates the relative availability of facility capacity in East • Jefferson. Set up hospital beds/1000 total population in East Jefferson 1.45 Set up hospital beds/1000 total population in Clallam County 2.01 Average hospital beds/1000 total population in rural Washington 2.67 Average hospital beds/1000 total population in Washington State 2.09 Nursing home beds/1000 elderly in East Jefferson County 17.7 Nursing home beds/1000 elderly in Washington State 42.9 Nursing home beds/1000 elderly in US 53.4 Patient Flow/ Patient Origin Patient Origin studies are useful in measuring a population's pattern of hospital use. 1998 data provided by the Washington State Hospital Association show that 58.1% of all East Jefferson residents who were admitted to any hospital in 1998 were admitted to Jefferson General. While only 42.7% of hospital days incurred by District residents occurred at JGH, lengths of stay were longer at out of area facilities, which seems appropriate. 14% of all admits were at Harrison Memorial in Bremerton and 19% were at major Seattle hospitals. • 7 • An analysis has been done to determine the kinds of services local residents leave the area to receive in other hospitals. Approximately 8-10% of all outside admits are for tertiary services which JGH will probably never offer. But another approximately 32% of admits are more discretionary reflecting patient choice, provider availability and, to a lesser extent, insurance coverage requirements. For example, 55% of all orthopedic surgery cases, 52% of all gynecology admits, and 31% of all obstetrical cases (deliveries) occurred at out of area facilities in 1998. Note that these trends have been relatively stable for a number of years, suggesting that 1998 was a typical year. VI. The Financial System for Medical Care Payment Sources for East Jefferson Residents An estimated $81.2 million was spent by or on behalf of Jefferson residents for personal health care services in 1997. To put that number in perspective, that spending lever constitutes an estimated 14.9% of the total local economy, undoubtedly one of the largest sectors of the East Jefferson economy. Where did the $81+ million come from? The pie chart below shows that just under half (44%) came from government sources with the Federal government putting in almost $4 for each state dollar. The remaining 56% came mainly from individuals and from private health insurance. Specifically. about 19 cents of . every Jefferson health care dollar came from out-of-pocket expenditures by individuals. Another 32% of spending came through private health insurance. State-wide the proportional mix within private health insurance funding is 92% from employer sponsored insurance (half self-insured, the other half purchasing commercial plans) and 8% from individually purchased insurance plans. Because of the small size of Jefferson employers, it's unlikely that many self- insure. • 8 • Jefferson County Sources of Health System Funding state and local out-of-pocket 10% 19% federal . 4I, d, ivate health. other private insurance funds 32% 4% While a relatively small part of the health care economy, individual and family insurance (purchased by individuals) has been frequently in the news across Washington State. At the present time, except in a handful of counties, it is • literally impossible to purchase such coverage. For now, however, East Jefferson residents who already have individual health insurance policies, are generally able to continue it. Since virtually all of the local individual coverage is written by KPS, the solvency of this insurer, takes on great importance for an estimated 1,000 or so individuals covered by individual plans. Government funding is proportionately more important to the East Jefferson medical economy. The table below shows that about half of local residents have commercial insurance in contrast to an estimated 59% statewide. Jefferson County Estimated-Distribution of Insurance Sponsorship: 1998 Insurance JeffersonCounty I Washington State ' Number j Percent. Percent Sp'OTiserstrip Number; ! Commercial l 12,368 48.5% j 3,354,327 I 59.0% Medicare 5,789 22.7% j 733,593 ' 12.9% Medicaid 2,628 10.3% 1 750,270 13.2% Basic Health Plan 1,534 6.0% I 219,661 I 3.9% Uninsured- f 3,188 12.5% 625,383 11.0% Estimated Population 25,500 I 5,685,300 • Medicare, Medicaid, and Basic Health Plan enrollments are actuals as of March 1998. Commercial insurance is an update of the 1994 Arthur Anderson study and a 1996 HCA study. 9 • The large Medicare population. as would be expected considering the demographic data reviewed earlier, causes the bulk of the difference. Fully 23% of local residents have Medicare as their primary coverage. For the local medical economy as a whole nearly 1/3 of all health care revenues come from Medicare alone. For certain kinds of providers such as the hospital and many physicians, the proportion is even higher. East Jefferson residents are somewhat more likely to be uninsured or covered through the Basic Health Plan but are less likely to have Medicaid coverage. The relative dominance of government funding sources has many implications. For example. Medicare and Medicaid fee-for- service payments are heavily discounted thus reducing effective incomes for providers. Additionally, many argue that government funding sources reduce provider operating flexibility. In any event, it is clear that the total per capita flow of funds into East Jefferson is in the range of 5-15% less than it would be if the same demographic mix of people lived in Seattle or one of the State's urban areas. The result of less per capita funding is that local providers must be more efficient than their urban peers or lower provider incomes or fewer services per person will result (or both). For East Jefferson the evidence suggests (see Health and Medical Care System) that provider incomes are lower and that.fewer services are available and utilized. Health Insurance in East Jefferson Of the $81 .2 million in local health care spending about 60% or $48.7 million is • administered by one of several health plans operating in the county. Since the early 1990s. the health insurance industry has undergone a series of changes with major implications for the local delivery system. These changes include: • Increasing pressure from payers to control costs • Increasing shift from indemnity to managed care plans • From 1996-1999, most Washington insurers had negative operating margins which in turn led to: consolidation/mergers: withdrawal from the less attractive markets; less competition; increased difficulty in buying insurance in many places for many products; ultimately to higher prices. For roughly 40% of East Jefferson residents, no third party payer is in the picture—that is. the funding source directly pays the provider for care received. Most Medicare eligibles in the area currently have a direct relationship with Medicare (also they will nearly always have supplemental insurance as well). Other direct payment relationships include the uninsured (who either pay out of pocket or receive charity care), about half of all Medicaid recipients and a few State employees (uniform Medical Plan). For the remaining 60%, the choices are relatively few. At least half of those in the • health insurance system are covered by KPS. The next largest group is the self- insured and those covered by a wide variety of small market-share indemnity 10 • plans. HMOs and other managed care plans have a relatively small market share of 14%. For the state as a whole, over 80% of insured residents are in some type of managed care plan. The 1990s push by government payers to convert enrollment to managed care has had some impact on Jefferson. All Basic Health enrollees (1,500) and about half of Medicaid eligibles (1,200) are in managed care plans. Medicare managed care enrollment (332) is almost all placed with providers outside of the county as is the commercial HMO enrollment other than that sponsored through KPS. ESTIMATED 1998 FEE-FOR-SERVICE & MANAGED CARE JEFFERSON COUNTY enrollment percent comments Uninsured 3188 12% Medicaid fee-for-service 1448 6% BHP fee-for-service 0 0% may be statutorily authorized Medicare fee-for-service 5457 21% Commercial fee-for-service&PPO 11728 46% includes self-insureds Medicaid managed care 1180 5% all KPS;KPS exit as of 11/1199;CHPW to replace 1111/99 BHP managed care 1534- 6% 99%were44PS;CHPW to replace 11/1/99 Medicare managed care 332 1% 87%are GHC and affiliates Commercial HMO 640 3% mostly PEBB:mainly KPS with some GHC,Regence,Health Plus TOTAL 25507 100% The reasons why there are few choices in the East Jefferson market are complex but the result is a vacuum which dampens (at least temporarily) demand • for/access to medical care services. Additionally, the recent KPS financial difficulties have major implications for East Jefferson given the dominance of KPS in this market area. Uses of Health Care Dollars Another level of the medical care financing system is where the dollars are actually used to provide services. Almost 89 cents of every dollar buys direct personal health care services. The remaining 11%, spent out of county, buys research and construction and various forms of public and private (insurance) administration. The table below displays estimated Jefferson County uses of health care dollars and the proportions of these spent inside and outside of the local economy. In 1997 an estimated 70-75% of personal health care spending for Jefferson residents occurred within the county. In particular. relatively large amounts of hospital and physician services were purchased in surrounding areas. • 11 • Jefferson County Estimated Uses of Health Care $s in 1997 Estimated Total Estimated US% Spending for Percent i Estimated of Total Jefferson Co. Spent in Amount Spent Expenditures Spending Residents County in County Health Services and Supplies. 96.9% ( $88,743,095.60 67.6% $59,983,948.45 Personal Health Care 88.7% $81,233,359.95 j 71.7% $58,243,887.76 Hospital Care 34.6% $31,687,421.13 58.4% $18,492,659.02 Physician Services 20.0% { $18,316,428.40 70.0% $12,821,499.88* Dental Services 4.6% $4,,212,778:53 90.0% $3,791;500.68 .. Other Professional Sevices 5.5% $5,037,017.81 95.0% $4,785,166.92 Home Health Care 3.0% $2,747,464.26 95.0% $2,610,09?:05 Drugs and Other Non- Durables 9.4% $8,608,72t.35 ! 85.0% $7,317,413.15 Nursing Home Care 7.6% $6,960,242.79 80.0% - $5,568,194.23* Other Personal Health Care 2.6% f $2;381,135,69 { 80.0% j $1;904,908.55 • Vision Products and Other I • Durables 1 1.3% $1,196,567.85 80:0% $952:454:28 Program Administration and Net Cost of Private Health Insurance 5.0% $4,579,107:10 5.0% $228,955:36 Government Public Health Activities 3.3% t $3,022,210.69 50.0% $1,511,105.34 Research and Construction 3.1% $2,839,046.40 30.0% $851,713.92 Total Health Care Expenditures on Behalf of Jefferson Residents 100% $91,582,142.00 66.4% $60,835,662.37 *Estimate appears high Of total personal health care expenditures, about 39% were for hospital services and another 23% for physician services. Other large sectors were drugs and non- durables (11%) and nursing home care (9%). See chart below. • 12 • ESTIMATED DISTRIBUTION-OF 1997 JEFFERSON COUAGTY PERSONAL HEALTH CARE EXPENDITURES Vision Products and Other Durahfes Othef Pesseria4-4aea4t4 Care 3% Nursing Home Care 9% Drugs and Other Non- -4r,...P!,. );:111N Hospital care Durables 39% Home Health care 3% .*;:M Other Professional Fz-t � f Services - 6°° Physician Services 23% Dental Services 5% • Twelve. Key Findings for East Jefferson County 1 . Services are heavily concentrated in the Port Townsend area in the far northeast part of the district. This is probably one factor in the relatively large out-migration of consumers to medical services in other counties. 2. Overall a large proportion of retirees, producing increased demand for services. compounds population growth. 3. The nature of the local economy presents major challenges for health care. The combination of increasing dominance of small employers and dominance of transfer payments in the economy translate to relatively low per capita reimbursement for medical services. This "underfinancing" of the medical sector in turn increases difficulty in attracting and retaining medical personnel and investment. 4. While problems of poverty, unemployment and other financial access issues affect a sizable proportion of local residents, the relative magnitude is not extreme and is manageable. 5. Locally, specific health status problems are generally not major issues. • The exception to this is "accidental death' which has public health and trauma care implications. 13 • 6. Significant amounts of care are provided out of the area. This underscores the importance of making key policy choices regarding the future mix of local provided vs. regionalized medical care. Continued population growth in the area will continue to test the status quo. 7. Relative to urban areas and even to many rural areas, the area appears to have a significant undersupply of physicians. While this is an issue in regard to primary care there is also a major choice point on the horizon around whether. how much, and in what specialties to expand consultant care availability. 8. From the perspective of current demand, the choice to close down some acute care beds and to limit lengths of stay (Critical Access Rural Hospital considerations) would be very questionable. Considering the growing demand for services and the "crossroads" policy choices facing the area in regard to increasing availability of some services locally, it seems unwise to constrict hospital capacity and capability at this time. 9. The health insurance market in the area is very unstable. This presents a number of challenges. More residents will be financially unable to access care. With no competition, pressures on already strained provider incomes will be more intense. working against desires to increase availability of services. More care will be controlled from out of the area continuing or • exacerbating problems of leakage. Innovative opportunities to better align service delivery with financing in order to increase efficiency are hampered by the instability (but may also foster opportunity). 10. The current East Jefferson health insurance market is dominated by KPS. The weakening or collapse of this health plan will further de-stabilize local services and will move control of the financing system further from local providers. 11. The local health care economy is heavily dependent on government funding sources. In the current political climate this presents many challenges both in managing for today and in planning for the future. 12. The local health care economy is relatively unaffected by managed care. While this may have positive aspects in regard to free access to services, it may also stifle development of some aspects of the delivery system. Consolidation of medical practices for increased efficiency, shift of care to the outpatient setting, and development of population-based approaches to chronic conditions lag the urban areas and even some rural parts of the State. • 14 • Health Access Summit Workgroup Meeting Three Tuesday, October 31, 2000 12.— 2.PM Lunch will be provided for you Jefferson General Hospital Auditorium AG. ENDA • Summary of Last Meeting and Update (Attachment 1) • Presentation of Information Requested at Last Meeting (Handout at Meeting) • Speaker and Discussion, Greg Vigdor, Washington Health Foundation. Presentation of State-Wide Access Issues and Discussion of Local Options • If you have any questions, please call Kris Locke at (360) 683-9152 or e-mail at thlocke(aaol.corn. • • ATTACHMENT 1 Health Access Summit Workgroup Meeting.Notes September 12, 2000 Present: Vic Dirksen, Tom Locke, Charles Sadler. Brent Shirley. Bruce McComas. Bob Pieden, Tim Caldwell, Julia Danskin, Geoff Masci, Lorna Stone, Kris Locke The draft `Health System Design Goals' (attachment 2) was discussed. A significant amount of discussion revolved around the issue of ensuring the health system supported not only wellness activities. but also provided injured workers and disabled residents with support services that would allow them to function at their maximum potential. This would include programs to get injured workers back to work as soon as possible. even if their work assignments were changed to accommodate their functional level. The benefits of this would be to speed recovery from injuries, decrease health care costs and to minimize income (and health insurance benefits) loss. Discussion then turned to the question of whether this should be included as a system design goal or an outcome measure. The group discussed the `Covered Services" goal and the importance • of services like mental health, oral health and alternative care. It was decided that the group will keep a list of services that are discussed and revisit "Covered Services" at a future date. The East Jefferson County Fact Sheet (attachment 3) was presented. This is an edited version of a report developed for Jefferson General Hospital last November. The workgroup requested that some additional information be brought to the next meeting in the form of an appendix: Chart showing numbers and categories of people without insurance; List of trends that are eroding the current situation; Statement of where we currently are for each of the health system design goals and what can be done to get there: Identify the current providers in East Jefferson for: mental health, chemical dependency treatment, physical and occupational therapy. dentists, home care, assisted living, adult group homes: Information from DOT on transportation and health access; Clarify some data statements which were unclear as a result of editing. There was interest in looking for data on the exact health problems of Jefferson County residents. There is data about what people die from. There is also good data (CHARS) on what people are hospitalized for, but no good local data about chronic disease patterns or what people are treated for on an outpatient basis. • The county is considering doing a local survey, which could include questions about health, but the final decision has not been made. We know that two key • drivers of health care costs are technology and aging. There are also growing concerns about the looming health personnel shortage (nurses, doctors, dentists). It will be difficult to deliver health care locally without adequately trained health personnel. The Washington Health Foundation also has some health status profiles by county which are available at their web site. Copies for Jefferson County were distributed. The next series of meetings will be educational as well as workgroup discussions about activities that might be applied to Jefferson County. The intent is to help us think outside the current box and start to build ideas for a model that might improve the situation here. Next meetings: October 31, 12 — 2 November 7, 12 — 2 December 12, 12 — 2. • • Health Access Summit Workgroup • Handout for Meeting Three Information requested to supplement ''Current Situation Report" 1. Chart showing numbers and categories of people without insurance Estimated Number 1 Percent Total E. Jefferson Population 26,600 100% Uninsured 3.200 — 5,700 12%- 27% (under 65)._ Underinsured - Medicare 5,800 22% Underinsured - Other Unknown 3.600 — People with income below 100% FPL/FIG 2. List of trends that are eroding the current situation • State spending constraints and voter demands to lower taxes are forcing Medicaid and Basic Health program administrators to hold down costs by: • Reducing payments to providers/plans Reducing benefits (e.g. adult dental) Reducing the number of people eligible (BH enrollment limits) • Huge premium increases (25% - 85% for 2001 ) for private insurance will: Reduce the number of employers able to provide health insurance as a benefit Reduce the number of individuals able to afford premiums Increase out-of-pocket costs for employees • Increasing costs of prescription drugs, already a serious financial burden for many seniors on Medicare, will continue to escalate resulting in: Further escalating insurance premium costs Reduction in benefit (e.g. $2,000 per year limit) Erosion of local pharmacy businesses as people look for cheaper sources for prescription drugs (e.g. mail order, chain stores) In summary, rising costs, more people without insurance, fewer benefits for those who are insured, financially fragile rural providers (hospitals, physicians. pharmacies, etc.). all suggest a worsening situation. • 3. Statement of where we currently are for each of the health system • design goals and what can be done to get there See "East Jefferson Health System Design Goals Gap Analysis" October 30, 2000. 4. Identify the current providers in East Jefferson for: mental health, chemical dependency treatment, physical and occupational therapy, dentists, home care, assisted living, adult group homes mental health ! Community Counseling, Jefferson Mental Health Services, 31 private counselors chemical dependency Jefferson Community Recovery, Grey Wolf Ranch, treatment Safe Harbor Recovery Center physical therapy Jefferson General Hospital, Kah Tai, Port Townsend PT, Dirksen PT, Quilcene PT occupational therapy Jefferson General Hospital, Kah Tai dentists 13 private practitioners chiropractors 5 private practitioners home care Caregivers, Jefferson General Hospital assisted living adult group homes i 4 (21 beds) in Port Townsend, 1 (6 beds) in Quilcene, 1 • (5 beds) in Chimacum 5. Information from DOT on transportation and health access Available thought DOT website. 6. Clarify some data statements which were unclear as a result of editing. The statement that, in Jefferson County, the government sector employs 26% of workers is correct according to the Jefferson County EDC website. See "Covered Employment and Wages by Industry, 1998, Jefferson County". • . U) ,- C O o 0 a) °) L (B U _ O E <n OI _0 D i O _� cn ` 0_1 >, a) Q) (0 L, 1:3 (B '0 (13 U u (/) > > t a) u) C 03 N >, m (3 -0 O +-' U w L > U) C CU Q' •� U C «= CD a) a CD 0 O- D U O I O _ 0 a) C .O (U N Q_ O O CU CU Q 2 -0 U) Q_i o (13 Oo ' u) - Q C a X iOOaUCU Q . • C L o C O ,. . CU Lu 0 U -0 W � Q>• � 4-E' .2 &, o 3 m E .5 El � L2 xO \' a) QU _ v a) , � 1 cn 0 E0 c i � „O2 W u) 8,0 --C2 o � HQo � � �i 0 liI CL • • • • • ( • • 2ON co 0 f w 1 I a) u) 1 L I _C u) 0) 1 O t : �- .� -0 a) 0_ CO .-1 1.„. 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Ce 0 C :erson County E&P http://www.wa.goyiesd/Imeallabrnirktiempjeffemp.Innt Covered Employment and Wages by Industry, 1998 Jefferson County ode Industry Firms Employment Annual Wage TOTAL 1,073 7,156 $21,258 CONSTRUCTION 147 441 25,006 15 General building contractors 64 204 25,859 16 Heavy construction, ex. building 11 57 42,796 17 Special trade contractors 72 180 18,406 MANUFACTURING 73 825 35,032 20 Food and kindred products * * * 23 Apparel and other textile products 6 21 15,233 24 Lumber and wood products 13 70 21,588 26 Paper and allied products * * * 27 Printing and publishing 15 110 20,326 32 Stone, clay, and glass products 3 17 40,825 33 Primary metal industries * * * 34 Fabricated metal products * * * 35 Industrial machinery and equipment 4 18 24,524 36 Electronic & other electric equipment * * * 37 Transportation equipment 14 47 25,636 38 Instruments and related products * * * 39 Miscellaneous manufacturing industries 5 38 11,931 Other industries 13 504 43,732 TRANSPORTATION & PUBLIC UTILITIES 38 199 31,428 012 Local and interurban passenger transit * Trucking and warehousing 11 39 27,752 44 Water transportation 7 31 17,887 45 Transportation by air * * * 47 Transportation services 3 17 15,840 48 Communication 4 22 43,341 49 Electric, gas, and sanitary services 10 70 43,746 Other industries 3 20 16,616 WHOLESALE TRADE 33 167 22,931 50 Wholesale trade durable goods 18 50 31,847 51 Wholesale trade nondurable goods 15 117 19,121 RETAIL TRADE 212 1,544 12,341 52 Building materials &garden supplies 14 135 16,069 53 General merchandise stores * * * 54 Food stores 30 353 15,409 55 Automotive dealers&service stations 14 106 20,259 56 Apparel and accessory stores * * * 57 Furniture and homefurnishings stores 23 61 17,686 58 Eating and drinking places 74 695 8,648 59 Miscellaneous retail 48 174 11,529 Other industries 9 20 10,138 FINANCE, INSURANCE & REAL ESTATE 58 243 18,960 60Depository institutions 9 75 21,786 61 Nondepository institutions * * • Security and commodity brokers * * * 10,30/00 3.o5 PM ,on Counlc F.R l' h110://www.wa_govcsd/!mcallabrnirkl'cmhijeilempIun) 63 Insurance carriers * * * 64 Insurance agents, brokers, & service 10 32 20,246 65 Real estate 31 109 14,269 • Other industries 8 27 28,528 SERVICES 402 1,695 14,594 70 Hotels and other lodging places 25 330 11,287 72 Personal services 17 44 11,326 73 Business services 47 235 15,099 75 Auto repair, services, and parking 23 60 18,460 76 Miscellaneous repair services 11 15 16,566 78 Motion pictures 6 56 8,090 79 Amusement& recreation services 13 79 11,635 80 Health services 46 207 21,322 81 Legal services 7 10 13,183 82 Educational services 12 80 16,213 83 Social services 27 371 14,919 84 Museums, botanical, zoological gardens * * * 86 Membership organizations 17 56 11,133 87 Engineering & management services 33 60 24,823 88 Private households 113 78 7,175 89 Services, nec * * * Other industries 5 14 13,374 GOVERNMENT 53 1,845 26,943 Federal Government 14 166 40,643 State Government 19 198 33,773 Local Government 20 1,481 24,494 NOT ELSEWHERE CLASSIFIED 57 197 20,328 III * Employment and wages not shown to avoid disclosure of data for individual employers. Last Updated on 11/05/99 Return to LMI by Area page. Return to LMI by Type page. RETURN [MEA flawe age Ill 10'30/00 3:05 I'M • _� •,-4 ..• 7.E. *ri .11 21Jj """4 °.614 ilg Z °' 1 Z ed VJ E au bA .� W O n (u -5' E •ti, It. tq4-4 , ', ›, c � au Z w w 74t Z F-' E � E-+ `+`1)� • ,AI Hi 4,4.4 Lam ( 0 tl u84) 71 cl) Oa p a •,..4 Cl) 12* -- * 0 et 14.4 1g U 714 Ci) CO CA 10k le 8 PS Z „„t7i1 Pc$ -4 ”' ao z ,„, soi, 7,,,. v €! 411 Where is rural health heading? • :. by Greg Vigdor,President,Washington Health foundation Kyou confident your_ far,we liave approached this could drive the development cal rural health primarilyas a.question of, h, of new s stemic models:)a What dos it meas too ; r(Ufl!Z ;betstem will be aroiind ,coverage is t�te individual• (lj-insurance;(2)govern- . fifty years from now?Many insured?But in manycommu- merit;and(3)voluntary -'rural health care leaders are ,pities,even while we have 'or •aluzation. Community Group Meets so focused on the day-to-day spent a lot of energy malgng The insurance model ,', challenges of surviving sure individuals have health would provide coverage for Who is the community?What are the problems' that longer-term questions verage we have.not made people m a community What are the resources? are outside.the realm of sure there are providers to throw h private business consideration take care of them We need to pslu is,whether via a H f � But I want to ask you sustain-the Whole system note �y urance plana ' . even as you fight those all-so- lust Coverage formdividuals etan h spits,commum Pf 0 eis People: •c . y, i Pz• niGSCdeliveno� 'i1 y Individuals need health .important fires on your desk, :.;,,There are huge debates i'..,!,.- ty or tion,a manage- beaNlkserereas a-., care and;:4". i. to step back and contemplate •about who should pay for" s.y nient services organization, 1 the future of health in your health care,and on what or,sorn other variation.This . m..'1g�d1 Organize community,a future that will•- terms,But as soon as you -,model only makes sense in sem i ,�1,� create systems of caring decrease for one ayer, long the term if you can get b ¢ costsp and support for the next gen- you increase them for another. ;beyond just capturing market Payers lar health care and health + eration,and the generation Meanwhile,solutions such as share;if the model can active- a. ' :-•- aIn' fter that,and even the one increasing co-payments create ly improve health.Better care Mr. after that. • a situation in which more peo- management is one way of Even though every rural piewill choose to do without doing this;investing"profits" community is different,rural coverage.Some of them.will ..,;into population'health activi- What are the opportunities? • - - -health systems-face similar _ land in emergency -roomsand "ties is another. . --- .�,` .-- problems:problems of scale, clinics,unable to pay at allThe government model ,'. severe resource limits,and The final block,providers, would have the responsibility . q- Voluntary P Private market 4 - tcommunily lack of a long-term commit- are facing a'multitude of at the local level to reconcile e i '.< cooperative, ment from partners outside issues:'What services should broad questions about con- RS i.L.' d.3S.vu...: . of the community. - - be available in.their,commum nectmgconsumers to health There are no shortages of - ties?How do they incorporate care services,and develop solutions:Balanced Budget new technologies?Do health long-term.financial resources What would each mean t0 our community? Act relief,critical-access plans allow access to those pa for those"services. hospital designation;telemedi+tsproviders?How will critical ,A. inept requires a lot What is our choice? nine economic development, access'hos itals accommodate P" P P -,';'',.9..f_w• nd needs a lot of • and so forth.-But are these non Medicare business?.Anfl It also requires enough to secure a long term -. so on. • -r n„s .nt attention to plan- future for rural health in Without a coordinated g{or the future,and mag :i lik wacky idea,but this help communities stay:ibi east your community? t '" approach that incorporates all hreaten our sense of personal 'itas the,premise of the oriel- of others'efforts. We need to take a bigger three building blocks unin- a rs'ce;and liberty., _,,r Blue Cross plan. • But ultimately.rural hen!!!i. and more systemic'view of the `.'•tended consequences ` !"....Ver-f!'!" - '` Rural health care leaders care leaders are the only oris r ae voluntary model would' - • "-t•..- ',..'-',1.'''''`I...q ',.,_. . . . - need roblems,and;especially, inevitabl occur.People fall ,re to find more enduring who can make change a::,u $ any y p i quire a strong mission to solutions we consider. throw h the cracks Providers or .1.models for thinking about And,as much as you are g 'organize' a local health syste»3 a There are three essential -, dont et sad'Ieawth plans through building relation-....4...j.';tit`y theu•3ong term future.We challenged by the short-term building blocks to our he 1th cccaaapppnnnof`4 tarn a p{esence ° ships sin nz'the three blocks 'at the Washington Health crises that complicate',cur .system--"-d..','e-.individuals whor'�3'S . tepee of t' x--ayers,and Y-, tion are engaged in a life and bring so much unc:r�I• need health care those who j} Y nth care continues be; 4-p.11i. would require r tyokactivities to support tainty to your health system, R T Tc*d iff this thanking-develb m • the ultimate leadership pay- for that care,(gcivern � threatened � � �ihzation of P g P went employers health , The single mast impor o : uppprt the s s+ egmning a statewide challenge we all face is to • plans) and those'vho'dehver thin,,..,i' '',....,":•-,',.;,:,:•;•••:•,--,,-*wfoo assure h .