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HomeMy WebLinkAbout04 April JEFFERSON COUNTY BOARD OF HEALTH MINUTES Thursday, April 19, 2001 Board Member.r: Dan TitterneJJ, Member - Coun!y CommÙsioner District # 1 Glen Huntingford, Member ~ Coun!y CommiJJioner DÙtricl #2 Richard WO/f, Member - County CommisJioner District #3 Geollr~y Ma.rci, Member - Pori Town.rend Ci!JI Counctj ]ill Buhler, Chairman - Ho.rpital Commissioner DÙtritt #2 Sheila WesteroJan, Vice Chairman - Citizen at LLltl,e (City) Roberia Frissell - Citizen at Large (County) Staff Members: lean Baldwin, Nursifl.-f!. Sen'Ù-eJ Director . - Larry Fqy, Environmental Healtb Dimtor Thoma.r Locke, MD. Healtb Officer ~ , Chairman Buhler called the meeting to order at 2:00 p.m. All Board and Staff members were present with the exception of Commissioner Huntingford and Wojt. Noting the lack of a quorum, the decision was made to proceed with reports and postpone approval of the March 15,2001 minutes. PUBLIC COMMENTS - None OLD BUSINESS Follow-Up Report - Letter from Senator Har2rove re: Rural Health Care Access: Dr. Tom Locke referred to Senator Hargrove's letter responding to the Board's concerns about rural health care access and local public health funding. Although Representative Kessler also expressed her support of the topics during the town hall meeting, neither Representative Kessler nor Buck have formally responded. Follow-Up Report - Board of Health Authoritv re: Lone-Term Care Facilities: At the request of Commissioner Titterness, Dr. Locke reviewed his written report summarizing his research into the regulatory structure of long-term care facilities, The local Board of Health has authority on issues as identified by the State such as communicable disease control or environmental health code enforcement. The local Board may also decide to exert authority due to a particular public health threat or issue. With the exception of gathering information assessing local access to these facilities, or dealing with disease outbreaks, he has not been able to find instances where the Board of Health has taken a role in long-term care facilities. Commissioner Titterness responded that his initial interest and concern related to his perception of an inadequate caregiver-to-patient ratio. Vice Chair Westerman mentioned The New England Journal of Medicine article included in the agenda packet regarding regulatory standards for the ratio of caregivers to children in daycare facilities. Similar HEALTH BOARD MINUTES - April 19, 2001 Page: 2 requirements do not exist for the coverage of patients in hospitals and long-term care facilities. She proposed that the Board address this concern as a quality of care issue. Member Masci pointed out that, as a business, the long-term healthcare facility has met the challenge of maximizing profits on declining reimbursements by eliminating costly overhead in the form of labor and skilled labor. Hospitals face similar quality of care concerns related to their staffing decisions. Member Frissell added that a lack of competition is also a factor. Chairman Buhler commented that although there are certain provisions in the State WAC, the various types of nurses in a hospital are different than those in a long-term healthcare facility. Jean Baldwin offered to seek more information from groups involved with senior care work such as the Continuum of Care Committee as part of the Community Action Coalition. Dr. Locke agreed that Staff would look into opportunities for the Board of Health to pursue concerns about quality of care in long-term care facilities. He noted that issues of access, quality of care and financing overlap and need to be considered simultaneously. PTTV: Public Outreach and Education: Member Masci reported that Dr. Locke was a recent guest on PITV discussing Board of Health topics. Member Masci recommended becoming a member of the PITV Board and increasing its use of this resource. Informational Item -- Washineton Shellfish Growinl! Areas Threatened bv Pollution: Larry Fay distributed a news release from the Washington State Department of Health on Shellfish growing areas threatened by pollution in Washington State. Informational Item -- Drought Survey Finds Drinkinl! Water Systems Concerned but Generally Prepared: Larry Fay distributed a news release from the Washington State Department of Health, noting that Port Townsend is listed as "Highly Vulnerable," but is prepared. Member Masci said the City has adopted a water conservation plan in which the Mill will be the first to be impacted by a drought. There is also a plan in place for outreach efforts to residents. Commissioner Titterness said the topic of a water storage facility would be discussed at the next PUD meeting. Jefferson Critical Access Proiect: Jean Baldwin explained that the information in the agenda packet related to the Critical Access Project was intended to be a reference for the Board. HEALTH BOARD MINUTES - April 19, 2001 Page: 3 NEW BUSINESS Leeislative Uodate: Dr. Locke reported that among the remaining active legislation is a needle and syringe bill and an opiate substitution program. Already adopted legislation include a breast-feeding bill and an electrolysis and tattooing bill. Neither HIV/Aids legislation nor legislation to prevent smoking in public places appear to have survived. Indications are that the public health portion of the Senate budget will remain consistent with last year. It is uncertain whether the House will pass a budget by the end of its regular session. Larry Fay announced that the Governor's omnibus water bill passed. Jean Baldwin mentioned that it is unknown how the Department of Social and Health Service budgets will affect the Department of Health. Also, the status of Community Networks is still unknown. 2000 Public Health Improvement Plan: Dr. Locke briefed the Board on the development of the plan. He commented that the plan is focused on and is consistent with the County's topics of concern. He served on the Steering and Standards Committees along with Jean Baldwin and Larry Fay. Jean Baldwin provided an overview of local health assessment and information technology activities as they relate to sections in the plan. Tomorrow, Dr. Chris Hale will hold a steering committee meeting of data users to identify the assessment indicators needed for a community-wide strategic plan. Activities beginning in May include the BRFSS phone calls, the PRAMS (a written survey to moms who deliver in Jefferson County), and a review of death records. Meetings on law and justice, jail use, and substance abuse issues also continue. The Health Department is reviewing alternatives to its current information and billing technologies. The stability of the current system, which holds the majority of charts and immunization records, is uncertain. The Department will be training staff to enter data into the web- based Child Health Profile System for later access. Future support of the Child Profile System will largely be determined by this legislative session. Chairman Buhler asked if the OB Vision team at the hospital could work with Jean Baldwin on some additional PRAM questions. Member Frissell asked whether staff investigated how the Health Department in Stanwood dealt with their measles outbreak and whether it had any impact on their local immunization activities. Dr. Locke responded that Staff did not contact Stanwood, but there is typically renewed interest in immunizations once there is an outbreak. Jean Baldwin said the idea behind the section titled "Assuring a Ready and Capable Workforce" is to create a regional public health training center. She has also been heavily involved in the committee working on "Developing Sufficient and Stable Financing." Others included are legislators, County Commissioners, State and local public health people, and City representatives. Under discussion are not only what the Department of Health contributes per program, but how formulas are developed and how much money State, County and City jurisdictions are giving to public health. HEALTH BOARD MINUTES - April 19, 2001 Page: 4 Dr. Locke reviewed the Menu of Public Health Services under "Identifying Gaps in Access." He commented that changcs can still be made to the list. The "Proposed Standards for Public Health" in the appendix describe standards related to critical hcalth services. He said he uses these standards as a guideline to distinguish between public health and personal medical care issucs. Larry Fay said the intent of these standards is to address public health principles. The challenge over the next several years will be to develop strategies in areas where we are not meeting basic standards. Member Frissell complimented the document and believes it should be revisited regularly to ensure we arc going in the right direction. Emerl!encv Rule Adoption - Provisional Certification On site Sewal!e O&M Specialists: At the Board's direction, Larry Fay investigated and is now questioning whether an emergency rule is the best mechanism for adopting an amendment to the Jefferson County Onsite Sewage Code. He instead referred to RCW 34.05.230, Expcdited Adoption of Rules, as included in the agenda packet and recommended that the Board agree to resubmit this action item on the May agenda with appropriate public notice. During discussion of new Sections 8.15.140(12) Provisional Monitoring Certificate and 8.15.150(6)c, there was a suggestion to change references to "may" in the first paragraphs of each section to "shall." Another suggestion was to reduce the 180-day period outlined in paragraph two of Section 8.15.140(12), which rcfers to the maximum time allowed for a provisional certificatc holder to take and pass the written examination. Following discussion about using the expedited rule procedure as opposed to an emergency rule, there was general agreement that the Provisional Certification does not constitute as an emergency as defined in the RCW. In the absence of a quorum, the decision was made by consensus to change the first sentence of Section 8.15.140(12) to read: A...the Department shall issue Provisional Monitoring Certificates. Larry Fay agreed that the Board would not aggravate a public health problem by running the process through the expedited rule as opposed to an emergency rule. A real estate transaction may be delayed when a problem with a system is identified. He agreed to properly notice the next meeting for a decision on the Expedited Rule. HEALTH BOARD MINUTES - Apri119, 2001 Page: 5 AGENDA CALENDAR / ADJOURN Member Frissell expressed concern about the lack of a quorum due to the Commissioners absence. 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 10. AGING POPULATION 11. WATER 12. MATERNAL CHILD PREVENTION GOALS (0-3) Meeting adjourned at 3:30 p.m. The next meeting will be held on Thursday, May 17,2001 at 2:30 p.m. at the Jefferson County Health and Human Services Conference Room. JEFFERSON COUNTY BOARD OF HEALTH ~~ ~\Ält~ tùtGc\Lv·~ Sheila Westerman, Vice-Chairman ð..-----... ----- " -- ëý'Masci, Member ~ (Excused Absence) Glen Huntingford, Member Roberta Frissell, Member /~~/WA'ø Dan Titterness, Member 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 Meetin2: May 17, 1 :30 - 3:30 PM Jefferson County Health and Human Services Conference Room "'of JEFFERSON COUNTY BOARD OF HEALTH MINUTES Thursday, March 15, 2001 Board "\lember.r: Dall Tittm¡esJ. ;Hember - COlln(}' CommiJJioner DÙtrict #, elen Hllntingford, All'mber - COUII(V CommÙÚoner DÙlnd #2 RJ-rhard [Foft, ,\}ember - COUll!) Commissioner District #} Gerif(~ ' ¡\laid, "\1ember - Port TOWII.îtlld Ci()' Coumil Jill Buhler. Cnairman - Hospital CommÙsioner DÙtnà #2 Sheila W'eJtero/an, ¡-'ice Chairo/all - Citizen at Lu;ge (CI!.Y) Roberta Frissell - Citizen at L":ge (Coun(yJ S tau ,\fembers: Ieall Baldwin. i,\'lIrJin~~ SenJiceJ Director ur:J F'!)', EnlJironmenlal Health Director ThomaJ Locke. MD. Health Officer 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 sale. Goodman is interested in performing inspections of conventional systems along with other septic services. 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 15, 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. Charles 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 the 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 Upl!rade: 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 Sewal!e O&M Licensinl!: 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. The 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 Publiç 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 Trainim! for Non-Res!Ulated 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. Le~!Íslative Update - Town Hall Meetin~: 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 heàlth 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 - Kin!!, 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 Washin2ton State Legislature Priorities: The Board reviewed a letter concerning the 2001 Washington State Legislative priorities including revisions to include l~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 Dailv News Article ",Jefferson Countv Mav 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 in the UDC called a Site Plan Approval Advanced Determination (SP AAD), 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 owncrs 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 desirabiliry 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 Plannimz 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 10. 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 Sheila Westerman, Vice-Chairman (Excused Absence) Richard Wojt, Member Glen Hunringford, Member Roberta Frissell, Member Dan Ti tterness, Member 8'''''''''K' ...,.. ,', ,,- .......,'c~".~. ....... ::::c -' " .H' .....m __ ...... ..__n. "".. ....... ,.". un...__ .., Washington State Senate Olympia Office: \ 1":'-,\ 1.<:µdaIÎ\"l: Buddinµ 1'0 ¡lox 10f":'l ()I\i\\pu, \,':\ <)H'iO 1-01":'\ Senator Jitn Hargrove l. flh LL'gi:-;lalive Dhlricr Telephone: U{¡O) -S6- -(H{¡ Toll-Free: I-HOO-'i62-(,OOO -, . , -. -- .....~. . March 27, 2001 ..- ---" , .- ." --. -- --,' Jill Buhler, Chair Jefferson County Board of Health Castle Hill Center 615 Sheridan Port Townsend, W a 98368 MAR 1 0 Z'JC; '.,~ - - ...... , 'J ~ e j ._~ ,~ . . ",; \,: , l',~ :'..... ~,¡ :" :~;: i_', 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 1-601 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, JH:lc Cmumittees: Human Sen'kl's I{ Correvtions, Chair · Judiciary · \iatural R<.'sources, Parks I{ Shorelines @~lS -' .. April 12,2001 To: Jefferson County Board of Health From: Tom Locke, MD, MPH, Jefferson County Health Officer Re: BOR Authority re: Long-Term Care Facilities Last month, a Jefferson County Board of Health member raised the issue oflocal 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-tenn 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 would apply. Thus, to have an impact, local regulations would either have to address an issue not covered by statelfederal 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. , REYISED 'CODE OF WASHINGTON http;/ /www.leg.wa.goY/pub/few/RCW%2...TERlRCW%20%2070%20.%2005%20.060.htm RCW 70.05.060 Powers and duties of local board of health. Each 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 nUlsances 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 health 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.J of 1 041\2/01 12: 13:35 http://search.leg.wa.govlbasie/text...Html&Item''' 1 &X"'412121708&X"'41212l7jl (E££ective 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. 10. Residential treatment facility for psychiatrically impaired children and youth. EXCEPTION: Where the carc provided at an alcoholism detoxitïcation scrvice 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 ~lowable 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: I. 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. 1 of 17 04/12/01 12:18:59 Jefferson County Board of Health Agenda Item Information / Description Regular Business For 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: strategy or objective issue supports; (law/policy/regulations) : including policy issue falls within; key reference areas 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. Onder 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: discussion/decision - if decision - what is the range of possible solutions considered 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. Onder 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 would be the impact of not taking the action: by the BOH approval - adoption - deny - remand the action recommended and what what specific action is necessary 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 exammation 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 0[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 J4 . 05. 3~-º_ 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 BÇW U_,J 7_.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 20[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 BC~._D4.030.] NOTES: *Reviser's note: The governor vetoed 1994 c 249 § 4. Severability -- Application -- 1994 c 249: See notes following RCW ..34. O_~~Q. Effective date -- 1989 c 175: See note following RCW >1 . OS _,Q 10 . Legislative affirmation -- Severability -- 1981 c 324: See notes following RCW _)4 - 05 ,_Otº-. Effective date -- Severability -- 1977 ex.s. c 240: See RCW :;Š4.~,---~Q-.2 and 34.08.910. http://search.1eg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20.%2005%20.350.ht 4/11/0 1 REVISED CODE OF WASHINGTON Page 1 of4 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 anyone 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 E\Ç'i'L 34. J:],1..;28 or *section 210 of this act. (2) The expedited rule-making process must follow the requirements for rule making set forth in BCW 34.0S.32Q, except that the agency is not required to prepare a small business economic impact statement under HCW ¡9.85,--025, a statement indicating whether the rule constitutes a significant legislative rule under RÇWJ c± . ():'). 32ß (5 ) (c) (iii), or a significant legislative rule analysis under Rç::W 34.05.328.. An agency is not required to prepare statements of inquiry under RCW34.0S.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.1eg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20. %2005%20.230.ht 4/11/01 REVISED CODE OF WASHINGTON Page 20[4 THIS RULE IS BEING PROPOSED TO BE ADOPTED USING AN 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...IRCW%20%2034 %20. %2005%20.230.ht 4/11/0 I · REVISED CODE OF WASHINGTON Page 3 of4 section is considered a statement of inquiry for the purposes of R.ÇW _34,_0 5_,3l.Q, 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. Part headings -- Severability following ßÇW 43.22. O::i). 1997 c 409: See notes http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20. %2005%20.230.ht 4/11/0 I REVISED CODE OF WASHINGTON Page 4 of4 Findings 1996 c 206: See note following RCW 4~~Q5.030. Findings Short title -- Intent -- 1995 c 403: See note following RÇ.I'L_J_~_Q5 ._~2 8. Part headings not law -- Severability -- 1995 c 403: See RCW 4.J_-,---Q_5--,--_9Q_~_ and 4 3 . 0 5 . 9 0 4 . http://search.leg.wa.gov/wslrcw/RCW%20%2034.../RCW%20%2034%20. %2005%20.230.ht 4/11/01 STATE OF WASHINGTON DEPARTMENT OF HEALTH 1 t 11 Sf 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 of PHIP 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 partnership of 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, Mt:t-~ Secretary Enclosure ®~1' o Jefferson County Health and Human Services 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, 3/14101 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 CJ) 6 Cl) ~ ~ o ~ ~ Cl) CJ) ::J :ê .. fA 'QÐ ::s .. 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'" 2' E p 1a ~ ~ .... ~ 0 ....2 0 '" 0 _ ~ '" ~ ~I..¡...¡ 0 -...s:::-"3..c::.2!l.J >-..fr~ ~ c.;; ¡'2 c: ~ ......~.- ... f- ~ a::¡ 0 0.) '" ...... c: 3 '" 2n~~ ~<lJ: >'''0 .c.....J '" _ ~ ~ 0 ..c <lJ .- <lJ .9~;t~ao.cõ -5~-5'õ r:J '--= \,-l; C;; (t: ;..J) -J ~-.: .+ --- ';::) --::¡-- f'\). 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 thàt 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 50 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. 'PDtJ .3 - L 3 -- () I ", State lawmakers rekindle debate on smoking ban By EUZABETH MURTAUGH THt: ASSOCLHED PIŒSS it's a vital part of our businl';;~," Senate Bill 5993 pas,;ed till' LIppc'r chamber 35·14 earlier this munth and now faces an evenly split HUlht' It would expand tht' stat.:\ Ckd:-. Indoor Air Act. It would clear tht' ,;tutl' Dt,purl- ment of Health to adopt !'(;'CtJlnmt'n· dations from a task for(.'(' with 1111.:11>- bers of the Washington HestauraL: Association and the \\'ashin¡"'1'J!: Alliance for Tobacco Control dnd Chi;' dren's Health, The new nll!;'s wOUld take effect Jul,\' 1. :2003 'I'Lî\:\ TU SMOKISL .-\:! "It's nO[ J hea)thfu) thing to do, but it's a vita! pan uf our business, " OLYMPIA - Democrats and Republicans are working together to pa.o;s a bill that would ban smoking in rt',;taurunts. bowling alleys and other plael's frequented by children, but the measure got mixed reviews at a House committee hearing Tuesday. Supporters from both sides of the political aisle tout the bill as a com- mon-sense step toward curbing the dangers of secondhand smoke, Opponent;; - from bingo parlors, race track.