� tiatiok�ii,� -�o ,supporting comma assure a future for genera- t ve' ntlnn tie zr,�,y T ffpL. SSLts Next yeah kions to come. the Care(physicians liospi lo}g t'uture:bf rural e i tals long term care providers health careistwo think about °''.si n� rocesses.sy ave•eicpep offer resources to t, ; •. x�y' i s ` r --Adapted from a presentation to :•public health services,etc) e lghow ve..want to or 7the .ey 4 d ur•outside of a f select number•bf communi- p re ties interested id trying some the Northwest Regional Rural Our first task is to connect system.There are three differ eformally accountable govern- Health Conference'fast Marco. individuals to the system.So ent'organizing principles that y Zment sy tem..It might seem• .'new approaches.We will also .,..;-f-,-,,,' v -l' " c-establish:a clearinghouse to ;+ yt'fi • • THE WASHINGTON HEALTH FOUNDATION'S • FUTURE OF RURAL HEALTH PROJECT OVERVIEW AND ELEMENTS INTRODtiCTION AND OVERVIEW Maintaining health care service in rural communities has proven to be a tremendous challenge for many communities in America. Every year, there are new stories about the struggles of rural communities to preserve local health care delivery. The problems identified are many and varied. Some relate to unique factors in these communities - the impact of population shifts; difficulties in the underlying economies that are frequently tied to the business cycles of agriculture, fishing, mining, timber and the like; local leadership challenges; and others. Others are part of a profile that seems to fit with almost any small and isolated rural community - great dependence on government coverage programs like Medicare and Medicaid because of a higher percentage of elderly and poor residents; a smaller tax base to provide public support; difficulties in generating enough revenues to support the overhead necessary to operate a health care system; and others. Still others relate to the deficiencies of the health care system for any community in America today, such as problems of the uninsured or fundamental disagreements over whether health care is a private or public good. Despite these challenges, the health care systems in most Washington communities have • been surprisingly resilient. A couple of rural hospitals have closed over the past decade. Some communities find themselves with fewer physicians or other practitioners to provide for the needs of the people in their community. But, in most cases, health service to rural Washingtonians remains in place. A number of factors have contributed to this staying power, starting with the commitment of local leaders and including public and private subsidies directed to preserving health care in rural Washington. Still, many rural communities look to the future of their health system with a wary eye. The problems seem large, and the solutions fairly limited. While there are a number of important efforts underway to create a better future for rural health care, most are best described as short-term or intermediate system responses that will shore up the system for an important, but brief, period of time. The Washington Health Foundation believes that ensuring the viability of health care in rural areas is one of the core goals related to its mission of improving health for the people of Washington. Among our activities are programs that serve the need for swift and sufficient action to deal with the challenges over the short and intermediate term. Examples of these types of programs are our Rural Health Viability grant program, Mini Grants and the Physician-Hospital Relationship program. At the same time, the Washington Health Foundation is trying to stimulate the more fundamental change that may be required to ensure long-term viability of health care in • rural communities. This is the Future of Rural Health program. It is envisioned as a five Draft: October 2000 to ten year effort, with a focus on designing, supporting, encouraging and testing new and • more dramatic ways of organizing the way in which health care works in rural communities. This paper describes some of the major elements of this project. CRITERIA FOR THE PROJECT We are proposing the use of ten criteria to serve as the guideposts for describing both our sense of an idealized future rural health system and the values we will emphasize in our efforts to support local projects. These proposed measures will also serve as key measures for future evaluations of our program. Five of the guideposts are broad indicators of the success of any health system from an "output of health"point of view. The other five guideposts are best described as internal characteristics of the system that we view as important to creating the systemic cohesiveness and spirit to serve the community over the longer term. The External Measures: 1. Affordability and Cost 2. Accessibility to Coverage and Care 3. High and Improving Quality of Health Service 4. Health Status Improvement 5. Elements of Long Term Sustainability • The Internal Measures: 1. Transformational in Nature 2. Community Based 3. Includes some Organizational Element that Ties the Parts Together 4. Cooperative 5. Publicly Supported and Individually Acceptable CONCEPTUAL MODEL The Washington Health Foundation has developed a conceptual model to describe both the systemic challenges and our view of the range of systemic solutions available to create a longer term Future of Rural Health. This model was introduced at a speech given at the Northwest Regional Rural Health Conference and is described in the attached article. We understand that the real world translation of the alternatives is far more complicated and interwoven than is suggested in this basic conceptual model. The first purpose of the model is to allow us to ground our discussion of the problems and potential solutions into a common message. Second, we will also use it to communicate how local community variations fit into a broader pattern of responses. Our expectation is that the detail of any Draft: October 2000 local efforts will translate into far more intricate patterns than this simple model, but that • by using we can better describe the approach to others, including how it may relate to local efforts being looked at in another community. PROJECT FRAMEWORK The conceptual model is important to our efforts, but it is also abstract. In order to match up our work with how change usually occurs in communities, and the fact that it will come together in different ways at different times in different communities, we have adopted a project framework as our skeleton for action. Our basic principle is to provide leadership toward the type of system change depicted in our conceptual model while meeting communities and rural health leaders where they are at in terms of their thinking and readiness for change action. There are five program paths the Foundation is developing under this broad Future of Rural Health project. Included under each path are examples of some of the specific activities we are assessing as the activities and deliverables of our program. Please note that the specifics are only our preliminary set of ideas with respect to these activities and deliverables. Leadership: • . Speeches on the Need for a Bigger Solution • Discussions with Key Public and Private Leaders • Written Messages • Videos, Radio, other medium • Surveys of Key Questions • Future of Rural Health Colloquium • Community Chat Rooms • Development of Macro Health Indicators • Leadership Development • Promotion and Celebration Educational Support: • Monographs related to the Conceptual Framework, including the alternative organizing models, key technical questions, and the like • Profiles on what has been tried in other places, and what has worked • Thought pieces on "key issues" • "Modeling" • Other products • Draft: October 2000 Local Dialogues: • . Community Decision Making Model and Forums (organized around modules of eligibility, financing, governance and system participants) • Local Values Dialogues • In person and via Video Conferencing Local Support: • Funding for Local Forums • Funding for Local Change "Organizations"? • Production of Community Site Maps (tracking service areas, geography, legal relationships, referral relationships, dollar flows, etc.) • Population Health Status Studies • Diversity and Disparity Analyses Local Demonstrations: • Funding of Major Demonstration Projects PROJECT TIMELINE • The attached timeline provides a sense for the next stage of planning for the project. We have approached the year 2000 as the time for planning the longer-term project, and, once some of the planning pieces are in place, we will lay out a path and work plan for moving forward on the many pieces of the project. For further information on the Washington Health Foundation's Future of Rural Health Project, contact Lorna Stone at (206) 216-2893 or lornas@awhf.org. • Draft: October 2000 • Health Access Summit Workgroup g p Meeting Four Tuesday, November 7, 2000 12 - 2 PM Lunch will be provided for you Jefferson General Hospital Auditorium AGENDA • Summary of Last Meeting and Update (Attachment 1 — to be e-mailed Friday, November 3) • Set Meeting Dates The next meeting will be held on Tuesday, December 12th. In order to schedule the last speakers and discussions, we need to find two dates in January and February to meet. • Brief Presentation of Information Requested at Meeting Two • (Handout— postponed from last meeting) • Speaker and Discussion, Aaron Katz, Director, Health Policy Analysis Program, University of Washington. (Attachment 2) Since his early work in the 1980's as a health planner in Jefferson and Clallam Counties, Aaron has been engaged in numerous state, local and national health access projects. Attachment 2, frequently called the `Landscape Report", discusses current issues related to the crisis in Washington State rural health care. The Landscape Project also developed and tested an econometric model for quantifying the relationship between the local health care system and community economy. Aaron has been assisting local communities who either won't or can't wait for state/federal leadership by helping them identify common strategies for pursuing change. If you have any questions, please call Kris Locke at (360) 683-9152 or e-mail at thlocke(Oaol.com. • ATTACHMENT 1 Health Access Summit Workgroup Meeting Notes October 31 . 2000 Present: Vic Dirksen, Tom Locke, Chuck Russel, Brent Shirley. Julia Danskin, Geoff Masci, Lorna Stone, Claus Janssen. Kris Locke, Greg Vigdor The Joint Boards (Hospital Commissioners and Board of Health) have met twice since the last workgroup meeting. They will meet again in February. At that time we'll present an interim report on progress toward the Summit. The information requested by the group at the last meeting (see notes from meeting two) will be very briefly presented at the next meeting and discussed in more detail, if necessary, in December. Greg Vigdor. President of the Washington Health Foundation, gave a 30 minute presentation to the group, which was followed by questions and discussion. • Key points of Greg's presentation were: The health care system seems broken and the solutions are in communities, not the federal or state government. Fixing the system at the local level could mean many different things. Usually problems with the health care system are just associated with pieces of the picture and fixing isolated problems causes the balloon to bulge out in new places. These problems are usually associated with one of three areas: access to services: provider issues: payment problems. In a historical context, our health care system is relatively young and has been going through a growth mode. Most policies have dealt with increasing capacity and then fixing problems in an ad hoc fashion. For example, Medicare was created to deal with the problem of seniors needing some way to pay for health care but when HCFA wanted to limit the cost, DRG's were created as an isolated solution. Various past proposals to reform health care have focused on -- financing, access and delivery. Health systems are comprised of both local and regional services. Key is to build on working organizations. The Washington Health Foundation is most interested in working at the organizational/community level (as opposed to the policy/state level). Legislators seem to be saying: no more money and anything you do has to cost less. Band-aid approaches are the political reality, even though we know we know they won't fix the problem and will only last a short time. The dialogue in the state around health system reform includes: the single payer • concept and medical savings accounts. Unfortunately, government just wants to spend so much -- and no more -- so it sends money to the health care plans • and expects them to deal with the problems. In Spokane, people are looking at creating a regional health system — but this is still a way for government to shift their problems to another entity. In Spokane the rural areas are not really involved in the effort which creates another question -- how can regional projects effectively involve rural communities? There are three ways to organize health reform models — Insurance: Government; Voluntary (this was actually the original Blue Cross model). The values, vision and leadership are often more important than strategy and tactics for making these changes. So how do you actually do it? One step at a time. Step by step toward a larger vision with small successes along the way. Its important to keep a strong sense of where you are going or you risk having the small successes be the end point. • • • y X (1.) i P:i Immi r O `-+- CM .� HZ n N w O o O OCDat :72. c.,• 11:CD o O CLI ill O J VD N N �• O ITZ cm n CD fa O CD P:i (1D O E • • 0 t a io Y�7As A.s sterrzsr a pereerved w oewhose elements�1, hang;toget a cecause th connnuall a ec '� each of er4oviel me.rand operate-toward ._:.:'t0,;:.; 4» comma I". mit,': V_�',, 4 k,,,i,;40:1•,,,':::.; y m poke"- x • .1 ,.. ."s -,f;.$1.14.6‘ 4 r 3 4 �q�',F f .. a�ypr,�4i } ( 01-,.' „i;',:, ty' 'C.Tt .iR- ,.. F � "'i�+y40447, R.F'rw.� '{l`.RF”`3 S a,7-7;,,,,,, 'a 9� 4`� i§4:9 r- ; � ',,.'eferSeng r �: }� r Eq 4 art asx as 4' .���i...d' i ?re 7 1 �7y�, J ./yam` A y4„!'moi YlA'It.jf -.,,,,'''';'%'• P �Jv qa 'F+�, �"�E.1�.�4'!r�V5�}R r�r� 4~ ��.. �l�T f 30.4I4'',"' r Y ' r „rx � I§1.04.a.1:!,:,, k Rural Landscape Project,2000 (1W Health Policy Analysis Program • Rural Landscape Project Objectives • Better understand the relationships between the health care sector and the rural economy. • Create a tool for rural providers to understand and communicate the important role they play in their community. • Assess how Washington's rural health systems are faring today and identify policy options to . .._ "' .. address concerns. ,—f _"� Rural Landscape Project,2000 UW Health Policy Analysis Program III • Stress! Challenges to Rural Health Systems Fewer providers to • Falling payment levels share increasing • Greater dependence on (BBA,managed care, workloads public programs/funding Medicaid,BHP) \ (e.g.,effects of 1-601) Falling hospital net Higher rates of self-, operating incomeaa� et small business,and Sustainable,quality, 46001.11. seasonal employment Fewer health plan accessible rural options '•'"immoma - health serviceop Higher rates of providers uninsurance,lower rates 't, ot'Medicaid enrollment Chronic provider/ (among eligibles) service shortages Longer delays in payment Inability to obtain Lower averse from health plans economies of scale g Weaker economic income,higher bases average age Rural Landscape Project,2000 UW Health Policy Analysis Program • Assets for Rural Health Development • Strong sense of pride and.commitment Hig quaIit of hfe . • "Lean and mean;"`mission-focused health services • Strong generalist and cross-training tradition • Well organized advocacy Rural Landscape Project,2000 UW Health Policy Analysis Program • • . Renewed Sense of Urgency _. Balanced_BudgetAAct of 1997 ,, ••Bal"ancedfBudget;Refinement Act,of 1999 - e •RuraLHeaIthiSummits and.Coalition "S• .0d6 E2©00}: Tndvidua1 Isurance Mar k et •11 1 .-,,,l;',), 9d Tit�" r :ri4 iM1L 4Com.mu �.tt utiatives0, r NI4Y Y- 1.. r" 1 mgiM,yMy .;K ' '4.417'.4. ear 'C`arer-200dttiative � " » �s :- Rural Landscape Project,2000 UW Health Policy Analysis Program • Targeted Policy Options • Increase nancial support for providers LiberalizeAshortage:area'designation criteria xR,ek.T '' Expand""insurance coverage through public programs • Add purchasing options • Increase support for telemedicine Rural Landscape Project,2000 UW Health Policy Analysis Program • i Broad-Scope Policy Options - Replace:`r-695"revenue losses •DevelopR community based non-insurance-model Develo• eoinmunity based insurance mode; �.r t{ w 'X.+'i5 '�a4;..�d1 k14 's r+F ip4.N'• ca i �,,�svA�r♦ y:.i R lr} . ��De�elop�commumtx�base'ci�'care;management,model _. q11:77.*: 3.. ���s�'� ".y,d,�� .aYs�1: a,. .a w..•...,' .4. T?everop sfatewidexsuigT payer'mode : Rural Landscape Project,:000 UW Health Policy Analysis Program • Community Economic System Inputs Products Basic Trac sRtry ,, Labor Inputs SGoods ery & ices � . Households Services' / R Rural Landscape Project,2000 UW Health Policy Analysis Program 111 s Econometric Model Design User-Define• Changes 4•Y�`Y'f F"T� ��Mft�� • `# Y 4ES 4:2 a 1. I. Data Bases cx,t a�, ModelrOu ' ' •Health System ce ;ase •enl5' s 1:,‘‘')=-- •Economy *,,'''''')10;"' t g* t` + co.- � i •Population �0(�e '. �" conom e• •a• • ,'dt •Other r G11 >,' . ,RY h • .srrr j rl+7,.•,,,,,z4.4..:44.-0404"14i-` Contact Beverly court Office of Community.nd Rural Health (760)7056794,Beverly.CounQdoh.wa.gov Rural Landscape Project,2000 UW Health Policy Analysis Program i o Health System —►Economy The effect of health aystem changes on: • robS.(:-.',-.-0'1'-e.'''.1.1.:*- T ) � duea and.mduect t. * .1 tl! Y • Income(iuec tinct, -.. ct} -' • Retail Sales • Sales Tax Revenues Rural Landscape Project,2000 LW Health Policy Analysts Program • • Economy /Population — Health System The. ffecs« antofeconomic and p w wg8lt- ulatiohon: .: Op1ta C , A .� '0C4thety. iders'(e-,••7.,.:- "nn,tok, B.hxsi..q.,!pre4..-'?„..-:....,',;(4, ,ii.dwvives„dentists} 4` r� * '" � * ,r I' i i 'M1�'� ,er:M .�3 Y�'� b +� A. 1 ` y M1 _v31Jj/ :'1-,. -cam �}"y4',C.,":' -I ,4-1-1r7...4 s4 ''� :Rs j h'4'y .C^ C �,' . .J� O1L'Y Lei y.14. -".-r,".,.;,.4 y� ,;:i, F 4 Y 1�±� ^�`W 'T' +. Fiii .jp�.air dk -� :1' ' '"" m ,.4 er , 5,9 *.--44.1 .1! K `" w thea'o : a ce ar eau anent ,''A:,.!,'r r :'.`4„1, � Qt e M e !E� ' 'rt , :'vv �o 4 3 .1 a. ,Ti''"'' +y y • e {T a rtces4,�--.7.!-,0..ham fie altfi;,pliazmacies et Fly Ty4 'F pe Project,2000 Rural Landsca UW Health Policy Analysis Program • • • Understanding the Changing Rural Health System Landscape in Washington State RURAL HEALTH POLICY: WHERE DO WE GO FROM HERE? Final Report to the Office of Community and Rural Health Washington State Department of Health August 2000 • Prepared by: Health Policy Analysis Program School of Public Health and Community Medicine University of Washington HEALTH POLICY ANALYSIS PROGRAM • Study Team Health Policy Analysis Program School of Medicine Consultants Aaron Katz Amy Hagopian Lance Heineccius Project director/ report co-author Report co-author Lead, econometric model Jack Thompson Margot Nelle Faculty associate Lead, focus groups Katerina Skariba Research assistant Washinston State Office of Community and Rural Health Alice James, Project Officer, and Manager, Rural Systems Development Beverly Court, Manager, Critical Access Hospital Program Kris Sparks, Director, Office of Community and Rural Health ce Schueler, Health Workforce Specialist Health Policy Analysis Program University of Washington 1107 NE 45th Street, Suite 400 Seattle, WA 98105 • (206) 543-3670 www.hpap.washington.edu Washington State Office of Community and Rural Health Understanding the Changing Rural Health System Landscape in Washington State RURAL HEALTH POLICY: WHERE DO WE GO FROM HERE? Purpose Washington has long been a leader in rural health policy development and has enjoyed considerable success over the past decade in sustaining viable rural health systems across the state, although their viability is now threatened. This success has resulted from a healthy collaboration among the various advocacy organizations, successful leadership at the local level from administrators, volunteer board members, and clinicians, and the continued commitment of state government and its political leaders. Recent public discussions and legislation concerning access and insurance market issues demonstrate that the state's leaders continue to be willing to engage in the advocacy, creativity, and determination that has characterized past efforts. The Rural Landscape Project was designed to support public policy makers and community leaders as they continue this important work. The purpose of the Rural Landscape Project,* of which this report is a product, was twofold: 0. To develop an econometric model with which communities can understand and estimate the effect of changes to health systems on local economies and the effects of economic and demographic changes on local health systems; and 2. To frame the current issues and debates in rural health policy and suggest some directions for the way ahead. This report primarily serves the second purpose, focusing on the policy issues and options. The other products of this effort —Excel©-based Landscape Econometric Model, Landscape Model User's Manual, and Beta Site Report— can be obtained from the state Office of Community and Rural Health [Beverly Court, (360) 705-6769 or beverly.court@doh.wa.gov]. The policy role and implications of the model are, however, discussed elsewhere in this report. An earlier version of this report, Initial Rural Health Policy Discussion Document, was circulated for discussion in the spring of 2000, and 51 individuals and organizations responded with comments and suggestions (a summary of these comments are presented in Appendix A). The largest group of respondents felt insurance payment levels and timeliness of payments were the main concerns rural health providers are facing at this time, and that insurance plan and regulatory complexity were the next most important problems. Practitioner shortages, which for many years were at the top of the list of concerns among rural health advocates, now rank below .This project was conducted from November 1999 through August 2000 by a team comprising the University of ashington Health Policy Analysis Program and consultants Margot Nelle and Lance Heineccius under a contract with the Washington State Department of Health,Office of Community and Rural Health. Rural Health Policy 1 Final Report,August 2000 financing issues. In general, respondents said the description of the rural health environment, the Major issues, and the potential policy options presented in the discussion document — and largely reflected in this report — were on target. Methods The overview of rural health, major rural health policy issues, and potential policy options presented here are based on various information sources: • A review of recent research and professional literature and government documents; • A review of recently proposed and enacted state and federal legislation; • Interviews with key stakeholders and experts in Washington state and across the country; • Focus groups with local stakeholders and state agency leaders; • The discussions at the November 9, 1999 Rural Health Summit in Yakima; • The agenda of the Rural Health 2000 Coalition; and • Comments on the Landscape Project's Initial Rural Health Policy Discussion Document. The Setting Ike beginning of the new century presents opportunities for our state to continue to demonstrate successful models for rural health care financing and delivery. Not only do we have a strong history on which to build, but also policy makers and advocates have enjoyed the benefit of more than a decade of rigorous, high-quality, well-funded research focused on rural health issues. As a result, rural advocates are well armed with data and information about the relative inequality of rural residents' access to health care and about what kinds of initiatives might work in the future. Practitioners, policy makers, and advocates have used this research to strengthen health services delivery in some rural communities here and elsewhere: Four small counties in Michigan have partnered with two community health centers, a local hospital, and four county public health departments to form the Rural Prevention Network (RPN). RPN targets 45-64 year-old, working-age residents to provide primary and preventive health care services. The project came about after data showed that the age-specific death rate among this age group in the four counties was nearly double the state rate. In addition, medical providers were focused on acute care needs rather than preventative services. In Washington, four communities are moving ahead with local solutions to address unstable financing and inadequate access issues. These "communities that won't wait" are designing creative strategies, involving community leaders and stakeholders, to solve what are arguably national problems. One or more of these local initiatives may fundamentally redefine how best to support and sustain • quality, accessible health services in rural — and urban — Washington. Rural Health Policy 2 Final Report,August 2000 likhese examples suggest both the size of the challenge and the potential for success in addressing ersistent problems. But despite the optimism and energy that continues to surround rural health in Washington, the threats to our rural health institutions and practitioners are as potent as ever and have taken a particularly negative turn with the passage of the 1997 congressional Balanced Budget Act (BBA) and the concurrent pressures of managed care and insurance market fluctuations. These realities add to the challenges that small communities in rural America have long faced in the struggle to keep their doors open: competition for market share among the mobile portion of their populations, accelerating capital and technical requirements, a dwindling population base, lagging economic growth, decline in extractive industries like forestry, fishing, and minerals, disproportionate rates of uninsurance and inadequate insurance, health professional shortages, and changing federal payment policies. In Washington State, one of every four residents lives in a rural community, and their access to health care is at risk as a result of these challenges. Consider these indicators: Residents in rural eastern Washington are 1.4 times more likely to be uninsured than the state's average, 13.4% versus 9.5%, a difference that is twice the national average. Moreover, 14.7% of children in those rural areas have no insurance, nearly double the statewide average.' ❖ People in rural areas are less likely to enroll in Medicaid, because they have a lower level of knowledge about the program and are less likely to be reached by outreach efforts.2'3 40• Rural residents have lower incomes, are older, and have less education on average, all of which are related to higher levels of illness and injury and, thus, greater demands on rural providers.4 ❖ Employment-based insurance is less prevalent in rural Washington, because higher percentages of people in those communities are self-employed, work for small businesses, work in agricultural or other natural resource sectors, or do seasonal work.' Beyond these statewide averages, the residents of rural communities are diverse and present diverse health-related challenges and unique assets. For example, more than one-third of the 677,000 veterans in Washington live in the mostly rural counties outside the I-5 corridor and Spokane. Access to health care for this population—which faces often complex, chronic physical and mental health needs— is facilitated by the state's five VA medical centers.6 Though the state's smallest racial group, nearly 60% of Washington's nearly 110,000 American Indian residents live in rural counties. Twenty-six tribal or Indian Health Service clinics (outside of Seattle and Spokane) serve this population, which is disproportionately poor and unemployed.7'8 Finally, about 67% of the state's 356,000 Hispanic residents, who are disproportionately uninsured, live in rural counties and are served by long-established health systems, such as the Yakima Valley Farm Workers Clinic and Sea Mar Community Health Center.9 The challenges to providing access to quality services in rural Washington often hit rural hospitals first or hardest, as they are the anchors of rural health systems. These hospitals have, ince 1983, been riding a fiscal roller coaster whose ups and downs have been driven largely by .fts in Medicare payment policy. Because rural hospitals are highly dependent on Medicare Rural Health Policy 3 Final Report,August 2000 revenue, changes in that program's policies have amplified effects on rural financial fortunes. We .can identify three recent phases: (1) the inpatient prospective payment system (PPS), instituted in 1983. led to the first decline, followed by (2) improvements as a result of organized rural advocacy nationally and at state and local levels, and then (3) decline again after 1997 BBA. First-year BBA reductions in 1998 were dramatic, yet only a hint at the future, since the sharpest cuts are to come in the latter part of the five-year implementation period. For small hospitals, the new Medicare prospective payment system for outpatient services is the most threatening storm on the horizon, because of their relatively large volume of outpatient services and the size of the payment cuts. Every projection, including the Health Care Financing Administration's (HCFA) own estimate suggest outpatient payment cuts totaling 20% by 2002 for small rural hospitals.10 One widely quoted analysis projected that, as a result of the BBA cuts, the average total margin for small rural hospitals would fall to an unsustainable negative 5.6% in five years.11 The relief from this scenario —the 1999 Balanced Budget Refinement Act (BBRA) — did not undo the reductions to date, but essentially postponed their application to small rural hospitals.12 A recent analysis of a large sample of hospitals concludes that, for small hospitals with fewer than 100 beds, both Medicare and total facility margins are continuing to fall through the year 2000 and will only stabilize at very low levels.13 The BBA did contain one piece of bright news: It created the Rural Hospital Flexibility Program (RHFP), a $125 million effort to shore up struggling rural health systems. The centerpiece of the RHFP was the Critical Access Hospital (CAH) program, which changes payment rules for small mote rural hospitals (defined as acute care facilities of 15 beds or less located 35 miles from other hospital). The program calls for states to develop their own guidelines within the fairly broad federal rules to designate CAH facilities. HCFA then certifies those hospitals and they begin receiving cost based reimbursement for Medicare patients. Building on Strengths The National Rural Health Association has identified ten characteristics that "correlate with community success in sustaining rural health care systems"14: • Broad community-wide support for local health services. • Local control of the various elements of the delivery system. • A bold vision and assertive advocacy. • Effective local health care leadership. • A high level of teamwork among community providers. • A willingness to take risks. • An openness to partnerships and affiliations. • Access to relevant, practical information. • Successful coordination and control of local health care dollars. 40. Well informed community providers and residents. Rural Health Policy 4 Final Report,August 2000 ural America has, in many ways, a good foundation upon which to develop these important characteristics. Good leadership can be found in many rural communities that, when present, contributes greatly to the sustainability and stability of local health systems. While rural clinics, hospitals, and health providers are subject to the vagaries of payment, licensure rules, and local economies, they are also generally more flexible and agile by virtue of their smaller size. Rural health delivery systems tend to be lean and focused on the basics of access, cost, and quality, and they often (though not always) strive for efficiency. Hospitals and physicians tend to avoid duplication and competing with each other, because it wastes scarce resources: "[R]ural providers display a notable willingness to band together to lower costs, improve quality, and thereby strengthen their position ..."15 Rural health professionals are practiced and skilled at being good generalists, and individuals are cross-trained and wear many hats. This can at times be stressful, but also brings inherent efficiencies. Those who live in small towns and frontier communities have a lot of pride and commitment to place. The high quality of life and natural amenities, coupled with relatively lower costs of living, can attract new people. Rural health advocates are organized and have developed an effective political voice at local, state, and national levels. Since costs in rural settings are relatively low, and the aggregate budgets of America's rural health delivery systems are small (for example, while rural residents comprise 26% of all Medicare beneficiaries, it pays out 22%of its budget for them16), politicians Save been willing to allocate the resources necessary to keep these systems alive. As some comments on the earlier discussion document emphasized, these strengths do not exist uniformly in every rural community; their absence can often lead to failed collaborations, inefficiencies, and financial decline in local delivery systems. Effort to strengthen and sustain rural health systems must, therefore, take into account asset differences among rural communities. A Renewed Sense of Urgency The trends in health care financing, public policy, insurance coverage, and demographics noted above have given rise to a sense of urgency and a renewed focus on how to heal and sustain rural health systems. Rural Health Summit and Coalition— On November 9, 1999 the Washington Statewide Office of Rural Health and the Washington Rural Health Association convened a"Rural Health Summit" to identify concerns and develop solutions. More than 200 providers, consumers, managers, employers, policy experts, and advocates participated in this day-long event in Yakima. One • Rural Health Policy 5 Final Report,August 2000 • outcome of the summit was the creation of the Rural Health 2000 Coalition,' which was charged rth spearheading specific strategies — both short- and long-term —to support and sustain rural health services. In addition, the Senate Health and Long-Term Care and House Health Care committees held a joint hearing following the summit to hear directly from summit participants about the challenges facing, rural health care. A second summit is scheduled for October 26, 2000, with the expectation that the momentum for payment reforms can be sustained. 2000 Legislature — Driven in part by the breakdown of the insurance market in rural areas, the 2000 Washington State Legislature enacted major changes to the state's insurance rules. Senate Bill 6067 increases exclusion periods for pre-existing conditions in individual and small group policies to nine months (prior law limited such exclusions to three months); allows health insurers to "screen out" the sickest 8% of applicants for individual insurance each year, who may then seek coverage through the Washington State Health Insurance Pool (WSHIP, a.k.a., high risk pool); and allows individuals in counties where no comprehensive health insurance is marketed to purchase coverage through WSHIP. Legislators hope these statutory changes will result in a renewed interest by health plans to offer individual insurance products across the state. SB 6067 also increased eligibility for the Basic Health Plan from 200% of the federal poverty level to 250%, iffunds are appropriated(as of July 2000, such funds are not yet available), and allows the BHP to contract directly with health care providers in certain circumstances. This provision may help rural providers in communities where health plans have been unwilling to contract with local providers or have pulled out entirely. ilinally, the Legislature passed a Supplemental Budget that replaces some local revenue lost as a result of Initiative 695. The state Office of Financial Management estimated that the initiative would cut County Public Health Account funds by $25.5 million in calendar year 2000, rising to $31.6 million by CY 2004.17 The Supplemental Budget provided $33.2 million over the current biennium to replace most of this funding gap.18 Policy Issues, Old ... Health economist Henry Aaron has described the financing of the U.S. health care system as the "problem that won't go away."19 Likewise, the challenges facing rural health care today— including financing as well as other issues— have been with us for a long time.20 Inadequate payment. Since its creation in 1965, Medicare has had to develop a plethora of Band-Aid programs to help rural providers deal with an absence of economies of scale and other issues that make it difficult to live under traditional Medicare payment mechanisms. These programs include Rural Referral Centers, Sole Community Hospitals, Disproportionate Share Hospitals, Critical Access Hospitals (and their precursors, Medical Assistance Facilities and Essential Access Community Hospitals/ Rural Primary Care Hospitals), and Rural Health Clinics. 