<; and restaurants - con- AlAN MCWAIN U\\'I1<:r. SlxlrCtfc tend that limiting where people can light up would drive away business and could lead to an outright ban on smoking in public places, "I know it's not popular," said Alan McWain, owner of the Spar Cafe, a landmark cigar shop and restaurant. "It's not a healthful thing to do, but Smoking: Ban bill CONTINUED FROM Al Lawmakers backing the measure call it a fair compro- mise reached by a coalition of anti-tobacco advocates and restaUrant industry leaders. "It's a public health issue. It's a child safety issue. And it's also a worker safety issue," said Rep. Laura Ruderman, D· Redmond. Bill sponsor Sen. Bob Oke, R.Port Orchard, asked his fel- low lawmakers to picture the Rose Bowl filled with 100,000 people, then multiply it by four and remember that's how many people die from smok- ing-related illnesses each year. When those customers are gone, "The tobacco industry has to fill every one of those empty seats with teen-agers," Oke said. "How can we in this country allow that to continue to take place?" A former smoker himself, Oke said fewer young people will get hooked if they see fewer adults smoking in public places. Despite opposition from some restaurant owners, the Washington Restaurant Asso- ciation supports the bilL "We know this is a contro- versial issue, but we believe it's a risk worth taking," said association lobbyist Michael Transue. The measure would allow res'.aurants to close off sepa- rate lounges for smoking, but some say small businesses would have trouble covering the remodeling costs. A smoking ban could also steer business away from bingo parlors, where most patrons smoke and there is no age limit, said Ric Newcard, a spokesman for the Washington Charitable Gaming Associa- tion. Current law allows restau- rants and other establish- ments to have designated smoking areas, but bans smok· ing in public buildings, buses. taxis, office reception areas, classrooms, hospitals and doc- tors' and dentists' offices State reguJations also require many workplaces to be smoke- free. Anti-smoking advocates consider California's 1998 law barring smoking in all public places a success story Wash· ington should emulate, but opponents say a California- style ban would be too restric· tive. Lawmakers behind the bill acknowledge there are still skeptics out there, but say they're upbeat about its chances in the House. "Aß long as we stay focused on protecting children, then we're on the fight side of this issue and we will win," Oke said rDJ 3-2,S'J-DI ~ Feral cat program initiated in Jefferson PENINSULA DAlLY NEWS PORT TOWNSEND Unwanted feral cats won't be able multiply exponentially if a new program to spay and neuter stray cats proves suc- cessful. The Jefferson County Ani- bJ " .F'-- Q I ...... --,- i ~ ~ mal Services Auxiliary has launched the Feral Cat Rescue Program to control wild and feral cat colonies. Under the program, feral cats will be trapped, spayed or neutered, and place in a safe environment. "Our board of directors has wanted to implement this pro- gram for quite some time - and finally we have a COre group of volunteers with the commitment and knowledge to help make it a reality," Aux- iliary President Rose Ann Car- roll said. "That doesn't mean we have all the necessary equipment, funding and vol· unteers to fully implement this exciting new program. \Ve still need cash contributions to pay our veterinarians for their services and we need portabll' kennels to transport the cats," The group is also relying on the Jefferson County resident;: to contact them regarding feral cats. "There are many location" where we know we have a huge problem, but we know there are lots we don't knuw about;' Carroll said. For more information or tu volunteer, contact Phylli" Becker at 379-3207. 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 I. Summit Agenda 2. Draft Invitation Letter 3. Summit Invitation List and Meeting Site V. Adjourn "10 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 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 East Jefferson County Summary The Commissioners of JefIerson County Public Hospital District #2 and the JefIerson 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 of2000, 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. JefIerson 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 infonnation 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 >- 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 ofresidents can't afford out-of-pocket costs for services their health insurance doesn't cover ;- State budget problems will continue to erode the level ofreimbursement to providers >- State budget problems will also result in fewer covered benefits and decreased emollment for Medicaid, Basic Health and categorical programs >- Current financial incentives are detennined 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 J efIerson County does not have the organizational structure or resources to comprehensively coordinate funding and services to meet the needs ofresidents. The Solution >- There is no perfect solution 2 ,. Both short term and long tern1 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, enonnous 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 community services are disconnected. There is little or no communication or coordination at the center. THE EXISTING SYSTEM t t Mod"ore t .Basic Health tipt-klth C~rf!l t Hn',,"'''' t t Patients / Consumers / Enrollees ~-"~~----------'._'_. Mp.dic"ãid t Pr'r.tc'"titinnpr~ Pharmacies (")thpr Providers. Ir..di\.'idu;ll... C:nmmunit:y t ¡ 1 \ \ I "l ~~. I J ,...~, 1 t, St:nd.œs. Publi(- Hp~lth Grants for Di t"t-"ct St-'"rvic{' 4 EAST JEFFERSON COUNTY INFORMATION 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% ofresidents 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 Jefferson County Estimated Uses of Health Care $s in 1997 Total Estimated Expenditures Amount Spent in Amount Spent Total Jefferson County outside Jefferson Spending County ¡ ¡ , ! H . 1 C $18492 6591 S13 1947671 $31 6874211 oSPlta are , , , , , ~I , , Physician Services 1 $12,821,5001 55,494,9291 $18,316,428 Dental Services I $3,791,5011 $421,278 i 54,212,779 I Other Professional Services 1 $4,785,167! $251,851 $5,037,018 Home Health Care I $2,610,0911 S137,373 52,747,464 I Drugs and Other Non-Durable 1 $7,317,4131 51,291,308, 58,608,721 Nursin,g Home Care 1 $5,568,1941 51,392,0491 $6,960,243 Other Personal Health Care ¡ $1,904,9091 $476,2271 $2,381,136 Vision Products and Other Durables , $952,4541 S238,114: Sl , 190,568 Pro ram and Private Health I $228 9551 $4350 1521 $4579 107 g Insurance Administration Government Public Health Activities I Research and Construction ,Total Health Care Expenditures on: ¡Behalf of Jefferson Residents $60,835,662 $30,746,480 $91,582,142 Source: National Medical Expenditure Survey. Chart developed by Larry Thompson, 1999. $1,511,105i $851,714¡ $1,511,1051 $1,987,3321 i I 53,022,2Il S2,839,046 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 S~vstem 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 Fundinl! 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 íùnctions 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 financiallirnitations of the system. Physician Clinical Decision-makinl! Autonomy - Cost contairunent 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 Public Health Community Services Pharmacies Health Care Practitioners 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 íùnding is pooled fi-om 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 tenn. 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 tenn, 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 theoretical1y 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. 10 OPTIONS FOR CONTROL AT THE LOCAL LEVEL Local Government Models Controlled by Market Force::; & Decisions Controlled by Publically Elected Officials Current Dominant Modd Options: Public Hospital District County "r City Public Health Ikpartmcnt Jurisdiction Inted"c.,1 Entity New Spt."Ciðl Government Authorize...! by State Controlled by Designated Board of Directors Options: . Consumer Coopcr~ti\'c Provider Ua~d Network (CHOICE) N-ew íncorporatt.)d community group 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 I, or a private non-profit organization? ./ What will motivate providers and consumers to participate? I Leaders in the Northeast Tn-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. II ./ 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 time line 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 TIME LINE - SHORT TERM In addition to building a local health care authority, several short tenn 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 infonnation 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 o/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 wil1 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 wil1 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 wil1 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 40% (Avg) 57% 10% 100% 33% 16 ~i"" .~' . "" ,,^' ~~ tI;:l <_!h _ ........:' I',·';,," ",,,,, '> \ \ -~, . ... Administration Information & Assistance Education/Disease Management Fee-for·service Payments Primary Care Providers Specialty Clinics Local Hospitals 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?? 'Drought survey tínds drinking water systems concerned but generally prepared Page 1 of2 News Release For Immediate Release: April 17, 2001 (01-31) Contacts: Till} Church, Communications Office (360) 236-4077, pager 360-534-0068 Drought survey finds drinking water systems concerned but generally prepared OLYMPIA -A new state Dçpartment of Health surv~ shows some of Washington's largest drinking water systems are already feeling the effects of the drought. "These large water systems serve more than 4 million people in our state, so it's very importmt that we know what to expect and how prepared we are," said Governor Gary Locke. "The drought will affect different communities in different ways. This survey gives us an excellent picture ofthe needs and concerns of the larger utilities. " "Reliable, safe drinking water is a key public health issue," added Secretary of Health Mary Selecky. "This information gives us a good idea about some of the ways we can help local water systems now and over the coming months. Water systems will not have to go through these tough times alone." The department surveyed all public water systems in Washington that serve 1,000 or more connections. The survey went to 198 utilities; 193 of them responded. The survey is a summary of what these water systems told the department. When asked about how vulnerable they are to the drought, the water systems answered: · High vulnerability 9 utilities (5 %) · Moderate vulnerability 73 utilities (38%) · Low vulnerability 101 utilities (52%) · No answer to this question 10 utilities (5%) The utilities responding "high vulnerability" serve about 153,000 people: Water System County People Served City of Kent King 54,056 Sammamish Plateau Water and Sewer District King 40,500 Covington Water District King 29,200 Fruitland Mutual Pierce 9,000 City of Port Townsend Jefferson 8,600 http://www.doh.wa.govlPublicat/2001_News/01-31.html 4/19/01 "Drought survey finds drinking water systems concerned but generally prepared Page 2 of2 City of Omak Okanogan 4,555 City of Goldendale Klickitat 3,480 Ocean Park Water Company Pacific 2,140 Surfside Homeowners Association Pacific 1,492 A total of 46 water utilities indicated that they are already experiencing a decline in water quantity. If dry weather patterns continue, a substantial number of water systems (80) said they could anticipate water shortages of some kind. Of these, 28 anticipate minor shortages, 48 moderate and four severe. Many utilities--especially those relying on groundwater sources-indicated that they are capable of getting through drought impacts this year, but believe a multi-year dry weather pattern could have serious impacts on water supply in the future. Several expressed concerns about potential energy shortages, saying that possible rolling power blackouts could affect the ability to pump and treat drinking water. The utilities were also asked how they're responding to and preparing for drought conditions and what state government assistance is needed. Utility managers generally said they are well prepared for drought, with 72 reporting a high level of readiness, 105 moderate, and only 13 low. Nearly half of those surveyed are currently following a water shortage response or emergency management plan, and more than 80 percent are educating customers about water conservation. Many water utilities said they need some type of assistance from the state, including conservation materials, funding for leak detection and repair, and emergency construction. Another major need is water-right pennit flexibility for prevention of water shortages or outages. Forty-five utilities said they expect to submit a request for an emergency water-right transfer or change this year. The thousands of small water systems also expect a difficult summer. The department will be reaching out to these small utilities, providing technical assistance to those most vulnerable to drought and promoting conservation and preparedness through communications efforts. A drought response web site is currently active and mailings to small water systems are under development. "We cannot let the spring rains fool us," said Secretary Selecky. " It will take more than a few rainy days to take care ofthis problem, In the meantime, we are working closely with utilities so they can continue to provide reliable, safe drinking water." ### Editors' note: Complete results of the water system survey are available on the Department of Health web site at w~w.doh.wa.g()~. HOM~ Pri v,!cy_N otice Copyright © 2000 Washington State Department of Health Last Update: April 17, 2001 10:22 AM Comments or questions regarding this web site? Semi mail to the Wf!,.Q/!Iaster. http://www.doh.wa.gov/Publicat/200l_News/01-31.html 4/19/01 ! ~~ ~~ -......... PUGET SOUND WATER QUAUTY ACTION TEAM Office of the Governor News Release For Immediate Release: April 16, 2001 (01-30) Contacts: Bob Woolrich, Shellfish Programs, Dept. of Health Denise Clifford, Puget Sound Water Quality Action Team Denise Clifford, Pager: Donn Moyer, Communications, Dept. of Health 360-236-3329 360-407-7312 360-534-4161 360-236-4076 Washington shellfish growing areas threatened by pollution Olympia ~ Pollution problems in Washington are threatening 13 commercial shellfish growing areas with harvest restrictions or closures according to this year's "early warning system" list issued by the state Department of Health. Contaminated waters can leave oysters, mussels, and clams unsafe to eat. Twelve ofthe threatened areas are in Puget Sound, and one is in Willapa Bay. Harvest restrictions are already underway because of bacterial contamination in portions of four of the 13 areas - Henderson Inlet, Dungeness Bay, Filucy Bay, and Oro Bay. The other nine areas on the department's "early warning system" list are considered threatened with closures or restrictions. In several of the areas only a small part of the water body is threatened. In each identified area, the pollution is categorized as nonpoint pollution from stormwater, fann animal waste, on-site sewage systems, and wildlife. Identifying the actual source of nonpoint pollution in these areas is difficult because it is usually low-level, widespread, and intermittent. A map of these locations may be viewed at hUp:/ /www .doh.wa.gov/Publ ¡cat/200 I News/Images/beaches. jpg. --More-- , '" Shellfish Early Warning System April 16,2001 Page 2 The 13 listed areas are: · Dungeness Bay and Pysht in Clallam County · Port Gamble Bay's Cedar Cove in Kitsap County · Annas Bay and lower Hood Canal near Belfair in Mason County · Naselle River in Pacific County · Amsterdam Bay, Pilucy Bay, and Oro Bay in Pierce County · Samish Bay in Skagit County · Henderson Inlet and Nisqually Reach in Thurston County · Portage Bay in Whatcom County. Washington is the leading producer of fanned shellfish in the nation. The Department of Health monitors pollution sources and water quality in 83 commercial shellfish growing areas and many public shellfish beaches around the state. Most are located in Puget Sound. "In the last month, Washington's oysters have been praised by chefs and food editors around the country - ftom Sunset magazine to USA Weekend," said Nancy McKay, chair of the Puget Sound Water Quality Action Team. "But virtually no area of Puget Sound is immune to the threats and effects of pollution and urbanization. Ifwe are going to preserve our prized shellfish resources, then we need to take these warnings more seriously and chart a new course in our efforts to protect water quality." The early warning system is designed to alert shellfish growers, local communities, state agencies, and tribes about worsening pollution problems and the need to correct the problem before closures are required. Since the inception ofthe early warning system five years ago, 29 different shellfish areas have been identified as threatened and eight have suffered partial or full closure. "The fact that the same sites remain on the early warning list year-after-year, and that others have succumbed to a closure, tells us that water quality is unfortunately declining in many areas," said McKay. "Good land-use planning, community leadership, better pollution prevention measures, and more aggressive actions to clean up contaminated areas are what's needed to get these sites off the list." For more infonnation on the state's strategy to protect Puget Sound area shellfish areas, visit the Action Team's web site at: www.wa.gov/puget sound. ### 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 heafth 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 Health Care Summit Critical Access Project Workgroup The workgroup 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 (03A) · 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. 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 Quilcane 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. ATTACHME-N-T 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 Wait, Dan Harpole, Glen Huntingford, Shelia Westerman, Geoff Masci, Jill Buhler. ATTACHMENT 3 Health Access SummitWorkgroup- 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 Health Care Summit L:!h<.: ;";<':\1/ Ens;IJnJ fournJI of :-'\<.:JI<':ln<.: ')01 ~4 0 (6jJ H",aì tb Putir:; R I: ]W !" t THE AMERICA:-J HEALTH CARE SYSTEM Th<: Movem<:nt for Improved Quality in Health C.1re THOMAS~NHEIMER. M.D. A vlBR.\¡..;T mov<:ment to improve the qUJ.l- ity of heJ,lth un: hJ,s sprung up in the Cnir· cd StJ,n:s. Report cJrds on health plans, hm- pitJJs, medioJ groups, .lnd <:ven inJividu.11 physicians hJ.ve J.ppeJ,n:d on the front pag<:s of m:wspJ.pe.:rs, on td<:vision, J,nd on the Internet. Projects (0 solve probkms of qUJ,líry wirhin health care institutions dot the h<:alth cJ,re landscJ,pc:. A small but dcter- mined cadn: of physici:J.n kad<.:rs hJ,s dl.:vdoped J. sci- I.:nce of heJ,lth carl.: quality and is working to trJ,ns- I t(xm thJ,t sCÎt.:nce into J. natioIlJ.1 movement. Two main strJ,tegÎc threJ,ds intertwine to creat<: the present and future 1genda of th<.: movem<.:nt to improvl.: qUJ,lity in heJ,lth carl.:. First, J.ctivists J.n.: per- suading the purchasl:rs of health can: - large em- ployers and the government - to dl.:mand high- quality can: trom manJged-carc pbns Jnd health CJrc.: , providers. Second, leaders arc J.ttempting to inspire I health prokssionals to create J. "culturl.: or' quality" within th<.:ir hl.:alth care institutions. A dl.:scription of these inn:rrelated str:.w.:gil.:s is thl.: subject of this Hl.:alth Policy R<.:port. Thl.: report: is basl.:d on inta- views with experts on the quality of health Care in JC:.ldl.:mic ml.:dicinl.:, businl:ss, :.lnd governmerlt and with the leaders of organizations that tocus on qual- ity in hl:alth carl:. Bdore dl:scribing the two strJtl:- I gie.:s of th<.: mOvl.:mCflt, I will bridly review the.: na- tion's main problems with the quality of health care, how ir is measured, and the most important organi- zations com:emed with the qU.11it)l of h<:Jlth cJ,re. PROBLEMS WITH QUALITY Probkms \vith the quality ofhl:Jlth care can be CJ,t- egorized as o\'eruse, unlkruse, and misuse.l .\ num- ber of studies h:].\"1;: demonstrlted overuse of hc:Jlth can: servICes; tor cxampk, from 8 to 36 percent of ope.:rations - d<.:pending on the type - have been tÒund to be unnl.:CCSSJrv and hJVC CJus¡;:d substJntiJl avoidable death and disability.l Cndl.:rusc is preva- lent in the C:.lre of patients with chronic diselse. For instance, many patients with diab<:tcs do not have rl:gubr glvcoh<.:moglobin measurements and retinal l:xaminJ.tions, and from 1993 through 1995, only H percent of patients with cJrdiovascular diseJse hJd I Jchieved the serum lipid levels recomm<:nded in na- 488 . hhruJrv LL. 1 ~99 tion,!1 guiddines. >.-1 l"nd<.:rus<.: .llso occurs in acuœ care. The failure to use cffl:<.:tive.: thcc1pies tor acute mvo<,;J.rdial infarctIon may kad to .lS many as 18,000 prevl:IltJbk dc!ths eJch year.: ,\-[isuse is a pervasive problem. .\11 estimated 180,000 people dil.: each Vl:ar :nrtl;' as .l n:sult of in- juri<.:s CJus<.:d by physicians.5 fltJi .ldvl.:rse drug reac- tions in hospiuliz<.:d pJtieIlts c.luSl.:d an estimJted 106,000 ,kaths in 1'19-+." f,ttJI m<.:dicarion errors among outpatients doubkd b<.:twem 1'183 J.I1d 1993.7 Thl: qÜJliry of carl: within hospitals lus been tound to be inkrior t¡:>r blacks Jnd th<.: uninsured. ~.9 To deJ,1 with the probkm of misusl:, the movement ror quality hJs begun to targe.:t isslll.:s or' p,!timt satcr)!. MEASURlNG Q C' ALITY The Iostiru(C of '\',kdi<.:ine hJS dctìned quality as ·'thl.: dq;rel: [0 which heJ,lth services tor individuals Jnd populations increJ,sc the likelihood of desired heJ,lth outcomes and Jre consistent with current pror~ssion<.11 knowledge."l How does an individual physician, ml.:dical group, or he:tlth maintenance or- g:mization (HMO) know whl.:ther it is providing care of averJgl:. bdow aVl:rJ.g<.:, or supl:rior qUJ.lity~ The me;¡surement ot- quality is an elusive but achi<.:v- Jble goal. 1o,: : H<.:alth cJ,re is not J. singll.: produ<.:t, like a toasœr or a lamp. It indudes such diverse compo- nl.:nts as pertorming screening m:!.mmogrJphy in a healthy woman, optinully treating a p:!.tient with a myocardial inbrction and cJrdioge.:nic shock, and counsc.:ling J deprl:ssl:d pJtil:nt. Each intervention rl:quir<.:s its own pJrticubr meJsureml.:nts of quality; some ducidate thl.: proœssl.:s or' carl:, and som<.: toc;us on outcom<.:s. For p,!ticnts with diabetes, th<.: rd~- v;lnt mcasures might indudl.: thc pl:rœntage of pa- tients who undl:rgo an annuJ.l retinll examination (<.1 meJsurl.: of proœss) JIld the perœntJge with normal glycohcmoglobin lcvds (;1 me.::.lsurl.: of ourcoml.:). For pati<.:ms \\lith <.:oronarv heart disease, measures might include the Pl.:w.:ntJ,ge rl.:cciving .lspirin Jnd beta-blockl:rs (process) and the pl:rœntage who hJ,vc myocardial inbrction or sudden deJ,th from <.:ardiac I C:lUses (outcomes). Even wh<.:n considering only onl: I ht:Jlth care intervention - tor example, coronary- artery bvpass surgery - it is rrcad11.:rous to compare.: the outcomcs of onc surgical teJ!11 '\lith those of In- otha withour adjusting rI:Jr thl.: age of the patil:ms :!.nd thl.: severiry of their illness. Dift(.:rent groups in the health can: system have diŒerent issues of con<':em regJrding the qU<.11ity of health CJre Jnd Jre interested in ditfen:nt mc:!.sures of pertorm<.1nœ. PhysiÖ;¡ns view quality in heJ..!th care as the applicJ,tion of evidence-based medic:!.l knowledge to the pJrticlIfar needs Jnd wishes of in- dividual patients. Patimts may pbce more impor- tJnce on how clinicians (ommunicaœ with them, or how long they are kept waiting tor appointments, than on the technicJl accuracy of the advice ot1\:red, J - ~ -~.!. . "7"E' ',', I' ., - 41' HEALTH POLICY AEPOAI though 1 new Wl\'e of health-cons..:ious consum..:rs is developing technicll sophisticltion. H.\-lOs may value plcient sacisÙ..:tion and thc usc of prevcntive s..:rV¡CCS Jbove clinical outcomes because satisfied pa- tients Jre less \ikdy to leave the health pl.:m lnd be- ":Juse che Jpplicl(ion of preventive services is J meJS- ure on which H.\lOs lre currently judged. ORGA.NIZATIONS CONCER...'JED WITH QUALITY The SJtiol1J.l Committee tor Quility Assurance 1)-iCQA) was tormed in 19ï9 by managed'-clre trade lssocÌ;1cions hoping to t~nd off t~dcral monitori.ng of hellth plJI1s, In 1990, in order to reduce compctition tram ncwer. presumably lower-quJ.lity H.\lOs, a group of H.\tOs in coalition with some large employers en- gineered J restructuring of the ~CQA's board, trans- torming the orglnization into something more than J mere advocate tor the interests of HMOs.12 The NCQA has two main voluntary activities: the lccreditltion of HMOs and the publicJ.tion of me:J.S- Llres of performance in the Health Plan Employer Dau J.nd Intormation Set (HEDIS). As of October 1998. 4,8 percem of the nation's approximately 650 HMOs had requested lccreditation surveys from the ;-..rCQA; 96 percent of those surveyed havc received three-yeJ.r, one-yeJ.r, or provisional accreditation. Thir- ty large ..:orporatìons, including Xerox, General Mo- tors, and IBM, will nor contract with health plans that Jre not accredited by the NCQA, but most em- ployers do nOt make accreditaÒon a requirement. Em- , ployers concerned with the quality of heJ.lth care tend to be companies that hlve been torced by in- tctnatiol1J.l competition to improve the quality of their own products. Forty percent of the NCQA"s budget comes from tèes paid by HMOs tor accredi- tJtion surveys; the rest comes from toundation grants, contracts, \:ducJtionJI programs, Jnd publicJtions. The current data'set from the NCQA, HEDlS 3.0/1998, indudes more than 50 measures of per- tormance, including patient satist"J.ction, rates of ..:hildhood immunization, percentages of enrollees of certJ.in Jges receiving screening tor cervical and breast cancer, Jnd percentages of patiems with dÌJ.- betcs who undergo retinal examinJ.tions.13 Ironically, Jlthough employers rend to assocÌJ.te higher quality with lower ..:oStS (l..:hieved by redw.:ing overuse and misuse of services), the NCQA's HEDIS measures tocus mainly on the underuse of heJlth care, the correction of which raises cOSts. The NCQA agrees that the HEDIS measures include few items rdared to chronic illness; the group hopes to add such items tor the year 2000 data set. A health plan can refuse to disclose its HEDIS protìk to the public. A total of 329 HMOs (51 per- cent of all HMOs) allowed the 1996 data to be pub- licizcd. but only 292 plans (45 percent) permitted public reponing of the data tor 1997. A..:cording to ,.,......\ the NCQA, the plans that refuse to allow publica- tion of HED1S data have signitìcantly lower scores than the pbns chat permit publi..:arion. The Joim Commission on Accrcditarion of HCJ.lthcJ.re Organizations (rCAHO), tounded in 1952 under the legis at' tl1<.: :\mcrican Hospital ,-\s- sociation J.nd the Ameriun .'vlcdi..:al Association (.-\.\L\), hJS the luthority to terminate hospitJls' panicipation in the .\kdiclr<.: program if the quality ot care is tound to be deficient. Revenues tor the: ..:ommission come chidly trom fees paid by hospi- tals, home ..:are 19;encies, lnu other taciliti<.:s that it :Kcredits. For years, th<.: rCiliO lttempted to Ilunch outcomes-based J.ccrcditation sundJ.rds thlt would allow the public to compare hospitals. Because of re- sistance from hospitals, this effort has been sC:llcd down and convened to the ORYX program. ORYX allows a hospit:11 to pick two measures of perform- J.ncc from J. long list, including such items as mor- tJlity after coronarY-lrtery surgery or the percentage of patients with diabctes who receive dietJ.rY coun- seling, as long as these measures arc relevant to 20 percent of the hospital's p;ltient population. Over time, hospitJ.ls must repon more me'lSures, but there is no requirement tÌ;)r the type of unitorm rcponing that would help the public compare one hospital with lnother. The Health CJ.re Financing Administr.:ltion (HCFA) is responsible for ensuring thJ.t institutions provid- in~ serviœs to Medic:1re and .\'lcdicaid beneficiaries meet certain standards of qUJ.lity. In the past tcw years, HCFA hJ.s accelerated its quality-rdJ.ccd activ- ities and may soon b<.: the nation's most intluential organization working to monitor and improve the quality of health care. The Quality Improvement Sys- tem tor Managed CJ.re (QISMC), established in 1996, sets quality standards tor Medicare and Medicaid managed,cJ.re plans. In contrast to the NCQA, which reports HEDIS data only when health plans wish them to be rdeased, HCFA has the authority to make public such data tor Jll Medicare HMOs: but it has not yet done so. HCFA may eventually requin: hospitJls that plrticipate in Mediclre to submit data on standardized mt.:asures of quality that consumers ..:an use to compare hospitals, bypassing the mort.: cautious lpproach of the JCAHO. HCF:\ is ..:onsid· cring l simihr J.pproach tor indept.:ndcm practice lS- sociations JI1d group practices. In 1972, Congress creaccd protèssional standards review organizations, supplanted in 1982 by peer re- vicw organizations (PROs), one in each state, which are authorizt.:d to monitor quality in the Medicare program. :\ 1990 study round thJ.t PROs used inet: tective punitive mcthods such as retrospective case revicw with denials of payment and wJ.1"rungs to phy- sicians.I" In 1992, HCFA transtormed the PROs into organizations with statIs of medical profession~ als, trained in quality improvement, who analyze (:; ........... - -, .. , .,- Volume 3.¡.0 Number 6 . 489 The.: ;-';e.:w EngL¡nJ fourn.ll of .\le.:diçine.: p,¡w.:ms of ore through th<.: larg<.: ~kdican.: data base ,1Od fe<.:d thes..: dJtJ back to physicians and hos- pitals in order to improve Clf<': tor patie.:nts with com- mon illnesses such .lS myoordial intJrc::ion, conges- tive h<.:Jrt fJi!un.:. stroke, Jnd pn<.:umonÜ,15 PROs review individuJl cases in th<.: event of compbints from patit..:nts .lf1d can denv p,wm<.:nt tor unnecessary s<.:rV\CCS, but these (onstitutl.: J. small proportion ot- thc.:ir work. Experts on qualitv inside clnd outSIde HCFA .Ire con<..:<.:m<.:d that Congress, intem on re- ducing fraud .lnd Jbus<.: in th<.: iykdicare program, mav require the.: PROs to r<.:turn to thc.:ir prc.:vious payme.:nt-de.:nÜ! practices .lnd m<.:rebv compromise thc.:ir qua!it\··improvement JCtivities,lÓ The Foundation tor .-\ccountability rF.-\CCT) in C'orti.1nd, Oregon, was created in 1995 on the ini- tiative at' Paul Ellwood. In contrJ.st to the ::-ICQA, .ln accrediting organization, FACCT is a think tank and e.:ducarjonal vehjcle whose purpose.:s arc to devel- op measures of performance thar are rc!eVJ.nt to ¡ consumc.:rs and to educate consumers about how to use this information. FACCT persuades the.: NCQA, rCAHO, HCFA, state governments. and <.:mployers to use its me.:asures of performance. For 10 years, the.: Institute for H<.:althcare Im- provem<.:nt (IHI) in Boston, tounded by Donald Berwick, has organized an annual National Forum on Quality Improvement in Health C.lre; it has also develope.:d J. Breakthrough Series, bringing together [caders in health care organizations who are com- mitted to solving problc.:ms of quality. The Break- through Series tocuses on several coll.1borative à- torts to improve can.: within institutions; the goals indude reducing waiting times in emergency de- parunents, preveming adverse <:vents due to medica- tions, and improving care for low back pain. The ~arÍonal Patient SJ.ti..:tv Foundation, located at offices of the ,\...yL\ in Chicago, was established by the .\...YL\ in 199í to change the .ltrjtudes of health pro- kssionals and the públic regarding me.:dical errors. L7 The foundation, with start-up funds from the A.YL\, sponsors research .lnd educational dforts based on the assumption that errors .lre nor personal fiilures descrving punishment but, rather, inadequacies of systems, which must be.: redesigned to hdp prevent er- rors_ Leaders of the 0iCQA, JC.-\HO, FACCT, JIlU [HI sit on the toundation's board of directors. Tht: :--.iational Roundtable on Health CJre Quality, involving representatives from academic, busine.:ss, consumer, provider, governmcntal, and publishing organjzJtions, ,vas com'ened by the [nstitute oL\kd- icine in 1995 to heighten awareness of issues rdated to quality in health care. Funded by the federal gov- ernment .md private sources, the roundrabk's 1998 report concluded that '·sc.:rious and wide.:spread qualjty , problems exist throughout AmcricJIl medicine." I The.: Institute of Medicine is continuing the roundtable's work, looking at the.: dual strategie.:s of changing health 490 . Fe: b r \l ar y 11, 1 9 '} <) care institutions internallv and tostering an e.:xternal envIronment that encourages improvements in qua1icy. The Consumer Coalition tor Qua1ity H<:alth Care in Washingmn, D.C. - torme.:d in 1993 through the efforts ot' the.: American .-\ssoc1:ltion of Retired Per, sons JIld other consumt:r groups - represcnts labor, the ekkrlv, JIld .ldvocacv organizations JIld inrcnds to bring thc perspective of wnsumers to legislative .lI1d private initiatives to improve the quaJitv ot'health care. . PRESSURI~G I~STITUTIONS FROM THE OUTSIDE Accreditation, \vhether voluntary or compulsory, makes he.:alth care institutions satisry i minimal srand- ard of quality, thereby placing de.:mands on these insti· tutions to improve. The goal of the publication of pet- tormance me.:asures, or report cards, is to put pressure on institutions in two ways. First, low scores on report cards may stel:r consume.:rs or employers away crom health plans, mt:dical groups, or hospitals, and second, physiciJIls within institutions that score poorly on re- port cards may be embarrassed into doing better. Leaders in the movement tor quality in health care, ¡ including those within t.he ~CQA, view the commis- . sian's report cards as a nrst step toward improving qUJ,lity, but they Òrc severallimitarions of the.: program: Report cards may not channel most conswners to higher-quality health plans. Forry-seven per- cent of employees in large companies and 80 percent in small firms have no choice among health plans1H; Jata on quality would theretore be of no use to the.:m. Mort:over, only 11 percent of 1500 employers recently surveyed rdied on dara on quality in sekct- ing health plans; cost is the dnving factor in most ¡ decisions by employers. [9 Te.:ns of millions of people receive health in- sur:mce through preferred-provider organizations, which are not induded in the reporting on per- formance. Patient satisfaction, an important component of I-L\lQ report cards for marketing purposes, is a que.:stionable measure of the quality of çare.20 Patient satisfaction is an unreljable indicator because positive ratings from the.: great majority ofenrolkes- who .lfe healthy JIld rardy use.: services - can dwarf the.: legitimate complaints of those who are sickY Gathering HEDIS data is costly to health plans and provider organizations, and the cost is ulti- mately shifted to purchasers and consumers. The.: movement tor quality in health care brings profits to consultants as well as to the ne.:west suppliers of health care products: computer JIld software companie.:s. If report cards truly channeled patients to higher-quality plans, those plans might attract a sicker, more expensive population of patients. The higher· quality plans would thus be.: punished rarher than rewarded by the market, which does noc adjust H,vl0 premiums taf severity of illness. ,- . ..' ~.~~( , W~;, .. HEALTH POLlCV REPORT Although the impetus provided by report cards may boost quality within &\-10s,12 only items measured by HEDIS are affected. As pres- sun: co reduce costs intensifies and the time parients spend with physicians decrcJses, overJIl qUJ.lity could sutTer even as HED rs scores soar.10 'vVhat is me community of professionals con- cerm:d about the qualitv of he::1lth care doing about the:se shortcomings? Some groups of employers, in particular me Pacific Business Group on Health (PBGH) and the .'.lin- nesou-basecl Buyers Health Care Acrion Group (BHC\G), arc publishing report cards on medicJI groups .md integrated care systems rather than fo- cusing soldy on he:alth plans. A tèw purchasers are creating financial incentives aimed at improving the quality of care. PBGH pays health pl.ms more money if they achieve negotiated preventive-services scores on HED rS.H The huge Federal Employee Healm Benefits Program is considering a similar move. General Motors reduces premiums for employees who choose high-quality plans. A far more dfe:ctive step is for employers to place clauses in contracts with health plans that require spe:cific improvements in quality. This development come:s from a leading-e:dge group called me Leapfrog Group. This is .m intormal think tank of several large employer organizations, including PBGH, BHCAG, .md General Motors, whose goal is to make a direct assault on targeted issues related co patients' sJ.tèty. The: group, whose "epidemiology of opportunities tor improving quality" is rese:arched by PBGH med- ical direccor Dr. Arnold :VWstein, i1.t;; pl..:kcJ. t\\-'o i.s.sucs as its initial roeus on sJ.tèty. The first is "evidence- based hospital reterd" - that is, the channeling of patknts co certain hospiuls for conditions and pro- cedures (including coronary angioplasty and bypass surgery, carotid endarterectomy, and repair of ab- dominal aortic aneury.sm) tor which clear evidl.:nce exists that a higher volume of procedures or œach- ing status is associated with better outcomesY·27 After learning that this program could save 500 to 1000 lives per year in Calitornia, P BG H (which is made up of employers that purchase: care for a total of approximately 3 million employees and their de- pe:ndems) is asking its Calitornia H:V10s to use ne:w pe:rtormJIlce standards tor physiciJIl groups, hospital precertification, and enroUee education to advJIlœ evidence-based hospital retèrr:1l tor an initial sub- group of these interventions, beginning in urban ar- cas. .-\lthough PBGH is beginning this dfort with its HMOs, the imention of PBGH and the rest of the: Leapfrog Group is to make these changes tor all forms of health insurance. The Leapfrog Group's second tocus stems from research suggesting that medication errors at hospi- tals can be substantially reduced by inst:Jlling com- puterized physician-order entry systems that displJ.y warnings in cases of drug imefJ.ctions, known drug alkrgies, and incorrect dosages.la Employers could create contractual requirl.:ments, inœntives, or con- sumer expectations tor computerized physician-order entry systems. The Leapfrog Group is intent on pushing the move:me:nt tor quality forward in rwo ways: by bringing the satèty of patients to the torefront of me consciousness of purcha.sers, lmi by going beyond the reporting of performance measures of health plJ.ns to make am:mion to quality improvement pan of health plans' and provide:rs' contractual obliga- tions and market rewards. ,...~"' i CREATING A CULTURE OF QUALITY INSIDE INSTITUTIONS External pressure from private purchasers and government regulators is necessary but not suHicient tor improvement in quality.29 Leade:rs in me field ar- gue: that a fundamental change is needed within in- stitutions to bring both a science and J culture of quality to U.S. medicine that are currently lacking in most hospitals and physicians' org:lI1izations. For years, experts on quality, most prominently Donald Bawià and Lucian Leape, have translated quality-enhancing techniques from other industries to health care.S.30 Mark Chassin, cochair of the Insti· tute of Medicine's National Roundtable on Health Care Quality, challenges the medical profession to strive toward "Sl."{ sigma quality."31 The six-sigma goal means tolerating tèwer than 3.4 errors per 1 million eventS - a rate mat lies outside six standard devia- ¡:~Ùl~S of a normJ.1 distribution. Currently, the fre- quency of de:aths during anesthesia has bo.:en reduced to 5.4 per million, close to the six-sigma goal. In contrast, 580,000 pe:r million patients with depres- sion (58 pe:rcent) arc not given the correct diagnosis or treated adequately, and ï90,OOO eligible survivors of heart attaàs per million (79 percent) do not re· ceive beta-blockers; the:se rates are in the neighbor- hood of one sigma.31 Physicians, nurses, pharmacists, and other care giv- ers cannot individually perform at a six-sigma Ic:vel of reliability; meeting this goal requires building sys- temS designed to prevent adverse consequences of unavoidable human errors.5 For example, the use of intormation -and" reminder syste:ms incre:lses me: pro- portion of patients with diabetes who regularly un" dergo glycohemoglobin tests and retinal and toot examinations.32 The implication is that clinical care should bo.: redesigned according to a team approach, so that goals tor acute, long-term, and preventive: care can all be met. Some institutions are beginning to strive tor six- sigma quality in specific areas. LDS Hospital in Salt L.1ke City designed computer programs to assist phy- sidans in prescribing .mtibiotics and thus reduced mortality among patients treated with antibiotics by (~) L V()lum~ 340 Number 6 . 491 :1 I The ;-¡ew Engl.lnJ fourl1.l1 of .\leJi¡,;¡ne 2ì pcrcent.1J ;\ northern New England mulrihospitJl projecr used qUJlity-improvemcnt techniques to re- dULl: morulity J.mong pJtienrs undagoing cJrdiü- vJscubr surgery by 24 percem in three years.H The Community McdicJl ,-\lliancc in Boston hJS redc- signed systems ofcJre tor patients with severe chron- ic disease by providing a wide rJnge of services Jt homc .lnd grc.ltly reducing the need tor hospit:tls, specialists. J.nd Jmbubnces.:' Thc [HI's :--:J.tionJl Forum and Breakthrough $eril;s allow inscitutions Jeross the country to learn tram one anomer's qUJI- ity-improveme;:nr projects. Given the tens of thou- s:mds of hospitJls .lI1d me;dical prJ.criœs in the; na- tion, many of which do not h.lve;: k.lders capablc of carrying through major quality-improvement projects, this strategy has had limired dfeGs thus tJ.r.l Leade;:rs in the movl;menr tor quality in he;alth CJre emphasize that health plans and providers will work toward six-sigma quality on a lJrge scalc only if they are rewarded in the market tor doing so; currently, tinancial rewards fuvor low cost Over high quality. Even with a fundamental change in the market, however, this kvel of quality is difficult to achil;ve. Physicians' oŒees, still thl; mJ.in sill.: of clinical prJctice, J.n: hard- er to redesign than larger multispec:i:1lty groups, which are more able to invest in intormation-.lI1d-reminder sysœms and to creare team-bast.:d clinical care. ,; I, I I; CONCLUSIONS Why is the movement to improve the quality of health care active in the United States at a time whcn Cast contJinmenr dominJtes the health c.lre J.genda? To somc degree, improved qu:lliey can redw;<.: cases, particularly costs due to overuse .lnd misus<.: of serv- iœs.31 But substJ,mi:1l investment is needed to reduce misus~, and more funds arc needed CO address un- deruse. One cannot explain the; exisrcnce of the mOVI;- ment simply as a cosh:ont.linment .lctivity. A sm,lIl nllmbc:r of people, mostly physicians. h.lve brought me movement imd being, to some extent ;¡g.limt consid<:rable odds. Overall, the movement tor quality in heJ.!eh care e:xpresscs ;¡ hum;¡n desire to do me: righe thing. The movement has m.ljor barriers to overcome. Corpor.lt<.: purchasers .lnd governments l1.lve reduced r.lt<.:s of reimbursement to providers, k.lding co re- duced suffing in hospieals Jnd kss time with physi- ci.lOS tor patients_ Investor-o\vned he.llth plans .lnd provid~r org.lnizacions hav~ exacerbated these ¡:rends by shifting dollars away from direct h<:;:tIth services ;¡nci coward profits and administrJ.tion. :Nonetheless. th~ goal of improving the qUJlity of ore h.ls gained J prominent pbce on ehe rution's h~alth care agendJ.. I I: I ¡ " REFERENCES ¡i ¡ ~ '" " ii' Î 1. eh;}.>sin \!R, GJlv,n RW_ The urgen[ ne«! ro improve heol[h "Jr< quo!· try. [A.\I.\ 199!!;1S0:1000-5_ 2. Lcope LL. Unneœssary ,urgery. A11nu Rev Public HeJl[h 199::;13;363- 33_ 492 February It, 199',1 ¡- J. \,\\,;incr fr. l'Jn.:ntr.:: ST, C.1rm~k D\V. ~nwlcs I. L.1W'[h~M .:\G, P'-1lmcr R.H. V.lr1.ltion !n ot}1~I.:·h.l-';;cd ctllJlity. L\.\L\ l()l)5:2ï~J50J.:i. 4. Skß",le P. Schrorr HG. Pl.1ne ,\HI, l'nderbokke G, Brown RL. PnmJry ,,:.uc pr;h.:ri~c JJhcrcncc 'Co ~LHi()n.11 Chnlcsrcrnt ëJu~.lu()n Pmgt:1m ~uiJ~- iinC5 liJr pi1riCm5 \\lith ~()rOf1~ry hi.::lrr JiSCHC. .\n~h [ntc:m .\IcJ t99~~l5~: l23X-H 5_ [.cJpe LL Error in mdiclI1e. ¡..\.\I.\ 1'l94,172:1M51-;", 6. l..l1.:1cOU r. romcr.:U17. ßH, Corey f'S, rnl.,:alcn~c or' ..lJ\'cr'5.C Jrug n:a¡,;. "on' "I ~""pl<Jliled p.ltlCllts. ¡.\.\L\ l'J'lX;Z;"<),IZ(JO-5_ 7. Phillips DP. Chrlstcntt!J :-.;. Glynn L.\t. !1h.:tC;L'tC in L"S rT'H.:Ji~.\[iol1- ...:rror deaths bcrwtcn 1 ():'U .lnJ (()93. LJn¡,;ct l t)t)M;J51:r)..i.3-4. 8. ".11m KL. PCJ""n .\IL. HJrri",n ER, C[ .II. Hcolth LJn: ">r blJck .\I1J poor h"'pI<JlllcJ .\kJic.!rc p,I<ients. r..\.\I.\ 19().+;Z;'[: 1[(,9-,4_ 9. BlIrsn11 HR. Lip,",z SR. BrennJn T.-\_ Socioeconomic '[JCUS .!nJ mk ~i'r .;ub,mndJrd medic.!! core. I.-\.\t\ [9'12;26S:23113·;" 10. Brook ,tHo ,\(c(¡ly"" E.-\, Ckorv rD. \lcosuring '1uolirv or" CJre. SEngi I Sled I'ìW;;335:966·'O, 11. EJJv OSI. PCrform"n« n\CJ,urcmenr: yroblems .!nú solutions. HOJI[h __\ff',,"'lillwooú) 199X,I;"+)I25, 12. ,\!illellSon .\IL. DernJnding medicJ) c,cdlence_ C1>icJgo: CnlVe",;[V or" Ch";Je;o Prc,.'. 19'17. 13. E¡,,,cln _-\.\1. Rolling Jown the runWJv: ,he chJIIenge< _lhcoJ for qUJI- ItV repon "Jrds_ fAM.-\ 1995,2;"'I:16'11-(), 14. Rubin HR. Rogers WH. KJhn KL. Rubensleln LV. :\mok RH. WJIChin!> [he d<x[or·worçhers: how well Jo peer review "<¡µnizJ[ion m..h- ods úerco[ hosp"o! '"n: qu.ui,v problems' JA,\L-\ 1992,167;1349·5... 15. lend... SF. Wilensky GR_ The he:u[h ,,;¡n: quJliry imp<O\<Cmen[ 'niria[ive: , new .IpproJch '0 4UJJi[y J.<Sur~nce III ,\ledi",n:. rA."1A 1992;26S:900·3. 16. Pro!;er LO. PROs .Ii", co help curb povm~nr errors. AmerieJn SledieJI Sew,. Deoember 7.19911;1.38_ 17. Lcope LL. Wooús DO, HJtlie SI/, Kizer KW, Schroeder SA, LunJ. h<:,,; GO, Promo[in!; pJ[icm 'uk[y by provemin':l medicJr",ror. I.-\MA 199M;180:HH-7 18. GJbel JR. G""burg P\!. Hum K..\. SmJII cmplovcrs Jnd ,heir ¡'eol[h bt:nt.:"!ir:., 1 ~,'i."'-l ()9{,: JI1 .l\.\.'kw; rJ JdDJcs.cl.:"rh.:¡:. HC;JJrh .'\1f: .\.iii wonJ) t 997:16( 5): [03·10_ 19. Proger LO. Top Jeeredi",r lies Jc,ounrobili[y ro higher HMO qllo!iry. .-\me"CJI1 :-'Iedi,ul ,,"ews. Ocwber 19. 1'J'JX:lO, l3, 20. Bn)( k RH. K.lmberg cr. :l.kGlvnn E..\. Heul[h 'ys[em reti>rm ,nd cp""¡iry_ ]AM.-\ 199"';176:~76-80, 21. ,-\11"ell M, K~,ircr JP_ Qu;lIi[v -lIld the medieJI'n>rkcrpIJ<:e _ ri>lIow. ing deplul1!5. SEngi r .\!cd I 'J<Jó:335;~~3-5_ 22. Longo DR, LJnd G, Schr:lln01 \Y, Ff1J' J. Ho,kins ß. How~1I V Con. ~um!,,;r reports in hC:11r.h ¡';JCC: -.in (hey m.lkc ..1 ditf..::rcn~c in p~[i!,,;rH ~;1r¡,:: 1.-\.\\:\ 1997;178: 1579·,H, 23. Sduuttkr f-!H. Rodrt~uet. T. l:.:ccrÒsjl1~ pur!.:h;iNil1~ p~)wcr t<)r prc·.cu, '''·C core. He"llh .-\If(:-'\iilwoodl 1')')"';[51 [):73-x5_ 24. lollis IG. Pcrerwn ED. DeLong :OR. cr JI. Th~ rela[ion ""[ween [he volume IH' ..:ororu.ry .lngiopii1:i.p:/ pn)&.:ctJurc..s ..at huspif:Jb tr(::¡(ing ~kclic.lrc "endici.lrie, .Ind ,horr-rerm ",o".I)i[y, :--I Eng! ¡ ."'leu 199~;33 1:1625-9. 25. Grumb.!eh K. AnJerson GM. Lutt HS. Ro", LL. Brunk R. Region- JiilJ.tion of ~;1tdi3": 5uq;crv in rh~ t..:nircu S{;}(~S JiU.1 CJ.n~c.Ja: gc()grJpitl~ 4¡";~C~. ~h(Jict:. Jnu outC<.HTlCS. IAS·L\ l <)95;27 4;l2:iJ ·M. 26. KJrp HR. ¡:¡Jnder; WD. Shipp CC. T.lylor 1', Marnn D. CJmfld ond· .lrrc~t.:[(}my Jmong .\h::dit.:Jtc bcndj~ Jric.s; J ,~rJtc\Vidc c~U.1[i()n uf Jppro~ Dri"[eness und ou",ome. S[wke 1'J9X,Z9:¥J·52_ 27. HJnnJn EL. Kilburn H ir, O'Donnell iF, '" "I. A longarudinJI .InJi"", or- the: n:b.cionship bt;~\o·ccn. in.