'Coalition members include: the state hospital. medical.dental, home care.and rural health associations;Rural velopment Council: Western Washington Area Health Education Center, University of Washington School of � edicine: Washington Health Foundation;and others. e Rural Health Policy 6 Final Report,August 2000 Inadequate numbers of health care professionals. Provider shortages persist in rural communities •across Washington and the U.S. As of June 1, 2000, 27 non-metropolitan counties were designated, in whole or in part, as federal Health Professional Shortage Areas for Primary Care. Many rural communities are having difficulty recruiting and retaining nurses, technicians, and mental health, physical, and occupational therapists, as well as administrative staff(e.g., billing, information systems, coding). Moreover, shortages exist for specific populations, such as widespread shortages of dental care providers for Medicaid and other low income populations. In suburban and urban areas, many hospitals, clinics, and medical practices are available to meet the health care needs of local residents, to share the financial burden of serving uninsured or under-funded patients, and to provide un- or under-compensated but needed services (e.g., emergency rooms, community education). This is not the case in many rural communities where a few health professionals carry the full burden. They rarely have the ability to shift heavy workloads, decline taking after hour call, or take time off when they want to, and the decisions of or illnesses to individual providers can have dramatic effects of the stability of a whole health system.' Inadequate professional support systems lead to burn-out and threaten the ability of rural communities to maintain an adequate network of providers.'" In addition, small-scale providers— which means most rural providers — do not have the financial reserves or cash flow to weather difficult periods or to continue unprofitable service lines. In the early 1970s, the federal government began responding to the practitioner shortages by instituting the National Health Service Corps loan repayment and scholarship programs, Community and Migrant Health Centers, Health Professions Shortage Areas, Medically WTnderserved Areas, training programs for mid-level practitioners, J-1 visa waiver program, and thers. Washington State also instituted a variety of programs designed to redress shortages. Organisational, governance, and leadership issues undermine market share. Many communities have strong united leadership around health care services, but some communities and health care delivery systems are divided and not working well together. The Rural Hospital Project, initiated by the University of Washington Department of Family Medicine in the late 1980s, found that sustaining rural health care systems requires that communities address intra-community conflict, leadership failures, quality problems, and confusion about governance. The project demonstrated that when these issues are addressed effectively, market share —the proportion of local residents who obtain services from local providers— can be improved. Demographic issues. As described earlier, the demographics of rural areas contribute to stress on the health system. "Older, sicker, poorer" is the troika of conditions afflicting rural populations, generally. In addition, the relatively large and growing presence of important subpopulations — such as Hispanic, American Indian, and veterans, as noted earlier— challenge rural health systems to serve diverse needs and interests and to coordinate financing and delivery systems that are governed separately. Rural health advocates have organized previous efforts to address these and other issues: • In November 1993, the Statewide Office of Rural Health and the Washington Rural Health illAssociation convened a Rural Health Care Reform Workshop in anticipation of the state's Rural Health Policy 7 Final Report,August 2000 • new comprehensive health system reform law. The workshop stressed local leadership and . network viability, flexibility, provider shortages. and the needs of special populations. • A year later, the two organizations held a follow-up workshop, "Implementing Health Care Reform: Setting a Course for Rural Washington." The workshop summary23 added new concerns to the previous list: complex and costly administration of private and public insurance programs; regulatory and financial barriers to local delivery of care (including anti- trust): and increasingly diverse populations. • In 1996, the Washington State Hospital Association published a "Rural Action Agenda," which addressed similar issues: complexity of the competitive managed care environment; inadequate payment levels; licensing barriers; and the viability of local providers. ... And New So, the challenges facing rural health care in 2000 are, in large part, not new, having been the subject of at least three decades of deliberation and action. Of course, some issues take new forms or manifest in new ways, such as the potential impacts of Initiative 695 and the now- "refined" federal Balanced Budget Act. What is new, however, is the convergence of these issues into a stark picture of rural health systems in financial crisis. To help understand this picture. it's helpful to look at major policy issues individually. Lower Rates of Insurance Coverage Health insurance, both private and public, remains the primary method of gaining financial Wccess to health services in the United States. While uninsured rates have continued to rise ationally, Washington State has one of the smallest uninsured populations — 9.5% — measured as a percentage of all state residents.24 Still, roughly 600,000 Washingtonians do not have health coverage, which not only threatens their own financial well-being should they get seriously ill but also the financial survival of those who provide them with services. Moreover, cuts in payments from Medicare, Medicaid, and private insurers reduce the ability of providers to subsidize charity care with revenues from other sources. Thus, the costs of providing free service to some is higher prices for others and/or financial distress for providers.* Cuts in Public and Private Payments and Revenue Despite the fact that the health care industry continues to consume ever-more of the nation's resources each year, rising at a rate faster than that of general inflation, and despite a robust economy that is producing record federal and state budget surpluses, hospitals, physicians, and other service providers are citing inadequate and untimely payment levels as a major threat to access and quality. The BBA, state budget constraints, and provider contracts with private payers and insurers may be conspiring to squeeze providers' bottom lines to the point that some may decide to limit service to low income patients or go out of business entirely. Rural health systems are especially dependent on public financing—the Rural Health 2000 Coalition estimates that three of every four rural health dollars are from local, state, or federal 'Studies by the Washington State Medical Association and the state Health Care Authority and Medical Assistance 0 ministration, both to be completed in late 2000. seek to quantify and analyze the relationships between caring for v income patients and financial stress in medical practices. Rural Health Policy 8 Final Report,August 2000 sources.25 Despite an eight-year boom in the economy, voter-passed tax initiatives like 601, 695, •nd additional proposals that will be on the November 2000 ballot in Washington state put financial pressure on all state programs — including Medicaid and the Basic Health Plan— that must compete for a more limited funding pie. The Legislature's ability to replace these funds is restrained by Initiative 601's limits on state spending and potentially by I-695's provision that requires a public vote on all tax increases (I-695's constitutionality is being determined in the courts), even as the state's budget surplus has grown to an estimated S1 billion. The federal Critical Access Hospital program offers cost-based payment to rural hospitals for their Medicare patients, but only a few states have followed suit with their Medicaid programs; the Indian Health Service(IHS) is also not participating in paying Critical Access Hospitals costs for HIS patients. The Medicaid programs in Idaho and Montana are paying CAHs as Medicare does, but Washington State has not yet done so; this may, in part, be because Washington's Healthy Options and Basic Health Plan contract for care through health plans and do not dictate how health plan must pay hospitals or other providers. The BBRA gives some financial relief to rural hospitals and other safety net providers by delaying or reducing cuts in outpatient payments (it temporarily restored about S17 billion of the S44 billion the BBA cut26). Nonetheless, services like hospice care, durable medical equipment, therapy services, and ambulance transports will still feel the BBA pinch of reduced payments. The BBRAalso did not relieve the requirement that rural hospitals participate in the outpatient iirospective payment system. After Medicare's PPS system went into effect in 1983, many rural ospitals understandably focused on expanding and improving their outpatient systems, to the point where these are now often a larger part of their operations than inpatient care. Outpatient PPS is a very complex system, requiring large investments of administrative time and infra- structure to implement; many expect rural hospitals to be hit hard by this new payment scheme. Private purchasers and payers, including managed care plans, are also limiting payments to health service providers. Like urban areas, rural communities have seen expansions of managed care over the past decade. For example, from 1988 to 1995 the percentage of rural counties in the U.S. served by at least one HMO grew from 53%to 820/0.27 While managed care penetration in rural Washington has leveled off, or even declined, plans of all types have cut absolute payment levels, which places significant pressure on providers with slim financial margins. " Moreover, some evidence exists that some health plan payment practices — most notably, delays in payment— lead rural providers to accept as full payment amounts far less than that to which they are contractually entitled, effectively reducing their revenues.28 Data on hospital revenues show the effect of the financial squeeze from both the public and private sides. Net operating income per adjusted admission for hospitals in Washington fell 25% between 1998 and 1999, leaving an average operating margin for all hospitals of 1.5%, the lowest level since the state began collecting such data.29 Margins of this size, if they persist over time, will likely lead to cuts in services, such as trauma care, home health, and transportation— indeed, such a financial straight jacket can lead to the closure of a rural, sole community oospital. And the loss of its hospital can lead to a community's loss of its physicians and other alth care professionals. Rural Health Policy 9 Final Report,August 2000 *hat being said, it is important to recognize that research demonstrates (and common sense alidates) that a 10% improvement in market share has far more important results for bottom lines in rural hospitals and clinics than would a 10% improvement in Medicare payment. A recent publication in the Journal of Rural Health30 shows typical hospital market share is only 36% for rural hospitals and 50% for rural physicians, and that people of means and mobility are more likely to leave town for care than stay local. Only 58% of respondents in a typical rural community said they would seek local care for a broken arm, meaning they would drive an hour or more with a broken arm before they would use the local emergency room. The availability of public health professionals — and the capacity of local public health agencies — to conduct population based health activities has become a major concern since the passage of I-695. The Public Health Improvement Plan began the transition of personal health services out of public health departments. I-695, passed by voters in November 1999, eliminated the Motor Vehicle Excise Tax, one of the major sources of funding for local public health programs. The Washington State Association of Local Public Health Officials estimated in March 2000 that the cut would total $25.3 million during fiscal years 1999 and 2000. In response, local health jurisdictions made various cuts staff and program capacity, including for example:31 • Bremerton-Kitsap Health Department cut communicable disease and family planning clinic hours; • Adams County Health District decreased community assessment staffing from 32 hours per month to 8 hours per month; • Lewis County Health Department lost 2.1 FTE public health nurses, .5 F 1"L. sanitarian, and .4 F I L dental program coordinator; and • Pacific County Health Department cut immunization clinics by 50% and eliminated two home visiting programs for at-risk families. Such cuts can have significant impacts on other, already over-stretched parts of rural health systems, including Community and Migrant Health Centers, Rural Health Clinics and hospital emergency rooms. As noted earlier, the state Legislature did appropriate $33.2 million over the current biennium to restore some public health funding, which may allow local public health agencies to redress some previously-made cuts. However, local public health departments no longer exist as one of the "safety net providers", a provider which has public funds to serve people with limited or no health care resources. Few Choices of Health Plans For rural residents, choice of insurance product is often an illusion. During 2000, BHP enrollees in seven counties were served by the only health plan available to them, while in 14 counties only two options existed. Health plan withdrawals in 1999 from Healthy Options and the Basic Health Plan reduced coverage and choices in at least 16 rural counties.32 More recently, Regence Blue Shield and Kaiser Foundation Health Plan announced on July 20, 2000 their decisions to cease serving enrollees in Healthy Options in 2001, affecting Medicaid clients in eight rural ounties. And it appears that only two health plans in 2001 will service Children's Health gpsurance Program enrollees in Washington. Rural Health Policy 10 Final Report,August 2000 More than 30,000 Medicare beneficiaries — and their health care providers — in 19 counties were affected by health plan decisions to cut their Medicare service areas in 2000. For 2001, an additional 20,000 — 30,000 Medicare enrollees may be affected as Aetna U.S. Healthcare, RegenceCare, First Choice, and Premera Senior Partners announced they would not renew contracts with HCFA. When Regence Blue Shield, Premera Blue Cross, and Group Health Cooperative froze their individual insurance products in 1999, 29 (mostly rural) counties were left without any commercial individual health coverage choices, except limited or association (restricted eligibility) options. Senate Bill 6067, passed by the state Legislature in 2000, is designed to reverse this trend, but its effects are not yet known. For rural providers, fewer health plans means less competition and less willingness on the part of plans to negotiate payment levels or contract terms. Health plan decisions can leave local providers without a contract —and therefore without revenue for that group of insured residents— or with lower revenue. For example, health plans that require enrollees to buy pharmaceutical drugs from mail-order companies undermine the survival of community pharmacies. Taxpayers and other payers are unable to make up for these revenue shortfalls. Aging plant and equipment When small margin or negative bottom lines are experienced for consecutive years, the way rural hospitals manage their cash flows is to fail to fund depreciation. This means that plant and •quipment get older and less viable, and no reserve is created for remodeling the obstetrical suite, replacing the x-ray machine, or acquiring new lab equipment. This same issue applies to rural providers who express concern about their ability to replace outdated equipment such as mammography, which makes them less able to maintain market share. Many of today's rural hospitals were built or renovated with federal Hill-Burton program funding, supplemented with the early cost-based Medicare payment system in which capital costs were allowable. However, when Medicare began paying hospital inpatient services on a prospective basis, rural hospitals received up to 40% less than their urban counterparts for the same services. Beginning in 1991, Medicare paid capital costs on a phased-in prospective payment basis. The result has been that, since 1984, rural hospitals have been too unprofitable, and capital pass-through too tenuous for aging facilities to be substantially upgraded. Few mechanisms exist for aging rural hospitals to replace physical plants and equipment without going into substantial debt — debt for which they may not qualify in any case given declining bond ratings that result from declining payment levels. The HUD 242 program may provide some hope by issuing a guarantee to the lender, which upgrades the bond rating potential for qualifying hospitals. Other Important Issues Reviewers of the earlier draft discussion document identified several other critical issues facing rural health systems today, including: • Rural Health Policy 11 Final Report,August 2000 • Growth in regulation and oversight c f health care providers— The growing number of state • and federal regulations, combined with financial and utilization management mechanisms of insurers, have resulted in more time, money, and staff that must be dedicated to administra- tive, rather than patient care, activities. The federal Health Insurance Portability and Accountability Act's requirements concerning information systems is one example of "unfunded mandates" that result in higher administrative costs. Because of their small size, rural hospitals are less able to spread the costs of these mandates across their patient base. • Incompatibility'of health plan networks and local referral patterns— Health plan contracting practices sometimes do not match referral patterns — which may or may not be "efficient" — in rural communities. This clash can mean, at times, that patients have to travel farther for needed care while local providers lose critical revenue streams. • Inadequate capital to support infrastructure — From telecommunications to transportation, many rural advocates emphasized the need for capital for building and renewing the "connecting tissue" of a rural health system. Some pointed out that as a society we recognize that the economies of scale do not exist in some communities to support certain critical needs — such as schools, police, and water— so we provide public subsidies to meet those needs. • Similar issues are facing Community and Migrant Health Centers, Rural Health Clinics, nursing_ homes, home health agencies, and pharmacies. They too are a key component of the health care system and touch their patients and the patient's families more often and over a larger period of time than a hospital which may treat the patient during one or two episodes of care. And in some rural communities, they are the only source of health care. • A Call for a Broader Approach As Figure 1 suggests, the simultaneous peaking of the "too" problems —too few providers, too low payment, too few health plan choices, too little income, too much need, too little insurance, too weak economies— raises the fundamental question of whether community level health services can be sustained in rural Washington. At the base of that question is financing: Can sufficient funds (insurance, taxes, payment, grants, etc.) from public and private sector sources be generated and distributed in a way that sustains over time a sufficient number and array of quality, accessible health service providers in rural communities? No single strategy will answer that question, because— as discussed in earlier sections — it entails complex issues of leadership and community capacity, as well as payment rates and public policy. • Rural Health Policy 12 Final Report,August 2000 Figure I • Stress! Challenges to Rural Health Systems Fewer providers to Falling payment levels share increasing Greater dependence on i BBA.managed care. workloads 0 public programs funding rMedicaid.BHP) `> 4>(e.g.,effects of I-695.1-601) Falling hospital net V Higher rates of self-. operating income°p N f o°small business,and I I Sustainable,quality, seasonal employment Fewer health planaccessible rural options °OGS Ii health service Higher rates of providers uninsurance,lower rates Chronic provider r �JJJ \ of Medicaid enrollment service shortages°° \ ' ' Z (among eligibles) oa 0 Longer delays in payment Inability to obtain (3.0 from health plans economies of scale Lower average Weaker economic income,higher bases average age So, if a solution exists for the rural health financing problem, it's not simply how to find more Maoney (although additional funds for specific programs, like loan repayment, may help), but ther how to "capture" and better deploy the significant amount of money and community assets already in the system. It's not simply how to attract new practitioners or services, but how to sustain a system that both supports and is supported by the local economy and community. We have briefly reviewed in this report the various historical efforts to solve problems in rural health systems and the numerous targeted programs, each meant to solve a specific failing. The study team and those who commented on the discussion document acknowledge the importance of such efforts and the continuing need to resolve specific health sector issues in rural communities. But the sense of many rural advocates and providers is that a broader approach to maintaining and sustaining health services in rural areas is needed, one that recognizes the interdependencies both within rural health systems and between those systems and the communities they serve. Potential Policy Options In essence, the Rural Landscape Project poses the following question: What can government do to ease the financial stress on rural health systems and support efforts to sustain these systems? To some extent, the answer to this question is a moving target, as illustrated by the fact that the following developments have occurred since the start of this project: III Rural Health Policy 13 Final Report,August 2000 • Congress enacted the Balanced Budget Refinement Act that restored some previous cuts to provider and health plan payments. • The Legislature reformed the state's insurance rules for the small group and individual markets, authorized direct contracting in the Basic Health Plan, and restored some funds that had been lost as a result of Initiative 695. • The Legislature also authorized a study of primary care providers to determine whether the state should develop a system of extra payments to providers the serve a disproportionate share of Medicaid and BHP patients. The results of this study are due in December 2000. The widely held view, reflected in this project, is that these changes, while potentially beneficial, will not be enough to shore up rural health systems. So, what else can be done? This section briefly discusses three types of policy options. First, the Rural Landscape Econometric Model and its policy implications are summarized. Second, we present three broad-scope, longer-term options that are being actively considered and/or developed and, thus, merit attention. Third, we list a variety of targeted, shorter-term policy options that could mitigate selected problems; this last set of options are not described in any detail here because they are the focus of other contemporary efforts (e.g., Rural Health 2000 Coalition, Rural Health Summit II). Rural Landscape Econometric Model The Rural Landscape Econometric Model33 was developed as a tool to help rural communities ..nd others better understand and quantify the relationships between rural health systems and rural economies. Specifically, the model is designed to explore two relationships: • the expected impacts of rural health care systems on local economies in terms of direct and indirect jobs, income, and retail sales; and • the expected impacts of changes in rural economies or populations on the local health care system. The model was developed in conjunction with three rural communities that agreed to serve as beta test sites: Ellensburg, Kittitas County; a large rural community in central Washington; Forks, Clallam County, a small, isolated rural community in northwest Washington; and Grand Coulee, Douglas County, a very small rural community in north-central Washington The model results were fairly consistent across the three sites in terms of the economic impacts of these health care systems on the local economies. Whether these findings can be generalized to most rural communities in Washington is unknown, and awaits the application of the model in a much larger set of communities. The economic impact of health care systems on their local communities was primarily estimated using the Implan© database (a proprietary database of key econometric indicators and other factors for each county in the United States). A summary of the key findings from each best test site is as follows: • Rural Health Policy 14 Final Report,August 2000 • The health care system in Ellensburg (and Kittitas County as a whole) annually accounts for • about 1,440 actual, direct support, indirect, and induced jobs in the community,* $39.7 million in personal income, and $19.6 million dollars in local retail sales. Total sales tax revenue as a result of these local sales is estimated to be about $1.6 million per year. • The local health care system in Forks accounts for 359 direct, indirect, and induced jobs in the community, $1 1.5 million in income, and about $4.5 million in local retail sales. Total sales tax revenue as a result of these local sales is about $352,300 per year. ■ In Grand Coulee, the local health care system accounts for 184 direct, indirect, and induced jobs in the community, $5.6 million in income, and about $1 million in local retail sales. Total sales tax revenue as a result of these local sales is about $83,900 per year. The baseline model findings from the beta sites confirmed and quantified what most observers have known intuitively: rural health care systems are important financial contributors to their local economy. The table on the following page summarizes the aggregate multipliers for jobs and income in each of the three communities. Beta Site Jobs Multiplier Income Multiplier i Ellensburg .5905 .5074 Forks .6244 .4908 IllGrand Coulee .4959 .4162 For example, each 100 actual jobs in the health care industry in Ellensburg created another 59 direct support, indirect support, and induced jobs in the local community. Similarly, each $100 of salary in the health care industry in Ellensburg created another $50.74 in direct, indirect, and induced salaries in the local community. Slightly different effects were observed for Forks and Grand Coulee. Several policy applications derive from the beta site findings and the Landscape model itself: • The model provides estimates of the financial impacts of a local health care system on its surrounding community. While the importance of rural health systems to local economies has frequently been acknowledged by researchers, policy makers, and local health care providers, the model allows a convenient way for this impact to be quantified. • The results can be used by local health care organizations to help support bond elections, model potential changes in their health systems and economies and predict the impact of these changes, and to educate local businesses, local elected officials, state and federal legislators, and the media regarding the importance of the health care system to rural economic vitality. *Direct jobs are non-health sector jobs that directly support the health care industry(e.g., food services), indirect obs are those which support the direct support jobs(e.g., growing the food). and induced jobs are those which are eated from employees spending their salaries in local businesses(e.g.,buying groceries or dining in local restaurants). Rural Health Policy 15 Final Report,August 2000 • • The consistency of the findings allows some degree of confidence in making estimates of • financial impacts. For each worker in a rural health care system, it seems reasonable to say the average salary is between $30,000 to $32,000 annually (in 1999 dollars), each health care job generates at least another 50% FTE non-health care job locally, and the indirect income multiplier is roughly 0 5 These estimates can be used by policy makers as rough estimates without the need to replicate the detailed model in a specific community. The Rural Landscape Econometric Model is a useful tool that rural communities can apply to help them better plan for the future and to quantify their importance to their local economies. Broad-Scope, Longer-Term Options As noted earlier, four communities in Washington are developing innovative, broad-scope strategies to strengthen and sustain their health systems: the Inland Northwest Communities in Charge program in Spokane and environs; a community planning effort in Jefferson County sponsored jointly by the public hospital district commissioners and the local board of health; an initiative in southwest Washington led by CHOICE Regional Health Network; and a physician- hospital-community organization initiative in Wenatchee called Community Choice. In one way or another, these community initiatives, if they are to be successful, will need the partnership of the state and, perhaps, local and federal governments. These community initiatives seek, to one extent or another, the structural transformation of how health services are financed and delivered. As we have learned about health system reform, in general, such transformation is complex and takes time. Moreover, change of this order cannot W�asily— or perhaps successfully— take place solely as a result of legislation from Olympia or ashington, D.C. Rather, the vast majority of participants in the Rural Landscape Project emphasize the need for community control and initiative and provider leadership in partnership with governments at all levels. What follows are brief descriptions of three broad-scope policy options that rural advocates and others— including participants in the Rural Health Summit and the Rural Health 2000 Coalition— have identified. (Potential private sector or community initiatives that do not involve changes in public policy are outside the scope of this project and not discussed here). The three options are not mutually exclusive, and elements of them could be combined into many other broad approaches. In addition, these descriptions are not meant to be exhaustive, but rather to suggest some directions for the future that communities, advocates, or policy makers could develop and pursue as they address rural health system issues. 1. Coordination of insurance coverage and public funding for low income populations This option addresses how to strengthen and improve the efficiency of programs and funds that serve low income populations. For example, the Inland Northwest Community in Charge initiative and other communities have considered one model that would funnel BHP, Medicaid, federal and state assistance to access-critical providers, and local tax revenues— and possibly Veterans Administration and Indian Health Service funding— through a single (public or private) administrative entity. Health services for low income residents would be coordinated and financed through this entity, making issues of program eligibility "invisible" • to the resident. The entity would collaborate with and pay service providers directly. The Rural Health Policy 16 Final Report,August 2000 administrative entity would either prospectively manage the relevant programs and funds on • behalf of and with the agreement of the sponsors (i.e., Medicaid. BHP, local government) or retrospectively seek payment for services rendered from those sponsors. Potential government action— Federal: Medicaid and other program waivers; cooperative agreements with the VA and IHS; transition or demonstration project funding. State: statutory changes to allow mixing of program funds; statutory or regulatory changes to allow the administrative entity to bear some financial risk; agreements with the Medical Assistance Administration and Health Care Authority; transition or demonstration project funding. Local: agreement to use and/or manage local tax revenues. Potential benefits— simplification of eligibility for low income individuals and families for whom life changes can lead to changes in eligibility for various programs; and simplification of payment for providers who would have only one "payer" for this patient population. Potential barriers— the difficulties of: coordinating programs with different purposes, eligibility criteria, and payment methods; obtaining agreement from local, state, tribal, and federal governments; creating simple administrative and payment processes out of complex ones; gaining the cooperation of local providers and insurers; and convincing employers and individuals to discontinue their existing health benefits. 