-hospi[:11 rnl}rt"31i(y in Nt.:w York State J.nJ ~hc ....olume of J.bdomll1.d .1or-ci( .1ncurysm surgeries pcrtormcd. HCJlch Scrv Etcs 1992:1;":51;"-..2_ 28. BJres OW, LCJpe Le.. Cullen OJ, ct "L EI1"", of computerized phvs¡. ~i;.lf'l. order i.;otrv JnJ ..1 (~J.m ¡n(C'rvcntJOn on pr<:\'cf\tiou. (')f ~t:rious meJicl.' '1<>1' crrors. I,\.\l.-\ I 9'1~,2XIH311-6_ 29. BcrwICk D.\!. Crosslllg ,he ooun'Ür:: chJuging men[JI moúds i" :he iery;ce "llmprovement_ In[ i QUJI HeJ)[h Care 1'J9~;10,~35..H_ 30. ßcrwkk D~t. Continuous irnprD\"cn1l.=nr J,S ,H'~ iJ,eJ.l in hea.lth -:arc. " Engl I ,\kJ 19S9:310;53-6_ 31. Ch.!.'~~in \tR. [5 h~;llth ~lt~ rc;iJy :{}r ~ix .'iig;.rTU 4u.Iiity~ .\lílb.lnk Q L 9~)~;Ï6;565-9 L 32, }kCulJoch DK. PrlCC :-'0, Hindmmh .\1. WJgner EH. .". popuiorion- based .\pproJ¡,;h w diab(;(cs managcmen[ in i priroJ.ry CJ.re sCl'C:ing. EŒel.:::jv~ Cim Proct t99S:H lì:12·21, 33. Pcs!O[llIk SL. ClJssc" DC. Evons RS. Burkç ¡P_ [mplcmeming onubi- otit.; pr:u.~::ict: 3uiJclincs Ü1roug;h í..:ornputcr·J,S,sis,r:cd decision s.upport: dini. col Jnd Ilnan"JJ ,)urcornCS. .-\nn Imern ,\kd 1996, 11+:S1!~.90_ 34. O'Connor GT. Plume SK, Olmsrcod E.\oI. '" JL .-\ "'glonJI ,nrerven- non ro impro\¡'c ~hc: hospital mort::1lîry l.'lisot,;í;,¡teu with ¡';örooary b~p3s.s ~rofr ""gerY- JA.\L-\ 1996;Zi5:S41·6_ ·01999. '\1JssJ<:husçrrs .\1edi<:JI Soci~",- - HEALTH POLICY REPORT Hedlth Policy Report THE AMERICAN HEALTH CARE SYSTEM Health Insurance Coverage R08ER~ KUTTNER I I...- THE most prominent fearure of ,,\merican health insurance coverage is its slow erosion, even as the government seeks to plug the gaps in coverage through such new programs as Medicare+Choice, the Health Insurance Portability and Accountability Act (HIP1\A.), expansions ofm.te Medicaid programs, and the $ 24 billion Children's Health Insurance Program of 1997. Despite: these efforts, the proportion of Americans without insur- ance increased from 14.2 percent in 1995 to 15.3 percent in 1996 and to 16.1 percent in 1997, when 43.4 million people were uninsured. Not as weU ap- preciated is the fact that the number of people who are underinsured, and thus must either pay OUt of pocket or forgo medical care, is growing even faster. This report addresses several trends that account for the erosion of health insurance coverage. The most important trend is the deterioration of employ- er-provided coverage, the source of health insurance for nearly two in L~ree Americar.s. t I wiU discuss this cause in detail in the next article in this series. To surrunarize bridly for now, a few employers have dim- inarcd coverage entirely because of the escalating COStS of premiums. Most employers have narrowed the choice of plans and shifted costs to employees by capping the employer's contribution, choosing plans with higher out-of-pocket payments, or both. These changes, in rurn, have caúsed some employees to forgo coverage for themselves and their families and have also led to underinsurance, since many employ- ees, especially those who receive low wages, cannot afford the out-of-pocket charges. The following trends are also eroding insurance coverage of all types. Rising premium costs, both for persons who have access to insurance through their employers and for those who buy insurance individually. Costs will rise in 1999 for both groups, but more sharply tor persons with individual coverage. Z,J The trend toward temporary and part-time I work, which seldom includes health care cover- age. In 1997, about 29 percent of working Ameri- cans held "non-standard" jobs, a category that in- cludes temporary, part-time, contract, and day-labor positions.4 A reduction in aplicit coverage, most notably pharmaceutical benefits. Most plans cap outpatient pharmaceutical benefits. Prescription drugs now con- stitute the largest category of out-ofpocket payments for the elderly, and the costs are rapidly rising. Greater de facto limitations on eovered care, especially by health maintenance organizations (HMOs). More stringent utilization reviews and eco- nomic disincentives tor physicians and hospitals are resulting in denial of care and shifting of costs to pa- tients. A broad shift from traditional HMOs requir. ing very low out-of-pocket payments to point-of- service plans and preferred-provider organizations (PPOs) requiring higher payments by patients. Ostensibly, the rationale for this shift is to provide greater choice for consumers, but consumers often enroll in a PPO or a point-of-service plan not be- cause HMOs restrict choice but because they arc: per- ceived as restricting care. By 1997, there were morc: than twice as many Americans enrolled in point-of- service plans or PPOs as there were in HMOs.! Loss of Medicaid coverage due to welfare re. form. The 1996 welfare-reform law separates Med. icaid eligibility from eligibility for public assistance, but it also pushes many former welfare recipients into low-wage employment that does not provide health insurance. Although the termination of wel- fare benefits does not necessarily entail loss of Med. icaid coverage, preliminary reports suggest that in practice the added administrative complexity is lead- ing to reduced enrollment in Medicaid.s The rising cost of "'.Mc::digap" coverage for the elderly, which leads to substantial Wlderinsurance. In some states, such as Massachusetts, comprehen- sive Medigap policies are now in a death .spiral: only a small number of persons with high medical ex- penses find it cost effective to buy such policies, and low enrollment, in rum, leads to even higher premi- ums and lower enrollment. The crackdown on illegal immigrants and the reduction in services to legal immigrants. These policies are forcing many immigrants to forgo Med- icaid and other forms of health coverage that arc le- gally available to their children who are: citizens. The trend away from community rating of in- dividual insurance: premiums, which results in rising costs and, hence, reduced rates of coverage for middle-aged persons. For the 8.7 million Amer- icans who buy insurance individually, premiums arc partly adjusted for age and are also adjusted for prior medical conditions. As a result of these trends, lack of insurance and underinsurance are becoming more widespread prob- lems. ~Ot surprisingly, it is lower-income Americans who bear the disproportionate COStS, since as com. pared with higher-income Americans, they are more likely to work for employers who do not provide :1 I I ,¡ .' .¡ , . 'I f " i 'f \./cw ~- ~ ': ~~ :..C\l...l.J ~.I:;) ~I..-,I .\.; ~I .:j :, -,!,<~ ~,.:l...1 ;'~:..'.. '#'~ ',~ Volume 340 Numbe~)' 163 ~ i -~...... "l I' i ;.; .:\,t, 4\..' ..... I J "H .;' ) The New England Journal of Medicine health care coverage or who require employees to make sizable contributions to insurance premiums, they arc more likely to have part-time or temporary jobs with no health care coverage, and they are less able ro afford individual insurance or high out-of- pocket payments. Surprisingly, unemployment is scarcely implicated in these trends. Indeed, ail of them have occurred while unemployment rates have been declining. Oth- er things being equal, a decline in the unemployment race should bring an increase in health insurance coverage, given the prevalence of employer-provided coverage. But the low unemployment rates of the late 1990s have not been sufficient to offiet the above~ mentioned trends. Today, the vast majority of unin- sured persons are employed. THE UNINSURED The number of uninsured persons rose from 41.7 million (15.6 percent) in 1996 to 43.4 million (16.1 percent) in 1997, according to a September 1998 Census Bureau report (Tables 1 and 2).6 This widely publicized increase tends to understate the extent of 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 of the year. The latter figure was based on a study conducted from 1993 through 1995.7 Poor and low- income persons, as well as members of minority groups, were most likely to have periods without coverage. Twenty-five percent of non- Hispanic whites had at least one month without coverage, as com- pared with 37 percent of blacks and 50 percent of Hisoanics. L'ack of insurance is very closely correlated with low income. Whereas 8 percent of Americans with incomes over $75,000 and 16.1 percent of ail Amer- iCIDS lacked health insurance in 1997, 24 percent of those with incomes of less than $25,000 had no coverage. Fifty percent of persons with incomes be- low the poverty line had at least one month without insurance, as compared with 27 percent of those with higher incomes. Despite Medic3.id, 11.2 million persons with incomes below the poverty line, or 31.6 percent of ail the poor, had no health insurance at ail in 1997.6 The high COSt of health insurance relative to in- come is the main reason for high rates of uninsur- ance among poor and low-income persons. A study conducted by fu\lPG Peat Marwick for the Com- monwealth Fund found that a person with an annual income at the poverty threshold would need to pay 26 percent of that income to purchase health insur- IDce. In more expensive markets, this cost rises to 40 percent of income for a family of tour.8 Since such tamilies are barely able to pay tòr tood and shel- ter, these figures suggest that for poor and low- income persons, health insurance is effectively unaf- . i -·'1 ; i .' , 1;1; , . 164 . TABLE 1. TYPE OF HEALTH INSUR.\.NCE ....."D COVERAGE STAres, 1997.· SUT1JS AND TYPI! 0' CoVER"'GE Al1 persons Tot;¡J Covered Pnvote Employment·b...cd Government ....Iedicare Medicaid Military Not covo:red Poor peno,," Total Covered PriV1lte Employment·b...ed Government Medicare Medicaid Not covered TI<OUSANDS 0' P"eRSONS I 'Y.I 169,094 (100.0) n5.646 (83.9) 188.533 (70.1) 165,Q92 (61.4) 66,685 (24.8) 35,590 (13.2) 28,956 (10.8) 8,527 (3.2) 43,+48 (16.1) 35,574 (100.0) 24,336 (68.4) 8.264 (23.2) 5,521 (15.5) 18,585 (52.2) 4,637 (13.0) 15,386 (43.3) 11,238 (31.6) ·Da~ = IiPm the U.S. Cell$US B~au.· Percent- ages add up to morc: than 100 because: SOme people had more than one type ot" coverage. TABLE 2. PEItSONS WITHOUT HEALTH INSURANCE FOR THE ENTIRE YEA!., ACCORDING TO SELECTED CHARACTERISTICS, 1997.· CH...AAc:nRISl1C Au. Pt/lSONI UNlNSUR(O hAlONI Tot:3.1 Sex Male Fem;¡Je Age (yr) <18 18-24 25-34 35-44 45-64 ...65 R.1ce or ethnic group White Non·Hispanic whitc Black :\sian or Pacilic Islander Hispanic !MOUUnd. of ~."on. 1%) 269,094 43,+48 (16.1) 23,130 (17.6) 20,319 (14.8) 10,743 (15.0) 7,582 (30.1) 9.162 (23.3) 7,699 (17.3) 7,928 (14.1) 333 (1.0) 33,242 (15.0) 23,135 (12.0) 7,432 (21.5) 2,172 (20.7) 10.534 (34.2) 131,705 137,390 71.682 25,201 39,354 44.462 56,313 32,082 221,651 192.179 34,598 10,492 30,773 'Dat> are from thc U.S. Ccnsus Bureau.' fordable unless it is provided by employers or the government. Lack of insurance is also correlated with loss of employment. According to the Census Bureau, dur- ing the period from 1993 to 1995, 44 percent of persons who lost their jobs also reported loss of in- surance coverage. At the same time, however, almost ···i.~ ,,~< ~' ..:'~ :t t \0. i>' "" '~fj: ~. .., .:,~~\ .~~ .if. " 1; 'f .~r. ~'~" "':,\. -"~I ,. d. .~~ HEALTH POLICY REPORT half (49 perœnt) of fully employed people with in- comes below the poverty line had no insurance.7 The figure was even higher in 1996, when 52 per· cent of poor full-time workers had no insurance. This study was conducted betore the enactment in 1996 of the HIPA.:\, which makes it easier for persons who have lost employer-provided insurance to qual- itY tor other coverage. However, to the extent that loss of insurance cov- erage is the result of lost purchasing power due to job loss, HIP.-\...-\. is of no help, because it provides no subsidy and does not regulate price. The 1985 Consolidated Omnibus Budget Reconciliation Act (COBR..-\), which allows people leaving employment to pay insurance premiums out of pocket for up to 18 months in order to retain their coverage, likewise fails to address economic barriers to coverage. More- over, although HIP4!\A prohibits outright denial of insurance because of previous medical conditions, it allows insurers to charge people with previous con- ditions substantially higher premiums, thus sharply limiting effective coverage.9 Although in principle HIPAA protects as many as 25 million people from loss of insurance, in practice it benefits only a few hundred thousand.lo A 1997 national survev of health insurance con- ducted by Louis Harris Ássociates for the Henry J. Kaiser Family Foundation and the Commonwealth Fund cOIÚÌrms these trends. According to the sur- vey, one in three adults between the ages of 18 and 64 years had been without insurance at some point in the previous two years. The survey confirmed that persons with low incomes were most likely to lack coverage: 59 percent of adults with incomes be- low 520,000 had been without coverage, as com- pared with 8 perCent of adults with incomes above 560,000.11 The survey also coIÚÌrmed that lack of insurance was more often due to the high cost of coverage (reported by 51 perCent of respondents) than to job loss or the ¿mployer's failure to provide access to coverage (reported by 25 percent). Fifty- seven pcrcent of respondcnts without insurance were employed full time.l2 The survey also showed considerable discontinuity of coverage, with one third of insured adults reporting that they had been en- rolled in their current health plan for less than two years.13 CHILDREN WITHOUT INSURANCE Several reports have documented high and rising rates of uninsurance among children. According to a March 1997 Families USA report based on Census data, approximately one child in three had no insur- I ance coverage for one or more months during 1995 and 1996.101 Almost half these children (47 percent) were uninsured for a year or more. Unemployment of the tàmily breadwinner was not the main reason, since 91 percent of the children who lacked health coverage for the entire cwo years lived in households where the breadwinners were employed all or part of the 24-month period. Lack of insurance was more closely correlated with low income. Fifty percent of children with family incomes between $15,000 and 525,000 had no health care coverage. For the very i poor, MedicJ.Îd in principle provides coverage. Ac- cording to the General Accounting Office, however, nearly 3 million children who are eligible for Med. I icaid arc not enrolled in the programl5 because of inadequate outreach, fears on the part of immigrants that enrollment will lead to problems with the au- thorities, and other barriers. On the basis of a survey of health care coverage for children, the Census Bureau reported that the proportion of children lacking insurance rose from 12 percent in 1989 to 15 percent in 1996,16 a period of increasing prosperity in general, decreasing unem- ployment, and nominal expansion of eligibility for Medicaid. Noting that the number of poor children covered by Medicaid fcll from 16.5 million to 15.5 million becween 1995 and 1996, the Census Bureau observed, "The growth in the number of children lacking health insurance is largely attributablc to the fall-off in Medicaid coverage."l6 Some 34 percent of the survey respondents whose children did not re- ceive regular medical care: reported that the reason was that they had no insurance and could not afford visits to doctors,l7 Approximately 800,000 children were taken to emergcncy rooms for all their care.1S In 10 jurisdictions, at least 37 percent of children went \vithout insurance for some pardon of the pe- riod from 1995 through 1996: Texas (46 percent), New Mexico (43 percent), Louisiana (43 percent), Arkansas (42 percent), Mississippi (41 percent), the District of Columbia (39 percent), Alabama (38 per- cent), Arizona (38 percent), Nevada (37 percent), and California (37 percent).l9 Not surprisingly, sevcral studies confirm that chil- dren without health insurance receive less care in the form of diagnosdc, screening, and immunization serv- ices than children with coverage. Uninsured children have fewer checkups, arc less likely to be treated for chronic condidons such as asthma and recurrent ear infections, arc less likely to be treated by doctors for injuries, and are more likely to go without eyeglasses or prescribed drugs. 20 THE UNDERINSURED The increasing prevalence of underinsurance may well be the more serious trend. Underinsurance here refers to medical needs that either are not covered by health plans at all or are covered but with high copayments that force beneficiaries to forgo treat- ment. Stringent "management" of care that results in denial of medically necessary treatment may also be considered a form of underinsurance. Studies by the Employee Benefit Research Insti- Volume: 340 ~umbe:r 2 . 165 ... ii _f:t .~- '. The New England Journal of ~1edicine tute, several private consultants, and Consumers Union all document substantial cost shifting and ris- ing rates of underinsurance. .\ January 1998 study conducted by the Lewin Group for Consumers Union found that 11 million families without elderly mem- bers (1 ~ 8 families) spend on average more than 10 percent of their income on oUl:>of-pocket health care costs and health insurance premiums not paid tor by employers."1 This figure rises to 20 percent tor tàm- ilies with members who are 55 to 64 years old, and to 50 percent tor families with members who are 65 or older. Among all age groups, the 10 percent of people with me most serious health problems spend an average of S21,000 a year in premium and out- of-pocket payments. 21 In addition, recent trends in both employment and health insurance have made ties between pa- tients and doctors less stable. The Kaiser-Common- wealth survey found that 34 percent of insured adults under the age of 65 had been enroiled in their current health plan for less than twO years.22 Only 36 percent had had the same primary care doctor for five years or more.23 Respondents with conventional Medicare or Medicaid coverage actually had more stable relationships with providers than those in man- aged-care plans, a finding that is largely due to the fragmentation and turbulence of the managed-care industry. PHAR..\1ACEUTICAL COVERAGE The casts of prescription drugs continue to rise rasta than the costS of other components of health care, and they are increasingly less likely to be cov- ered by insurance. Total expenditures for prescrip- tion drugs increased by 85 percent between 1993 and 1998, with an estimated 17 percent increase from 1997 to 1998 alone, or more than four times the rate of increase for all health care expenditures in that period.24 In 1995, more than half of all phar- maceutical costs were paid our of pocket,25 and the proportion is almost certainly higher now. The: elderly are most dependent on prescription drugs, which Medicare docs not cover. More than 19 million elderly persons, or about half of all Medi- care enroilees, have no drug coverage. Press reports indicate that countless prescriptions go unfilled be- cmse elderly patients cannot afford to pay for them.26 , Expenditures for prescription drugs account for 34 I percent of medical expenditures by the dderly, rep- resenting a larger proportion of expenditures than that tor either hospital charges or physicians' servic- es, according to the American Association of Retired Persons. In 1995, elderly people with some pharmaceutical benefits received them through H.,\10s (12 percent), Medicaid (6 percent), employer-provided supplemen- tal policies for retirees (26 percent), or privately pur- chased Medigap policies (9 percent)Y Each of these 166 . Tanuary 14, 1999 :~. sources, however, is being cut back, dther in dimin- ished coverage or in diminished enrollment. In 1998, some Medicare HMOs quit the business and ot.'J.ers capped or dropped drug coverage. In the case of Mcdigap plans, only 3 of the 10 standard plans man- dated by the 1990 federal Medigap legislation pro- vided any prescription-drug coverage, and only a small minority of people who bought Medigap cov- erage purchascd these plans. According to the Lewin Group, the proportion of employer-provided sup- plemental plans for retirees that included prescrip- tion-drug coverage declined from 90 percent in 1989 to 81 percent in 1995."8 And the proportion of employers offering retirees supplemental health coverage declined from over 60 percent in the 1980s to less than 40 percent today, according to the Gen- eral Accounting Office. "9 Virtually all supplemental plans for che elderly re- quire copayments for prescription drugs. In 1998, only 9 percent of Medicare beneficiaries who were enroiled in rL.v10 plans had unlimited prescription- drug benefits; 43 percent were in plans that had no annual dollar cap but that limitcd coveragc to gener- ic drugs or drugs on an approved formulary. In the case of plans that provided coverage for brand-name drugs, more than half of enrollees had an annual cap of S 1,000 or less.30 McCormack et al.31 reported in 1996 that 84 per- cent of Medigap policies in six states provided no drug coverage at all, and only 7 percent provided "high-option" caverage (Plan J), with an annual benefit cap of S3,000. Such plans cOSt over S200 per month, which fcw elderly people can afford. The lower-option policies (Plans H and I) required a 5250 annual deductible for drug cOSts, a 50 percent co payment, and a 51,250 annual cap. The Lcwin Group, using a different method, found that 18 per- cent of persons with Medigap policies had some pharmaceutical beClefits but confirmed"':: most did not have the high-option plan. Medigap policies paid for only 3 percent of all prescription-drug costS for the elderly. The largest source of insurance cov- erage, accounting for 21 percent of the costs, was employer-provided supplemental plans; 52 percent of drug costs were paid out of pocket.32 Obviously, as drug prices keep rising, the rdative value of the covered benefit declines. The drug industry contin- ues to resist efforts by Representative Pete Stark (D-Calif.) and others to add drug coverage to Medi- care by using federal purchasing power to buy dis- counted drugs, and such measures currently have lit- tle chance of enactment. rO 1 -. :. _.- ~ " ;" ). .~. :~ l ..... J; I --~ ~~~ ':~ i; l ( - ~. . ~ ~ ) t ~ t THE OUTLOOK Few of these trends toward increasing numbers of uninsured and underinsured Americans show signs of abatement or reversal. Although managed care dramatically reduced the inflation in health insur- v~ , o"Ã. ;;¿~ - ':~ ~I·"·) . , ,'¥.-f .;~ HEALTH POLICY REPORT ., ance costs tor employers in the mid-1990s, this seems to have been a one-time savings. The underlying demographic and technological tremis arc unchanged, :lnd employers and benefit consultants report sharp- ly rising premium costs in 1999.3 Employers, facing little resistance from unions or public policy, arc con- tinuing both to reduce the options for coverage J.11d to shift costs to employees, kading to both lack of insurance and underinsur:lnce. Likewise, despiœ the early promise of Medicare H~10s, the gaps in MedicJ.re coverage are growing larger. Even before the implementation of Medi- care+Choicc (which allows the insurance industry LO market a wider variety of point-ot:service plans and PPOs), private insurers had already begun to re- duce benefits or withdraw from selected markets. In October 1998, insurers announced they were drop- ping coverage for some 400,000 of the approximate- ly 6 million enrollees in Medicare HMOs.33,J-i With premium COsts continuing to rise, more em- ployers are dropping or reducing coverage than are expanding it. Health care coverage is seen as a par- ticular burden by smaller businesses, which represent the fàstest-growing sector of .'\merican employers.J> .-\nd as the shift from full-time to part-time and tem- porary jobs continues, more employees arc likely to find themselves with no benefits. Congress, in several budget resolutions beginning in 1989, has extended Medicaid eligibility, especially to children who arc living in poverty but are not on welfare. Some states, such as Oregon and Tennessee, have sought to turn Medicaid into a nearly universal health insurance program for the working poor as well as the indigent. However, these programs entail a degree of rationing, which is either explicit, as in the Oregon program, or implicit, as in Tennessee's stringent approach to managed care, Rationing, in turn, gives people the "choice" of paying for uncov- ered services OUt of pocket or doing without them. The shift to Medicaid mánaged care suggests that al- though more people will be nominally covered, many will in effect have less coverage. The expansions in Medicaid are also offset by the 1996 welfare-reform law, Temporary Assistance to ).¡eedy Families, which limits the duration of welfare benefits. As the welfare limits gradually become ef- fective in most states during 1999, millions of peo- ple will lose their eligibility for Medicaid along with their welfare benefits. Manv heads of households will take relatively low-paid jobs, most of which do not offer health insurance; even those that do œnd to require high premium payments by employees. One small bright spot is the likelihood that the number of uninsured children will decline, thanks to the new Children's Health Insurance Program. En~ acted as part of the 1997 Balanced Budget Act, the program provides the states with $24 billion over a period of five years. Some states are using these funds ,. ;" ~ to expand Medicaid, and others arc setting up new, parallel children's programs. However, the interactions among Medicaid, the welf:1re-reform law, and the Children's Health insur- ance Program are highly complex and confusing. For example, most children whose mothers wiUlose Medicaid cover:lge under welfàre reform may retain their eligibility tor .\kdicaid, but coverage is not au- tomatic. Moreover, press reports indicate that immi- grants, both legal J.11d illegal, are reluctJ.11t to obtain coverage tor their children for fear that enrollment will bring investigacions by the immigration author- itic:s. ~\S of November 1998, California, which has a complex 28-page applicacion for coverage that in- cludes several questions about immigration status, had enrolled only ~ percent of 580,000 eligible chil- dren,36 despite a payment of $25 to $50 to insurance vendors for every child they enroll. The Congres- sional Budget Office estimates that the net effect of the welfare-reform law, the Children's Health insur- ance Program, J.11d ~ledicaid expansions will be to extend coverage to some 2 million of the 10.6 mil- lion children who were uninsured as ofl997,31 \Vith unemployment rates approaching a 30-year low, the overall trend in declining health insurance coverage is, if anything, understated. In the next re- cession, when the unemployment rate increases, loss of coverage is likely to increase apace. Because all sources of coverage are eroding, the long"term trend is toward a continued decline in both nominal and effective rates of coverage, unless there is a dramatic change in national policy. REFERENCES 1. Fromtin P. Feacurc.s of employment bued health plans. Wuhington, D.C.: Employee Benefit ~h Institute, 1998. 2. Kilborn P. Prcmiunu cUing for individuals, :-Icw York TllTlcs. December 5, 1998:A7. 3. Frcudcnhcim M. Employecs facing steep increases in health cace. :-Iew York Times. :-Iovcmber 27, 1998:.'l.l. 4. ~whd L, Bcrnstein J, Schmitt J. The State of working Ameri", 1998- 99. Washington, D.C.: Eeonomic Policy Institute, 1998:243. 5. Greenberg M. Participation in wdfw: and .Medicaid enroUment. Menlo Pack. CaIi£: Kaiser Family Foundation, September 1998. S. Bureau of the Census. Hea./th insurance c~nge, 1997. W../Ungton, D,C.: Government Printing Office, September 1998 (P60·202). 1. Idem. Dynamics of economic _U~being: hea./th i.nsunnee, 1993·1995. W:I.<hington, D.C.: GDVernmem Priming Office, September 1998 (P70· 64). 8. G..bd ¡, Hunt K. Kim J. The financial burden of sdf-paid health insur- ance on the poor ""d !1eu-poor. :-Jew York: Commonwealth Fund, 1998_ 9. Kuttner R. The K=eb..um-Ke!1lledy biU - the limiu ofincreme!1ta.!- ism. :-.¡ Eng\ J Med 1997;337:64·7. 10. Depacunent of Health and Hum"" Services, Dcpacunent of L..bor. Depat"".lTIen' of the Trca.sury. Rulemaking pacbge implementing HIPAA. W..h.ington, D.C.: Government Printing Office, April 1, 1997:72. 11. Sçhoen C, Hoffinan C, Rowland D, Davis K, Altman D. Working fam· iJie' at ri,,,: çoverage, >CC=, co« ""d worries. :-Iew York: CommonweaJth Fund, 1998_ 12. Id.m. Working familic:s at risk: c~r.lgc, ..ccess, cost and worric:s. :-Jew York: Commonwealth Fund. 1998:12_ 13. f¡úm. Working families >t ris": wverage, >CCèSS, COSt Uld worries. :-Jew York: Cê>mmo!1wealth Fund, 1998:6. 14. Oae out of three: kids without health insurance, 1995-1996. Wuh- ingto!1, D.C.. Families USA. 1997. 15. GC!1cral ".;couating Officc. Hcalth insurance for children: priV<\te in- VQlum<: 340 Number 2 167 The: ~e:w England Journal of ,\[cdi(inc ,u"nc_ coveroge ,onnnut! to Jeterior>!e. W:L\hington. D.C.: Government P,inC1ng Oln«, 1996. ¡GAO/HEHS '16,1:9, 16. Buro:>u of ,h. Cemus. C.nsus bnef: ,,,ildron without he>lth ¡mur.nee. W:L\h,ngton. D.C.; Governmen, Printing Offic., 1998. 17. [J,.... C"n.us brIef: chudren W1,hout he:u'h insuran«. W:L\hington, DC.. Government Printing Otnco, 1998:5. 18. [.it.... C.nsu. brief: chlldron w;,hout he,lth insur:ll1<C. W:L\hington. D.C.: Government Pnntlng Office, 1998:6. 19. One ou, of three: "ids wlmou, be;¡jth ln5ur:rnce. W:L\hing'on, D.C.. F>milles L'SA, 19'175. 20. One OU[ "f thre", i<.id. w;,hoU[ hool,h insur:>I1ce. W.1shington, D.C.: F>milies CSA, 1997:9. 21. Sh':>roc G. Hidden from view: ,he growing burden ûf heoJth core cos". W>shington, D.C.: Comumer-s Cmofl. 19'18:3. 22, Schoefl C, Hoffm"" C, Row ond D, Davi, K, Altmon D. Work.ing fam- ¡¡ie, .t n.k: ;;:overage, ""'>S, cos< .fld worries. Sew York: Commonwealth Fund, 19'18:25. 23. U,.... Work.ing tàmilie, at n.k: coveroge, >t",,,,, cOst illd worries. :>Iew York: Commonwealth Fund, 1998:51. 24. T.1nouye E. V.S. has developcci ill expensive drug habi,; now, how to p>y for i,? Will Sueer lournal. :>Iovember 16, 199L\1. 25. Curre", knowledge of third par'" outpuiefl' drug coveroge for ~kdi- ;;:are beneficiat1c'. F>irfàx. Va.: Lewin Group, 1998. 26. L.lsnado L. Drug com çUl Ie.ve elderly. grim choice: puls or omer needs. WoJl Suee, loumoJ. :>Iovembcr 17, 1998:A1. 27. C"rrone knowledge of lhifd party outpatient drug coverage for Medi· c:IIe befletkiwc.s. F:Urf.u:. Va.: Lewin Group, :>Iovember 9, 1998:4. , 28. Current knowledge of third par'" ()utp>C1<n, Jrug cov<roge :'or .\kdi. ( C3rc: bt'nctlC:li1C!CS. r;Hrt'a.x. V.1.. Lcwtn Group, 1998:7'. 29. Cosing the hug< hole in ~1.diÇlro'.\ bene"" paçbge. R<m.rks Sv Congre;.sm.n rete Stor~. t.:.S. Hou,e of Repro.em."v... W»hingwn, D.C., Oçrober 9.1998. 30. Currem l<nowleJge of third p"'" ou'p.n.nt Jrug çoverage for ,\ledi- \:i1r~ bcncikiactes. Fli.-f3x, V;¡,. L.:w!n Group, 1998:19 31. ~!cC"rm>ck L.\, Fn< PO, Rice T. Grah.m .\IL. MeJig.p ""nrm :eg- l.>i..ion oc' 1990: ha,'e me obi",,,ve. been me~ Hoolth C.lre Finanç Rev 1996;18( 1):15;'·7... 32. Curren, knowl<dg. "f thIrd p"~1 outp"i.n, Jrug ,ovcr'g< tar :Vledi- "re beneficl.nes. F:lJrri.., '..... LewIn Group, 1998:13, 33. rear R. H.\!Os >re roree.nng ,,"om .\!ed¡core, clnng hIgh COsts. Sew York T¡mes. Oerob<r 2, 1995:A17. 34. Id.",. Clinton :0 Ulnounec ¡"!p as H..\IOs !c.ve .\kdk.«. Sew York Tim". Octobcr 8,1998:.-'.20. 35. Sa,ion;>.l survey of Im;>.ll busln",. execU[IVe> on heai,h c>re. .\k"lo r>rk. C;>.Iif.: Hen,,:). K.lJSer FamIly ::o"ndarion, June 1988. 36. He:1lthy ".mdies I'ro'!,ram subse:lber. enrolled by county. S.lcr>mcn. to: C.liform. .\Ian.g<d Risk .\!ediç;¡j Imurancc Board, Sov<mber 2.., 1998. 37. Cùngressional ßuJgcr Ot1ice memoranJum: buJgetary implic.rton. of the B.llanced Budgcr :\ct of 199i, W:L\hington, D.C.. CongresSional Budg. et Otìicc, Decem"er 1997:5... Ci1999, .\iasuchu.sem Medic:ú Society. Waits River, Vamont 168 JanuHY 14, 1999 . """ L.-"-· ..i..-;J III-IMIJ'AÍIf ..å :...t. -.. .'.01:'-. _. ~ ~. MTHt:R T. SK..\Rl~, .\!.D. I ¡ . ) I '"-.- ], _.,~-,_._.,'-----------"- HEALTH POLICY REPORT ¡---" - ~~ð.lth_~Policy Report THE A.\1ERlCAN HEALTH CARE SYSTEM Medicaid JOHN K.1IGLEHART c-- M ED IC\ID is the largest health insurer in the Cnited States, in teons of eligible benefici- aries, covering medical services illd long- term care for some 41.3 million people. In 1997, Med- icaid expended 5159.9 billion (12.4 percent of total national health care l'xpenditures) to pay tor covered services tor low-income people who were elderly, blind, disabled, receiving public assistance, or among the working poor. The vast majority of such persons fa11 outside the employment-based insurance system, the mainstay of coverage for the working population. This fifth reporr in the series on the American health care sysrem H examines the federal and state roles in Ml'dicaid, program expenditures, eligibility tor cover- age, and Medicaid managed-care plans. In recent years, Medicaid has changed in impor- tam ways, The change that has affected the grearest number of people is the expansion of the population eligible ror Medicaid, from 28.3 million in 1993, when I last wrote about the programS in a series sim- ilar to this one, to 41.3 million today. The Republi- can-contro11ed Congress enacted legislation to shift most of the responsibility for Medicaid to state gov- ernmcnts, but President Bill Clioron vetoed the meas- ure in 1995_ The growth in Medicaid expenditures, which almost tripled civer the past decade, has slowed , in recent years, with the smallest annual increase ever in 1997. iill increasing number of eligible ben- eficiaries have enro11ed in or are being required to join managed-care plans as a result of policies that no longl't give them a choice of providers. However, none of thl'se changes have made the program anv more attractive to physicians, most of whom do not provide care ror Medicaid beneficiaries because the payments to providers are low, and the associated administrative burden can be quite large. .Although Medicaid and Medicare were d1e kl'v el- ements of histOric legislation enacted in 1965 as 'part of Presidem Lyndon Johnson's Great Society, Medic- aid \Vas essentially a creature of Congress. After Johnson's landslide victory in 1964, the enactment of j\kdicar~ seemed almost a toregone conclusion, al- though its final design retlected countless compro- mises. Medicaid, however, was largely a product of the House Ways and Means Committee and its pow- aful chairman, Repr«=semative vVtlbur Mills (D-Ark.), who tàvored the expansion of earlier federal efforts (embodil'd in the Kerr-Mills Act) to provide medical assistance to elderly and disabled people. During the congressional debate over the twO programs, conser- ! vative legislators and the American Medical .-\ssocia- tion promoted .1 federal-state model for Medicare, but Mills instead chose this model for Medicaid.6 Wilbur Cohen, who worked closely with Mills in crafting the Medicaid legislation a.o.d later became sec- retary of the Department of Health, Education, and Wdtare, wrote: "Many people, since 1965, have called ~kdicaid the 'sleeper' in the legislation. Most people did not pay attention to that part of the bill. . . . [It 1 was not a secret, but neither the press nor the h~alth policy community paid any attention to it."7 The structures of Medicare and Medicaid have litde in common, excc:pt that both are now administered at the federal level by the same agency, the Health Care Financing Administration (HCFA). Congress madl' it dear in 1965 that providing health insurance to the elderly through Medicare was a tederal respon- sibility. But the division of authority over Medicaid between the federal and state governments resulted in a persistent struggle over how to apportion pay- ment of the bill. In 1997, of the total expenditures of 5159.9 billion, the federal share was $95.4 bil- lion, and the states' contribution (combined in some jurisdictions with local expenditures) was $64.5 bil- lion. The federal share of expenditures is determined by a formula based on each state's per capita income, with a legislatively set miIÙmwn of 50 percent and a maximum of 83 percent. States with relatively low per capita incomes receive proportionately more tèd- aal funding. Medicaid expenditures represent about 40 percent of all tederal funds received by the states. STATE MEDICAID PROGRAMS Follo\ving broad national guidelines established by Congress and monitored by HCFA, the states set: their own standards of eligibility; determine the type, amount, duration, and scope of covered services; es- tablish the rate of payment for services; and adminis- ter their own programs. At first, a guiding principle was C' provide mainstream medical services to the poor. ßut .\kdicaid was grafted administrativdy onto state weltare programs, largely because the only social- s(.'[viCè: agency opè:rating in every state at the time \I/as the welrare authority, and its clients were recipi- ents of public J.ssistance.8 Thus, the seeds of Medic- aid as a \I/elrare program were sown at the beginrung, :lnd ever since, it has been treated as a political step- child by HCFA, the executive branch, and Congress. ~everdleless, Medicaid is the main public insurance program tor many people of limited means. Studies have found that poor persons enrolled in Medicaid are more likely to have a usual source of care, have a high- r-1T~ !".Ç)'_ 1 , c=,, '.1 ",~ 'CtlJ I ',ù.. \ ;'ì»,,~l¡ U ¡'C l,..' Volum~ 340 Numb~r 5 '\. 403 ~cb!.t 111) The :-.Iew England Journal of Medicine ',' c:r numbc::r of annual ambulatory care visits, and have a higher rate of hospitalization than poor persons with no public or private hc::alth em: coverage.~ Medicaid's eligible population comprises 21.3 million children, I 9.2 million adults in families, 4.1 million elderly per- sons, and 6.7 million blind or disablt:d pasons. Over i the past decade. the national expansion in Medicaid's eligible population was driven by rederal requirements to increase health care coverage tor pregnant women llld children, state efforts to cover more uninsured people oflow income, and court-ordered expansions in coverage for the disabled. On average, Medicaid bendìciarles account tor about 11 percent of a state's population, but some Jurisdictions have substantially higher percentages, including Tennessee (21.7 per- cent), the District of Columbia (17.8 percent), Ver- mont (17.4 percent), New Mexico (16.1 percent), New York (15.1 percent), West Virginia (14.1 per- cent), Calitornia (13.6 percem), ¡v1ichigan (13.6 per- cent), Washingron (12.9 percent), Georgia (12.8 I percent), Kentucky (12.8 percent), Mississippi (12.3 . percent), and Hawaii (1 L4 percent).lU Being poor does not automatic31ly make a person eligible tor Medicaid. Indeed, in 1997, Medicaid cov· ered only 44.4 percent of nondderly persons with an income of less than $13,330 tor a tamily of three (Salganicoff A, Henry J. Kaiser Family Foundation: personal communiCJ.tion). Most people become eli- gible by meeting a tederally defined criterion (i.e., advanced age, blindness, disability, or membership in a single-parent f.unily with dependent children). With- in the tederal guidelines, the states set their own cri- teria for eligibility with respect ro income and assets, resulting in large variarions in coverage from state to state. Indeed, it is no exaggeration to say that there are actually more than 50 Medicaid programs - one in each state, plus the program in the District of Co- lumbia and those in the U.S. territories - because the rules under which the v oper:ltc vary so enormously. THE CONCENTRATION OF MEDICAID SPENDING .AJthough adults and children in low-income fam- ilies account tor nearlv three tourths of Medicaid beneficiaries, their medical clre accounts tor less than 30 percent ofprogrJ.m expenditures (Fig. 1). Elderly and blind or disJ.bkd persons :lccoum for most of the expenditures because of their greater use of acute and long-term care services. In 199ì, Medicaid's costs per beneficiary were 59,539 tor elderlv persons, 58,832 tor blind or disabled benenciarles, $1,810 tor adtùts in low-income tàmilies, and $1,027 tor children (Hoff- man D, HCFA: personal communicarion). The figures for elderly :lnd blind or disabled persons do not in- clude Medicare payments. Payments to physicians represented on Iv 5,9 percent of Medicaid's total ex- penditures in 1996, less than the program paid out tor home health services or prescription drugs (Ta- 404 . February 4, 1999 Elderly, 9.9% Blind or disabled. 16.2% DSH payments, 9.7% -'.~J.':''';''.>:''''''..t" ,.~ :< ~"'~;, .~.~ -.,:,~. '-:~ Elderly, 27.3% Adults. 22.3% Blind or disabled, 36.4% Children, 51.5% Adults, 10.9% Children, 15.6% Beneficiaries Expenditures (total, 41.3 millÎon) (total. $155.4 billion) Figura 1. Medicaid Beneficiaries and Expenditures in 1996, According to Enrollment Group. Total expenditures exclude administrative expenses. D$H pay- ments denotes disproportionate·share hospital payments. Per- centages do not sum to 100. because of rounding, Data provided by the Kaiser Commission on Medicaid and the Uninsured. ble 1). By comparison, payments to physicians made up 25.4 percent of Medicare expenditures in 1996. According to the most recent study of Medicaid's payments to physicians, in 1993 average payments were about 73 percent of Medicare payments and about 47 percent of private tees.ll Medicaid covers a broad range of services with nominal cost-sharing n:quiremcms because of the lim- ited financial resources of beneficiaries. The benefit package extends well beyond the services covered by Medicare and most employer-sponsored plans. By fed- eral law, states must cover inpatient and outpatient hospital services; care provided by physicians, mid- wives, and certified nurse practitioners; laboratory and radiographic services; nursing home care and home health care; carly and periodic screening, diagnosis, and ITeatmen~ for persons under 21 years of age; fam- ûy planning; .lOd care provided by rural health clinics :lod kderally qualitìed <,;ol11munity health centers. Medicaid also KtS as ,¡ suppleml:ntary insurance pro- gram tor elderly Jnd dis,¡bkd Mediore beneficiaries of low inwme. paying their Medicare premiums and cost-sharing requirements and covering additional services, most notably prescription drugs. The states have the option to cover additional services tor Med- icaid recipients llld receive matching tederal funds for them. Items commonly covered by the states include prescription drugs, clinic services, prosthetic devices, hearing aids, dental care, and services provided by intermediate-care tàcilities for the mentally retarded. I' HEALTH POLICY REPORT TABLE 1. MEDICAJD PAYMENTS FOR. SELECTED FISCAL YEARS, ACCORDING TO TYPE OF SERVICE.' CA TEIJOIIY P AYMEIfTf DISTI\1BUTION 1985 1994 1995 1996 '" 1996 million. of dollars 0/. Tma! 37,508 108,270 120,141 121,685 100,0 Inparieru services 10,645 28,237 28,842 27,216 22.4 Gene..! hospitals 9,453 26,180 26,331 25,176 20.7 Menw hospitals 1.192 2,057 2,511 2,040 1.7 Nursing facilitJes~ 5,071 27,095 29,052 29,630 24.3 Intermediate-<;.;l.fC facilities~ 11,245 8,347 10,383 9,555 7.9 For mentally !'Ctarded persons 4,719 8,347 10,383 9,555 7.9 For ail other penons 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 pncriuoncrs' scrvices 251 1,040 986 1,094 0.9 Outpatient hospital se.-vic,," 1,789 6,342 6,627 6,504 5.3 Clinic servic,," 714 3,747 4,280 4,222 3.5 L.botatory wd radiologic ,ervices 337 1,176 1,180 1,208 1.0 Home health >crvic.. 1,120 7,042 9,406 10,868 8.9 P!'Cscription drugs 2,315 8,875 9,791 10 ,697 8.8 F:unil y- plwning services 195 516 514 474 0.4 Early wd periodic screening 85 980 1,169 1,399 1.1 Ru"! health clinics 7 188 215 302 0.2 Other C:I1'C 928 6,522 9,214 10,247 8.4 'Data :I1'C fi-om the Health Care Financing Administration. tPayments exclude pn:rniums and capitation amount>. Tow payments include payments for unknown services, which :uce nOt shown in this cable. The percent distribution is based on rounded numbers. ~ßeginning in 1991, nursing f.