2. Develop community-based care management systems • This option focuses on the development of locally governed service networks whose goal is to maximize the ability of local providers to deliver efficient and effective health services for all community residents and to maximize their market share in order to strengthen their financial base. Some advocates of this approach also propose that such networks own or closely collaborate with locally owned insurance plans. The model is often built around primary care providers and their roles as coordinators of service and advocates of patients and a single, provider-owned and community-supported insurance plan that centralizes administrative functions.34 While containing the basic elements of what we know of as `managed care," proponents differentiate this option from the current managed care market place by its local ownership and internal-to-the-community accountability. Potential government action—Federal: anti-trust oversight and exemptions. State: statutory or regulatory changes to allow greater flexibility for a local, provider-owned entity to bear financial risk; statutory or regulatory changes to allow greater flexibility for MAA and HCA to contract directly with provider networks; transition or demonstration project funding. Local: financial and/or other support of the provider-owned network or insurance plan. Potential benefits— community ownership of and commitment to provider networks and insurance plans can increase market share for local providers; mutual financial accountability by community residents, businesses, and providers can lead to sustained commitment to a strong local health system. • Potential barriers— employers and individuals may not want to change existing insurance coverage or non-local care providers; start-up provider-owned health plans have often failed Rural Health Policy 17 Final Report,August 2000 • for both financial and management reasons; providers may be unwilling or unable to take on greater levels of financial risk; possible opposition of insurers; lack of existing, locally owned insurance plans in rural areas; and insufficient scale in rural communities for building insurance infrastructure and managing financial risk. 3. Develop community-accountable, non-insurance based financing systems This approach takes Option #2 one step further, not only developing a community governed service delivery network, but circumventing the mainstream insurance market entirely. One version of this approach being discussed in Jefferson County and elsewhere might entail a local government entity— such as a public hospital district or public health jurisdiction, or a combination thereof—becoming the "single payer" for that community. All or most public and private health services funds would flow into (or be coordinated with, as in the case of services for veterans and American Indians) and be administered by that entity, which would then contract with or employ/own service providers. As in Option #2, the goals are to maximize the ability of local providers to provide efficient and effective health services for all community residents, and to maximize their market share in order to strengthen their financial base. Potential government action—Federal: Medicare, Medicaid, and other program waivers or changes; cooperative agreements with the VA and IHS; transition or demonstration project funding; and anti-trust oversight and exemptions. State: statutory changes to allow mixing of program funds; statutory or regulatory changes to allow the local entity to bear financial risk; agreements with the Medical Assistance Administration and Health Care Authority; transition or demonstration project funding. Local: statutory changes to invest necessary governance and management authority in the local entity; agreement to use and/or manage local tax revenues. Potential benefits— simplification of`eligibility" because all community residents will have access to services regardless of their life circumstances; and simplification of payment for providers who would have only one (or fewer) "payer for their patients; local ownership and governance can increase market share for local providers; mutual financial accountability by community residents, businesses, and providers can lead to sustained commitment to a strong local health system. Potential barriers— the difficulties of: coordinating programs with different purposes, eligibility criteria, and payment methods; obtaining agreement from local, state, and federal governments; creating simple administrative and payment processes out of complex ones; gaining the cooperation of local providers; employers and individuals may not want to change existing insurance coverage or non-local care providers; possible opposition of insurers; and insufficient scale in rural communities for building insurance infrastructure and managing financial risk. A few commenters on the initial discussion document also supported other broad-scope options, including a single payer, universal coverage system for the entire state and medical savings counts. Rural Health Policy 18 Final Report,August 2000 Targeted, Short-Term Options • Table 1 lists a selected set of targeted public policy options. For each option, the table shows whether it might affect one or more of the four major policy issue areas discussed above and, if so, whether local, state, or federal action might be necessary. Many of these strategies were also identified by participants in the November 1999 Rural Health Summit and the Rural Health 2000 Coalition. The extent to which each option might solve one or more of the issues facing rural health systems depends on its specific design and implementation, but each has at least the potential to solve one or more of the problems facing rural health systems today. • Rural Health Policy 19 Final Report,August 2000 Table 1 • Low rates of Cuts in provider Few health Too few Policy Issues insurance payments and plan rural Policy Options coverage revenues choices providers 1. Increase state funding for Health Professions Loan State Repayment and Scholarship Program 2. Require Medicaid to pay Critical Access Hospitals on a cost State basis(consistent with Medicare policy) 3. Increase public grant funding or payment levels for rural Local Local safety net providers(both for medical care and for"wrap- State State around" services such as transportation and translation services) Federal Federal 4. Increase funding to expand coverage in public health State State insurance programs (e.g.. fund the authorized expansion of BHP Federal Federal eligibility to 250%FPL) 15. Revise BHP and Medicaid purchasing strategies to support State State local pharmacies (in rural areas) 6. Allow public utility districts to develop tele-communications I State enterprises that support tele-health iichr.ease payment levels for rural providers(including home State State dental care and emergency services) by public programs Federal Federal f8. Expand rural training in health professional education State I programs Federal 9. Streamline HPSAJMUA designation process and add state- • State specific criteria and designation Federal 10. Increase the flexibility of MAA and HCA to contract State State directly with providers 11. Develop state capacity to provide technical assistance to State State State State local community initiatives to strengthen their health systems 112. Join existing federal lawsuits that challenge unequal State State geographic variations in Medicare payments to HMOs Federal Federal 13. Develop a state grant or loan program to provide bridge or State State transitional funds for rural providers who are starting new programs,phasing out or transforming services, or have short- term financial shortfalls 14. Increase funding for and enhance community outreach and State assistance in enrolling people in public health insurance Federal programs • Rural Health Policy 20 Final Report,August 2000 Endnotes 1 Gardner, M. 2000. Uninsured Children in Washington Stale: Findings from the State Population Survey (1998). Health Policy Analysis Program, University of Washington. February2 . National Rural Health Association. 1999. Access to Health Care for the Uninsured in Rural and Frontier America (Issue Paper). May. 3 Kristen West. 2000. Personal communication. CHOICE Regional Health Network. April 10. 4 Edelman, MA and BL Mertz. 1996. '`Selected comparisons and implications of a national rural and urban survey on health care access, demographics, and policy issues." The Journal of Rural Health, 12(3), 197-205. National Rural Health Association, 1.999. 6 Vick Glenda. 2000. Personal communication. Washington State Department of Veterans Affairs. May 3. Washington State Office of Financial Management. 2000. Postcensal Population Estimates by Race and Hispanic Origin: Washington State, 1990 to 1999. January. s Washington State Office of Community and Rural Health. 1997. American Indian Health Care Delivery Plan. Washington State Department of Health. July. 9 Washington State Office of Financial Management, 2000. •'° The Lewin Group. 1999. The Balanced Budget Act and Hospitals: Dollars and Centers of Medicare Payment Cuts. American Hospital Association. Chicago. June. 11 HCIA. 1999. A Comprehensive Review of Hospital Finances in the Aftermath of the Balanced Budget Act of 1997. Baltimore. March. 12 MedPAC (Medicare Payment Advisory Commission)Report to Congress:Medicare Payment Policy March 2000. Washington DC: MedPAC, March 2000 (a).; Mueller K. "Rural Implications of the Medicare, Medicaid and SCRIP Balanced Budget Refinement Act of 1999: A Rural Analysis of the Health Policy Provisions. Report P99-11 Columbia MO: Rural Policy Research Instate (RUPRI) December 1999. 13 HCIA-Sachs. "The Financial State of Hospitals: Post-BBA and Post—BBRA" Baltimore MD: HCIA-Sachs February 2000. ''National Rural Health Association, 1998. A Vision for Health Reform Models for America's Rural Communities. February. 1' Ormond, BA, S Wallin, and SM Goldenson. 2000. Supporting the Rural Health Care Safety Net. Assessing the New Federalism, Occasional Paper Number 36. The Urban Institute. March. 16 Ricketts, TC, ed. 1999. Rural Health in the United States. Oxford University Press. New York. p. 63. 17 Washington State Office of Financial Management. 2000. [Online: Wttp://www.ofm.wa.govibudget.htm#i695] Rural Health Policy 21 Final Report,August 2000 • is Association of Washington Cities. 2000. [Online: http://www.mrsc.org/awcfiles/i695budgetupdate4-27.htm] 19 Aaron, H, ed. 1996. The Problem That Won't Go Away: Reforming U.S. Health Care Financing. The Brookings Institution. 20 A good discussion of the history of these issues and various public policy initiatives aimed to address them can be found in: Ricketts. TC. ed. 1999. ` Ormond, BA. et al., 2000. Bowman, RC, BF Crabtree, et al. 1997. "Meeting the challenges of workload and building a practice: The perspectives of 10 rural physicians." The Journal of Rural Health, 13(1), 71-77. 23 Lishner, D and R Crittenden. 1995. Implementing Health Care Reform: Setting a Course for Rural Washington, One Year Later(summary of a January 10, 1995 workshop in Seattle). Washington Statewide Office of Rural Health and Washington Rural Health Association. January. ' Gardner, M, 2000. 25 Rural Health 2000 Coalition. 1999. Priorities for legislative and executive action in the year 2000 to ensure the survival of rural health systems in Washington State. 26 Mueller. K, et al. 1999. Rural Implications of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999:A Rural Analysis of the Health Policy Provisions(P99-11). RUPRI Rural Health Panel. December. [Online: http://www.rupri.org] •`' Ricketts, TC, ed., 1999. 28 Spring 1999 spot-study conducted by University of Washington and LeMasters & Daniel, personal communication. 9 Muller, T and R Ordos. 2000. HospTrends. Washington State Department of Health. Vol. 2000-1. February. 30 Hagopian A, House P, et.al. 2000. "The Use of Community Surveys for Health Planning: The Experience of 56 Northwest Rural Communities." Journal of Rural Health. Winter. (16:1), 81-90. 31 Kirkpatrick, V. 2000. Impacts ofA/I1;E'TLoss on Local Public Health Departments/Districts. Washington State Association of Local Public Health Officials. March 7. 32 Vital Signs of Washington's Health. 1999. The Status of Public Insurance Programs in Washington State: 1999 Update. Health Policy Analysis Program, University of Washington. January. 33 The Rural Landscape Model, Users Manual, and Beta Test Report, all products of the Rural Landscape Study, can be obtained from Beverly Court, Washington State Office of Community and Rural Health, (360) 705-6769 or beverly.court@doh.wa.gov. 34 Amundson,B. 2000. An Optimal Managed Care System for Nebraska's Rural Communities, Residents and Providers. Community Health Innovations, Inc. Rural Health Policy 22 Final Report,August 2000 Who Provides At their last meeting the workgroup agreed that, at least for the short term, they wanted to maintain the current local providers. They felt that more work was needed to identify a delivery model before they could address they question of how many and what types of providers were needed. There was general consensus that as the group moves forward in their process it is important to deal with the reality of their situation and not get overwhelmed with the "what ifs". What the community may want to become in the future is beyond the scope of this workgroup. The group agreed to stand on the solidity of the current delivery system as their basic building block. A suggestion was made that the current delivery system could be improved with more coordination of services. Who Pays Kris presented a listing of payers and plans. Taxpayers and enrollees pay for Medicare, Medicaid and the Basic Health Plan. Employers, employees and individuals pay for private insurance through health plans. For some services such as alternative medicine individuals self pay. Also there are special programs such as the breast and cervical health program that are paid with federal and state funding. Should some sources pay more? Some less? Which ones? Does there need to be additional money? At this point in the meeting Kris introduced Lorna Stone from the Washington Health • Foundation. Lorna, together with a rural health access group, has developed a model for addressing the system attributes that the Jefferson workgroup has been discussing throughout their series of meetings. The model calls for funneling resources from various financing programs into a local authority and then directing those resources in more consistent and predictable ways to local service providers and community health initiatives. Resources that go into the model include: Medicare, Medicaid, BHP, Employers, Individuals, the Uninsured, Public Health and the community. The local health authority would include: core public health, other strategies aimed at improving health and health care financing and delivery. Lorna presented two general options for the new organization, the local health authority. The organization could be a local voluntary model or a local government model. The voluntary model might be a cooperative like Group Health, a provider-based foundation or a general not for profit. Lorna shared the Arkansas model as an example of a cooperative. Under the local government model, the local health authority could be an agency of city or county government, a public hospital district, a public health jurisdiction or other government entity. Regardless of which organizational approach is chosen, Lorna indicated that a number of transformations would need to occur: transform public expectations and accountablities; transform financing and administrative savings, transform prevention; transform population health and integrative projects; and transform health delivery. Lorna made it clear that these transformation would not occur overnight rather over a period of several years. • • Summit preparation There was a general consensus by the group that they wanted a specific outcome or product. Ultimately they would like a document that outlines a comprehensive plan for health access for all citizens in a rural area. The plan would include recommendations for how services could be provided and coordinated. This document would then be used to apply for grant funding. Next Steps 1) The workgroup has two meetings left before the summit; 2) The Boards of Health and the Board of the Hospital District will also be meeting and will be reviewing the work group's recommendations and offering input 3) For the summit participants will be provided with information to review before the meeting • Health Access Summit Workgroup Meeting Five Tuesday, January 23, 2001 12- 2PM Lunch will be provided for you Jefferson General Hospital Auditorium AGENDA • Summary of Last Meeting and Update (Attachment 1) • Schedule Last Series of Meetings So far, the 4th Tuesday of the month seems to.be the best alternative. How do.March.27st and April 24th look on your schedules? Should our May summit be on a weekday or a Saturday? Which dates look good(or bad)? • • Bill Hagens, Office of the Insurance Commissioner Bill has been Deputy Insurance Commissioner for Health Policy since October, 1999. For the previously 25 years, he was the Senior Research Analyst for the Washington State House of Representatives' Health Care committee. If you have any questions, please call Kris Locke at{360) 683-9152 or e-mail at thlocke@aol.com. • ATTACHMENT 1 Health Access Summit Workgroup Meeting Notes November 7. 2000 Present: Vic Dirksen. Tom Locke, Chuck Russel, Bruce McComas. Julia Danskin, Geoff Masci, Lorna Stone, Claus Janssen, Kris Locke. Aaron Katz Future meeting dates were scheduled for January 231d and February 27th , 12-2 PM_ The issue of transactional costs was discussed, with the conclusion that we need to have a better understanding of what they are and quantify potential financial savings that could be realized and re-directed into other services. Aaron Katz, from the Health Policy Analysis Program at the University of Washington, presented a variety of information and ideas. He began by discussing the Landscape Project (workgroup members received this report with the November agenda and meeting announcement). This project looked at several rural health issues. It developed and applied an econometric model for rural communities to use for quantifying the local economic impact of health care services. The report also includes recommendations for long and short term state policies to improve access to rural health services. likaron presented a series of slides/handouts to illustrate some of the challenges rural health care is facing. Stresses confronting rural providers include: falling payment levels; falling hospital net income: fewer health plan options: chronic provider shortages: inability to achieve economies of scale; lower income for and higher age of providers: weaker community economic bases: longer delays in payments from plans: higher numbers of uninsured: higher rates of small businesses and seasonal unemployment: greater dependence on low paying public programs: and fewer providers to share increasing workload. Rural communities also have many strengths including; sense of community pride; high quality of life; "lean and mean' mission focused health services: strong generalist and cross training; well organized advocacy. Some of the policy options that are being considered are: increase financial support for providers: liberalize shortage area designation criteria: expand insurance coverage through public programs; add purchasing options: increase support for telemedicine. Broader based options include: replace 1-695 revenue loss: develop community based options — insurance based, non-insurance models, care management models, single payer models. This legislative session will likely be focused on the budget shortfall created by the voter initiatives. The workgroup discussed several issues. Without state or federal leadership. local communities will have to come foreword and demand state agencies recognize the rural health crisis as a roblem for which the state also bears responsibility. The true partnerships that will be required solve these problems need strong, honest and long-term support from the state. 0 • A BOOK REVIEW: The crisis of medical training in America. Why Johnny Can't Operate By ARNOLD S. RELMAN Issue date: 10.02.00 Post date:09.2l.00 Time to Heal: American Medical Education from the Turn of the Century to the Managed.Care Fm by Kenneth M. Ludmerer Oxford University.Press. 514pp. 1. Our present health care system has many deficiencies. most of which are by now widely recognized.One of the most serious.but least appreciated. is its failure to provide adequately for the training of future generations of doctors. No matter what is done about the other problems. good medical care is impossible without well-trained doctors to provide it. Yet the academic medical centers that are responsible for producing new doctors--the 125 accredited medical schools and their 400 or so affiliated major teaching hospitals--are being systematically starved of the resources to do so. The education of doctors is now being increasingly compromised, with possibly disastrous results for the quality of medical care in the future. That is the disturbing message of Kenneth Ludmerer's important book. It has stirred up the academic medical • community, as it should:but it deserves a wide public readership as well. No consideration of the future of health care in the United States can afford to overlook the historical facts laid out by Ludmerer.or the public policy issues that they raise. To set his powerful thesis in its proper context,however,we need first to understand the extraordinary metamorphosis of our health care system in the past three decades. During those years. especially in the past decade,our health care system has been transformed into a vast commercial market. Once considered primarily a social service and a public responsibility, health care is now commonly viewed as a private industry.best controlled by market forces. Painful experience in the past few years may be forcing a reexamination of that view.but as of now the issue remains to be resolved. For many, the free market recently has begun to look more like the cause than the solution of our current health care problems. Evidence of its deficiencies is accumulating,and public dissatisfaction with the market-based system grows rapidly. Physicians.the essential providers of medical care,are also becoming disillusioned with market-based medicine. There is much reason for their discontent. because the market threatens not only their economic security but also their professional values and practices. Doctors are more unhappy than I have ever known them to be,in over half a century of experience as a physician.a teacher,and a close observer of the medical profession. Practicing doctors are a heterogeneous population of over 700,000 men and women.so it is risky to generalize about such things. Still. polls show that most physicians think these are very bad times for them. Moreover. they attribute most of their difficulties to the central feature of the new health care market: the managed care insurance companies. These companies. mostly investor-owned. now control nearly all private health coverage.and a significant part of publicly financed programs as well. In all, more than 170 million Americans receive their care through private managed care plans. Most of them are enrolled in managed care plans by their employers, who usually pay the major part of the premiums. Managed care spread quickly during the 1980s and 1990s.because it promised to control employers'health care costs. which were escalating rapidly under the old system of indemnity insurance. Instead of paying whatever doctors and hospitals charged for each medical service.as in the indemnity system. managed care plans charged employers a set premium in advance for an agreed-upon range of benefits. If the employees used • fewer individual services. the managed care companies would profit: if they used more,the companies would lose money. 110 By limiting contacts between patients and doctors,and by regulating the use of hospitals and specialized services. the plans were able both to control employers'health care costs and to profit handsomely. Managed care plans exercised control over medical services through contracts signed with physicians.and their members had access only to doctors who were under contract with the plan. The contracts not only also defined the terms of payment,but often regulated the procedures under which physicians could practice. Physicians. for their part. had no choice but to accept this arrangement if they wanted an opportunity to treat the increasing number of patients being enrolled in these plans. In 1993. the newly elected Clinton Administration, having noted the initial success of managed care insurance plans in controlling medical expenditures.proposed a national plan to encourage this form of insurance. Rather than leave matters entirely to the market.the Clinton proposal included an elaborate system of regulated competition among insurance plans. most of which would be managed care. As a member of an advisory committee of health care professionals. asked by the Administration to review the proposed legislation before it was submitted to Congress, I had serious reservations about the bill. I thought it was much too complicated,and I was disappointed that it proposed nothing to encourage not-for-profit.provider-managed insurance and delivery systems. I believed then,as I do now, that commercialization and entrepreneurial incentives are a major impediment to viable health care reform. In any case. the defeat of the Clinton plan was a major political setback for the Administration,and it allowed,by default,an essentially unregulated managed care market to take over the private insurance business. Note. however. that in controlling expenditures on medical services, the managed care companies were serving the interests of employers more than the interests of the employees covered by the insurance. Employers not only pay for most of the cost of the insurance. they also select the insurance plan or the choice of plans available to their workers. Employers, and not employees. are therefore the customers whom the insurers must court.This peculiar re- arrangement of the usual relationship between insurers and beneficiaries is one cause of the current consumer dissatisfaction with managed care. 0 And there is another.and perhaps more fundamental,reason. Before managed care. indemnity insurance companies were paid on a"cost-plus"basis,so there was no conflict between the financial interests of the insurers and the medical needs of the beneficiaries. Under managed care.the insurance companies are paid a fixed premium,and so they profit only to the extent that they can limit their payments for medical services. (The companies refer to these expenditures as"medical losses."an odd but revealing tenn.) A conflict of interest between insurers and beneficiaries is therefore inevitable. "Patients'rights" legislation has been introduced to protect the public against some of the baleful consequences of this arrangement: but it can do little.I think.to correct the basic misalignment of incentives that accounts for the conflict of interest. Patients do not want any restrictions on the medical services recommended by their doctors.but the managed care companies obviously do. And yet most economists and health care policy experts profess to see nothing wrong with this system. Indeed.they have pronounced it to be the long-needed rationalization of a previously wasteful and unaccountable cottage industry. Not surprisingly. the private managed care insurance companies. now wealthier and more politically powerful than ever. agree with these experts and are greatly pleased with the transformation. Their trade association,the Health Insurance Association of America(HIAA). is a potent lobbying force in Washington dedicated to protecting the industry's current control of the health care system. HIAA played an important role in killing the Clinton health plan. and it now seems determined to resist any reforms or government regulations that might threaten the business success of its members. The American Association of Health Care Plans is another prominent and influential Washington trade group actively promoting the interests of managed care companies. Most of the money that does not reach the direct providers of care(mainly doctors and hospitals)pays for the increasing corporate expenses of the insurance companies and provides income for the innumerable new health care- related businesses now living off the health care system. These businesses supply a wide variety of services to the managed care companies, including such things as sales and brokering,public relations and advertising,financing. claims handling, utilization review, management of prescription drug benefits. case and disease management and iloinformation technology. Many of these new services are supposed to control unnecessary expenditures on medical care,and to make the system more efficient. Whether they do so is debatable. What is not debatable is that they have • greatly increased overhead costs in the health care system. Despite the predictions of free-market proponents. the managed care market has had little or no lasting effect on the inflationary rise in the total health care budget. It has simply shifted payments away from the direct providers of medical services and directed the money elsewhere. True. total expenditures were briefly held in check during the mid-1990s.but they are once again rising at near double-digit rates. The fraction of total private health expenditures that has been shifted to the corporate overhead of managed care insurers,and to all the other new health care-related businesses. is not precisely known. I would conservatively estimate it to be at least one-third of the total,or roughly $125 billion to$150 billion. Despite the claims of the managed care industry there is no convincing evidence that this money has improved the quality of our medical care:and there is much reason to suspect the opposite. What is even clearer is that access to medical services is being restricted,and this fact is generating widespread public discontent. No wonder. then that the direct providers of care--the doctors and the hospitals--are so unhappy. They believe their ability to take appropriate care of their patients is being compromised by the cost management and the coverage decisions of the insurance companies. Their own overhead expenses have risen as they struggle to survive in a new competitive and commercialized marketplace.and to comply with the red tape and the regulations generated by multiple payers. Reimbursement for their services is being capped or reduced. while increasing rewards go elsewhere in the system. The declining morale of physicians,and the economic constraints on medical care now imposed by the private insurance market. should worry everyone, not just doctors. More and more employees covered by managed care plans. particularly those with serious illnesses or injuries who need medical care the most.are concerned about their restricted health care choices and their limited access to specialized medical services. Lately, as the costs of premiums have resumed their former rate of inflation,even employers. who had initially demanded that market forces be brought into the health insurance field.are beginning to wonder whether the present system will last--and whether it should. III. Much has been written and said about all of this. What most people do not sufficiently appreciate is that the private market has not only made it difficult for physicians to take care of their patients. it has also seriously hurt the academic medical centers and their associated teaching hospitals. The market does not treat teaching hospitals kindly.because they are much more expensive than their non-teaching competitors. Yet they are the wellsprings of modern medicine: the primary sources of clinical research and new clinical knowledge. and the places where the best and most advanced medical treatment is delivered. They care for a disproportionately large share of the sickest and most complicated(and therefore the most expensive)patients.as well as a disproportionate share of the uninsured. And they are the essential providers of medical education.the places where medical students and newly- graduated doctors(interns and residents)learn to become competent practitioners and specialists. And yet our current health care system,now dominated by industrial practices and a Darwinian free-market philosophy. has little or no interest in helping teaching hospitals bear their heavy social burdens. Kenneth Ludmerer is right to worn that without viable academic medical centers and teaching hospitals. the future quality of medical care will be in grave danger. In telling the story of medical education in the twentieth century. Ludmerer makes clear that the system of medical education was already in financial trouble for a decade or so before the managed care companies took over the private insurance market. Managed care compounded the problem and converted it into a crisis. The education of medical students is very expensive. and the earmarked funds to cover the costs had never been available in anything like adequate amounts. For most of the century. university-based medical schools had been responsible for the education of medical students:but the institutional budgets of those schools,even the strongest of them.were never large enough to pay the full costs. Schools had to bootleg money for this purpose from two other sources: federal grants intended to support research and research training,and public and private payments to physicians on their • faculty for the care of patients. In the same way, major teaching hospitals had always used these same sources-- particularly payments for clinical care--to cross-subsidize the costs of educating their interns and residents. . But this strategy was doomed to fail. In the 1970s the policies governing research grants at the National Institute for Health were made more stringent, preventing their use for the support of clinical teaching. And in the 1980s reimbursement of physicians and hospitals by Medicare. Medicaid. and private insurers was cut back.reducing the clinical income that could be used to support education. Adding to the economic squeeze on teaching hospitals was the adoption in the 1980s of a system of hospital reimbursement that essentially paid a fixed amount per patient according to the diagnosis. regardless of the length of stay or the actual costs to the hospital. Obviously such a system of re-imbursement hits teaching hospitals the hardest. because clinical education and the care of the sickest patients require longer average stays and greater hospital expenditures. Payments by Medicare for the partial reimbursement of educational costs in teaching hospitals were also trimmed. most recently by the Balanced Budget Act of 1997. Despite makeshift funding. medical education had at first flourished in the quarter of a century following World War II. The academic medical centers of the United States had responded to the national call for more and better medical care by rapidly expanding and multiplying.They did more research and treated more patients. They graduated more medical students and produced a growing army of well-trained specialists and primary care physicians. To do all this. they used whatever funds were readily available. ignoring the danger of allowing medical education to become heavily dependent on outside sources that they could not control or even predict. In those halcyon days.when money for medical education was easy and seemingly unlimited. the academic medical establishment was content to live only in the present with no thought for the future. This was perhaps understandable.but even after the makeshift funding began to decline and the threat to medical education became more clear.the leaders of the academic medical centers were not inclined