¡cilities included skilled nursing !ilcilities and intermediate-care !ilcil· itics fot all persons other than the mentally !'Ccarded. THE DEVOLUTION OF FEDERAL AUTHOlUTY When Republicans took control of the Congress in 1995, one of their overriding policy goals was to devolve federal authority and money to state govern~ ments, particularly in the realm of social welfare. A year later, Republicarfs were successful in reforming welfare policies, many of which had been enacted in 1935 as part of President Franklin D. Roosevelt's New Deal. The debate in Congress included "a massive re~ examination of who 'deserves' public assistanœ."l1 The main decisions were that the states should decide who is needy, welfare should be linked to work,13 cash assistance should be temporary, and immigrants who arrive in this country after the law's enactment should not reœive full Medicaid benefits.ll Congress scrapped the federal guarantee of cash assistance for the nation's poorest children and granted states the authority to operate their own welfare and work pro- grams, largely with tèderal resources. These changes were incorporated into the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, which President Clinton signed ioro law over the vigorous protest of the liberal wing of the Democratic Party. Congress also enacted legislation in 1995 to recast Medicaid as it had welfare, converting the program from an open-ended entitlement program for eligi- ble beneficiaries to essentially a state-operated pro- gram funded largely by a capped federal block grant. Clinton vetoed this measure and offered his own counterproposal, which the Republicans rejected. Two years later, in the Balanced Budget Act of 1997, Congress and the administration finally agreed on a new federal-state division of authority for Medicaid, although the debate on this subject continues.14.16 Among various provisions, all of which granted the states more authority, the budget law repealed the Boren amendment (named after the Oklahoma sen- ator who initially sponsored it),17 which stipulated that the states must provide payments for services at levels that meet the COStS incurred by "efficiently and economically operated" hospitals and nursing homes. THE ELIGIBILITY MAZE Medicaid's complex e1igibility policy, which "both states and the tèderal government have relied on . . . as a tool for limiting their financial exposure for the cost of covered benefits,"18 makes the pro~ gram difficult for its beneficiaries to understand and for the states to administer. Before welfare reform Volume 340 Number 5 405 The: ¡>'¡cw England Journal of Medicine -. was enacted, adults and children in low-income fam- ilies that qualified for public assistance were auto- matic.tlly eligible tor Medicaid. The new welfare law severed this link between Medicaid and public assist- ance, with the goal of preserving Medicaid coverage tor poor tamilies bcing possible cutbacks in public assistance, but now one must apply to the program in orda to be declared eligible for medical coverage. This policy has had an unintended consequence. As welfare case\oads have declined nationally, by about 42 percent since 1994, there have been unexpected re- ductions in the number of people seeking Medicaid coverage. In recent meetings involving administrators of state human-service agencies and specialists in Medicaid eligibility, sponsored by the Kaiser Com- mission on Medicaid and the Uninsured, the panic- ipants concluded that because many people now view public cash assistance as a temporary benefit, "even when Medicaid enrollment would be in the economic interest of the beneficiary, fewer potential recipients are likely to apply tor coverage or to main- tain Medicaid enrollment:l9 If the decline in Med- icaid enrollment were explained by the transition tram welfare assistance to jobs that offered health insur- ance, neither HCFA nor the states would be con- cerned, but most tormer welfare recipients who have tound employment are in low-paying positions that do not provide health care coverage. The number of people who are not taking advan- tage of Medicaid coverage is quite large, and the prob- lem speaks to the obstacles that many poor people face in trying to navigate publicly run sysrcms. State governments. in turn, have only limited success in per- suading parents to enroll their children in the Med- icaid program, almost regardless of the specific circum- stance. One recent federal study estimated that 4.7 million children were uninsured despite their eligibility tor Medicaid, representing about 2 of every 5 unin- sured children in the United States.lO A similar prob- km faces the new State Children's Health Insurance Program, which authorizes the expenditure of $24 billion over a period of five years to extend coverage to low-income children who are not already eligible for Medicaid.21,22 Congress gave the stateS the option of using this money to expand their existing Medicaid programs, create new programs, or implement com- bined approaches. Recognizing the challenge of ac- tually signing up children. federal and stare govern- ments and private toundations are investing hundreds of millions of dollars in outreach efforts to idenrifY el- igible children and enroll them in Medicaid or the Stat<: Children's Health Insurance Program.13 THE STATES' BOOMING ECONOMIES Although the states arc grappling with the multiple challenges of welfare retorm, the State Children's Health Insurance Program, and Medicaid, they have more room to maneuvet because the costs of Medic- 406 . Fe b r II H V 4, 199 <) aid have been brought under strict control and the economies of most states are booming. Total Medic- aid expenditures increased by only 3.8 percent in 1997, the slowest annual rate of growth since the program's inception. In its latest repon on national health care expenditures, HCE'\'s Office of the Actuary stated: Average .mnual growth in Medicaid spending decdcrated w 5.9 percent over the 1994:-1997 period, compared with 12.7 percent tor 1991-1994 and 19.5 percent tor 1988- 199LThe rapid growth over the 1988-1994 period is at- tributable w three basic factors: (1) an increase in the num- ber of Medicaid enroUees, (2) an increase in nominal (not adjusted tor intlation) spending per recipient, and (3) explo- sive growth in disproportionate-share hospital payments, a substantial portion of which statcs used to supplement their state treasuries in ways that Congress has now outlawed. H (Disproportionate-share payments, which totaled 515 billion in 1996, are made to compensate hospi- tals tor the higher operating costS they incur by treating disproporTIonately large numbers of low-in- come and Medicaid patients. 25) At the start of 1999, despite five straight years of tax cuts and moderate increases in expenditures, all the states except Alaska and Hawaii had healthy budget surpluses that collectively are estimated to total 531 billion. As a percentage of the overall budget for all the states, this surplus is twice that of the federal budget, according to a repon issued by the National Governors' Association.26,27 Neverthe- less, many governors have adopted social policies de- signed to slow, if not prevent, further expansion of publicly financed insurance programs. For example, California made an explicit decision under its tormer Republican governor, Pete Wilson, not to accept the full federal allotment of funds from the State Chil- dren's Health Insurance Program. Such policies reflect the concern that tèderal funding tor Medicaid will eventually decline, torcing the states to make up the shontàll. In addition, Republicans see little political gain in creating new publicly financed programs in this era of limited government. Only Kentucky, Mas- sachusetts, Nevada, and Vermont have said that they plan to spend their full allotment of funds from the State Children's Health Insurance Program this year. Many other stares are in earlier stages of implement- ing the program and may not be able to spend all the available program funds in 1999. ;\-lEDICAID MANAGED CARE Since the 1980s, many states have experimented with managed care, largely as a means of limiting Medicaid expenditures, but they had no authority to require eligible beneficiaries to enroll in managed- care plans. Moreover, the beneficiaries had no incen- tive tor enrollment, such as the extra benefits that elderly persons could obtain if they signed up with health maintenance organizations (HMOs) under Medicare. To make managed care mandatory, the states HEALTH POLICY REPORT .~,-~.~~. had to receive a waiver from HCFA. Under President Clinton, a tormer governor, HCFA adopted a liberal I policy of issuing such waivers, which enabled some 40 states to make managed care mandatory in whole or in part tor certain groups of beneficiaries. The Bal- anced Budget Act of 1997 eliminated the waiver re- quirement altogether, except tor persons who arc eli- gible tor both Medicare and .\1edicaid (disabled and elderly poor people), children with special needs, and Native Americans. The budget law also eliminated the requirement that in rL.'v!.Os with Medicaid bene- ficiaries, at leaSt 2S percent of the members must receive coverage from third parties other than Med- icaid. Congress had imposed this stricture as a proxy tor ensuring that the plans would provide high-qual· , iry care. Forty-nine states (all except Alaska) now rely on some torm of managed care to serve their Medicaid populations. The proportion of .Ykdicaid beneficiar- , ies enrolled in managed-care plans increased from 9.5 percent (2.7 million people) in 1991 to 48 per- cent (15,3 million) in 1997. The states use one of three forms of .vledicaid managed care: arrange- ments with primary care physicians to act as gate- keepers, approving and monitoring the provision of services to individual beneficiaries in return tor a fixed tee; enrollment of beneficiaries in HMOs that i assume the full financial risk of providing a compre- hensive package of serviccs; and contracts with med- ical clinics or large group practices, which provide services but do not assume the full tinancial risk tè)r them, In areas where H.v[Os an: prepared to assume the full financial risk of enrolling Medicaid benetìci- aries, the states are choosing this approach and turn -: .vicdicaid underscores the ambivalence of a society ing away from the other two. I that continually struggles with the question of The most comprehensive examination of the ef. 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- Crban Institute as part of an ambitious project anee to a larger population of poor persons than ever called Assessing the ~ew Federalism.z8 The project, before, rd1ect:ing the strength of a bullish economy funded by privare toundations, is a major new dfort 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.Z9-37 Researchers have exam- cent of the population in 1997, the largest level in a ¡ned the etfect of Medicaid managed care in 13 decade, because employer-sponsored coverage has states (Alabama, Calitè)wia, Colorado, Florida, Mas· eroded.2,3 This divergence prompts a question: What sachusetts, Michigan, Minnesota, Mississippi,Z'Jew potential does Medicaid have tor further expanding Jersey, ~e.:w York, Texas, Washington, and Wisconsin). its eiigibk population so that poor families with in· Their preliminarv conclusions, reached three years comes that minllnallv exceed the.: tèderal poverty lev- after the start of the study, which will continue tè)r cl could be insured through this program! Some another three \'ears or more, arc as tallows: scates (Ma.ssJ.chusetts, ",,1innesota, Oregon, Tennessee, ,lnd Wisconsin are examples ì have used public funds to broaden private coverage through managed care, and the weltare-rdorm law permits the states to raise the threshold tor income and assets so that more beneficiaries will be eligible tor Medicaid. But manv states have shifted to managed care without expa~1ding coverage tor the working poor, J. popula- tion that consLÎtutcS the bulk of the uninsured pop- -- The: MediCJ.ld managed care.: revolution has been mon: of ¡ a skirmish chan ,I revolution_ The goals of Medicaid man- age:d eare wen: to expand access to mainstream providers I and to save mOnel', but success on both fronts Ius b<.:en . limiœd. Medicaid ~anagcd care is pn;dominamly limited to children md ]'oung<.:r adults; lcw sutes have extended en· rollm<.:m to more expensive elderly and disabled enrollees, limiting potencial savings. St,\tcS are also finding that man- I J aged ca¡-<:: savings are modest because traditionally low Medicaid fee-tor-service payment rates make it difficult for stares to substantially slash capitation levels or for HMOs to negotiate further discoums. In addition, safety net pro- viders that need .\<kdicaid revenues to sillVive have reçcivcd , special prorections from states, which has both reduced I pott:ntial savings and steered Medicaid benefiçiaries to tra- ditional providers of ehariry care. The combination of low capitation rates and protections tor satèry net providers have limited the willingness of commercial HMOs in sev- eral states to contract with states, thus restricting the ex- pansion of access to maintain provide:rs,38 A number of commercial HMOs that were en- rolling Medicaid beneficiaries have withdrawn from the program in the past year, citing multiple reasons for their dissatisfaction.39.4o In interviews conducted recently by Hurley and McCue at the Medical Col- lege of Virginia, state policy makers, health~plan ex- ecutives, venture capitalists, and stock analysts ex- pressed little optimism that commercial HMOs would continue to enroll Medicaid beneficiaries, particu- larly in states with very low per capita payment rares. Citing the views of stock analysts, Hurley and McCue note: The early promises of profitable market opportunities were ovashadowed by unexpected rate rollbacks, contracting volatility, and administrative burdens which soured ana- lysts and investors on the Medicaid market. .. Given ,his histOry, stock analysts see limited opportunities for success in .v1edicaid and view the exodus from the .v1edic- aid market as evidence: of management's desire to enhance stockholder wcalth.-\! CONCLUSIONS Volume 340 i>:umbcr;; 407 The New England Journal of Medicine.: "', ulation, and rates of payment to providers remam woefullv low. Medi'caid's architects envisioned a program that would provide poor people with mainsrream medi- cal care in a fashion similar to that of private insur- ance. As the decades have passed, that vision has largely faded, and several tiers of care have emerged. .vlainsrream medical care is provided to people cov- ered by private insurance or Medicare. For the most part, poor people continue to rely on providers that make up the nation's medical satery net: public and some private not-for-protit hospitals and clinics and their medical staffs that, by virtue of their location or their social calling, provide a disproportionate amount of care to the poor. These providers are in- creasingy stressed as Medicaid diverts funds to man- aged-care plans. The United States remains the only industrialized nation that has never settled on a so- cial policy mat, however policy makers choose to ac- complish it, offers a basic set of health care benefits to all residents regardless of their ability to pay - certainly a regrettable failure in a nation blessed with so many reSources. REFERENCES 1. Iglch3r' JK. Th. :\mericln hClIÙl e". sysrem - expenditures. N Engl J Med 1999;340:70·6. 2. Kuttner R. The ,\merican I\"IÙI Cle, sysr.m - hell,h insun.nee co...· erlge. N Engl J Med 1999;340:163·8. 3. !d..... The American l\e.Jtl\ e.re system - employer-sponsored l\ealÙl .;o....r.g.. N Engl f Med 1999;3'\0:248·32. 4. Igl.h.rr fK. Th. Am.rican h.aI[h elr. syst.m ~ Medielre. N Engl T Med 1999;340;327-32. 5. [de.... Th. .".Jncr1eln hcoirh cor.; ;ystem ,,- \Ie¿icoid. " Iòng;1 ¡ Mod 1993;328:896·900. 6. Tlllon JR, Brown LD. W110 gets wl\lt? De...olution of digibiliry jnd benefits in Medicaid. [no Thompson Ff, Dilulio ¡¡ fr, cds. Medicoid lnd devolution: a view lTom ilie ;tltes. Wosl\ington, D.C.: Brookings I",rim- tion Press, 1998. 7. Col\.n W. Reflections on [I\e enlcrmenr of M.diClre lnd Medicaid. HealÙl Car. Finlnc Rev 1985;SuppL 8. Fri.dman E. 111<, li,de '''sin. thar could: Mcdiclid ar ,h. Millennium. From Hcalth S.rv ~b"jg' 1998:14(4):3·24. 9. Berk ML, Schur CL. Access to Clfe: I\ow mucl\ ditference docs M.dicaid mak.' Hcolili Aff (Millwood') 1998;17(3):169-80. 10. Fronsa" P. Sources of healÙl insul'anCC ,\Od ehlfjCrerisries of the unin- sured: analvsis "filie ,\brch 1998 cun-.nt population surve\'. EBR! issue brief no. 204. W3St>ington. D.C.; Employee Benefi, Resew:h InsriNte, 1998. 11. Colby DC. Medicaid pl\vSlcian tees, 1993. H..lili AlT (Millwood) 1994;13(2):255-63. 12. Ellwood MR. Ku L. Wclf.u-e lnd immign'ion reforms: unintended side effects for M.dielid. Heo1ili All' (Millwood) 1998;17( 3 );137·5!. 13. Pelf R. Mosr ;[;IreS mee, wotk require""nt of w.llore law. ¡.Jew York Times. December 30, ! 998:.-\1. 14. Spitz B. TI\. dusive ","ew Federali;m. Hellth Alf (Millwood) 1998: 17(6):150-6l. 15. Weil .-\. Wiener JM. Holohon I- ·,-\'"e..ing; the ;-·kw ¡:.derali,n,· ond store hell[h policy. Hc,ltl\ .-\Jf \\illwood) 1998;l7( 6):162-4. 408 FcbruHY 4. 1999 16. Barrds PL, Boroniec P. Badg.r<:=: a cas. srudy of the elusive New Feden.lis",. Hellth AlT (~tillwood) 1998;17(6):165-9. 17. Wiener fM. Steven",n DG. Rcpco¡ ofth. ~Boren Am.ndment": impliÇjlJons tor qualiry of Cle. in nursing homes. Seri.. A, no. A-30. Wash- ington, D.C.. Urban Insum,", 1998. 18. Schn.id.r A, F."nel K, Long P. Medicaid digibiliry for f.unilies and ,hildren. Washington. D.C.. H.nry f. K;¡is.r Family Foundarion, 1998. 19. Smi,h VK, Lo""U RG. Pet.rson K.\, O'Brien MJ. The dynamies of CUJ". rent .\1edicaid enroUment changes; lnslghts from focus groups of sarc human ",rvice ,dmlnlStr.ltors, .\1edic';d digibiliry specialists wd w"¡þre agency .II1a1ysrs. Wasl\.ngton, D.C., H.nry J. Kaiser Family Foundation, 1998. 20. Sdd.n TM, Ran[hin fS, Coh.n fW M.dicaid's problem c:hiJdren: .ligibl. bur "0' ."roU.d. H.alth .-\Jf(MillWOO<i) 1998;17(3);192-200. 21. Bud.tti PP. H.alÙI inSUrlOce for children - a model for incremenal I\ealth rdorm! N Engl T Mcd 1998;338:541·2. 22. New:lcl\eck PW, SwddJJ"d n, Hughes DC, Pearl M. Health insurance jnd "cess to prlmlry cor. for children. N EngJ J Med 1998;338:513-9. 23. Ken.sson MS. M.dicaid managed care: outreach and .nroUment for ;pecial popuJarions. Princeton, N.J.: Center for Health CJJ"c Strat.gies, 1998. 24. Levi, K. COWj" C, Brad.n B, S,ill.r f. S.nsenig A. Lazenby H. "b,ional heo1[h cxpendirures in 1997: more slow growth. Health Aft" (Mill- wood) 1998;17(6):66-110. 25. Cougl\lin TA. Ch.nging star. lOd f.deral payment policies tOr Medic- aid disproporrionate-share I\ospi,als. Health Aif (Millwood) 1998;17(3): 118-36. 26. Broder DS. Stltes pass ilieir fisco1s: Ùley're trimming taxes., be.6ng up 'rainy day' funds. Washington Post. December 31, 1998:A25. 27. Broder OS. Golden years tor governors. Washington Post. January 3, 1999:C7. 28. Kandr"as A, Weil A, Goldstein N. Assessing the new feden.lism: an inrroducÜon. Hdth Aft" (Millwood) 1998;17(3):43-63. . 29. Holahan J. Zuckerman S, E""ns A, Rangln.jan S. Medicaid man.ged ell'e in thirtecn smes. HeoJ,h ,-\,If (Millwood) 1998;17(3):43·63. 30. Nichols L\I, Blumberg fL. A differ.n, kind of 'no:w federalism" Th. H.oJÙI [nsurance PombiJiry and Aecountlbiliry Act of 1996. Health .^.if (Millwood) 1998;17(3):25··U. 31. Wall S. Transfor",arions in public healÙl sYStems. Health AIr (Mill- wood) 1998;17(3):64·80. 32. Wiener fM. S'ev.nsnn DG. State policy on long-'enn <:aI'C: for ili. dd- erlv. Healili At1'(Millwood) 1998;17(3);81-100. 33: Rojan S. Publicly subsidized l\eo1th inSillance: a rypology of sta.te opproachcs. Hellrh .-\ff (Millwood) 1998;l7(3):101-17. 34. ,",orran SA, LLpson D . l'onrai<s of the sa¡cry net: the market, policy environment. and safety net response. Occasional p'per no. 19. Washing- 'on, D.C.: Urb.n [nstitute, 1998. 35. Bovbjerg RR, MlI'sccller JA. Health cue market eomperirion in six "arcs: implications tor ilie poor. Occasional p.per no. 17. Washington, D.C.: Urban insritute. 1998. 36. Wiener JM, Stev.nson DG. Lnng-rcrm c"-t. for ilie dderly: profiles of iliinecn Stlt<S. Occ"ioMl paper no. l2. Wasl\jngton. D.C.: Urban Insti- tute, 1998. 37. Idem. Controlling rhe supply of long·term ell'e providers at ilie stotte lev.l. Occ:l5ion.1 p'per no. 22. Washington, D.C.; Urban InstiNte, 1998. 38. Holahan f. Wie"er J. Willin S. ¡-¡.oJ,h policy for ÙI' low·incom. pop- ullrion; mjjor findings trom ilie Assessing ilie New Federalism case SNdi... Oçeosionll poper no. 18. Wlsl\ingran. D.C.: Urban InstiNte, 1998. 39. Asran G. Widespread HMO defections <tarting '0 hi, Medicaid, rao. Am.riean Medical ;-¡ews. Decembe, 14. 1998:5. 40. McCue ,\IT, Hurley RE, Droper D,-\'. Jurgensen .\1. Reversal of for' mne' eomm."iJ.! HMOs in [he M.di(lid market. Health Aff(Millwood) 1999;181 I U23-30. 41. Hurle\' RE. McCue .\IA. ,v!cdicaid and comm.rei.1 H.MOs: an or-risk rdltJon;¿p, ['"ncown, ;":,f.: Cemer to, ¡-¡CalÙl C.()'. Stntegies, 1998. ~ 1999. '\bs""chuscm \kdical So~i.tv. -- . , \ ì ....,:J, ~! ':- _ '¡' .." "'¿ ) I Q ~ '31 ,'" The: ~cw ErlglJ.rlJ fourn,¡J Dr" .\kdiClrlC ¡ 0 ..:oW",;;A " - c. .)".-J - ,.. 'I l_r '1 . , . . ~=n~~":: R I~ jJ "~-=- THE A.\lER1CA~ HEALTH CARE SYSTE.\,¡ Employe;:r-Spon~ort:d Hc:alth Covc:ragc: ROBERTtTTNER M OST .-\mcri<'::ln~ rdy on their c:mplo\'ers tor hC::l!th insur:ln..:e. [n 1997, of the 167.3 million nondd<.:rly .-\m<.:ric:lns with print<.: he:llth insunncc, 131.7 milliun bdungc:d to cm- p!over-providc:d hC:llth pbns.1 [n response to th<.: es~ (:ll:1ting ..:oSt ot' he:llth insur:lnce Cover:lge in the 1980s, employers beg:m devising new str:ltegies of COSt ..:0 nt:lin ml.: nt, Thl.:~e included <.::ontr:lcting with hC::llth pbns th:lt pr:lcticcd a stringent torm of man- aged care, substituting che:lper torms of h<.:J.lth ..:ov- crage tor morl.: <'::xpl.:nsiv<.: one~, limiting employees' <.::hoice ot' he:llth plans, and shifi:ing COStS to employ. ees in a v:lric:ty of W:lYs. The~1.: me:lsures hOlvl.: st:lbi- lizl.:d health lnsuranCI.: ..:oSts tor I.:mplov<.:rs. How<.:v- _ . I er, thl.:Y have ktt many I.:mployees paying morl.: OLlt . of pocket and ottm with intì.:rior forms of h<.:alth , (over:lge. ,lOd they have ..:ontributt:d to an overall ~:>.'::-:';~lSL ;r-: :~1{.; prnpor::io[: f)[- .\~i-:iC:"iL:1r1S \\"¡1U ~lrc uninsured. The percentage of nondderly I.:mpluyees who re- ceived their health insurance from their emplovers dec!inc:d sharply from 69.2 pen:ent in 19i37 to a Imv poim of 63.3 percent in 1993 and then incr<'::lsed slightly to 6·-1:.2 percem in 1997, .lCcording to the Census Bureau.1 Slight!:· more employcrs are o ftì.: r- ing health insurance, bilt kwer workt:rs an: uking it. eithcr b<.:cause of economiCJ.lly onerous cost shifting to <.:mplo:·<.:es or bI.:C:lUSC rebtivdy more workers arl.: p:lrt·tim<.: or temporary cmplo:·e<.:s who do not qual- ify for insur:lnœ b<.:ndìts. Th<.: percentage of workcrs whose emplovl.:rs ot1ì.:rcd h<.:alth insunnc<.: increased from 72.-t pen.:c:nt in 19S7 to 73.-t percmt in 1996. But th<.: "takc-up" rate ~ that is, th<.: proportion of \Vorkas who J.Ctually got th<.: insurance ~ fell from 88.3 perc<.:nt in 1987 to 80.1 percent in 1996." REDUCING EMPLOYERS' COSTS Employers' new stratcgics began to have a dramat- ic d1èct in 1993. By 1996, th<.:y Iud virtuJ.lly elimi- nated the 'l.:cming1;/ chronic \:s(:l!J.tion of health in- surance costs to businesses. Bdore the managed-care revolution, the annual costs of health coverage to em- ployers regularly escalated at double-digit rates. Be· tween 19S0 and 1993, private health insurance COStS 248 . !J.nllJry 21,1999 per <.:nroilee in(n:~lsed bv 21S percent in inrbtion. adjust<.:d doll.lrs. while the inrbtion·adjusted gross Jomestic product per (apitJ. rose bv Just 17 p<.:rcent..; The incr<.:ased COSts were simply pass<.:d along by in- mnnc<.: plans to <.:mployers, in annual premium in- (r<.:as<.:s. In one :·CJ.r alone. 1933-L939, <.:mployers' hcalth tnsurJnœ COStS roSI..: by 18 percent. I Between 19S0 and 1993, spending by <.:mplm·crs on health ..::lre as ,1 pl..:;CCntJg\: of toul compensation to work. e;s increased from 3.7 percent to 6.6 percent.> .--\.ggressive ..:ost-conuinment and wst-shitting measures have stanchc:d this escalation of <.:mployers' costs. Sin(e 1993. intbtion in health insurJnœ COStS to <.:mplove;s has slowed to roughlv the overall rat<.: of intbtion. and tn som\: years th<.: intbtion-adjusted (OSt lu~ actu:llly declined. [nJecd, cmploycrs' health insuranœ Costs as a percentage of taral eomp<.:nsa- tion to worke:rs d<.:clined from a peak of 6.6 perccnt in 1993 to 3.9 p<.:rc<.:nt by 1996.5 A survey by KPMC Peat .\brwick of 1000 randomly sdc:cted large and small employ\:rs tound that th<.:ir annual increas<.:s in health insuranc<.: premiums graduaily declined from 11.3 percent in 1990 to 8.0 percent in 1992, ·t.3 percent in 1994, and 0.5 percent in 1996.~ Since th<.: und<.:r!ying sources ot' intbtion in m<.:di- CJl costs have, if anything, intensified during this pe_ riod - most notably, n<.:w technology and an aging population ~ it is evident that this ¡mpressive <.:ost containment h.ls <.:ome !<.:ss trom a shift ta more d~ tici<.:m uses of hl.:aith dollars th:ln from limiting the (clre J.Ctually pro\'idd or shitting (osts to employees. .\Lureover, ,incc 1997 thl..:n: have bec:l prcliminary signs that the relativcly easy gains due to managed (are and cost shifting have now bCt:n rcalized, and cmployers' costs luvc b<.:gun rising again. The Wall StYI:I:t !vurmd recently cited a survcy of Fortune 500 bendits managers, who Jnticip:lte premium increas- cs averaging 10.3 pl.:rc<.:nt tor 1999, as <.:ompared with 3.9 pcrc<.:nt tor 1995." Small busincsses' <.:osts ,j:',,: ct- ~ ~ :..:.: :,;' '-~J": ";''--'::1 tlst<.:r. MANAGED CARE AND DIMINISHED CHOICE Employers hayc achie:ved th<.: cost containment that markcd the mid-1990s in sevcral ways. The most powcrrul m<.:::hod has been a shitt from tradi- tional unmanaged ind<.:mnity lIlsurane<: to tightly manJ.ged plans. both he:alth mainten~lnce org:lniza- tions (H.'vl0s) and poim-ot~servicc or network plans, Th<.:se plans h;1vt: in <.:ommon, of ..:ours<.:, strict ..:on- trois on the: use of m~dicll services, as well as tinan- (ial incentives to physicians J.nd hospitals aimed at cutting both services and costs. B<.:t\\·ec:1 193-tand 1993, th~ proportion of em. ployees enrolkd in HMOs incrc:ased trom 3 perçcnt to 30 percent.{ Bv 1993, 33 p<.:rc\:nt of <.:mployc<.:s with health insuranœ cov\:ragc: were in soml..: tè)rm of m:lnag~d-c;1re plan, whereas 13 percent wcre in · '!'.. HEALTH POLICY REPORT ti.:~- tor-savice indemnity plans (c:mployee:s were typ- lo.llv charged more tor such plans).7 ¡\kanwhik, the i pe:rœnrage of employers who even offaed indemni- ty pl.1lls graduallv de:clined from 89 percent as re- cently.ls 1989 to 5ì percent bv 1996.~ Th~ shirr co stringently man.lged care: has stlbi- lized costs CO ~mplov~rs. though not co ~mplovees. :\her steadily increasing during rhe 1980s .lnd carly 1990s. rhe: JverJge premium charged CO employer- sponsored plans began d~dining in the mid-1990s. The monthly cost of .1ll emplovee-only HMO ben- dit dedine:d from S 166 .l month in 1994 to .s 15 Î .l month in 1996. The JverJge monthly cost of HMO bmilv benefits Hucruated narrowlv between $453 in 1994 and $448 in 1996.~ Even the costs of indem- nity plans declined by JpproximJtdy the same per- centJge, reHecting the t':1ct rhJt many of the same cost-containment strategies (utilization review Jnd physician profiling, steeply discounrc=d fee-far-serv- ice scheduks, and shiti:s from inpatient to outpatient settings) have been incorporarc=d into relatively un- manJged indemnity policies as wdl. HistoricJ.!ly, most large employers otfe:red worke:rs broJd medical choices through indemnity insurance. As recently JS 1990, according co He:witt AssoÓates, 69 percent of the 681 large employers in thÓr sur- vey otfered both H.\-tO and indemnity plans. By 1995, that percentage: had dropped to 22 percent.~ Instead, by the mid -1990s, firms were otfering cov- erage thrnugh tradirional HMOs, point-or-service ~:Vl( , ~: :'~-";~·~:=-\.:'''':-,)c.., . _. '.n ":'~ì..r'\i,=~ric~l.:) (~~OSj. Today, rhe main group of e:mployces who stÙI enjoy broad choices are those in the public sector, through such programs as the: Calitornia Public Employed Retireme:nt System .1lld the FederJ.! Employees He:alth Benefits Program. A small numbc:r of groups of pri- vate-sector employers arc attempting to otfer the sam~ kind of choice rhat is Jvailabk to most feder:11 Jnd stare employees. .bur they srill make up only a tiny minority of <:mployers. Oti:en, employers contract with a single heJ.!th pl.1ll but offer their employees more choices wirhin that pl.1ll. For eXJmple, an employee: may choose J point- ot:service option that allows a patient to pay extra tor the privilege of going out of the network of pro- viders of a basic H.\LO pl.1ll. This trend is imporunt, because rhe mJrket model of heJ.!th care, like :111 mJrkers. relies on consumc:r choice co discipline sup- pliers. Wirh the Jbsence of such choice, the consum- as' option of chJnging providers is precluded. COST SHIFTING TO EMPLOYEES Large employers. who began providing health in- sur:mce benefits to their employees in the 1940s, typicJlly extended such be:nefits to workers' families as well. Today, according to several benefits consult- ants cited by the Gener:11 Accounting Office,~ em- ployers increasinglv give financial inducements co c:mployees to choose employee·onlv. JS opposed to b.mily, cover:1ge. The widespread shiti: to "C:1tcterÜ" bendìrs paek:1ges essentially gives each e:mployee: .l tìxed dolbr .lmount th:1r thc comp,my will contrib- I ute tor benefits. Sine¡; t':1mily cover:1ge costS about thre:e: times .lS much .lS individual coverage, e:mploy- ees with t':1milies generJ.!lv c:xh.lusr rhe: c:1sh v:1lue of their employer-provided be:netirs .lnd must cirher tJp their sabry income to pay rhe additional costs of bmily coverage or do without. .\-Lost cmployees with capped benehrs finance: much of rhe coverage tor thcir t':1milies out of rheir own pocke:ts.~ Some 5 per- ce:nt of t1rms do not offer Ùmily bcne:t1ts Jt Jll, e:ven if the employee: pays the full cost.~ As reccndy JS the mid-1980s, large corpor:1tions thar provided comprehensive he:alth insurance USUJI- ly paid rhe full cost. But in the past dec:1de, cost sharing with employees beeJ.me widespread. Inde<:d, reductions in health insur:11lce coverage were the single l:1rge:st cause of labor dispuces in thJ.t dec:1de. By 1990, the percentJge of employers paying the full cost of employees' he:alth CJre CQver:1ge de:dine:d to 27 percent in the C:1se of inde:mnity cover:1ge Jnd 30 percent in the C:1se or-PPOs. By 1995, that share hJ.d declined further to just ì percent Jnd 11 percent, re- spectively. For workers who Jlso obrained coverage for their r-amilies, the employee W:1S required to share costs in nearly all cases.~ Cost shifting takes a v:1riety of forms. It indudes capping rhe employer's tot:1l benefit conrriburion .::-.C: ::1'.:S :".:~p¡~ing the emplcyee to tnde otf health insurance .1gainsr pension :1nd other fringe benetirs; requiring employees to bear some of the cost of pre- miums; covering employees bur not their t':1mily members; offering only health plans that stringently cap some: se:rvices such as prescription drugs Jnd none:mergency outpatie:nt psychiaaic bene:fits; .1lld increasing rhe amounrs of dcductibles or copayments tor indemnity :1nd PPO plans. According to He:witt Associate:s, 16 percent of employers offering indem- nity plans in 1990 had individual Jnnual deductibles of 5250 or more. By 1995, that percentage had in- creased to 43 pe:rcenr. For PPO pIJ.ns, the: pe:rcenr- age with such deductibles rose from 15 percent in 1990 to 32 percent in 1995.~ Moreover, the J.mount of the average employee's wntribution to rhe cost of healrh insurance: premi- ums also increased drJmaticJ.lly during this period, from S60 pe:r month tor family coverage in 1988 co S 107 per monrh in 1993. According to Deparrme:nt of L:1bor statistics çired by the GenerJ.I Accounting Office, 16 percem of ~mployees with cover:1ge das- sifie:d as "employer-provided" JcruJ.!ly pay $ 150 or more monthly out of rhe:ir own !?ocke:rs.~ Hewitt .\s- sociates, surveying 681 brge U.S. employers, tound thJt the median contribution of employees to the costS of tâmily coverage rose 64 percent in rhe: case of indemnity plans and 63 percent for PPO coverage { Vol lIme 340 :-lumber 3 249 The ~ew Engl:1nJ fourn.,1 or' :-"lcJiclnc bet\ncen 1990 .wd 1995.i This was, of course, a far taster Increase than that in <:mployers' COStS, suggest. , ing substantial Lost shifting. .-\ K.liser Funily Foundation study, citing data tram KP.\lG Peat .\br\vi<.:k, pUt the aVerage contri- bution by employees at S 1.615 per year in 1996, or .lbom 30 percent or" the total premium.? The Gen- eral .-\ccouming Oftìc<: round that escalating COSt shifting result<:d in many lower-income Jlld part. timc employees' deciding not to rake the he:tlth cov- erage, either tor themselves or tor their tàmilies, be- cause they could not .ltford it.~ For a low-income worker, derined :lS one earning less than 57 per hour, this average premium COSt would represent about 12 percent of pretE income. In :lddition to the employees' rising share of pre- miums, dcductibks, copayments, and other out-of pocket costs hJ.ve btdy risen J.t a faster rate thJ.n he:tlth expen.ditures generally. In 1997, out-ot:pock- et payments increa.sed by 5.3 percent, whereas tot:tl he:tlth cJ.re costs rose only 4.8 percent. to SQUEEZING OUT LOWER·INCOME EMPLOYEES The Ge::.e:"al "-\c.:ounting Office attributes much of the recent decline in hc:tlth coverage to changing practices by employers - either dropping he:tlth cov- r::~I~~ 0r ~hi!1:~r;:; '':0S~~ :'J '';~?:.~j:.!':~:~: As <::mployers dropped cover:J.gc: or r:J.isc:d the Cost of cov- crJ.ge tor employees :J.nd timilies. the perccnn~e of peo~k with ?rlvJ.~e :;eJ.!(h lnSllC\!1CC dcclincd. [n 1989, 75 per. cem or" peopk under 65 :'<::J.[': ,)t' -,ge Iud private heJ.lth in. surJ.nc~; :,v ! G95, this numb':r had dropped m juSt under - ,:~;.~".. .·"ù.\t of rhls de¡,;¡¡,;e was ;:¡mong dependems.4 ~Ot surprisingly, the loss of hl::Uth covl:rage W:J.S morl: dramatic :J.mong lower-income workers, for whom COSt shifting represents a larger economic bur- den. Benveen 1989 :lI1d 1995, according to me Gen- <.::-J..l .-\..:.:oun,~ing Orï-ìée, the rate of private insur:ln<.:¡;; ..:overage declim:d trom 89 pl:rcent to 87 percent of me population under 65 years of :J.ge wirh incomes in excess of 200 percent of the tèderal poverty level, ! but it declint:d from 45 perœnt to 40 percent for peopll: with incomes at or bdow that incoml: thresh- 01d.4 ,-\ September 1998 Kaisl:r Family Found:J.tion scudv round mat thl: proportion of low-wage work- ers (moSe paid ll:ss m:J.n 57 per hour) who hJ.d access to employer-provided insuranC!: dl:clined by 5 pl:r- cemagl: points bl:nveen 1987 :lnd 1996, but the pro- portion who actually accepred such coverage declined by 13 percentJ.ge points.~ In other words, the proportion of employees who could not atford to pay tht:ir rising share of the COSt of nomin:tlly available coverage, and thus declined it, roSe more sharply thw the proportion whose em- ploYl:rs did not provide coverage :J.t all. By cOSt shift- lng, employers dfectively price mJ.ny lower-income 250 . !JnuHv 21, 1999 workers out of economicallv meaningful access to health insurance. This. in turn. saves employers whJ.t would omerwise be: (heir share of coverage tor such \vorkers, reducing <:mployers' costs even furthe:r _ J.nd displacing those COstS onto the portion of the: svstem th:J.t bears ml: expe:nse of uncompensated C:lre or torcing these employees and their families to go without <.:are altogether. Employer"provided ..:over:J.ge for h.ighcr·wage work- ers hJ.s also involved shifted costs :J.nd constrained choices, but more J.ffluenr workers have been :J.ble to absorb these costs, In 1996, me proportion of high- wage workers (those paid S 15 pa hour or more) who had emplover-provided cover:J.ge was 90 per- cent, a decline:: of 3 percentage points since 1987.9 Health insurance coverage provided by employers :tlso v:J.ries :J.ccording to the siZe of the company, Ev- ery Fortune 500 hrm offers he:J.lth insurance cover- :J.ge. However, only 49 percent of employers with tèwer than 200 work<:rs provide health insurance, and sm:tller companies are more likely to offer less comprehensive plans. Among very sm:ul comp:J.nies, with tèwer th:J.n six employees, only 30 pacem pro- vidl: any form of health bendltS,6 Over a longer period, from 1979 to 1993, thl: per" centJ.ge at" all workers with employer-provided he:tlth insurwce dl:dined tram 71 percent to 64 percent, a dr00 ()f 7 ['Ie:"ccm:!~': ?0i~,ts. w~'::-e~s c)\'<;:rage tor LI-¡OSe: in me lowest mcome quintile dropped by 13 percentage points, trom 40 percent to 27 percent.11 ,j::::Oll:;~. ::::;;J.:-:slor,s in .\kdic:J.id digibility J.nd new r;;dG:J.l J.r."':' sUt:: progrJ.ms aiml:d J.[ providing cover- :J.ge tor uninsured children have m:J.de up some of this lost cover:J.ge, they have not filll:d the gJ.p. One.: study attributed 83 perC!:nt of the: decline in private he:tlth insunnce coverJ.ge: to changes in employers' behavior and 17 percent to expansions of Medioaid, mainly directed to pregnant women :J.nd children.12 The VJ.st majority or' employees who have lost private cover:J.gl: provided by their employers neither pur- chasl: individu:tl insurance: nor qualify for Medic:J.id, ~or is the loss of employer-provided coverage subst:J.nti:tll y related to unemployment (which ha.s dl:clined in the 1990s). Thl: VJ.st majority of people who bck hCJ.lth insurance - 79 percent - are in rJ.milil:s wit.C¡ J.t kJ.st one full-time worker.? But I:i- ther these workers Jre employed by comp:J.nies that do not provide insurance or the cost-sharing provi- sions mJ.ke such insurancl.: prohibitively expl:nsive for lü\v.wage employees. In sum, the prima.ry reason tor the lack of health insurance among millions of people and their tàmi- lies is that their employers either tàil to provide it or burden employees with onerous costs. The recent increase in the number of uninsured pl:Ople reflects cost shifting more than it reflects termination of cov- erage by employers. The percentage of high· income workers who h:J.ve J.ccess to employer-provided plans HEALTH POLICY REPORT '"l h.ls .1Ctu.1llv tncre.lscd slighrly, trom 92 percent in 198ï co 96 percent in 1996, whcre.ls the percentage of !ow-in<.:ome workers with .lccess to employer- provided pl.1ns fell from 60 percent to 55 percent. The KJ.iser Familv Found;ltion calculated that even if the rate ot .lccept.1nce of insur.lnce otfered by em- , players \liere identical for low-income and high- I income employees, tht: percentage of low-income emploliees with insur:lnce would rise only from 42 percent to 51 percent - still far below the 90 per- I cent rate of cOlieragt: among high· income: workers.9 Low-income employees tend to be concentr.1ted in <.:ompmies th.1t either do nOt otfer insurance or otfer it in J. form that is effectively toO expensive for the: employee. The KJ.iser F.1mily Foundation study found th.lt the most dr.1matic erosion in the: provision of he.1lth insurillce by employers occurred between 1988 and 1993 .lnd that the rate has been esse:ntiallv st.able since 1993.9 However, the intensification óf man- .lged.care cast-contJ..Ìnment strategies and shifting of costs to employees have both continued. lnten:stingly, although tht: price of comprehen- sive basic health coverage is out of the reach of some ! employees, employers are adding relatively low <.:ost t·';J.c..:rc:~, su..:h lS vision care and dental care, to their hc.1lth plans. The fraction of employers otfering these addition.1l benefits increascd between 1990 and 1995, ~ ..' .,..... ~ . ; ~H. '-: \. "Îi. .:: -: ';\: '1 REDUCING BENEFITS TO RETIREES Although the federal .\1cdicare program provide:; basic health C.1re coverage to the elderly, large cor· porations have long supplemented Medicare in pro- gr.1ms for their retirees. For coroor.ltions with static or diminishing work forces in a~ era of downsizing, i the ratio of workers to retirees declines and the bur- den of supporting retired workcrs increases. Since the carl v 1990s, health benefits for retired employet:s have tollQ\ved the same downward trajec- I tory as coverage tor current employees. The percent- age of employers that bear the full coSt of retiremem coverage declined from 27 pacent in 1990 to 8 per- cent in 1995.M In addition, more employers provide coverage to retirees only until me age of 65. In 1990, 85 percent of the companies in the Hewitt .\ssocÌltes sample extended retirement coverage to people over the age of 65. By 1995, that percentage had declined to ï6 percent. CONCLUSIONS The cost savings realized by employers since 1993 has been greater than can be attributed to the over- all slowing of health cost int1ation. Much of the sav- ings is simply the result of shifting costs to employ- ees and their families. In addition, the: kind of insurance made available to employees is much more likely to be some form of managed care, which often indudes more subtle coSt shifting in the ¡arm of re- strictions on covered bcndÎts. :\lthough H.MO cov- <:fage is nominally comprehcnsivc, with t~wer de- i ductibles .lnd copayments as \vell as more preventivc services .lnd pharmaceutical coverage, it nonetheless tends to shift cOStS to consumers by displacing onto patients and their Ùmilies the burden of recuperative care, psychiatric care, J.I1d care for other conditions that managcd-care organizations do not deem eligi- ble for coverage. A generation 19O, when there W:lS more of.l long- term social compact between corporations and the:ir employees, it was reasonable that companies would function more or less as proxies for their employees in purchasing health insurance on their behalf. In the 1990s, although concern about quality is regu- larly invoked by corporate benefits managers, corpo- rations today .lre more likely to pursue cost contain- ment as their paramount objective in negotiating with health plans lnd in structuring benefit packages with employees. Moreover, despite the shorter job tenure that is characteristic of the 19905 and the greater proportion of workers with tempor.uy or part- time jobs, workers are still highly reliant on their employers tor tht:ir health covcr;:¡gc, because high- quality affordable individual insurance is even harder to obtain. Regulatory me:asures such as the Hcalth Insurance r·o"" .'¡¡it·, .u-.": .".cccunt;:.oiliry Act (the Kassebaum- r.:.<.:nneI.1Y act), wruCl1 ailows employees who have lost or changed jobs to purchase other health insurance \vithout being excluded on medical grounds, do not address the problems discussed here: the decision by some employers to drop medical coverage, to limit employees' choices, and to shift costS to employees. The trends discussed in this article have no current regulatory remedy. The spre.ld of employer-provided health insurillce resulted from the conjunction of three developments during World War n. The war gave rise to wage and pricc controls, worker shortages, and strang unions. Under the regulations of thc War Labor Board, com- panics that were short of employees could not re- cruit workers by offering higher pay, but they were permitted to lure them with fringe benefits, such as pension illd health plans. Unions welcomcd such benefits, \vhich quickly became customary among major corporations. By the 1950s, large employers generally hJ,d high -quality health plans tor their (typically unionized) workers. Nonunion employers matched illd even exceeded the terms of such he.1lm plans, partly as a wa\' of avoiding unionization. In the 1990s, this logic has been thrown into re· verse. Unions are far weaker, and despite low unem- ployment, employees have relatively less bargaining pO\ver and less connection to the firm than in the past. ..\lthough employers are no longer reliable sourc- es of he.1lth coverage tor employees and their farni- l . Volume 340 Number 3 251 _.,"---',~~~"....~~._- T '1 <.: :\ ('.\" r. :1;! J [hi r I HI r rl .\ I ¡) t' \ (<.: d : ( : ;~ <.: ._~,~.. .._---~ lie.:s, t(;W consumc;rs hJ\'C; othe.:r JttrJct¡\'e.: J!te.:rnJtivc;s. Tn..: currc;m pattc;rn ~ shirting or cosrs to <:mplov- <:c;s, pJring of b..:ndìts, J.nd resulting incrc;J.Sc;s in tll..: numb..:r or' rh..: uninsurc;d ,1I1d undc;rinsurc;d - is lik<.:- Iy to persisr J.S long ,IS the.: bJsI": systc;m or' <.:mploy..:r- provide.:d h<.:J.lrh insurJI1e<.: (ontiI1w,:s. REFERE:-'¡CES 1. ~:"on....r.ln i't. ,)ourc,:s i)r :H:Jirh .nsur:J.nc<: .10J '::'J.r;l(:c:'"!.\t:I..:.~ ,)r· ~t1¡; ·¡I1I1\. .ilJ.rcJ: .H1J.l\"SIS 1)( rhl.: .\t.lrc;'¡ ~ 9(.):-( Current PnOUI..H!On 'iur":t:\". \.V.l.shln~(On\ ;),C.. '.:.mpiovc::c: ßcr.!.:":1r. :~L~cJ.rc;' :n.sururc. L)cc;,;mucr ~ l)l)H. ; L'iSlll; ,)r¡r.;r· :H) 2IH.: 2. Cnoper ~F. S~h()nc 35. .\(nn: otfer'), :cwcr ~JK.L"'~ ~·()r :.;mpioymcnr· bJ.~cJ ~lI::ajrh ,r1sur.1nce:: 11):{Î lnJ L99Î. HI.:;lIr.h :\if .\lilJ\\'onJ) :'9(,)7; ~61 Î):: ~-+4. 3, .-\.nn.LJ.l1 :-c;J0n '[0 C¡)¡Hj:rc:s.~. ~ ()9ó. '.vJ:Ûl n~ton. ~.c.. r'Y.SI¡;:Jf\ ~.1\'- :nc:rl( g,F.:vic::w Commis.sion. 199ó::i.gure 1-':. 4. G~r.cr;li .-\!":(,,':ounnr:.~ OttìCt;, ~mpioymcnt-bJscd :11.::..:Jrh :mUíJ.r;I..:~: ''':d.'irS -~,.~~--~-_.^~~- Ilh.:rCI,~C JnJ ::HTidv ",;o\'u,ìI.:;!.: \~Cl.:íC.l:<;t:<;, ',V.l.'.;flIfH';!iJn, D (:.. l..;~ )vnnmcnt l"":-UHlIh,¡; ()tEl..:c. !:c~r\ .J.r1/ ¡~)l)~.'::. (;.-\U/ HEHS-\)~·.JS ¡ 5_ ¡;:"{ fl~f[r' r. i:e.H\lrt~... IJ( (r,~(,it~\·mt:m :uscd :~~.ljrh ;-,I.ln~, \V,I.~hll1~ron. :1,C,. Em~~Ii)vt:L Ik:-:eri( ~~(:,¡;t;~rC1 :n.\tJt~Itc. l \)()~( l. - 6. Bliss DD, í~ll.'\IrlC~'ic.s' :H,;:,},ln1 prCn11lHTlS .lrc n~¡n~. \V.1i1 .)t"rl.,:'t.;t hurn::J.L ~ )\'cnÜH:r t -:, t ()",I. .\2. 7. F..l(~~ on ì()b·h~...tJ hCJlrh ':Jrc ¡'~ncrir'i ,lnJ ',c!t'·rl1ndC'J c..:.lrc: pL\ns. EíJR! ~c.....·.... :)t:;:-JtcmDc¡" :5, : ()i.)~. 3, :';.d.1r!cd ,~rrH,i/).."('\..: :)cnt..'~i(s ~1r()...!Jtd ~w ín.l1t)r f~·.S. -..:mpiol.'t:-o¡. In tí)(}O ~rlJ : 9'-J5. L_jr\~()¡I1~n¡n;, ~¡I.. ~'1t:WI[~ .\:".<'Ot:I.W:S, : qq(). 9. O'ßric.::rt ~~, Fcdc: :. .\kJiL.1!J lnJ :hc '.lnln~lIrcd. \V.\sh¡n\!;wn, D.C.. :' !cnrv J. :'::..llscr ¡:.1mlil,' t()UI1UJC¡()(l, .'';c~rC'mbt:'' ~ L)9.'C2. 10. L¡,;vu· K. CU\I,,'Jn \~, :~rJJI.:;' :~.. ~t!¡!;.::" f, :)l,,;ilSG1I!,j .\, LJ.Ll.:nnv H. :'-.'.1' ~:on.1i hC:.1i[h 1.:."{pCr1I..:lnlrc~ :n L ()q;, :norc -;iow ~r{)\\irh. .r-k:;¡.Üh _\tf; .\{iH- ',vooJ¡ l'NH:l;-:( i:l:1~. 1', .\1i:o.ht:j L. Bcrn,-;r...:in r. T:11.,: ·¡(.w,,: nr '.\,·orKIClI:; .\m~rltJ: 1997'-1I)t,)X, \V,híÙnl!;.ton. D.C.: :::....:,.)nomll..: ['(HI";".' ;n.'1nr.lHC. ~l {r7. 12_ Cll·~H...:r DM. Gr'locr J. [)no,:"S ~JLl¡"JII~ :n'iUr1nt:..: Go\\'d rJtH ~Jf1V.U¡';; :nsu.r. lnl;-':: ~ßER ·"vork1n~ !J.~pcr :1U, .lO,'t2. CJmDriJ~c. .\t.15iS.. ~\.)l):). ¡~ 1 \)(~\), .\tJ.\.Ii.1..:hu\crt:i .\kJi¡":.1i .)tJI..:¡¡;:Y. BiUhwb Jlan RJII,¡orriwz 252 ¡ ~ 1111 ar y 2 l, 1 <) <¡ 9 THO,'I.\S E, R.JCHTS.'I~I~It. .\L.D, Th<: ;-;ew England JournJ.l of .\lcdi<':lne r-I.:: Ii It h P () 1 icy R c p {} r t THE AMERICA~ HEALTH CARE SYSTEM Wall Street and He::lith C.ue ROBERr1 KUTTNER '- D CRl);G me 1990s, me deliverv of he:um care services was increasingly intluenced bv me demands of invesrors and inve:sror-owned firms. ..\ growing number of hospitals, he:um main- t<.:mn<.:<.: organizations (H.'vlOs), nursing homes. home <.:are services, and hospices became for-profit compa- nies, publicly traded on srock exchanges. Companies formed ro fill particular niche:s, such J.S mose mat manJ.ge physicians' prJ.ctices and utilization-review firms, became Wail Street tàvorires. The buying and selling of he:um-industry aSSets, as fungible com- modities, intensified. In me: me:amime, trJ.dirional tor- praht entities such J.S meclicJ.l-deviec and drug com- panies conrinue:d ro mrive. In me early part of me decade, me pertormance of healm care stocks ex- ceeded mat of me market as a whole. In me case of H...v{Os, me proportion of members who were e:nrolle:d in investor-owned he:um plans in- creased tram 42 percent in 1987 to 62 percent in 1997. ~ The market share of inve:stor-owne:d nursing homes md home-care companies also grew steadily' By contrast, me market shan: of tor-profit community hospitJ.ls, :Uter ill J.cquisition boom in me early 1990s, has now plateaued at about 16 percent of all hospital beds." However, ill segme:nts of me healm care indus- try and protcssion, even mose with a sense of mission very different trom that of tor-profit enterprises, tound themselves in J. new world where me pursuit of market share, the development of referral ne:tworks, me seareh tor profitable: admissions J.nd subscribers, relentless cost cutting, and other practices pioneered by share- holder-mVIled tlrms came to predominate. In short, the trend rowJ.rd investor ownership ! protoundly intluenced the underlying "product" - , the delivery of he:alth care. Intensified competition among health care companies and investors' pressure i tor returns helped shape the general environmenr of COSt contJ..