to address the problem. I feel qualified to make such an observation because I spent a large part of my career in academic medicine and was active in many of its national organizations. In 1984. I wrote an article in the journal Science entitled"Who Will Pay For Medical Education in Our Teaching Hospitals?" It was based on a speech before the Association of American Physicians,a leading professional society in academic medicine. I warned that makeshift funding would inevitably . fail to sustain medical education and would eventually have to be replaced by public support. To justify that support, academic medicine should take more responsibility for addressing problems in the health care system of the United States.and be more accountable to the public for its actions. But at the time.leaders in academic medicine had other concerns. Most of us were too focused on the immediate needs of our own institutions and our own medical specialties to cooperate in seeking more solid support for medical education let alone to work on solutions for the problems of the American health care system. III. The issue became moot after the stunning events of the last decade. Advocates of the free market defeated the Clinton health plan and market-based managed care quickly gained full control of private health insurance. The effect on the finances of academic medical centers was disastrous: survival became an urgent priority that took precedence over concerns for the quality of educational programs. It became impossible for academic medical centers to cross-subsidize educational programs as they had in the past. The critical problem was not only the lack of money. but also the lack of time for teaching. In today's health care delivery system. time means money;but for clinical education. it is lack of time to teach and to learn that is the most immediate problem. The title of Ludmerer's book underscores this important point. At several places in the volume.he compellingly details the importance of adequate time for teaching. and explains how managed care has made teaching time such a scarce commodity. The best clinical education occurs at the bedsides of patients in the teaching hospitals.Traditionally_ medical students. interns.and residents had time to examine and get to know their hospitalized patients.to participate in their diagnostic or pre-operative evaluations,and to observe the response of patients to treatment--all of this under the supervision of experienced clinicians. who were also faculty members of the medical schools with which the teaching hospitals were affiliated. But now, managed care pays these faculty members only for the clinical care that they provide, and the payments are not generous enough to support extra time for teaching. In addition, the faculty members are expected to see as many patients as possible. as rapidly as possible. Thus,even clinical care may be • compromised.and teaching runs a poor second to that. Moreover. one way managed care controls costs is to keep patients out of the hospital unless they are extremely sick. • or require major surgery or specialized diagnostic procedures that cannot be done outside the hospital. When patients do need to be hospitalized. they are moved in and out as quickly as possible(the expression in the medical community is "sicker and quicker"). so that the average stay is much shorter than before. As a result.teaching hospitals.which always had a larger than average share of very sick patients.are becoming little more than centers for intensive care and major surgery-. In today's teaching hospitals.events move too swiftly and patients are too sick to allow time for the proper teaching of students. There is much less time for pedagogic discussion and instruction at the bedside. even if physicians on the faculty were available to teach.The result is that students in teaching hospitals see only brief segments of the medical care process. have less sustained contacts with patients.and receive less personal guidance from experienced faculty. Interns and residents. for their part.are so busy coping with large numbers of sick people that they have little or no time to read,attend teaching conferences. or even talk to their patients. Faculty physicians have less time to teach and their harried, over-worked residents have less time to learn. To save money. most diagnostic work-ups and preoperative evaluations are now done on an out-patient basis. This shift to ambulatory,care also makes clinical education more difficult. Students and inexperienced residents usually are not welcome participants in such care because they slow things down and occupy too much of the attending physicians'time. The same is true of the routine care of patients with chronic illnesses in outpatient clinics. Managed care plans want ambulatory patients to be seen as briefly and managed as efficiently as possible. This leaves no time for teaching. This growing disjunction between the new. largely out-patient-based health care system and the needs of medical education has stimulated a few medical schools and teaching hospitals to seek support from foundations and other granting agencies for specially designed programs that provide structured education of students and residents in managed ambulatory care settings. The Robert Wood Johnson Foundation has been notably active in this field. Yet such initiatives, however commendable. are little more than demonstration projects. unlikely under the present system to have a major or lasting impact. IIINeither such demonstration programs. nor any other limited and local interventions.can solve the basic problem. which is that a market-driven.price-competitive health care system has no incentive to support a common social good. such as medical education. Indeed. all of the incentives in such a system work in the opposite direction. Managed care businesses. struggling to control their"medical losses."view education as simply a large added cost, which they cannot afford and which ought not to be their concern anyway. And whatever limited support the managed care industry might voluntarily give to education is more likely to be focused on training students and residents to meet the needs of the managed care system than on teaching the fundamentals of doctoring. As Ludmerer so painstakingly documents.we are witnessing the dismantling of a system of clinical education that took the better part of the last century to build. In the last few decades of the century. the academic medical centers of the United States had become a model for the rest of the world in the way they had managed to combine patient care,clinical research.and education into a unified and synergistic enterprise. Under financial pressure from the commercialized health care market.this enterprise is now disintegrating. There is no opportunity to teach or to learn in a health care system driven primarily by cost-containment imperatives, and there is inadequate support for the extra costs of teaching hospitals that take their educational responsibilities seriously and also want to offer state-of- the-art medical care for all who come to their doors. How far the deterioration will go.and what its effects will be on the quality of our health care system and the competence of our new physicians,remains to be seen. Leaders of academic medicine,although still divided and unsure about the future,are now finally united in their deep concern about this issue. Ludmerer calls the current transformation of medical education its"second revolutionary period." Under the old system in the nineteenth century. medicine had been largely taught as an empirical trade(which it essentially was)in proprietary, free-standing schools.There was no organized system of graduate education in hospitals.and most practical experience was gained through apprenticeship with practicing physicians. The first"revolution"began in the early part of the twentieth century.when the then-prevailing system had gradually been replaced by an • intellectually solid. university-based system of medical education. Teaching hospitals,affiliated with medical schools.began to offer carefully supervised programs of residency training under standards established by national accrediting professional organizations. Academic medical centers arose at that time, and new ones continued to • appear throughout most of the last century. The new system was grounded in science and scholarship.and it was committed to advancing medical knowledge and educating physicians. These objectives set American academic medicine apart from the routine delivery of medical services in the community at large. Of course, academic medical centers provided medical care to people who were referred to their teaching hospitals. or who came to their clinics and emergency rooms: but the provision of the best possible care did not compromise their academic objectives. It was an article of faith.supported by much empirical evidence.that the quality of care was enhanced by strong educational and research programs. In any case. these special functions made the teaching hospitals much more expensive than the others. So long as adequate funds were available(regardless of their source)to cover these extra expenses, medical centers could pursue their special purposes. confident they were fulfilling their part of a"social contract"that served the public interest. But the"second revolution"has changed everthing. Pressures for cost containment and the imperatives of the market are causing the reemergence of an inferior educational system. resembling in many ways the system that had existed before the first "revolution"nearly a century ago. If the United States is to retain its leadership in medical research and education.argues Ludmerer.the tattered "social contract"between academic medicine and the public must be restored.He concludes his book with a call for stronger leadership.and with some brief general suggestions for reform of the academic establishment that might encourage more public support. But these are little more than afterthoughts in an epilogue, lacking the richness of detail and understanding that characterize the body of his work. I do not mean to be too critical: this is essentially a work of history, and we should not expect too much in the way of policy proposals. Ludmerer has done a valuable service in describing and documenting the problem.and in making clear why the current system will have to be reformed. It is for others to propose and to implement the necessary reforms. IV. • Meanwhile.how have our medical centers been responding?Not very well. According to Ludmerer. "the organized effort and political will among medical educators to behave proactively did not appear to be great. The main emphasis was on expanding the clinical mission. even if that threatened to undermine the core principles upon which the academic health center was based. Critics who contended that medical education followed the flow of money. not principles.had evidence for that belief." I think that his description is accurate:and yet the response of the academic leadership is understandable_ even if it is not always admirable. They are struggling to keep their teaching hospitals viable in an economically threatening environment. They are doing what they must do to survive. hoping that help will soon arrive and the climate will improve. They appeal for relaxation in the cutbacks in Medicare.with some modest success. and they ask for contributions to medical education from the private insurers.with no success at all. This is hardly surprising,because neither government nor private insurers are interested in initiatives that will increase health care expenditures. Moreover.the huge budgets and the lavish new facilities of many medical centers make it hard for the payers to believe that the institutions are as hard-pressed as they claim. Payers also point to the fact that many centers can solicit private philanthropic support for their academic programs,while others can call on state appropriations. What both public insurers and private insurers seem to forget is that neither of these sources can come close to replacing the enormous indirect subsidies the teaching hospitals had received through the indemnity insurance system of the past. Public funding was largely responsible for the continued expansion of academic medical centers in the past half-century, and indirect subsidies have been essential in supporting them. Now,with the recent withdrawal of much of the support. the centers must adapt and improvise to survive. To survive in a market-dominated health care system,the academic centers have had to do what any business in similar straits would do: cut their costs and increase their revenues. But cutting costs has meant reducing nursing and other professional and technical staff. This has increased the routine busy work and the clinical service burdens of the interns and the residents--not only compromising their learning time, but also raising troubling concerns about . the quality of patient care. Even in the best of hospitals.when staffing is short and doctors and nurses are too busy, mistakes are more likely. • Financial pressures on teaching hospitals have also meant the elimination of unprofitable social and community services. To increase their revenues. more hospitals are aggressively marketing and advertising in an effort to attract patients and keep their facilities as full as possible. Hospitals. even those that are part of the same academic teaching program.are not as cooperative with one another as they once were. This increases the duplication of local services and facilities. as each hospital competes for its"market share."Top hospital executives in teaching hospitals behave like beleaguered businesspeople: they are paid large salaries. employ big administrative staffs. and are judged primarily by their financial performance. Their titles, language.culture, and behavior closely resemble those in American industry. Indeed. they and almost everyone else who works in or with large American hospitals.even the most distinguished teaching institutions. now regard these hospitals as part of an"industry". Most stories in the newspapers about hospitals. even about not-for-profit hospitals.are now to be found in the business section.To blur the distinction between teaching hospitals and businesses even further. several academic medical centers have leased or sold their hospitals to investor-owned hospital chains. in an effort to escape the economic risks of the new health care market, and a few others have dissolved legal ties with their hospitals to allow the latter to compete better in the market. Business philosophy has come to influence the teaching hospitals in other ways. Seeking new sources of revenue, many academic centers contract with pharmaceutical and biotechnology companies to carry out clinical research. Such arrangements are not necessarily bad, if there are appropriate safeguards to protect the integrity and the independence of the teaching institutions and their medical staffs. Unfortunately. this is not always the case. Medical staff involvement in such contract research takes time away from teaching and financial connections with the sponsoring companies sometimes create conflicts of interest that affect the objectivity and even the credibility of clinical teachers. The proliferating connections between teaching hospitals and pharmaceutical firms are threatening the integrity of clinical teaching programs through other kinds of arrangements. Sales representatives of drug firms have always • sought to market their employers'products through visits to practicing physicians in their offices. In former times, most teaching hospitals discouraged such visits with the resident staff believing that their own faculty.and not the pharmaceutical industry, had a responsibility to educate residents and medical students about the uses of prescription drugs in medical practice. Now teaching hospitals seem eager to cooperate with the pharmaceutical industry, because the industry not only supports clinical research but also takes part of the burden of clinical education off the hospitals'budget. Sales representatives are now welcome at most teaching hospitals. They attend and support educational conferences. are present in the operating rooms to advise on the use of their companies'new surgical devices. and they lavish free meals, free trips to medical meetings and all kinds of professional gifts on residents. students.and staff in exchange for the opportunity to hawk their wares. The pharmaceutical industry is flourishing. and it has tens of billions of dollars to spend on marketing its products not only to physicians in practice. but also to residents in training at teaching hospitals. Hungry for financial support wherever they can find it. teaching hospitals are turning over increasing parts of their educational responsibilities to the pharmaceutical industry. The long-term effects of this dereliction on the quality and the rigor of the clinical education being received by medical students and residents in the teaching hospitals may be devastating. Physicians are supposed to be trusted and expert advisers to their patients on the effectiveness and the safety of prescription drugs and medical devices. They must be relied upon to judge the relative value of competing products. How can they fill this role if their practical education in the use of drugs and devices increasingly is sponsored by the companies that sell these products? The growing problem caused by the academic-industrial relationship is resulting in serious ethical dilemmas for academic medicine. In a controversial editorial,Dr. Marcia Angell, the outgoing editor of The New England Journal of Medicine,recently asked: "Is Academic Medicine for Sale?" She provoked much soul-searching in the academic community. and a renewed interest in the issue of the federal government. A subsequent commentary by Secretary of Health and Human Services Donna Shalala in the Journal indicated that the Department of Health and Human Services will be taking a much closer look at the situation. I hope that Shalala's promise will be followed by more stringent regulations. For the situation as it now stands is riddled with conflicts of interest. • It seems likely that the path we are following will be disastrous for the quality of medical education,and for the • survival of strong,independent academic medical centers. Still,the problems facing medical education are simply a part of the much broader issues confronting the American health care system. None of the health care proposals now being discussed in the presidential campaign address any of these broader issues. What we need in place of the present commercially-oriented medical market is a not-for-profit community-based health care system that provides everyone with good and affordable care, while supporting medical education and the other infrastructure necessary to advance medical knowledge and improve the quality of health services. To make this change would be a formidable task. Even assuming that we decide to undertake the effort,it would probably take at least a decade to achieve. And yet without major health reform we are not likely even to preserve the present quality of medical care or extend benefits to all our citizens. The good news is that the major hurdle is not lack of financial resources. We already spend in excess of$1.2 trillion annually on health care,or more than$4.000 per capita. That is almost certainly more than enough to provide decent acute and chronic care for everyone and adequate support for medical education. if the money were spent in a different.more socially responsive. and better organized manner. The problem lies in generating the political will to reform the present system. Opposition will come not only from anti-government and free-market advocates. but also from the powerful vested interests whose newly gained hold on the health care economy would be threatened. All these obstacles notwithstanding, I believe that a major change is inevitable, owing to simple realities. Medical care is an essential human service. It must be responsive to needs and be governed by ethical values. It cannot be successfully distributed. therefore, by unregulated market forces. Medical education is a vital prerequisite for good medical care. It.too.as Kenneth Ludmerer's masterful history so persuasively demonstrates,cannot thrive in a market-dominated system. ARNOLD S. RELMAN, M.D. is the former editor in chief of The New England Journal of Medicine and professor emeritus of Medicine and of Social Medicine at Harvard Medical School. 41) (Copyright 2000.The New Republic) • Washington Public Health•Fall 2000 ® � tinji1g, 1Market ' .. urmoll .". ... , ,. ...,.... .„ototrHealth Care System , .. �... . t . -* .iiia ,4*.'1 a Fy Lanec Heincccius With ith the 1995 repeal of comprehensive Lure. Access to health insurance is decreasing health reform in Washington State, the local while health insurance premiums rise; nearly health care system entered an era in which all health plans have lost money in recent competitive market forces, rather than gov- years and some smaller insurers have gone ernment planning, have become the dominant under; hospital margins are shrinking and influences shaping the health system's future. expected to get worse; physicians are frus- After five years of this paradigm, the results Crated with health plan interference, admit-us- are discouraging. Growing market turmoil trative burden, and constraints on their seems likely to further disrupt access to health income; and consumer trust in the health care care for vulnerable populations such as the system is steadily eroding. Government, at uninsured, rural residents, and people with both the state and national levels, has shown serious illness or chronic conditions. Such little leadership on health care in the past five disruption could increase the challenges years—although the campaign rhetoric for facing public health services. 2000 increasingly includes some health issues. III The health care "market” is defined by the Consolidation has become a major trend interactions among patients, providers,con- for health-related businesses: mergers, Somers, insurers, purchasers of insurance acquisitions, and re-formations of business (mainly employers and government), and the entities that, for the most part, are designed to complex federal and state regulatory struc- achieve economies of scale, expand market share, and make health-related companies more competitive. Health plans have consoli- Table 1: Consolidation in health plans in Washington since 1994 dated dramatically (Table 1), and additional .'''" consolidations may raise antitrust concerns. The benefits of health plan consolidation 1994 2000 have yet to become clearly evident. The ...az 1.0'n hoped-for economies of scale have not been 3 Blue Cross of Washington and Alaska k, . '4 realized thus far,as system integration •Medical Savings Corporatio1 •n Premera BlueC oss '. challenges continue to increase overhead QualMed (Eastern W) ;" S 4.4 costs. To date, major health plans are not Network Health Plan , �: ; experiencing postmerger market share growth, while new market entrants such as Pacific Health Plan PacifiCare of Washington First Choice and Community Health Plan of QualMed (Western WA) Washington have shown respectable growth. Ethix(later NYLCare), ' fi g_ `�` �...t Competition has increased, but the major Virginia Mason"Health Plan A` L'.``""4 4t"'# .? visible effect has been abandonment of ytetna'C acar. unprofitable lines of business or geographic Aetna Health Plan areas. For example, many managed care plans King County-Medical rwr. � r ,yt �K. y _ have discontinued serving rural counties, and Pierce County Medical ti �t YA`t., individual insurance remains unavailable in Good Healtli'Plan of WA 'r41-,; 't ,,;' ,:`-,r� , ; r''t; most Washington counties(as of September Clallam C ounty Physicciia� y ,''t» ,'T- . ; t ,> _ 2000). Many health plans are also discontinu- GrayskHarbor Medical .q ing their participation in government pro- Walla Walla Valley Medical 4t -ts>� {u (-.-4:,:-J,-..5-;:-..,,,,,,,,:,.,9,•:1,7,?,..,...} grams such as Healthy Options, Basic Health, 10 'tf v{. - 4f,*i ,2`,,-,'"'.: ', and Medicare + Choice. Few health plans in kagit County Medical t,,**a , edt khatcom Count Medical' r t Washington have reported an underwriting Y, '` <;,,*s�, surplus in recent years. Figure 1 presents health plan losses in Wa..h,,,g,, , I'uhlir I Iralil, ♦ Hill 2000 Percent of Premium E 1997 0 1998 U 1999 lb 15 — trend for hospitals and other providers is declining Medicare revenues due to cuts imposed by the federal Balanced Budget Act 5 of 1997. Figure 2 shows the estimated reduc- Regence PacifiCare IiOIlS in Medicare revenues for Washington • 0Li. _�jil t— 1—i iiiLY CHPW• ii hospitals. Crus will be phased in over live -5 years ending in 2002, with the largest reduc- Premera — QuolMed tions scheduled for the last three years. One u estimate suggests these cuts will represent 15 Group Health ._ roughly 2% of annual hospital expenses each year. Recent congressional action has model.- _ Aetna (VM) — ated or deferred some of those expected cuts. First Health insurance purchasers (employers Choice -25 and government) arc viewing the most recent round of health plan premium increases with — alarm. After relatively low annual increases in 35 Community Health Plan of Washington the mid-1990s,most health plan premiums are now increasing at double-digit rates. One strategy that many purchasers are consider Figure 1: Underwriting margins 1997, 1998, and 1999 for the major insurers ing, or have already adopted, is a "defined for Health Plans m Ston 1 contribution approach."The purchaser sets a in Washington State. Midyear data for 2000 fixed amount to contribute annually inward '.;l at r, I 007 to IUoU. indicate minor improvement, but mostplans the purchase of employee health benefits 'ouree: Health plan filings with the still had slightly negative underwriting mar- :_�Ificr of the Insurance Commissioner. gins at midyear. These underwriting losses do (the defined contribution) and the employee or beneficiary must make up the difference to not reflect interest earnings on reserves and purchase insurance coverage that costs more other income, which allowed most health than the contribution. In a robust economy plans to operate in the black in recent years. with a tight labor market, few employers • The net worth-to-losses ratio for several plans have been willing to shift a major portion of is problematic, however, so additional plan premium costs to employees, but many arc failures and forced consolidations may occur. already setting up the infrastructure to be Hospitals in Washington have not yet seen able to do so in the event of an economic major consolidations, with the exception of downturn. the Swedish takeover of Providence Hospital Smaller businesses are more likely to simply in Seattle. Worsening financial status may discontinue health benefits altogether in an force further consolidations(or closures) in economic downturn. One additional factor coming years. Through 1998 hospitals were worth following is whether proposed federal Figure 2: Expected reductions in actively purchasing primary care physician regulations for a patient bill of rights will \icdicarc revenues for Washing- practices,a form of vertical rather than Kori- allow employees to sue self-funded employer ton State hospitals due to the zontal consolidation. The new trend appears health plans. If this occurs, some experts Balanced Budget Act of 1997. to be for hospitals to divest or restructure predict that most self-funded plans will be Source:Washington State Hospital physician-business relationships, primarily for eliminated and that employers may instead \ssoci:uion. economic reasons. Another major economic offer their employees a voucher for purchas- ing health insurance(or possibly even health services) on the open market. 1998 1999 2000 2001 2002 In Washington State, this voucher approach $0 ,�i ; , ; t, .F%' ,, may prove difficult given the instability in the ' y Y ii " i ;, , individual health insurance market follow- $-50- •s•'4 I ing the repeal of universal access in 1995. r ,t rfti x Adverse selection, a short preexisting condi � vfcY• ,t nw. �.,;. lion exclusion period, and a requirement for $-100- ° x 1' t``' t �' guaranteed issue made this market unprofit- "f +` Sable. Citing excessive losses, the rem: health !..-.4 :-,z' ,o,. insurers offering individual health insurance $-150- t".. 'i policies froze enrollment in 1998 and I 99 ': f and refused to sell new policies. I he 2001) Legislature has provided at least a temporary • $200 ,"' r';` fix for these problems, but the longer term financial viability of individual and small- group health insurance for higher-risk tricker) $-250 — persons remains uncertain. Washington Public Health•Fall 2000 • Strains on the Rural Health Care Safety Net Implications for the Vickie Ybarra Public Health System Progressive health care policy has placed safety net providers in rural Washington State in a somewhat better position than rural providers What does this market turmoil mean for in other states. From my perspective, however, serious access issues the public health system in Washington? remain for rural residents of our state. The three primary issues I see Four potential impacts seem likely in the as most pressing to the survival of the rural health care safety net are coming years: Medicaid managed care,rural hospital viability, and health profession ■ More uninsured: Health plan abandon- development. mens of unprofitable business lines and geo- Medicaid managed care has created unique challenges in rural areas. graphic areas, combined with rapidly escalat- Even in areas that have health plans willing to contract with Medicaid, ing premiums and employers shifting more of the lack of sufficient specialty providers needed to create competition the premium costs to employees, are likely to on fees can be a serious problem.While employers and government result in an increasing number of uninsured purchasers are trying to reduce what they pay to health plans, plans persons in many areas of the state. To the operating in rural areas may not be able to pass those rate decreases extent the uninsured need primary medical along to specialty providers and so are at increased financial risk. care, they may seek services from local public Nationwide,small rural hospitals are closing at an astounding rate. health programs and local emergency rooms. Their disappearance is a concern because these hospitals represent a Handling this increased but unfunded de- vital resource for local primary care.Without a local hospital;many mand for direct service delivery could pose a primary care and specialty providers are'simply not willing to practice serious challenge to many local public health in rural areas. For example, it is difficult to recruit a physician to pro- jurisdictions, especially in the wake of 1-695, vide primary prenatal care without the._opportunity,to deliver.babies. the voter initiative that repealed the motor Although recruiting physicians may be somewhat less difficult than vehicle excise tax and cut state revenues. 10 years ago, provision of pnmai ca&e,,s'�'ecial�y#,ln'arinanagecL'eare • Barriers to access in rural areas: Even environment that emphasizes`prevention.and'continuity-of care)..:,....,- without the insurance problems, more rural requires a broad range of other health care professionals. Nurses, residents are expected to encounter access pharmacists,dentists,'dental,hygienists,'and lab technicians are also iculties if rural hospitals are forced to difficult to recruit to rural areas:To solve'this problem;we need.new,.- e due to insufficient payment levels from and creative partnerships that move beyond simplistic clinical place- , -dicare. Again, this scenario may place un- ments in rural areas and arrangements with schools to educate these anticipated and unfunded demands on local professionals.We knowthat"'healthprofessioriatudents fromirural4,*,. health jurisdictions to deal with residents areas are much more;likely torp;ac cue rural,areas.Sites that off r who have no local source of medical care. clinical placements for health profession students should have an , • Less money available for community opportunity to require the health rofes ion schoolto'actiyel recruit health programs: Many not-for-profit hos- students from their community y� k �, pitais support a wide range of community Washington State has made strides in shoring up the rural health health programs that could be jeopardized by care safety net,but to maintain it health policy must:support'small::; financial difficulties. Current programs may rural hospitals and the health.plans opeeratti g in these.areas. Health be discontinued and new programs appear policy also should encourage"health professions schools tofrecru t'{"X' unlikely given the decreases in net revenue `from rural areas.''' "` 'w' ` "�.'. ' ° ,r,f -.n .' ''';'2•-':`2'''' . anticipated at most Washington hospitals. S " a"" '1r r-,; M • Opportunities and challenges for joint Vichie Ybarra,RN.,M.P.H.,is director ofplannirig and'development at the.,..Itevileftritia ima efforts in prevention and health promotion: Valley Farm Workers Clinic in.Toppenish and a member of the Washington State Given the increasing focus of health care Board of Health. businesses on the immediate financial bottom line, the longer-term benefits of prevention and health promotion are often ignored and Recommended Reading Author sometimes refuted altogether. The challenges Barker K,Varner LK:Health insurance can still be Lance Heineccius is a health for public health programs are, first, to get the found,but remaining choices likely will be pricey, services consultant in Seattle. attention of hospitals, physicians, and health The Seattle Time,September 3, 1999,p 3. plans during these difficult times and, second, Heineccius L: Health Care Futures.Seattle:Washington to convince them that keeping their enrolled State Hospital Association, 1999,pp 78-86, 128-130. population healthier and identifying illness Tiscornia J,Baumgartner D(Arthur Andersen LLP): earlier will be financially advantageous. This The Balanced Budget Act of 1997:Effects on Healthcare will be a tough sell in the near future,as Operations,presented at The Washington State Hospi- providers and health plans look for new ways tal Association Annual Meeting,Seattle,Oct. 14, 1999. to cut costs and avoid higher-than-average- Wendleton J:Profile of Washington State Health Plans. •patients. Seattle:Washington State Hospital Association, 1999, pp 1-12. • Health Care Financing and Delivery System O An Impartial Evaluation© • Prepared for the Washington State Medical - Education and Research Foundation Prepared by Lance Heineccius and Jean Colley July 2000 ©Do not reprint without permission WashingtonStateMedical Education& 203 2033 Sixth Avenue Research Seattle,Washington: 206-441-9762 Foundation Fax 1-800 552-0612 206-441-5863 August, 2000 Wither Health Care? Few issues have stirred more passion and less dispassionate analysis than that of health care reform. While there seems to be considerable consensus that what constitutes the health care system"status quo" is not working; there is precious little consensus over what—if anything—can or ought to be done about it. With this in mind, in late 1999 the Washington State Medical—Education and Research Foundation (WSM-ERF) commissioned an independent, comparative study of health care system financing and delivery options. The goal has been to provide information that supports an informed discussion of • what might be done to restore health to our health care system—to meet the needs of our patients, our communities, and the caring physicians who dedicate their professional career to the art and science of medicine. No one system, or option, is recommended. The reader must review these options and their attendant trade-offs in the context of his or her own values, and experiences. Responses to this study will of necessity vary depending on the reader's perspective. It is our hope that this study will foster a reasoned discourse of the health care financing and delivery system options that lay before us. Washington State Medical Education and Research Foundation Board of Directors John Gollhofer, MD, President Mark Adams, MD, Chairman Nancy Auer, MD, President-Elect Maureen Callaghan, MD, Secretary-Treasurer Sam Cullison, MD, Director Jeff Collins, MD, Director Peter Dunbar, MD, Director • 7/6//00 • • Background: The road to managed care In the Northwest as early as 1916 logging companies signed contracts with physicians to provide care to injured workers on a pre-paid basis(the beginning of Washington state's medical bureaus).However,before about 1930 most patients typically bought health care services like any other good: they paid cash to the seller(for example,a physician)at the time of service.From the early 1930s to the mid-1960s a few and then more and more private-sector companies offered health insurance—at first to individuals,then increasingly, to their employers. Health insurance during this period was generally of two basic types: indemnity insurance and insurance purchased through a health care services contractor(such as Blue Shield or Blue Cross). With indemnity insurance,the patient paid the provider's entire bill for services and then the insurer reimbursed(indemnified) the patient for covered services.Patients bought health services,but usually they were ultimately financially responsible only for an annual deductible; any difference between the provider's bill and the insurer's payment;and a"coinsurance"amount(usually about 20 percent of what the insurer determined it would pay). • SYSTEM OPTIONS EVALUATION July 2000 Page 4 Introduction Most patients believed that purchasing insurance from a health care services contractor was identical to purchasing indemnity insurance, but in fact the two transactions were quite different. Health care services contractors (the original "preferred provider"organizations sponsored by hospitals and physicians) actually bought the health services, through "participating provider" contracts with physicians, hospitals, and other • health care providers. Patients could choose any provider, but they were given a financial incentive to use participating providers.The incentive: the providers agreed to accept the health plan payment as payment in full; the patient,therefore,did not receive a subsequent bill for any difference(called"balance billing").The provider also billed the health services contractor directly,so the patient did not need to pay up front nor deal with much of the paperwork hassle.The benefit design.was virtually identical to indemnity insurance,but the legal buyer of health services was the health care services contractor,not the patient. During this period an important variation on the basic health insurance transaction appeared.A small subset of the population began to receive its care from staff-model or group-model"prepaid health plans"(such as Ross-Loos and Kaiser in California and Group Health Cooperative of Puget Sound,which began in 1947).In these instances,the insurance company and the health care providers combined into a single organization,by contracting with or employing physicians and by owning hospitals. These organizations charged their enrollees a monthly premium (increasingly, paid by their employer) and delivered or authorized specified services. Patients' financial obligations were limited to paying the monthly premium. Patients could not be balanced billed by providers. The organization was the actual buyer of the health services, whether the services were delivered within the system or were authorized from external physicians and hospitals. Between the mid 1960s and the present,two major trends in buying health care services emerged and have taken hold. Each has become exceedingly complex as it evolved to try to control health care expenditures. First,in 1965 Congress created Medicare(for the elderly)and Medicaid(for the poor). Second,beginning in the mid-1970s,insurers began to offer early prototypes of managed care products in place of both traditional indemnity health insurance and traditional participating-provider health services contracting. Medicare and Medicaid began as essentially indemnity insurance programs, but rapidly escalating expenditures quickly forced the government to modify its purchasing strategy. It switched to fee schedules, • (with fees decided before services were provided)and audited providers'claims for payment.Both programs prohibited providers from billing the patient for any difference between the amount the government paid and the amount the provider was allowed to charge (so-called "allowed charges," which for Medicare may include patients' co-payments, co-insurance and deductibles). Both programs also began to monitor and intervene in the actual delivery of services, by refusing to pay for care the programs determined to be "medically unnecessary." Today, the American health care system is widely regarded as having a high degree of"managed care"— although the term's meaning varies depending on who is using it and for what purpose. The American Medical Association defines managed care as "a system or techniques that affect access to, and control payment for,health care services." Others view managed care as any form of health care delivery in which the buyer of health services seeks to intervene in the physician-patient relationship in order to reduce costs or improve the outcome of care. These are quite broad definitions. Managed care in this study includes the following features(see the Glossary for definitions and Appendix A for details): • Provider fee schedules;or • provider(physician or hospital)risk sharing,in the form of partial or full capitation;and • utilization management by the health plan(or by delegated capitated groups);and • restricted provider networks,either as closed panels or preferred providers;and • SYSTEM OPTIONS EVALUATION July 2000 Page 5 Introduction • providers who agree by contract to the health plan's utilization management methods and accept the plan's payment as payment in full,with no balance billing of patients. As health insurers have adopted managed care, as defined above,the health care system has gradually been transformed. Most critically, the actual buyer of health services in managed care has become the health insurance plan,not the individual nor the individual's employer.This point is almost universally obscured.A lack of understanding about the identity of the real buyer complicates the debate over reform, patients' "rights" to care, and physicians' complaints with insurers. Physicians and other health care providers have agreed by contract to the insurer's terms for the purchase of-those providers' health services. The terms include acceptance of the insurer's fee schedules, prohibition against balance billing the patient, and utilization management and authorization techniques that involve the insurer at the time of service in oversight of the delivery of health services. By law, the health maintenance organizations and health care services contractors are the parties financially responsible for paying providers' bills, not the patient. The person (or her/his employer) paying the premium is purchasing health insurance — not specific health services. Self-funded employers and self-funded purchasing groups (such as Taft-Hartley union trusts) are important variants on the managed-care health insurer buying arrangement. Most self-funded organizations do so because it is financially advantageous.Many of them contract with a"third-party administrator's"managed care network to offer preferred provider(PPO) products. The actual buyer in these instances is somewhat murky:the ultimate financial responsibility remains with the self-funded employer or group,but it has"hired" the network to contract with providers on its behalf. If there is a dispute,it may be difficult for the patient or the physician to know exactly who to deal with. Another important variant on the managed-care insurer buying arrangement involves organized provider groups that accept"capitated" payments (a fixed amount of money per month per enrollee) and in return • agree to be financially responsible for delivering specified health services to those enrollees.Here the buyer becomes very fragmented. The managed care insurer buys the services delivered within the provider group. However, whenever the group needs services for a patient that it does not directly provide, the group must buy those services. For example, the capitated group might not directly provide subspecialist and hospital care, but under a"global"capitation arrangement the group is still financially responsible for these services and therefore must buy them from someone.Finally,the managed-care insurer can separately buy services not included in the capitation payment. The complexity of these financial arrangements makes them extremely difficult to administer and difficult for patients and providers to understand. (See discussion below on Payment Incentives.) The final variant in the current system blends government-sponsored programs and private managed care. The government contracts with managed care organizations that assume financial responsibility for buying (or delivering)covered,needed health services.For example in Washington,state government contracts with managed-care insurers for Medicaid clients enrolled in the Healthy Options program.The contracted insurer (not the government) is the actual buyer of health services and negotiates its own financial arrangements(for example, paying fee for service or capitation) with providers. The blending of government purchasing and managed care has resulted in even more complexity than either model taken separately.Please see Appendix A for additional details. Payment Incentives There has been extensive debate during the past decade about how different payment methods might influence the amount and kind of care physicians and other health care providers deliver. In particular, capitation and fee schedules have been much discussed as offering differing financial incentives to physicians. However, in Washington state,capitation appears to be in decline,apparently because of too-low capitation • rates for the risks providers are being asked to assume.Please refer to Appendix A for a detailed discussion of the major pros and cons of capitation versus fee schedule provider payment.In this report, these terms are SYSTEM OPTIONS EVALUATION July 2000 Page 6 Introduction used with the critical assumptions that both methods ofpayment are properly funded and structured to avoid perverse financial incentives(e.g., to withhold care)and provider resentment. 410 Insurance Basics The current health care system is financed primarily by health insurance,paid for by consumers,employers, and government If insurance coverage were totally eliminated and health care costs were paid with cash,any moderately serious illness or injury could be financially devastating to all but the wealthy.This study does not directly examine a return to a strictly cash-based market for buying all health services.In fact,"pooling risk" underlies all the scenarios considered here. Insurance is based on the principle of pooling the modest premiums of a large group of people to cover the much smaller subset of people who require costly health care in any given year.Everyone in the larger group,sick or well,who pays a premium to the insurer becomes part of the"risk pool." The insurer then pays the health expenses (assuming they are for covered services) incurred by anyone participating in that risk pool.For the insurer to maintain reasonable premium levels,most people must incur low or no expenses in a given year.When that happens,there are enough funds to cover the high expenses of the few people.In any year,about 80 percent of the people incur roughly 20 percent of the health care costs, and the remaining 20 percent incur about 80 percent of the costs. In a normal employer- sponsored health program,the most expensive halfpercent of the group often can incur between 25 and 30 percent of total expenses. (For seniors, the distribution of costs is nowhere near as extreme, but the same principles apply.) Risk pooling is most advantageous to sick people, least advantageous to healthy people. However, healthy people don't necessarily remain healthy, nor do the sick necessarily remain sick. Nonetheless, many people find it reasonable to participate in risk pools, knowing that while they may be healthy now,that may not be the case in the future. "Adverse selection" can occur when people can choose which insurance plan they participate in or can choose not to participate at all.People with few or no health problems might choose a tightly managed plan or a catastrophic plan(with either choice,perhaps because they think they will not use it),and those with more • health problems might choose a plan with easier access or more generous benefits. Without any countervailing action,the plan with"too many"sicker people will,over time,fail to collect enough in health premiums to cover the claim costs. Larger employers,with the help of actuaries and in cooperation with health insurers,may attempt to mitigate the effects of adverse selection by adjusting the premiums for both the tightly managed and more open access plans. The premiums of the tightly managed plans might go up a bit and the premiums of the more open access plan might go down a bit—no longer reflecting either group's true use of health care,but keeping the employer's employees(and dependents) in a single risk pool. Employers might take that action(called"risk adjustment") to ensure that employees have a choice of plans. Without risk adjustment, some plans would eventually refrain from offering coverage when they recognized they had encountered adverse selection. However,there is no technique to compensate for healthy individuals who decline coverage altogether,except to raise premiums for those who remain in the risk pool. As premiums rise, additional healthy people drop insurance coverage, leaving a yet smaller, sicker group of people to pay for the total costs of care. The individual market in the state of Washington has experienced this phenomenon over the past two to three years. Please refer to Appendix A for additional details. SYSTEM OPTIONS EVALUATION July 2000 Page 7 • Appendix A DESCRIPTION OF THE CURRENT SYSTEM Introduction Prior to examining various potential new models for financing and delivering health services, it is useful to explore how the American health care system functions currently. This appendix presents a quick overview of how the current system has evolved during the past 70 years, and then evaluates the current system using the same set of eleven evaluation criteria that are used to evaluate the models presented in the rest of the report. Identifying the buyer of health services serves as a useful mechanism for considering the advantages and disadvantages of various potential approaches for the financing and delivery of health services in America. The basic models were defined by answering the economic question, "Who is the buyer of health care services?" That same approach is also a useful tool in examining how the current system has evolved over time. II Evolution of the Current System In the distant past (before 1930), most health care services were bought like any other good or service: the buyer(the patient)paid cash to the seller (for example, a physician) for the service(s) rendered. This simple economic transaction is depicted in Exhibit A-1 below, with the buyer of the service shown shaded, and the flow of payments in gray arrows. Exhibit A-1 Buying Health Services—Pre-1930 EPAService and Bill f .) TIENT PROVIDER (Physicians,plus Hospitals,Others) Payment(Cash) The major exception to this simple buyer/seller transaction in Washington state was the evolution of physician collectives to provide contract care for industry, beginning with the logging industry and expanding to others during the first third of the 20th century. Physicians in Tacoma, Spokane, and then other towns began offering contract care for industrial • accidents to the State Department of Labor and Industries, marking the origins of county level medical bureaus in which nearly all physicians participated. Large clinics, such as the Virginia Mason clinic in Seattle, also began to offer contract care for industrial accident victims. During, the Depression, all the newly-created federal programs (WPA, CCC, etc.) A..endix A Jul 2000 Page A-1 Evolution of the Current System included health benefits and the physician collectives extended their contract care to cover 10 persons working in these programs. Under contract care, the buyer was the government, which paid physicians and other hospitals on a fee-for-service basis to provide needed care. In the 1930s, the federal government worked with the state medical association to develop fee schedules for these contract care programs. From the early 1930s through the mid-1960s, this concept was expanded to include most large employers purchasing health insurance through the county medical bureaus (which became affiliated with the national Blue Shield organization) and through Blue Cross, developed by the hospital industry. A variety of private-sector insurance companies also began offering health insurance at first to individuals, then increasingly, to their employers. Health insurance during this period was generally of two basic types: indemnity insurance or insurance purchased through a health services contractor. In indemnity insurance,the patient first paid the entire provider's bill for services and then was reimbursed (indemnified) for covered services by the insurer. Usually the amount reimbursed by the insurer was capped at "usual, customary, and reasonable" provider fee levels. Patients were still the buyers of health services,but usually they were financially responsible only for an annual deductible, coinsurance (usually at 20 percent), and any difference between billed and allowed charges. The insurer was financially at risk for the covered services, but the patient was still ultimately financially responsible for paying the full bill. Over time, however, most providers were willing to write-off the difference . between billed and allowed charges because it was originally fairly small. The normal indemnity insurance-based health care transaction of this period is depicted in Exhibit A-2 (using the same color coding as previously). Exhibit A-2 Buying Health Services—Indemnity Insurance Service and Bill Initial Cash Pa ment PATIENT � PROVIDER (Physicians,plus Deductible and Coinsurance, Hospitals,Others) plus any UCR difference WorkPatient Reimbursement(at UCR) (Benefits in Submits Bill lieu of wages) to the Insurer EMPLOYER INSURER Premium • Appendix A July 2000 Page A-2 Evolution of the Current System s Purchasing health insurance from a health care services contractor(typically Blue Shield and Blue Cross organizations during this period) was perceived by most patients as identical to indemnity insurance but, in fact, was quite different. Health care services contractors were the actual buyers of health services, through participating provider contractual agreements with physicians, hospitals, and other health care providers. Patients still had the right to chose any provider, but were given a financial incentive to use participating providers since those providers agreed to accept health plan payment as payment in full, eliminating balance billing. The provider also billed the insurer directly, eliminating the need for an up-front payment and much of the paperwork hassles. Over time, the participating providers under contract with local Blue Shield and Blue Cross plans came to include nearly all providers in the community. The benefit design was virtually identical to indemnity insurance: an annual deductible and 20 percent coinsurance. Patients (and their employers) were still purchasing health insurance, but the legal buyer of health services was the health care services contractor, not the patient. This relationship is depicted in Exhibit A-3, again using the same color scheme to identify the buyer of services. Exhibit A-3 Buying Health Services—Health Care Services Contractors -.. • II Service Participating PATIENT PROVIDERS 00. ' (Physicians,plus r—' Hospitals,Others) Deductible and Coinsurance .....,) Contractual Agreement to Payment Provider accept allowed charges Work Submits Bill with no balance billintr (Benefits in �• lieu of wages) to the Insurer HEALTH CARE SERVICES EMPLOYER CONTRACTOR 2 Premium During this period an important variation on the basic health insurance transaction appeared. A small subset of the population received their care from staff-model or group-model "prepaid health plans" (such as Ross-Loos and Kaiser in California, or Group Health Cooperative of Puget Sound, which began in 1949). In these instances, the insurance company and the health care providers combined into a single organization, either by • contracting with or employing physicians and by owning hospitals. Persons enrolled in these organizations were charged a monthly premium (again, increasingly paid by their employer) and were only covered for those health services delivered or authorized by the organization. Enrollees paid no deductibles or coinsurance, although over time they began to be charged a Appendix A July 2000 Page A-3 Evolution of the Current System copayment for specific services (such as $5 for a physician office visit or $25 for an • emergency room visit). Patients were not directly financially responsible for paying for specific services, as long as they paid their monthly premium. Patients could not be balanced billed by providers; the organization was financially responsible for buying all covered health services. The organization was thus the actual buyer of the health services,both for those services delivered internally and for those authorized from external physicians and hospitals. Before 1970, this type of health plan was a very small portion of the system. The staff or group model prepaid health plan variation is shown in Exhibit A-4. Exhibit A-4 Buying Health Services—Prepaid Health Plans INSURER-PREPAID HEALTH PLAN, SALARIED or CONTRACTED Premium EMPLOYER PROVIDERS (Physicians and Others, often owned Hospitals) Work (Benefits in lieu of Wages) Services ''1ir Referrals iirPayment(contract rates) • /Copayments PATIENT ♦� Services,but only as OTHER Referrals, or PROVIDERS in emergencies . (Specialists,plus / Hospitals,ER Care) Copayments The period 1966 through the present saw the emergence of two major trends in the buying of health care services, each expanding over time and becoming exceedingly complex as it evolved to meet the challenges of keeping expenditures under control. In late 1965 Congress enacted Medicare and Medicaid as the foundation cornerstones for President Lyndon Johnson's Great Society. That launched the first major trend: the creation of government entitlement programs for the elderly and the poor. Beginning in the mid-1970s, insurers gradually began to offer managed care products in place of traditional indemnity health insurance and traditional participating provider health service contracting. That launched the second major trend: managed care. Each of these buying approaches is summarized below. The government's participation in the purchase of health services fundamentally changed the nature of that buffing arrangement. The patient was no longer directly financially responsible for all the covered services. Under Medicare, the patient's financial responsibility was limited to an annual deductible for institutional services,plus an annual premium and a 20% coinsurance for professional services. Some services,however (notably prescription drugs), Appendix A July 2000 Page A-4 Evolution of the Current System • were not covered at all under Medicare. Under Medicaid, the patient had no financial responsibility and a much broader set of services were covered. Although both programs began as essentially indemnity insurance programs, rapidly escalating expenditures quickly forced the government to purchase services more aggressively: first through micro-audited, cost-based reimbursement and then, by the mid-1980s, through prospectively set fee schedules (using Diagnosis Related Groups, or DRGs, for hospitals and a resources-based relative value scale, or RBRVS, for payments for physicians and other professionals). Both Medicare and Medicaid also used their purchasing leverage to prohibit providers from balance billing the patient for any difference between the amounts they paid and the amount the provider charged. In addition to controlling the payments, Medicare and Medicaid also began monitoring and intervening in the actual delivery of services, forming Professional Standards Review Organizations (PSROs—later to become Peer Review Organizations, PROs) to detect, and disallow payment for, medically unnecessary care. The only way for - providers to avoid these utilization management and payment restrictions was to decline to participate, not a viable option for most health professionals and virtually all hospitals. A diagram of Medicare and Medicaid as buyers of health services is shown in Exhibit A-5. Exhibit A-5 Buying Health Services—Traditional Medicare and Medicaid Oversight / PRO Oversight of of Services UM Services Services PROVIDER (Physicians,plus Hospitals,Others) Services Medicaid Medicare PATIENT ''� Deductible• PATIENT and coinsurance Payment Eligibility- (fee schedules) 65 or over, disabled, nrl stave renal dis Eligibility—Many Categorical Requirements Annual Premium For Part B Only GOVERNMENT (Federal=Medicare) Contract for Utilization Contract for Utilization (Federal/State=Medicaid) Management,plus Management In-House UM as well The transformation of traditional health insurance into managed care (or, as some argue, managed cost) has occurred gradually, mainly during the period 1980 to 2000, with some foreshadowing well prior to 1980 and some vestiges of traditional indemnity insurance lingering on beyond 2000. The health care system has changed extensively as a result of managed care, but the critical point is that the actual buyer of health services has hernme the health insurer,rather than the individual or the person's employer. This point is almost universally obscured. A lack of understanding about the identity of the real buyer complicates the debate over reform, over patients' "rights" to care, and physicians' complaints with insurers. Health care providers agree by contract to the insurer's terms for Appendix A July 2000 Page A-5 Evolution of the Current System the purchase of health services, to give the providers more patient volume and predictability. • These terms include acceptance of the insurer's fee schedules, prohibition against balance billing the patient, and utilization management and authorization techniques that actively involve the insurer in day-to-day oversight of the delivery of health services. This last feature (utilization management or UM) is frequently the source of disputes between provider, patient, and health plan—and has often led to the criticism that managed care is really only managed cost. In summary, payer control of the purse strings has led to increasing intrusion into the practice of medicine, usually in the name of cost containment. By law, the health maintenance organizations and health care services contractors are the parties financially responsible for paying providers' bills, not the patient. The person(or her/his employer) paying the premium is purchasing health insurance -- not specific health services. The actual buyer of the health services is the managed care health insurer. The diagram of buying health services under managed care is presented in Exhibit A-6 below. Note that rather than dealing with a single insurer(for Medicare) or one insurer per state (for Medicaid), providers must deal with dozens of managed care insurers and product variations. Exhibit A-6 Buying Health Services—Managed Care HEALTH PLANS EMPLOYER Premium • nrollment Contract for A Payment Utilization Work Management (fee schedules, (Benefits in /Utilization capitation,or lieu of Wages Management Billing and discounts)with Company(mayContractual no balance billing be internal at Agreements health plan) ...... /rsight of Services Rervicec PROVIDER PATIENT 4 — (Physicians,plus Hospitals,Others) Deductibles and copayments ......j Self-funded employers and self-funded purchasing groups (such as Taft-Hartley union trusts) are one important variation on the managed-care insurer buying arrangement. Most self- . funded employers (or Taft-Hartley trusts) contract with their third party administrator's managed care network to offer preferred provider(PPO) products. Most indemnity health insurers have also jumped on the PPO bandwagon, rather than contract directly with providers (in Washington, at any rate). The actual buyer in these instances is somewhat ill murky: the financial responsibility remains with the self-funded group (or the premium- paying purchaser through the indemnity insurer), but they have "hired" the network to Appendix A July 2000 Page A-6 Evolution of the Current System • contract with providers on their behalf. A very few large employers (or coalitions of employers) have attempted to build their own managed care networks by directly contracting with providers. In Washington, only the state/public employees through the Uniform Medical Plan have created their own contractual network. If there is a dispute in these types of arrangements, it is difficult for the provider to know exactly who to deal with in many cases. A diagram of the self-funded purchasing variation is presented in Exhibit A-7 below. Exhibit A-7 Buying Health Services—Self-Funded Employer Using a PPO Services PATIENT (Comments) PROVIDER (Physicians,plus Hospitals,Others) TPA Work (Benefits in lieu Payment Rules of Wages) Contractual Agreement to accept payments with Payments no balance billing,etc. Self-Funded PPO EMPLOYER Network Vendor Network Access Fee Note: Depending on the contract,providers may either bill the PPO,where the claim is re-priced and then sent to the TPA,or the provider may bill the TPA directly. Striped shading reflects mixed responsibility for buying health services. Organized provider groups accepting capitation (in part or in whole) for the financial risk of delivering all necessary health services to a defined population is a second important variation on the managed-care insurer buying arrangement. The buyer in this instance becomes very fragmented, depending on the services included in the capitation amount and the services the provider group can deliver directly. The managed care plan is the buyer of those services not included under the capitation arrangement, and also the buyer of those capitated services delivered within the provider group. However, to the extent a provider group needs to buy capitated services outside the group, the group then becomes the buyer of those services. For example, subspecialist and hospital care may not be delivered by the capitated group, but under a global capitation arrangement the group is still financially responsible for these services and is therefore the buyer of the services. The complexity of these financial arrangements makes them extremely difficult to administer, and difficult for patients and providers to understand. Their complexity creates suspicion about motives, including providers' motives, and indeed makes them difficult to even diagram. A simplified diagram of a capitated buying arrangement is presented in Exhibit A-8, on the next • page. Appendix A July 2000 Page A-7 Evolution of the Current System Exhibit A-8 • Buying Health Services–Capitated Provider Groups Per Member Per Month (PMPM)Capitation Payment Risk Bearing Entity CAPITATED (Health Plan Insurer) PROVIDER (Physician Group) Non-Cap 41. Service Service Providers Referrals and Copayments - Payment for Premium l Copayments Authorized Services Coverage Eligibility —tgProviders (work or govt. program) PATIENT OTHER Purchaser PROVIDERS (employer, Services Authorized by the (Specialists,plus Capitated Provider Group Hospitals,Others) government) • Note: The above is greatly simplified and does not show billing and other information exchange, utilization management activities,nor any details on how non-capitated services(carve-outs such as pharmacy or mental health)are covered outside the basic capitation arrangement). The final variation in the current system blends the two major trends of the last generation, government-sponsored programs and managed care. Under the blend, the government no longer directly buys health services for its beneficiaries. Instead it contracts with managed care organizations to be financially responsible for buying (or delivering) covered, needed health services. Examples in Washington include health plans contracted with Healthy Options for Medicaid, and Medicare "risk" plans for Medicare Part C. The government (primarily the federal Health Care Financing Administration—HCFA—which oversees Medicare and Medicaid) defines the covered services and sets at least some standards and rules (such as the prohibition against balance billing), but each contracted health plan is the actual buyer of health services. Each plan can (and does) negotiate its own financial arrangements with providers, including capitation, fee schedules, ownership of physician practices and hospitals, etc. The blending of government purchasing and managed care has resulted in even more complexity than either model on its own, although it did give government the desired predictability of expenses (at least initially). A simplified diagram of this arrangement for buying health services is shown in Exhibit A-9 on the next page. • Appendix A July 2000 Page A-8 Evolution of the Current System • Exhibit A-9 Buying Health Services—Medicare/Medicaid Managed Care HEALTH PLAN Or (Risk Bearing Insurer) Premium GOVERNMENT (Medicare Part C, Medicaid Healthy A nntions) ontract for rollment Utilization Management Payment /Utilization Billing and (fee schedules, Eligibility Management Contractual capitation, or For Medicare Company Agreements discounts)with or Medicaid (may be internal no balance billing Nt health nlanl Oversight of Services Services PATIENT PROVIDER (Physicians,plus Part B _* Copayments(Medicare only) Hospitals,Others) Prem. m - . Me care There is no single "best" system for the financing and delivery of health care. Each approach has its strengths and weaknesses. In evaluating potential options for the future, it is important to recognize that there will not be a "magic bullet" that will solve all the problems and fully meet the needs of all patients, physicians, purchasers, and insurers. As described in the body of the report, this study examines two basic models for the financing and delivery of health services, each with one or more variations (or scenarios). The basic health care financing and delivery models examined in this study are: 1. a single purchasing system or entity 2. market-based purchasing models Each model and its major scenarios are defined and evaluated in detail in subsequent appendices. Prior to examining the new models for financing and delivering health services, it is useful to evaluate the current system using the same set of eleven evaluation criteria that are later used to evaluate the models. This is presented in the remainder of this appendix. • Appendix A July 2000 Page A-9 Evaluation of the Current System 411 The current health care financing and delivery system in Washington is a blend of regulatory and market-based models, with little overall coherence and wide diversity in terms of covered services, administrative requirements, and payment levels or methods. The current system therefore includes a complex mix of virtually all the exhibits presented in the prior section of this appendix. The current system model is included here primarily as a reference standard for comparing the other scenarios (i.e., are they better or worse than the current system with respect to a specific evaluation criterion or element under consideration). The current environment is characterized by: • Many health care businesses, each primarily optimizing its own financial bottom line. • Many competing insurers and insurance products that fragment the community risk pool and apply different requirements in their approaches to buying health services. • Ongoing debate over broad health care policy at the national level, and debate at the state level over more micro issues (such as prompt payment, a patient bill of rights, reviving individual insurance, and monitoring provider/insurer contracts). • A confrontational regulatory policy by the State when dealing with health insurers. • Increasing reports of the public's disenchantment with managed care. The current system is widely regarded as having a high degree of"managed care" — although what that term means depends to a great extent on who is using it and for what purpose. Nonetheless, it has become a convenient (if misleading) shorthand to refer to the current system as a managed care system. The American Medical Association defines managed care as "a system or techniques that affect access to, and control payment for, health care services." Another view is that managed care is any form of health care delivery in which the buyer of health services seeks to intervene in the physician-patient relationship in order to reduce cost or improve the outcome of care. These are quite broad definitions, and avoid the operational details. "Managed care" as the term is used in this study includes the following features: • provider risk sharing, in the form of partial or full capitation (often with some service exceptions such as the costs of pharmacy prescription drugs, out-of-area care, long-term care, mental health services, etc.); or • provider fee schedules, such as the DRG (for hospital inpatient) and RBRVS (for practitioners) prospective payment systems, and increasingly, buyer-defined fee schedules for hospital outpatient care, home health care, and other services; and • utilization management activities by the health plan (or delegated to capitated groups), including specialist referral and hospitalization pre-authorization, continued stay hospital review, case management for high-cost patients or services, and/or pharmacy formulary1111 restrictions; and Appendix A July 2000 Page A-10 Evaluation of the Current System . • restricted choice of providers, either as closed panels (for HMOs), contracted preferred providers (PPOs), or point-of-service options (POS) in which enrollees can use non- network(non-HMO or non-PPO) providers but with a higher level of cost sharing; and • contracted providers who have agreed to the managed care requirements of the health plan, most notably adherence to utilization management requirements and acceptance of the negotiated payment as payment in full with no balance billing of patients. It is not the purpose of this study to evaluate manage care. It is a useful prerequisite, however, to assess the major pros and cons of capitation versus fee schedule provider payment using the eleven study criteria. This analysis is illustrative of the important differences between these two payment approaches and also helps simplify the overall assessment of the current system presented later. This report uses the terms capitation and fee-for-service as shorthand for the complex financial incentives described below. The major pros and cons of capitation versus fee schedule payment, assuming both are properly funded and structured to avoid perverse financial incentives and provider resentment, are as follows: Advantages 1. Access to Care • Capitation: incentives to keep patient healthy, emphasize prevention. • Fee schedule: financial incentives to promote more care, longer visits, additional services to ensure patient gets all needed care. Disadvantages • • Capitation: financial incentives for provider to spend less time with the patient, minimize recall visits, delay or not refer to specialists. • Fee schedule: financial incentives for over-treatment, although the elaborate E and M coding requirements for physicians to justify their treatment are designed to counteract incentives to over treat. Advantages 2. Patient Autonomy • Capitation: none apparent;provider may feel "ownership" of patient • Fee schedule: no reason for physicians to under-treat. Disadvantages • Capitation: little or no ability to seek services without PCP approval; choice of hospitals, specialists limited to sub-contracted ones. • Fee schedule: financial incentives for over-treatment, unneeded recalls. Still may have no ability to seek outside services without PCP approval; choice of hospitals, specialists limited to network providers. Advantages 3. Physician Clinical • Capitation: utilization management delegated to physicians, fewer Decision-Making outside hassles from health plan over treatment decisions, referrals. Autonomy • Fee schedule: some potential for physicians to be paid more for putting in extra effort for patients with more difficult problems. Disadvantages • Capitation: financial incentives for provider to spend less time with the patient, minimize recall visits, not refer to specialists. • Fee schedule: health plan may question treatment decisions,require referral authorizations,pre-approval for hospitalization, etc. Appendix A July 2000 Page A-11 Evaluation of the Current System Advantages • 4. Covered Services • Capitation: incentives to give uncovered services to keep well, gives provider a sense of"ownership," gives patient a medical home. • Fee schedule: incentives for encouraging more care, longer visits, additional services to ensure patient gets all needed care. Disadvantages • Capitation: subcapitation arrangements may create gaps in coverage, despite theoretical coverage on paper; carve-outs hurt coordination. • Fee schedule: less care coordination,just limited to covered services. Advantages 5. Quality of Care • Capitation: medical group more likely to work as a team,with stronger and more effective peer review, since all share the risk. Greater chance for coordination of care, due to tracking of referrals. • Fee schedule: incentives for encouraging referrals, longer visits, additional services and tests to ensure patient gets quality care. Disadvantages • Capitation: may be harder to measure quality if services are not tracked because they do not need to be billed; financial incentive to under-treat, avoid needed referrals, do out-of-scope services. Subcapitation arrangements may create gaps in coverage, despite coverage on paper; carve-outs limit coordination of care, tracking. • Fee schedule: financial incentives for over-treatment; greater ability for poor quality to remain undetected if there is less peer review. Advantages 6. Funding Sources • Capitation: incentives to keep patient healthy, to stretch funding. • Fee schedule: does not require larger patient pool to spread risk. (The underlying assumption for this Disadvantages • Capitation: requires a large number of capitated lives in the pool comparison is that the over which to share risk. Small numbers capitation is impossible, funding is adequate in both payment methods.) creating severe problems for capitated systems in most rural areas. • Fee schedule: incentives to over-treat; may waste resources. Advantages 7. Spending Impacts • Capitation: if group can self-administer and excel at delegated managed care functions, can capture most of available premium. Payment is prospective, with minimal delays, and budgeted. • Fee schedule: with streamlined, electronic billing and claims adjudication,providers can achieve low administrative cost structure. Disadvantages • Capitation: often duplicates administrative functions of health plan; challenging and costly to develop needed infrastructure. The magnitude of incurred but not reported(IBNR)claims can be unrecognized, often leading to financial difficulties or collapse. • Fee schedule: financial incentives for over-treatment require utilization management programs; claims administration costs are often quite high if health plan legacy systems are outdated. Prompt payment from health plan may be an issue for many providers. • Appendix A July 2000 Page A-12 Evaluation of the Current System • 8. Medical Practice Advantages Financial Viability • Capitation: if group can self-administer and excels at delegated managed care functions, can capture most of available premium. (The underlying Payment is prospective,with minimal delays, and predictable. assumption for this • Fee schedule: no down-stream risk of unanticipated financial comparison is that the obligations due to IBNR or health plan settlements. Working harder funding is adequate in leads directly to increased patient revenues. No reserves needed. both payment methods.) Disadvantages • Capitation: very costly for physician groups to develop the needed infrastructure. Incurred but not yet reported (IBNR) claims can lead to unanticipated financial crises. Settlements require time and effort, and may require huge, unbudgeted payouts. Poor advance planning, inadequate reserves, can lead to bankruptcy. • Fee schedule: prompt payment from health plans may be an issue for many providers. Fee schedules may be inadequate to cover costs. Advantages 9. Incentives to Improve • Capitation: incentives to keep patient healthy,emphasize prevention. Health • Fee schedule: incentives for encouraging more care, longer visits, some potential to be paid more for health promotion, education. Disadvantages • Capitation: financial incentives to attract healthier patients, and also • to discourage sicker ones from joining capitated risk pools. • Fee schedule: few financial incentives for prevention,unless billable. Advantages 10. Administrative • Capitation: burden is minimized if delegated functions work well. Functions • Fee schedule: may be fairly minimal,with some health plans. Disadvantages • Capitation: can be a nightmare to administer if poorly designed. Annual reconciliations between the health plan and the capitated group can be acrimonious. Also requires all the functions below. • Fee schedule: requires detailed billings,health plan requires data supporting all treatment decisions,referral authorizations, pre- approval for hospitalization, annual credentialing process. Advantages 11. External Societal • Capitation: incentives to keep patient healthy are attractive. Factors • Fee schedule: public concerns over capitation make appealing. Disadvantages • Capitation: financial incentives for under-treating, not referring to specialists now commonly reported in print, entertainment media. Failures of capitated medical groups are now an increasing concern. • Fee schedule: financial disincentives for active prevention and health promotion meld with public concerns about high costs of health care. • All the above considerations can be disputed by specific examples and individual anecdotes. In general, however, the above findings summarize the general public perceptions and Appendix A July 2000 Page A-I3 Evaluation of the Current System available research about the pros and cons of capitation versus fee schedules for physician , payment. Note that the assumption of adequate funding is critically important in either payment method: in an inadequately funded system, all the advantages outlined above are generally lost, while the disadvantages are considerably heightened. The key features of the current system, using the same framework that will be applied to the other scenarios, include the following: • No universal insurance coverage—About 12 percent of Washington residents (540,000 persons) are uninsured despite numerous efforts to extend coverage, such as the Basic Health Plan, the Children's Health Initiative, and Kids.Health.2000. Other states, and some counties in Washington, have much higher rates of chronic uninsured. Note also that being "insured" does not imply standardized or comprehensive coverage. Many people are under-insured or simply not covered at all for the specific health services they may need. This is especially true for those with chronic conditions or people requiring specialized medications. The current system works well for many, but not for all. • Managed care features—All of the features of managed care described earlier are in use in the current system, in a complex array of combinations. There is no uniformity. • Government programs for those not covered by employer-sponsored programs— Medicare, Medicaid, the workers' compensation program and other government programs are designed to cover the gaps in voluntary employer-sponsored coverage. Funding for these programs is a continuing challenge as the number of people without employer • - sponsored coverage grows (as it is expected to do if the economy slows). • No overall budget for health services—The amount of money spent on health care (and health insurance) is based on millions of individual decisions about what coverage to buy, what payment rates to accept,how to monitor and control utilization, and when and where to seek care. A wide range of differing deductible, coinsurance, and/or copayment levels exist,based on benefits design and health plan requirements. This is a major difference between the market-based and government-designed purchasing scenarios: the former are market, not budget, driven. The current system is a mix,but that means there is no overall budget for health care. • Wide variations in covered services and cost-sharing levels—Consumers select providers and health plans whose prices they can afford, and employers demand managed care insurance products that control costs. There are no standards for insurance coverage overall, although state government does regulate insured products and has a minimum set of legislatively mandated benefits. This is another major difference between market- based and government-designed purchasing scenarios: in market-based scenarios and the current system there is no core or minimum set of health services that are guaranteed to be covered for all persons. Insurers also segment risk by benefits design, forcing those needing specific high-cost conditions to purchase different, more expensive, coverage, while being able to offer healthier persons competively priced, lower-priced insurance. • Wide variations in health insurance products —Due to the above factors,health 411 insurance products vary by carrier, product line, benefits design, and cost sharing levels. Appendix A July 2000 Page A-14 Evaluation of the Current System 1110 Employers and individuals are the purchasers of these insurance products, which are designed and priced to attract the good risk and avoid the bad risk. Policies must cover the costs of services and benefits administration, potentially with cross-subsidization among all products offered by the same carrier. These differences, in turn, lead to wide variations in payments to providers. • Health plans are the main buyers of health services—The current array of health service buyers has managed care health plans as the direct buyer for most services, except for government programs like traditional Medicare, SSI Medicaid, workers' compensation, and the state Uniform Medical Plan, all of which buy services directly. This situation results in significant complexity confronting health providers, since each buyer uses different payment methods and rates, as discussed below. • Many different payment methods—The current array of payment methods is staggering, and even where similar methods are used(e.g.,DRGs or RBRVS), individual health plan policies make them all different(not only in payment, but in issues like service bundling and allowable costs and services). A multitude of fee schedules, some capitation, and a wide variety of patient cost-sharing and billing requirements will continue to proliferate under the current system. • Almost no ability to balance bill patients—Medicare, Medicaid, workers' compensation, and health plan managed care contracts prohibit balance billing, beyond . pre-defined patient cost-sharing requirements. A few indemnity-style insurance patients, and self-pay patients, may continue to be balance billed(although what full billed charges are based on in the current system becomes increasingly unclear over time, given discounts and a lack of consistent cost accounting among providers). • No administrative uniformity—The current array of payment and care management methods is almost overwhelming to physicians and other providers, especially to those without large, computerized managed care and billing support functions. A multitude of redundant credentialing requirements, referral authorization requirements, fee schedules, annual capitation reconciliations, and patient cost-sharing and billing requirements will continue to be the norm under the current system. Managed care may implode under its own paperwork burden if the current trends toward complexity continue. • Many different standards of quality—There are multiple definitions and standards for quality, depending on the buyer. External credentials (e.g., NCQA or JCAHO accreditation)may become accepted proxies for quality of care in the future, allowing at least some standardization of requirements. • An active role for employers in defining covered services and paying for insurance— Under the current system, the employer's role continues unchanged from the past, although the financial risk for unacceptably high costs is increasingly shifted to the employees. Self-funded health benefits are common for most larger employers (over 250 employees),_although a federal-level patients' bill of rights may bring this to a rapid end. • Benefits consultants and insurance brokers are needed to help design and administer the employers' programs, and help with the selection of the employer-selected health plans. Appendix A July 2000 Page A-15 Evaluation of the Current System ___ • Continued government role funding special needs— Services and functions that serve • the public good but which are increasingly threatened in the current system are funded mainly via a wide array of government programs. These include funding for medical education, medical research, federally qualified health centers, children with special health needs, public health services and functions, critical access hospitals, and many similar federal, state, and local programs. A schematic model of the current system, from the perspective of physicians and patients in Washington state, is likely to look similar to Exhibits A-10 and A-11 on the following pages. Exhibit A-10 displays the buying arrangements for the private sector (about 60 percent of the total system) and Exhibit A-11 presents government entitlement programs. i • Appendix A July 2000 Page A-16 Evaluation of the Current System • Exhibit A-10 Current System Part 1 —Employer-Based/ Individual Insurance, and Individuals Select Plans t 1 4111111100.. and Pay Insured4011011111.11111111111114%60. Premiums HEALTH PLANS EMPLOYERS /(Tim...) — Enrollment / / Payment Work Partial / (fee schedules, Premium? / capitation, le (Benefits in Billing and discounts) or with lieu of Wages / Contractual /Services Agreements no balance billing b .i Patients h .• PROVIDERS Deductibles and copayments • (Physicians,plus \\**"------) Hospitals,Others) i • ' 71 Payment 0 Billing and (fee schedules, Services Contractualif capitation,or Patients Agreements discounts)with no balance bills TPAs0 Work i/ #(BeonfeWfit:: : ilieu Services premium? Payment Rules V Patients Choice Managed Care Payment (Individual Health Plans •'4., Insurance) Self-Funded Contractual Premium EMPLOYERS Agreements PPOs Services etwork Access Fees Network Vendors Uninsured Note: Depending on the contract, Payment providers may either bill the PPO,where Patients the claim is repriced and then sent to the TPA, or the provider may bill the TPA directly. Striped shading shows mixed buying responsibility. _ 0 .. Note: Billing,payment and utilization management are shown as single lines for simplicity; in reality,they are different for each payer or health plan for each patient population. Appendix A July 2000 Page A-17 Evaluation of the Current System Exhibit A-11 . Current System Part 2 — Government-Based Entitlement Insurance t 1 . HEALTHY OPTIONS MEDICAID Premiums Managed Care Plans Healthy ..i Options -- Choice of Payment Eligibility Enrollment ® y ' (mainly capitation, Billing and some fee schedules, Medicaid TANF Contractual or discounts)but Service Agreements with no balance Patients 11 billing of patients 44 Traditional Payment MEDICAID PROVIDERS (Physicians,plus �" Hospitals,Others) ® Services ,: Eligibility . • Medicaid /moi SSI / Payment • (fee schedules, �� Billing and capitation, or Patients Deductibles an Contractual discounts)with copaymen�s-' / / Agreements no balance billing Payment j 0 T MedicareServices I Partst"" A&B PRO A Medicare Choice MEDICARE Part C Patients Risk Plans Patients __ .....) Eligibility Premium. Part B 1Rules and Premium\ Payment Rules Premium Eligibility Regulation• Federal g ty AAPCC Government Traditional • Medicare Federal Government Medicare C 41) Note: Billing,payment and utilization management are shown as single lines for simplicity; in reality,they would be different for each payer or health plan for each managed care patient population. Appendix A July 2000 Page A-18 Evaluation of the Current System • The major advantages and disadvantages of the current health care system, using the framework of the eleven study evaluation criteria, are summarized as follows: Advantages 1. Access to Care • Government programs and employer sponsorship of health plan How does the current premiums give about 38 percent of the population insurance system help (or hinder)the coverage that they otherwise might not purchase on their own. goal of offering all persons • If increased employee cost sharing is done through premium in Washington a means to contribution, does not add barriers to seeking care when needed. gain access to adequate, local health care services? Disadvantages • Moving away from, rather than toward, universal coverage. • Many people have now been • Increasing numbers of people potentially eligible for employer- shifted into managed care sponsored coverage are dropping coverage as their share of the plans, increasing access to premium cost rises and becomes (to them)unaffordable. care for some, but restricting • If increased employee cost sharing is done through higher point- provider choice for most. of-service costs, adds new barriers to seeking care when needed. Advantages 2. Patient Autonomy • Increasing personal cost may make some patients become more involved in making responsible decisions about seeking care. How does the current system permit Disadvantages patients/consumers to • Most patients are caught, bewildered, in the power struggles exercise autonomy in between providers and health plans; increasingly frustrated. . deciding what care they • As health plan/provider contracts terminate, patients are often need and where and how forced to switch to a new provider in order to maintain coverage. they receive it. • Most patients have decreasing autonomy and choice, despite having an ever higher financial participation in the costs of care. Advantages 3. Physician Clinical Decision- • If there are multiple health plans and payers, this allows most Making Autonomy physicians to not be totally dominated by single health payer's requirements. (except in certain geographic areas—see below) How does the current system promote(or hinder) physicians' clinical decision- Disadvantages making autonomy to deliver • Health plan consolidation is a real issue in certain portions of the the right kind and amount of state, especially eastern Washington and other rural areas. health services? • Multiple benefit designs, wide variations in coverage. • Currently wide variations in how health plans oversee care delivery, manage utilization, and pay health providers. • To the extent cost shifts to employees increase the number of persons electing to drop coverage, this will reduce the ability of these patients to easily seek or pay for needed health services. Advantages 4. Covered Services • Covered services are generally stable, but with greater employee cost sharing, rather than reducing the set of covered services. How does the current system help ensure (or Disadvantages hinder) patients in obtaining • Continues extremely wide differences in covered services • needed health services, depending on employer preferences—no required minimum; where need is initially most benefits based on traditional insurance, not evidence-based. defined by the patient and • Decisions on covered services made on the basis of insurance, the physician? not specific needs of patient as defined by physician and patient. Appendix A July 2000 Page A-19 Evaluation of the Current System • Continues to restrict employee choices to the employer-selected • health plans, reducing individuals' input on services needed. Advantages 5. Quality of Care • To the extent health plans follow NCQA standards, does bring some uniformity and consistency to quality measurement. How does the current system • Often involves employers, as insurance purchasers, in the measure and improve quality discussions about quality measurement and improvement, thus of care, recognizing that allowing major economies of scale versus individual efforts. quality of care is not well- defined nor well-measured by Disadvantages current methodologies? • Little involvement of practicing physicians in quality discussion. • Currently wide variation in how quality is measured, and leaves quality improvement efforts to individual health plan initiative. • Restricts employee choices to employer-selected health plans, de-emphasizing individuals' assessment of quality (except in cases where numerous complaints cause change in health plan). Advantages 6. Funding Sources • Over time, may achieve a more equitable balance of funding for health insurance, as it has been primarily/entirely employer-paid How does the current in the past(only if one ignores health benefits as a wage offset). system fund health services? Disadvantages I . • All payers are attempting to control costs and/or shift costs to (The underlying assumption is consumers. This restricts provider payments,jeopardizing the that the current blend of ongoing financial viability of some fragile delivery systems. employer spending, consumer • Current non-system is chaotic, with funding from a wide variety spending, and tax-based of sources, each with their unique requirements and agendas. spending shifts over time to • May see an actual decrease in funding for health insurance, as an have more patient or consumer increasing number of people potentially eligible for employer- financial responsibility.) sponsored coverage drop coverage as their share of the premium cost rises and becomes (from their perspective)unaffordable. • As the number of uninsured increases, so will the level of self- pay collection efforts, bad debt, and charity care for providers. Advantages 7. Spending impacts • Providers with dominant market positions negotiate effectively. Disadvantages How does the current • Spending determined by market forces, historical inefficiencies. system promote (or hinder) • Health plan leverage in payment negotiations is overwhelming. an efficient use of total • Administrative complexity reduces the percentage of total health health care funds? funding that is spent on patient care and health services delivery. Advantages 8. Medical Practice Financial • Providers with dominant market positions negotiate effectively. Viability Disadvantages • Viability threatened by inadequate payments from plans and How does the_model affect government programs. Most medical groups lack market clout the financial viability of Healthplan in payment determination is overwhelming. • physicians' practices? • leveragep • Uncompensated administrative requirements •increase, and more of overall practice budget is spent on non-patient care activity. Appendix A July 2000 Page A-20 Evaluation of the Current System SAdvantages 9. Incentives to Improve Health • Increased personal cost sharing: financial incentive for improved health habits, changed lifestyle to become/remain healthier. How does the current • May cause employers to offer work-place health improvement system encourage programs to offset angst over increased cost share for employees individuals to adopt healthy lifestyles and create Disadvantages incentives for physicians to • Limited use of capitation in Washington decreases financial champion healthy lifestyles incentives for providers to work hard to keep patients healthy. for their patients? • If increased employee cost sharing is done through higher premium level,less incentive to individual for healthy lifestyle. Advantages 10. Administrative Functions • None apparent. It is hard to imagine a significantly bigger mess. How does the current Disadvantages system promote • Many payers, many different insurance products, each with their transactional simplicity, own unique administrative requirements and legacy systems. greater efficiency, and • Payer and provider consolidation has not brought expected gain. standardization. • Almost no financial incentives for standardization,uniformity. • Competitive paranoia among health plans/providers appears to be getting worse, discouraging cooperative administrative effort. • No long-range thinking;all decisions impact current bottom line. • Provider and health plan inability to administer most capitation. • Likely increases in point-of-service cost sharing complexity for • many patients, adding complexity(and frequently added costs) to both provider and payer billing and administrative functions. Advantages 11. External Societal Factors • Lack of trust in government, health reform efforts of mid-90s soured many people on having government take a leading role. How will the current system • Much less public interest in fundamental overhaul than in 1992. be helped or hindered by • Employers generally still believe managed care has worked well. the current environment? • Strong economy has allowed employers to move toward fixed contribution without significant cost shifting to workers so far. • If the economy slows and/or unemployment rises, many Disadvantages employers already have a • Adoption of a"patient bill of rights" may allow employees to fixed contribution frame-work sue self-funded health plans,which will very likely cause many in place to help them control employers to discontinue self-funding, maybe use a voucher- health insurance costs by style approach in which the employer's liability is much less. shifting costs to workers. • Erosion of Medicare risk "zero premium plans" and health plan abandonment of some areas has made seniors wary of changing to Medicare managed care, slowing growth in Medicare Part C. Summary The major advantages of the current system are that it does provide health insurance coverage to about 88 percent of Washington residents (albeit at great expense and with low efficiency), that paying an increasing share of costs may make some patients better . consumers, and that providers with dominant market positions can negotiate effectively with health plans. Also, most employers and health plans still believe the current system has generally worked well. The major disadvantages of the current system are that it is extremely inefficient and expensive with huge variations in administrative practices, that ..-.. _ July 2000 Page A-21 Evaluation of the Current System about 12 percent of the population remain without insurance while many more are under- • insured, and that providers and patients are increasingly frustrated with managed care. Changing the current system may be a challenge, given competing financial and other interests among the various stakeholders and lack of any public consensus on what an improved system would look like. Changing one sixth of the nation's economy is likely to be slow going in any event, and incremental changes may diffuse some of the pressure for fundamental overhaul. Logical incrementalism (or muddling through) may be our future. The main perceived strengths (advantages) of the current system are as follows: • Government programs and employer sponsorship of health plan premiums give about 88 percent of the population insurance. The current system does work for the large majority of people, although some people cannot obtain needed coverage (see below). • In most urban areas, multiple health plans allows most physicians to not be totally dominated by single health payer's requirements (except in eastern Washington). • Providers with dominant market positions can negotiate effectively with health plans. • The current sponsors of most health insurance(government, employers, and unions) allow the system to take advantages of group risk pooling, although the current risk pools are fragmented and competitive as most insurers seek to attract good risk and isolate bad risk. • The diversity in the current system allows consumers many different choices,but not all • consumers have an equal range of choices and some consumers are unable to meet specific treatment coverage needs. The main perceived limitations (disadvantages) of the current system are as follows: • About one in eight persons is currently uninsured, and some of those who are insured do not have coverage for specific services they need. People without access to government- or employer-sponsored insurance are particularly vulnerable, as the recent individual market crisis has demonstrated. • Increasing numbers of people potentially eligible for employer-sponsored coverage may drop coverage as their share of the premium rises and becomes unaffordable. • Patients are caught, bewildered about managed care, in the power struggles between providers and health plans; many patients are increasingly frustrated and distrustful. • As health plan/provider contracts terminate or employers switch insurers, patients are often forced to switch to a new provider in order to maintain coverage. • Most patients have decreasing autonomy and choice, despite having an ever-higher financial participation in their costs of care. • Decisions-on covered services are usually made on the basis of insurance, not the specific needs of the patient as defined by the physician and the patient/family. • Spending on health care is determined by market forces, historical inefficiencies. Appendix A July 2000 Page A-22 Evaluation of the Current System • • Health plan leverage in payment negotiations is overwhelming, except in rare instances where an integrated delivery system dominates the local market. • Health plan consolidation is a real issue in some portions of the state, especially eastern Washington and other rural areas, where there is often only a single plan. • Payer(and provider) consolidation has not brought expected gains in efficiency. • Many payers and many different insurance products, each with their own unique administrative requirements and legacy systems, creates administrative chaos. • Administrative complexity continues to reduce the percentage of total health funding that is spent on patient care and health services delivery. • Currently there is wide variation in how health plans oversee care delivery,manage utilization, and pay physicians and other health providers. This lack of uniformity amplifies the administrative complexity of the system for patients and physicians. • Health plan-specific definitions of quality of care are used,discouraging uniformity, setting conflicting quality standards, and creating ambiguity over who is accountable for quality and adverse outcomes. This ambiguity increases the potential for conflicts among health plans and physicians,patients, and other providers. • 410 A..endix A Jul 2000 Page A-23 Special insurance Topics • Washington state's health care system is primarily financed by health insurance. To understand how insurance works, it helps to be familiar with population risk principles Three special topics presented in this section cover the basics: • insurance pooling and adverse risk selection • why individual insurance has a higher risk profile than group insurance • Medicare Part C as a fixed contribution benefits mechanism Insurance Pooling and Adverse Risk Selection Insurance is based on the principle of pooling the premiums of a large group of people to cover the costs of a small subset of people. Everyone in the large group becomes the"risk pool" and everyone in that group pays a premium to an insurer. The insurer then pays for the eligible costs incurred by those participating in that risk pool. For insurance to work with reasonable premium levels, most people must have little or no expenses in the year. When that happens there are enough funds to cover the extremely high expenses of a few people. Exhibit A-12 shows that for health care, expenses do not look like a bell-shaped curve. Instead, the curve is skewed to reflect the fact that only a few individuals have high expenses. The risk of a few high-cost cases is spread across all those in the risk pool (the whole group) and insurance premiums for the group are fairly reasonable. • Exhibit A-12 Distribution of Health Expenditures Many Peopl Many people have little or no health expenses in a given year. 0 a Health expenses are NOT normally distributed across o the population, but inversely distributed. This is what allows health insurance to work. .a E Z it sr A very small number of people have extremely high health expenses in a given year. • • ° Annual Expense High Expense A..endix A July 2000 Page A-24 Special Insurance Topics • An economic tool called a Lorenz curve displays the cumulative percent of health care expenses incurred by the cumulative percentage of the population, ranked from lowest to highest expense. If all individuals had exactly the same health expenses in a year, the Lorenz curve would actually be a straight line at a 45° angle from the lower left to the upper right. In reality, because of the expense distribution of the population in any given year as shown in Exhibit A-12 above, the Lorenz curve for health care looks like the curve shown in Exhibit A-13 below, with about eighty percent of the population incurring roughly twenty percent of the expense and the remaining twenty percent incurring about eighty percent of the expense in any given year. The most expensive half percent of the population/group often incurs between 25 and 30 percent of total expenses in a normal employer-sponsored health program. (For seniors, the risk distribution is nowhere near as extreme as that shown here for purposes of illustration, but it does still apply.) Exhibit A-13 Lorenz Curve of Health Expenditures 100% 95% 90% 85% In a given year, roughly one third of a normal population will ' 80% incur less than one percent of total expenses, while the most l 75% N expensive cne percent of the population will incur roughly one70% m • third of all expenses. This is what allows health insurance to f 65% C be affordable: it is not pre payment, but spreading the risk ; 60% Q. across many people. l 55% W e' 50% w.. •i:, 45% o Pure community rating sets one premium for the entire population, with the r.``<...." 40% many healthy(-80%) subsidizing the fewer sick(-20%). /"...:: 35% v ./. 30% a; <:- . 25% Q.. • 20% 15% premium ..�:.�'"'''" 10% . ,.*,.. 5% ...Esrtr r."K .: ..» .. ;.: . . .. .. -..2..:_. 0% o\o 0\0 o\o o\o o\o o\o ,3\0 o\o o`o o\o o\o 010 o\o o\o o\o o\o o\o o\o o\o o\o o\o o`o o\o N <, ,\oNc' NC) 'or� 'ID(y ,";\ DiN tkOho <4'' (00Cj` 00A') AA 4)(1' 45° 0)\ .),,00 Percent of People 0 . Appendix A July 2000 Page A-25 Special Insurance Topics If all the people in the risk pool shown in Exhibit A-13 were charged the same premium • (called "pure community rating"), the insurer would break even only if the red area above the premium line was somewhat smaller than the white area below the line. The white area below the premium line (healthy people spending more on premiums than they incur in health expenses) must be at least ten to fifteen percent greater than the red area above the premium line (sicker people incurring more in health expenses than they contributed in premium) for the insurer to cover its administrative costs and make a return on its investment (i.e., profit). Premiums based on the age and/sex of the person and other"risk-adjusted" premiums, change the single flat community-rated premium line to one which moves upward to the right in a stepwise fashion. The underlying population-risk principles are still the same. "Adverse selection" occurs when people can choose which risk pools they participate in, or can choose not participate at all. If the distribution of people across the multiple risk pools is not random, the premiums of the group(s) with higher risks must be greater than the premiums of the lower risk group(s). Further, if healthy people opt out altogether, the premium for the remaining sicker subset must be correspondingly higher. Risk adjustment techniques are becoming increasingly sophisticated. These newer techniques can help adjust premiums between groups with different risk profiles to better reflect their expected incurred expenses for the coming year. There is no ability to adjust for those healthier individuals who have declined coverage, except to raise the premiums for those who remain in the higher risk pool. Insurance Has a Higher Risk Profile than Group Insurance Why Individual g If health insurance were "uniform" and mandatory, meaning everyone had to be covered for at least a core set of identical benefits, then the people buying individual insurance would be expected to have the same risk profile as those in group insurance. However, insurance in the state of Washington is neither uniform nor mandatory. For those reasons, people buying individual insurance will have a higher risk profile than those in group insurance. Specifically: • Individuals pick custom benefits—In group insurance, everyone in the group has a standard set of benefits and their premiums are "community rated" within the group. Members within the group rarely pay more because they are older than average, or have chronic illnesses. Individuals, on the other hand, pick the covered services they need (within regulatory guidelines for what insurers can offer). Thus the risk profile for individual products is more similar (homogeneous) for each product and more diverse (heterogeneous) among products, when compared to typical group insurance. Healthier people rarely buy comprehensive products with uncommon covered services they do not expect to need (unless they are extremely risk-adverse, or are not paying attention to what they are purchasing). Cross subsidies among individual products is extremely rare. • Healthier individuals forego coverage altogether— Since health insurance is not mandatory, a number of healthy individuals (mainly younger males and lower income persons in general) decide not to purchase health insurance. This reduces the number of , healthy people contributing annual premiums for health services they will not use. Recall Appendix A July 2000 Page A-26 Special Insurance Topics • that in Exhibit A-13, the red area above the premium line had to be the same size or smaller than the white area below the line for an insurance product to break even. By not participating in health insurance, healthy people reduce the size of the white area. They are no longer subsidizing the cost of health services for people in the red area above the line. In an individual insurance product, this means that those who remain covered will have higher premiums, because the risk profile of the remaining people is higher. Note that group insurance for very small groups (under ten employees) may be plagued by these same problems if participation is not mandatory. Insurers require most small group policies to have a minimum group size (usually between three and five), and require that all (or virtually all) employees participate. These requirements are in place to avoid the adverse selection that would occur if the healthy could opt out of small group coverage. Medicare Part C as a Fixed Contribution Benefits Mechanism Most people are surprised to learn that the Medicare Part C ("Medicare Risk")program is essentially a fixed contribution approach to health benefits. The sponsor (the federal government through the Health Care Financing Administration—HCFA) has set a fixed contribution toward the premiums of the managed care health plans it has selected. Medicare beneficiaries opting for Medicare Part C must choose among the health plans HCFA has selected. To keep their coverage, the beneficiaries must pay any gap between the health plan • premium and the fixed dollar amount HCFA is paying the health plan (known, until recently, as the average adjusted per capita cost of traditional Medicare in each county—or the "AAPCC" for short). To date, the premium cost to Part C enrollees has rarely exceeded the standard Part B premium that the beneficiaries would need to pay for traditional Medicare. In many areas, health plans have even been able to provide extra benefits (notably prescription drugs) at no extra premium cost(the so-called "zero premium"plans of years past). These good deals encouraged many seniors to switch to Medicare Part C during the 1990s. However, few health plans are able to offer a "zero premium" product these days and most are now charging seniors a modest premium each month. Since the federal premium contribution for Part C is expected to increase by no more than two percent per year for the next several years, it seems likely that health plan costs above this level will be shifted to enrollees in the form of higher premiums. The situation is expected to become more severe as HCFA phases in"risk-adjusted payments"between Medicare Part C and traditional Medicare (since the evidence to date is that Medicare Part C has attracted much healthier people than those who have remained in traditional Medicare—an 18 percent better risk profile, according to a 1997 GAO study). To continue as Medicare risk contractors without losing money on the product, health plans will shift any uncovered costs to enrollees through higher premiums. This is exactly what occurs in the private employer fixed contribution strategy(see Appendix C, Page C-3 for details). Appendix A July 2000 Page A-27 • Health Access. Summit Work rou g p Meeting Six Tuesday, February 27, 2001 12 - 2 PM Lunch will be provided for you Jefferson General Hospital Auditorium AGENDA • Summary of Last Meeting and Update (Attachment 1) • Continued Discussion of the Elements Proposed by Bill Hagens: What are the services or benefits Who provides services Who pays for the services Who assumes risk for cost overruns • Who administers the system or program • A First Look at Potential Long Term Local Reform Models • Process to Identify Some Short Term Projects • Summit Planning (Attachment 2) This draft was discussed with the Hospital Commissioners and the Board of Health last October. Depending on time, let's review, revise, discuss the role of the Commissioners and BOH. and see if we need to form a sub-group to work through details. If you have any questions, please call Kris Locke at (360) 683-9152 or e-mail at thlocke@aol.com. • ATTACHMENT 1 S Health Access Summit Workgroup Meeting Five Notes January 23, 2001 Present: Vic Dirksen. Tom Locke. Chuck Russel, Bruce McComas, Julia Danskin, Geoff Masci, Lorna Stone. Claus Janssen, Bob Pieden, Tim Caldwell, David Beatty, Kris Locke, Bill Hagens. Final workgroup meeting dates were set for the 4th Tuesday.of the month: February.27th, March 27th and April 24th. Setting a date for a summit in May was discussed. The Rhody festival is the 3rd week in May and Memorial Day is May 28th. Kris will send out an e-malt asking for date preferences. (Note: the preferred date so far is Tuesday, May 22nd) Bill Hagens, Deputy Insurance Commissioner for Health Policy with the Office of the Insurance Commissioner (OIC) spoke with the group briefly about the role of OIC. The insurance industry, along with banking and securities, are regulated to protect consumers. OIC regulates insurance companies and HMOs in the State of Washington but does not have jurisdiction over self funding (self insuring) employers. A recent activity of OIC is writing the Patient Bill of Rights WACs which go into effect in July. The newly elected Insurance Commissioner. Mike Kriedler, will spend some time doing `damage Wontrol" from problems created by his predecessor. He is also interested in assessing his role in elping reform the industry (using the bully pulpit). 010 used to have responsibility for regulating insurance rates but that duty was taken away last year by 6067. Regulation is like holding a bird — hold it too tight and the bird will die but hold it too loose and the bird will escape. Maintaining the individual insurance market remains an issue. Increasing drug costs may make premiums for some plans unaffordable. Also a major issue in Olympia is how the budget cuts will affect health programs and coverage. Healthy Options is looking for alternatives to managed care plans in some areas — possibly using a Primary Care Case Manager (PCCM) model by assigning enrollees to a physician and paying a small case management fee. Employer rates are increasing in 2001 putting more pressure on the system to hold down costs. Local Chamber of Commerce membership has increased 10% - largely due to small businesses looking for affordable health insurance. One problem in taking risk through local capitation payments is that physicians feel this creates negative incentives. How can you encourage good clinical decision-making good when everyone is looking at cuts — not restructuring? Will it take a major crisis to change anything when the political environment seems so hopeless? Perhaps at the point when employees realize how much the costs are being shifted to them to pay out-of-pocket there will be more public reaction. For years, employers have provided clearly defined health benefits. If employees are forced to �rchase their own care or insurance, they will not have the buying clout of employers and will ind it more expensive. Some see the recent prescription drug program for seniors implemented by the governor as positive leadership, but it won't solve the larger problems. Dennis Braddock, the new DSHS Secretary, is in a position to make changes and has always talked about how to create a health system where insurance sponsorship is not the basis of the structure. There needs to be more flexibility in the benefit packages and how the dollars are spent. To identify possible options, Bill suggested seeing how much agreement there was in the following areas: What are the services or benefits Who provides services Who pays for the services Who assumes risk for cost overruns Who administers the system or program. Benefits. In-home care, not heroic, less emphasis on tertiary care and more on front end prevention. Not an area we've discussed in any detail yet. Most important that benefits be determined as a conscious decision or choice, not by market forces. Who provides. Need to maintain current fragile local system of providers. The providers that "e needed will be determined by the delivery model that is used — no consensus yet on that livery model or provider availability standards. There are immediate `traditional" needs and longer term needs for local providers. Need to look at this issue in more depth. Who pays. Largest payer is government but also PT Paper and small businesses. Jefferson has a medical taxing district through the public hospital district. A back of the envelope assessment calculated that $200 per adult and $55 per child would cover local care. Risk. If some type of prepayment is made for a future promise (insurance) there needs to be a way to financially guarantee that promise. Risk an individual provider takes is different that risk for all the benefits. In the past insurance companies did community pooling, but more and more it has been segmented into specific lines of business. The scope of the benefits or promises that are made create the risk. Could the benefits be limited? Need to avoid just guaranteeing benefits to small groups of sick people that aren't balanced with healthy people too. Administration. There needs to be some entity to provide oversight and be responsible to do the work. Administrative savings (over the current system) might be redirected to pay for services. Centralized functions would need to be done by whoever would be the most effective and efficient. This would be the organizing entity. Local or more regional? What if there were an entity or program called the Jefferson Health Care Authority? • A major problem since the repeal of the 1993 health reform legislation is that everybody is *laming everyone else for the current problems. There are situations where the health care market doesn't function very well and there is a point when these markets will fail. Market based industries don't do a good job of investing in needed infrastructure — someone else needs to do that. If you look at the existing structures and the taxing authority possible. a consensus of key players could provide extraordinary authority to create a local innovation. Will still need flexibility in Medicare and Medicaid. Risk remains an issue. It may be necessary to create specific legislation to deal with this. For example, there is a mechanism in Washington to set up limited health service contractor services (like vision and dental plans) which require only a $300,000 reserve instead of the $3,000,000 required for health plans. It might be possible to carve out certain services and rethink how to-deliver and finance them. It might also be possible_ to create a state re-insurance fund for certain categories (e.g.rural health) that would help take care of partof the risk. Title 48 could be re-written to permit(probably not exempt) specific options. Once the information is organized and there is consensus on key areas, look at the mode you're considering and ask what effects it would have. If you want a viable economy you need health care. Jefferson has 25-30.000 people, is a larger regional structure needed to something like we're discussing? The area needs to be contiguous, people need linkages to more specialized services but optional population size ?? With another group of people waiting to use the meting room, the discussion ended. People were interested in inviting Bill back. • Summary of Jefferson County Access Project December 19. 2000 For over a year various groups in Jefferson County have been discussing what can be done to deal with the deteriorating access to health care in the community. Access to health care includes not only the typical `coverage issues" for individual residents but also the viability of the health care providers themselves. The leaders of this work are Vic Dirksen. the hospital district administrator and Dr. Tom Locke, the county health officer. They represent the 5 elected public hospital commissioners and 7 county Board of Health members (3 elected county commissioners and 4 appointed community leaders), respectively. These two boards have been meeting on a regular basis to identify specific access problems and determine joint criteria for effective responses. This '`joint board" process has created an unusual partnership between public health (to help identify outcome based/health status goals for a system) and a public hospital district (which understands the `business" of providing medical care). The group currently has a mini-grant from the Washington Health Foundation to coordinate a workgroup of business and community leaders to advise the joint board. The immediate outcome of this grant is the development of "models" and discussion of these alternatives at a community summit in May. At that time the group hopes to agree on a general direction and secure adequate funding to pursue an alternative health financing and delivery model. At the most basic level, the community is trying to find out what can be done at a county level (actually just east Jefferson where 95% of the population resides) to organize the health financing and delivery system. There is a general consensus that the financing system is broken. Jefferson County has experienced and documented an array of serious symptoms of this problem, not the least of which is private medical practice insolvency. There has been a deliberate effort to fully understand the issues before specific solutions are proposed. Many participants in this process want to work toward a simpler more rational system like a local single payer. Elected leaders, on the other hand. are concerned about creating expectations and financial liabilities that they will be unable to meet. Some think there is adequate funding in the health care system to cover everyone but it is being used inefficiently or unwisely. To reprioritize these available funds will require the ability to coordinate both public and private coverage as well as target funding toward services that are proven to improve health. There seems to be a growing realization that just enrolling more residents in . Medicaid and Basic Health will NOT help the system as a whole because the relative reimbursement rates are so low compared to the cost of providing the • care. While Medicare used to be thought of as reasonable reimbursement, the Virginia Mason Clinics in neighboring Clallam County are no longer accepting new Medicare primary care patients because of the low reimbursement level. Pulling in state and federal health care funding in a way that takes maximum advantage of mechanisms to enhance reimbursements through special designations is as important as locally directing this funding toward supporting the system and health of residents. Currently. the public policy toward health financing sends tax dollars to health plans who cover their administrative costs first then achieve 'cost savings" through reduced provider payments and retrospective claims denial. Privately financed health insurance is equally insensitive to supporting local needs, but at least usually covers the cost of providing services. The largest private employers in Jefferson are unionized and many of the small employers can't afford to buy health insurance. Businesses want to help find ways to make health care and insurance more affordable and they also recognize the critical importance of having a high quality local health care system so they can continue to recruit and retain good employees. The Chamber of Commerce knows that sound health care system is also essential for attracting new business. Local businesses have a vested interest in supporting the local health care system, but some have little control over the plans negotiated by the employee unions, who generally are not locally based. • The size of East Jefferson County (about 28,000 residents) has many advantages. The health care system is known and manageable: • 1 public hospital district with one public hospital: employs about 1/2 the local primary care physicians. has a PHCO, has taxing authority. and is governed by an elected board • 1 health department; with a board of health composed of county commissioners and appointed community leaders; • major health carrier, KPS, is more responsive to local needs and products: • referral patterns fairly predictable to Bremerton and Seattle: • community leadership exists and wants to do something effective. Major disadvantages are: • scarce resources stretched so thin that competing personal and professional '`day job" problems create leadership stress; • no ability to change rules, constraints, dysfunction of external health system; • complexity and uncertainty of problem can be overwhelming; • resources to create a new system may be seen as competing with providing services to people who need medical care now: • very limited ability to accept financial risk; • • limited organizational infrastructure and staff; 1111 • where will the "savings" come from to provide services for the growing number of residents who lack any type of health coverage? To date. the group has developed a list of health system design goals. These are general value statements which are expect to evolve over the course of the project. The model development has not yet begun to unfold on paper but this is expected to begin right after the new year. In terms of model structure. as a preliminary opinion, the group may be looking at a local structure that: • Contracts at a local level only for the services that could be provided at the local level (state and private insurance); • Develops referral relationships with other health care providers to ensure a full continuum of care, but the relationship would not be financial (the state and private insurers would have a greater ability to negotiate and administer favorable financial arrangements with these tertiary care providers): • Combines funding (need to identify and overcome legal constraints) so that an entity could act as local a single payer: • Captures "savings" (need to identify where these are) and directs funds to more effectively improve health for all residents: • Creates local option for small businesses/self-employed (like an affordable • primary care plan locally with combined catastrophic plan underwritten by KPS or a local project to set up some type of MSA); • Uses the coordinated, combined effort to leverage additional funding opportunities (e.g. cost based reimbursement, federal prime vendor drug rates. etc.). Finally, there is agreement that there need strong state leadership and true state partnerships on this issue. The problems plaguing rural areas are not just local problems, but problems for which the state should acknowledge responsibility. For this reason, any proposed the legislation relating to `demonstration sites" needs to clearly direct the state agencies. DOH in addition to MAA, HCA, OFM. OIC to remove barriers as well as conscientiously work with local initiatives. It would be a step forward if legislation could somehow prevent the potential problem of state agencies appearing "very concerned" and then not having the incentive to actually act in concert with what local initiatives need. In many ways this is a significant threat to the success of the local initiatives. • • ATTACHMENT 2 Jefferson Health Access Summit October 12, 2000 Draft Purpose: To discuss community-based strategies for improving local health care access Outcome: Written summary of summit and adequate information to seek major grant funding to continue work Sponsors: Joint Boards with funding from the Washington Health Foundation Facilitators: Tom Locke, Vic Dirksen, Other "outside" person familiar with health issues (e.g. Aaron Katz) Invited Guests: 50 — 75 community and state leaders 9 Jefferson General Hospital Commissioners and key staff 10 Jefferson County Board of Health and key staff 10 Health Access Summit Workgroup and staff Local physicians • City Council State representative State senator Workgroup speakers Union representative Others as determine by workgroup and Joint Boards Format: 9:30 — 3 PM Weekend or Weekday Welcome — Chair, Hospital District Commissioners and Chair, Board of Health Introductions Overview of Community Issues, Joint Board and Workgroup Process Present Workgroup/Joint Boards Work Products Lunch Questions, Answers, Discussion, Next Steps Summary • • Health Access Summit Workgroup 9 p Meeting Seven Tuesday, March 27, 2001 12 - 2 PM Lunch will be provided for you Jefferson General Hospital Auditorium AGENDA • Summary of Last Meeting and Update (Attachment 1) • Discussion of Workgroup Report and Recommendations • Discussion of Summit Planning • • Health Access Summit Workgroup Meeting Six Notes 2/27/01 Present: Vic Dirksen, Tom Locke, David Beaty, Bruce Mc Comas, Tim Caldwell, Brent Shirley, Chuck Russel, Bob Peden, Geoff Masci, Jean Baldwin, Paula Dowdle, Lorna Stone, Debby Peterman, Kris Locke Kris noted that there were two more meetings, 3/27 and 4/24 before the summit would be held. Based on a consensus of workgroup members, the summit has been scheduled for Tuesday, May 22. Kris indicated that House Bill 1742 which authorizes demonstration projects to organize health care delivery has been amended. The Office of the Insurance Commissioner has refused to allow all demonstration sites to be exempt from existing regulations. There is no appropriation in the new bill substitute bill. (Note: this bill did not survive the session) The first part of the meeting was devoted to further discussion of the elements identified by Bill Hagens: benefits or services, who provides them, who pays and what are the risks. Benefits Services At their last meeting the workgroup noted that they wanted to focus benefit/services on in-home/less intrusive services and front-end prevention that is determined by conscious • choice rather than market place. Benefits were defined as what residents of Jefferson County could get in terms of actual services. One approach suggested for identifying these services was to establish a floor or basic set of services to start from. The state of Oregon has created such a list for their Medicaid program. Also the Washington State Board of Health has identified a set of "critical services". The Board of Health services were selected using a scientific approach to identify services with the most benefit to the community. Some of the services included in the critical list are not typically included in insurance plans— family planning, tobacco cessation, immunization. Information the group wanted to help them define the basic services included: 1) What is the cost of services? 2) What services are residents leaving the area to get, who are these people and why are they leaving? 3) What services are important to the providers and citizens of the county? 4) If a basic benefits package is developed to serve the current population—an aging population, will this make the area less attractive to younger families and employers? Other than agreeing that prescription drugs was a need for their community, there was no consensus by the group on how to identify a basic set of services. The group agreed that Kris could prepare a list of possible basic services drawing on the ideas of the Board of • Health and State of Oregon lists.