Înment J.nd resulted in closer monitoring of health care professionals by nonphysicians. Wail Screet's greater role also resulred in more mergers, acquisitions, consolidations, wd spinotfs - the mar- ket's brand of trial and error. FROM BOOM TO BUST By 1997, however, me stock-market boom in health cJ.re co_mpanies was largely over. With a few notable LNEv"'/Lj 3lfD(e) FCp~~6~~19l¿8J 664 exceptions, tor-profit hospital chains, H.'v10s, and physician -practice - manJ.gement companies underper- tanned the soaring stock market. According to Busi- nmWuk's yeJ.r-end tally, J.S of December 11, 1998, the: Standard & Poor's 500 had yielded a totJ.l return of 21.37 percent. whereas mutual funds consisting ()f health care sto..:ks, broJ.dlv defined, hJ.d vidde:d onlv 13.09 percent.!' , A. hna !e:ns reveals an even weaker perrormance: the stocks at' major hospitals, HMOs, and physician- practicc- manageme:nt companies actually declined in value by 23 percent. By contrast, pharmaceutical and biotechnology companie:s recorde:d thÓr usual stwdout perrormance, with their stocks rising by 51 I percent, or about double the stock-market average; the stocks of drug-distribution companies J.fid me:d- icJ.l-dc:vicc compwie:s also be:at the market J.verage. J J.P. ,"1organ illd Company repÇ>rted that between Decembe:r 30, 1989, J.nd December 18, 1998, the shares oftor-praht hospital -:ompanies appreciated at about half the rate of the Standard & Poor's 500.~ with an actual decline in stock values beginning in 1997 and accelerating in 1998. J.P. Morgan now considers hospital stocks undervalued, The: decline: in the value of health care stocks WJ.S me result of several factors. First, competition itsdt: me promised source of greater efficiency and cost containment, intensified to the poim where profit margins were: seriously narrowed. In J.ddition, man- aged-care companie:s illd me government succeeded in holding down payments to hospitals. The biggest pavers - .\kdicare and .\kdicJ..Îd - made serious budget Cuts. The averJ.ge net profit margin of hospitals in 1998 \VJS unchanged trom the previous year, at J.bout 5 per- cent,5 and it could well decline in coming years. The 1997 Balanced Budget Act requires projected Med- iCJ.re expenditures to be: CUt by :5 li5 billion over J period of five years. A.ccording to the Medicare PJyment ..\dvisory Commission,~ the current profit margin tor .'vkdicare inpatients is over 15 percent, sugge:sting that Medicare subsidizes non-Medicare patients J.nd ma.king .'vkdicare payments to hospitals J. ripe: target tor further Cuts. 1:-.' ~;jtry walysts e:,- peet J.dditional CutS of at least S l.O billion, on top of the S 17 billion reduction in projected Medicare hos- pital payments reqwred by the 1997 Balwccd Budg- et ..\ct.ö Some of the private sector's own remedies tor escalating costs, such as ambulatory surgery, home care. and hospice care, have reduced COStS for the svstem as J. whole but have left hospitals with a mon- ey-losing oversupply of beds. In the case of HMOs, pressure from payers to hold the line left most managed-care companies in J. position whae CostS were rising fister than premi- ums. The medical loss ratio - the: pe:rcentage of the premium dollar J.ctually paid out in health care ben- efits - increase:d tor most managed-care companies " ...... HEALTH POLICY REPORT .- " .ll1d eroded profits. COntr:1cts with Medic:lre, a big favorite of the industry in the mid-1990s. in some respects proved toO profit:lble and resulted in a back- L1sh. Widespread "cherry picking" J.nd profircering by the more aggressive HMOs cJ.used Congress to cut the MedicJ.1'e-payment formub, tcading in turn to an industry pullback.7 In addition, sC.ll1dals J.nd disJ.strouS misjudgmcnrs led to the collapse of the stock of some of industrv's most celebrated entrepreneurial companies, such J.S Columbia/HCA.ll1d Oxford Health PlJ.ns. In 199ï, Oxtord recorded $291 million in losses, .ll1d the com- pJ.Ily also predicted losses tor 1998. Its stock, which I rose from $4 J. share in 1993 to :l peJ.k of .$89 J. shJ.re in 199ï, is now trading at J.round S 19. These i setbacks J.nd sC:lodals, in turn. led to stepped-up i regulatory and investigative J.ctivity, which further cut into revenues. Enforcement progrJ.ms such as the Health Care Financing Administration's "'Opa- J.tion Restore Trust" not only resulted in costly fines J.Ild settlements, but also further reduced income by causing hospitJ.!s to divert resources into more in- tensive self-monitoring activities and legJ.! expenses. :\s a result of all these trends, health cJ.re stocks have been transformed from WJ.!1 Street's d:lrlings to WJ.!1 Street's stepchildren. Although the industry h:ls continued its consolidation J.Ild the number of hos- pitJ.!s involved in mergers incre:lSed slightly in 1998, the number of successful deals declincd.~ Since share value is the currency of acquisitions, a declining stock value reduces the capacity to consolidate. HeJ.!th CJ.1'C entrepreneurs arc a1so finding it much more difficult to attract venrure-capita1 investors and to take privately held comp:m.ies public. The fact th:lt the stock market has been booming elsewhere gives venture capitalists plenty of altermtive opportunities. The chief executive of one large, privately held health-services company explained in an interview, "'Venture capitalists expect returns in the 25 to 30 percent rJ.Ilge because of me risk they :lre taking. BeCause of the combination of reimbursement cutbacks, fraud J.Ild abuse investiga- tions, and the cost squeeze of mJ.Ilaged care, returns of that magnitude are just out of the question." Despite mese setbacks, however, this is by no means a st:Ory of Wall Street's embrace and subse- quent abandonment of the health care industry. On the contrarY, even with such high-profile debacks J.S those of Columbia/HCA J.Ild Oxtord, the broad shift of health care from the nonprofit sector to the tor-profit sector shows no sign of a reversal. The market trJ.Ilstormation of what was once a sacred cJ.!ling continues apJ.ce. If anything, as competition intensifies J.Ild profit margins narrow, there is a more intensive search to find protJ.tJ.ble niches. This, in rurn, putS more pressure on clinicians. Indeed, though Wall Street firms J.Ild investors may have had their fingers burned, virtually all the trends that frustrate physicians J.Ild consumers J.!ike are continuing, as a . . " resulr of the stepped-up pressure to contain costs and restore profitability. ....." , ' WALL STREET'S EFFECT ON NONPROFIT ENTERPRlSES In this climate of intensified Cost-containment ef- forts :lnd escal:lting competition. there have Jlso been seraJUs setbacks for many nonprotÏt enterprises. Kai- ser Permaneme, which booked irs first J.nnualloss in 199ï, continued to lose money in 1998, Health In- surance PLin (HIP) of ~ew Jersey, one of the re- maining full-service, prepaid group health plans, found itself overburdened with wholly owned clinics. In November 1997, HIP struck a deal to have a tor- profit partner, Pinnacle Health Enterprises, deliver most of the actuJ.l care tor a fee ot' 91. 5 cents of each premium dollar received by HIP. Bur Pinnacle disas- trously miscJ.!culated the cOStS involved, and both entitic:s went bankrupt, leaving 194,000 New Jersey enrollees in limbo J.Ild physicians and hospitals hold- ing uncollectible debt.9 In Pennsylv:m.ia, a hastily assembled nonprofit con- glomerate of hospitals and medicJ.! schools, the Al· legheny Health Education and Research Foundation, tumbled into a spectaculJ.1' .$1.3 billion bJ.Ilkruptcy after :l lO-year J.cquisition binge. In the first hJ.!f of 1998, 68 percent of Blue Cross-Blue Shield plans lost money on their core operations, according to Weiss Ratings. Throughout 1997, 69 percent. of the plans lost money,tO All these losses provide confir- mation that rrends set in motion by the for·profit sector J.ffect the nonprofit sector as welL Nonprofit HMOs and hospirJ.!s, which rely on debt financing in the bond market, had their bond ratings down- graded, on average, in 1998. TraditionJ.! nonprofit visiting-nurse J.nd home Care agencies have come under increasing competitive pressure tram tor-profit home care agencies. As re· centlyas 1996, home care was seen as a highly prot: itable sector. However, increased competition and Cost-control measures thar include restrictions on re- imbursements have left most agencies with either re- duced earnings or actuJ.! losses. And in this climate, nonprofit and tor-profir agencies alike have had to stretch staff-to-patient rJ.tios. As the social critic Su- zanne Gordon has observed, government regulates the permissible ratio of day-care providers to chil- dren, teachers to students, and even t1ight attendantS to passengers, but not the ratio of nurses or nurses' aides to patiems.ll In 1998, the stOcks of home care companies de- clined on average. The Balanced Budget Act cut a total of 51-1:.3 billion tram Medicare's home care budget tor the next five years. In addition, the act instituted a new prospecti\!e payment system for nursing homes. Medicare and Medicaid together underwrite about three quarters of the costs of the .$86 billion long- term CJ.1'e industry.12 -~\ t> ~ "- Volume 340 ~umber 3 . 665 The ~ew Engl;¡nJ fOllrn.\1 ot' .\kJic:in<: BRL"ISIi'iG LOSSES FOR HMOs sponded by seeking to JmJ.ss market power. Some H.\10s continued to acquire new members J.nd to markets, such ;¡S grcater PhilJdclphiJ., Jre dominated increJ.se their rcvenues in 199ï lnd 1998, bur in bv ;¡s ti.:w 1S two major heJ.lth p!lns. In e;¡stcrn Pl.:nn- most cases, their COStS incre;¡sed fister than their in- s~·I\":).niJ., ,-\em;¡ US He:llthcarc J.nd Bluc Cross to. come. In 1997, HMOs collectively lost 5ïó8 mil- gether control over SO percent of what thc industry lion, whercas in 1996 thev had earned 5700 million c;¡lls '\:overed lives." In such markcts, he;¡lth pbns in protits, lccording to Weiss Ratings.:o For the brst Cln dictatc terms co hospiuls lnd physicians, and J.rc :;IX months of 1998, 5 ì percent of H.\[Os lost mon- thus ;¡blc ro m<1int;¡in tighter control over the use of CV, .lnd the J.venge mcdiol loss r;¡tio c1imbed to sC[\'ices .lnd protect their profit m.lrgins. Jbour 90 percent. This level is lower than th;¡t typi - Elsewhere, where mJ.rkets ;¡re more tÌ":1gmcnted, eJ.lly ;¡nJ.ined by nonprotit HMOs, bur it is much ma.naged-c;¡re compa.nies .lI"e ;¡ggressivcly seeking this toO high to give investoh)\Vned HMOs the net in- sort of consolid;¡tion. However, men: J.re two welk- come they need to cover born J.dministrJ.tive and nesses in this str:ltegy. Manv individu:ll companies underwriting costS and to give investorS the e;¡rnings h;¡ve increased their m;¡rket:;hare by underpricing thev desire. ,-\yer;¡ge H'\lO profits hJ.d t1ucrllated be· I a.nd overpromising in order to enroll consumers. This t\veen ;¡bout 6 ;¡nd 3 percent from 1991 to 1994 pJ.[[ern or' ruinous competition kJ.ds to J. kind of and then plunged to 1 to 2 pacent. In Florida, with price Wlr, in which .llllocal mJ.nJ.ged-c:lre companies its large Medicare population, HMOs operated :It a I try to match or surpass e;¡ch other's price: discipline, slight loss in me nrst six months of 1998.13 a.nd most end up with reduccd profit margins or According to an exh;¡ustive study of the HMO in- losses. In this m.lI"ketplaœ, the rcmporary winners .lI"e dustry, \4 "Sinœ 1994 Hlv[O probtability hJ.s steadily me companies thJ.t limit their costs most severely, ei- declined as revenues per member per month h:lve ther mrough cardul selection of whom they insure fiiled to keep pace with medic:ll expenses per mem· or through stringent man;¡gement of covered care. ber per month. In 1997 only about one third of However, the str:ltegy of acquisition :lnd consoli- HMOs recorded J prorÌt." HMOs hJ.ve f:1ced in- dation at some point runs into possible antitrust creased competition not only from each other but problems. An example is Aetna's proposed takeover also from new hybrids such as physician-owned heJ.lth , of Prudential's health insurance business, which is plans, plans sponsored by hospitals, and pla.ns organ- opposed by medical and consumer groups. At this ized by large businesses that seek to bypJ.ss third- writing, the Justice Department has not yet ex- p;¡rty insurers altogerher. pressed ;¡n opinion on me proposed merger. Hospi- The man;¡ged-care industry's response to this prof· t:l1s n:gulJ.rlv oppose mergers of rivJ.1 health plJ.ns, ~t squeeze hJ.s been twofold. First, the industry hJ.s JUSt as health plJ.ns tend to oppose mergers of hos- sought to clamp down even more tightly on the use pitlls, sinœ ea,h is a bargJ.ining rival of the othcr. of services and on costs. Second, the industry ¡us ' The more markl.:t power J hospital has, the more it sought to gain mJ.rket power over hospitals, doctors, ' can dict;¡te terms of plyment to an insurer. Con' and p;¡yers through consolid;¡tion a.nd :lcquisition. vcrsdy, if an insurer dominates a local mJ.rket, it has Elch or' these trends, however, hJ.s hJ.d uninrcnd· disproportionate power in bargaining over prices ed consequences. By tightening restrictions on ore, with providers. In .-\ugust. :l proposed merger of the industry h;¡s stirpulated a consumer back.lJ.sh. United HeJ.lth CJre Corporation :lnd HumanJ col· which in turn has prompted a regulatory back.IJ.sh. lapsed. Had the dCJ.l gone through, it would have Sever:ll versions of patients' rights legislation were created the nJ.tion·s largest managed-care company. narrowly defeJ.ted in 1998, and the issue is high on Paradoxicallv, despite the intensified drort by both Congress's agenda tor 1999. Judges l1J.ve incre;¡sing- hospitlls Jt'.J ;-:-.J.!-:J.:;c·.i-·:.l:C companies to consoli- ly tended to rule in tavor of the right of whistle· date, entreprenwrs pursuing profits keep inventing blowers to proceed :It least to the: stlge of fulllcgal new insunnce "producrs," and the totJ.l number of discoverv in cases filcd under the False C1J.ims Act. nJ.tionJ.l manJ.ged-ore companies h<1s J.ctually in- In :lddition, the dissatisfaction of consumers Jnd crcast:d, from 5.. ,3 in 1994 to 651 in 1997.l physicians with the limitations of H.\lOs has led For 1999, analysts Jrt: tort:c;¡sting a slight shift in mJ.nv managed-care compJ.nies to turn to prderred- bJ.rgJ.ining power in tJ.yor or insurancc companies provider organizations a.nd network plans that offer JnG. mJ.naged-care plans. The conscnsus is that the consumers a wider choice of doctors and hospitJ.ls plans will succeed in extracting from payers a slightly JS well lS the further option of paying exua tor an higher increase in premiums during the next t\vo Out-or·network I' rovidt:r. This innovation, however, YC:lrs, which (ould moderately improve the profits of has unde:rcut me originJ.l promise of HMOs to pro- maOJ.ged-cJ.re orgJ.nizJ.tions. However, since no res- vide closely imegr;¡ted services and has relaxed some pite is in sight in the dash bcrween, on me one of the very cost controls mJ.t me prepaid group hand, demogr;¡phic md technological trends chat model otfered in the nrst pbce. rJ..Îse COSts a.nd, on the orner, pressures by paycrs to The O1anJ.ged-care industry, as noted, h;¡s J.lso rc- cur costS, the mJ.nJ.gcd-cJ.re industry :lS ;¡ whole is 666 . F~bruHY 15, 19<)() .... HEALTH POLICY REPORT '. ~:... unlikely to be n:srorc.=d [0 robust fiscal health. Con- tlicring prcssurc.=s by consumc.=rs and regulatory .lgen- Òc.=s will only intc:nsify as well. SPECIALTY COMPANIES .-\s H.\[Os .lnd hospitals have seen meir profit mar· 3ins n<lrrowed, entre.:prc.=ne:urs have turned to niche industries. These include ambulatory-surgery com- p.lnies. subspecialty compmies that provide such serv- iccs .lS eye: care, oncologic CJ.rI.:, md cosmetic pbstic I surgery; hospices; hospital-supply wmpanies; .lnd consulting firms. .\ characteristic pJ.nern is tora small entrepn:neur to devise a product thJ.t fills a niche, market the product successfully, md then sell it to a conglomerate: or make a public otfering of stock. For specialty companies, the recent picture has been mixed. Some, such as tor· profit chains provid· ing onwlogic care, have continued to do well nnm- ciilly because managed-care compmies, tor the most part, hJ.ve lacked the nerve.: to dictate protocols to oncologists or to deny treJ.tments to patients with cmcer (the exception being highly expe:rimental and unproved treatment). Investor-owned chains have maximized their income by giving physicians inc¡;:n- tives to pursue patterns of practice mat maximize re- imbursements J.nd by ncgotiating deals with drug wmpanies in exchange tor using particular chemo· mc:rapeutic agents. Since these chains typically en- gage in less research than traditional teaching hospi- tals, they tend to have lower operating costS and hence brge:r profit margins. They also market their services aggressively. By contrJ.st, 1998 was a particularly bad year for companies rhat manage physicians' practices, and many Wall Street analysts expressed skepticism about rhe enrire model. A physician-practice-managemenr company essentially seeks to arbitrage the future val- ue of a physician's practice with its current, presum- ably underpriced, value in the marketplace. In ex- ch:mge tor the income from patie:nt care, the company pays the doctor in the torm of salary, stock, a share: of net income, or all three. By doing what doctors generally do not do well - managing the adminis- trative details of their practices, gaining market pow- er to bargain with managed-care companies, and maximizing cJ.pitauon or fee-far-service reimburse- ment - physician~pracuce-management companies hope ro augment the value of the practice and pock- et me: differenœ. But many doctors do not react well to becoming employees. And the big companies, com- peting to acquire J. larger market share, have appar- ently paid roo much for many physicians' practices. In November 1998, the biggest of the physician- practice - management companies, MedPartners, an- nounced it was quitting the practice-management business to focus on its more profitable pharmaceu- tical subsidiary. Its stock price was down by 79 per- cent from the previous year.l After a planned merger with irs large:st rival, Phycor, tdl rhrough, both com- panies announced quarterly losses. Several smaller , wmpanies, such as PhysIcians Resource.: Group ofDal- las, a manager of eye cJ.re practices, and .\mericaPath of Rivc.=ra BCJ.ch, Florida, .llso experienced severe tÌ- nanÖal setbacks. Doctors Hc:1lth, .1 y[aryland firm that manJ.ges 374 primary care.: physicians' practices in Baltimore and Washington, D.C., hied tor Chapter 11 bankruptcy.l5 Stock analysts report rhat venture capiralisrs are now tiirly skittish J.bout prJ.cticc-man- J.gement companies. PricewaterhouseCoopers calcu- lated that venture cJ.pital tor such companies had soared tram 531 million and 6 deJ.ls in 1996 to 5318 million and 62 deals in 1998, but that such ventures arc expected rode:cline in 1999.16 As noted. the drJ.matic exception to this general trend was pharmaceuriCJ.1 compJ.nies and, to a lesser extent, medical-devie¡; companies. Drug companies benetit both from patent protection and tram federal subsidies tor research. Drug and biotechnology com- panies have continued to attract increasing amounts of venture: capital. Year J.tter year, stocks torrhe in- dustry as a whole ourpertorm the stock-market aver- ages. For the most pJ.rt, rhe drug industry has suc- ceeded in resisting cost controls. Some managed-care compJ.nies have imposed tormularies or insisted on ge:neric substitute.:s, but the so-called research phar- maceutical companies continue to develop new drugs at such a rapid rate that managed-care companies have usually not been able: to deny patients access ro medically benct1Óal new drugs. Instead, they have held down costs by increJ.sing the required copay- ments by patie.:nts and by putting pressure on the rc- tail-drug industry to reduce prices. The pharmaceu- tical industry, thus far, has also successfully resisted attempts by government payers (Medicare and Med- icaid) to require large discounts for bulk purchases. ," \ ( \ :.~/ THE 0 UTLOO K The de:cline in the profitability of investor-owned health care.: companies is likely to continue. For the most part, tor-profit hospitJ.ls that have gOtten into financial difficulty have been sold to other for-profit companies; very ti:w have reverted to nonprofit sta- tus. Though the widespread conversion of nonprofit hospitals to tor-pronr status in rhe mid-1990s has slowed considerably, nonprofir hospitals in finanÓal straitS continue to be acquired by investor-owned chains. (Most components of rhc bankrupt Alle- gheny system, tor example, have been acquired by Tenet.) Likewise, the investor-owned proportion of me managed-care industry continues to increase. Investor-owned nrms are likely to protect their protÌr margins by seeking greater market power and consolidation. Yet these firms are under increasing pressure from government and private payers to cut costs. So although available profits are likely to be the object of intensified bargaining by rival man- "",,' Volum<: 3..0 Numb<:r 8 667 The :--:ew England Journal of Medicine <1ged-c:lfe companies and hospitals, it is hard ro see how profit margins can increase much overall. Para· doxically, even while there arc increasing dIorts ro consolidate, we arc seeing more fragmentation as a result of the search for profitable niches, the effort ro save money through "carve-outs," and <1 shift ro networks rather than stJ.tf or group models of man- Jged care, For more than a decade, "market-driven health care" has been advertised as the salvation of the American health cJ.re system. In the early 1990s, en- trepreneurs succeeded in obtaining the easily avail- J.ble cost savings, at grcJ.t profit to themselves and their investors. By the lare 1990s, however, pressure to prarect profit margins had led to such dubious business strJ.tegies JS the avoidance of sick p<1tients, the excessive micro management of physicians, the worsening of staff-to-patient ratios, and the outright denial of care. In an industrY driven bv investor- owned companies, the original promise of managed care - greater efficiency in the use of available re- sources and greater integration of preventive and treatment services - has otten degenerated into mere avoidance of cost. .AJI these trends, of course, will continue.: to unde.:r- cut the autonomy of physicians and the.: resources available for patient care. Counter-trends are likely to come not from a re:J.ppraisal by Wall Street, much 668 Februuy 25, L999 less a withdrawal, but from renewed demands tor greater quality of care, clinicJl autonomy, and access to resources on the part of physicians, nurses, con- sumers, and their elected reprcsentJ.tives. REFERENCES 1. The r"tersrudv HMO [rend report. 19R7-1997 St. P,,,,!. ~Ii"n.. [",cr' srudv. .\uguS[ 199M. Z. Ho.pital sUt. 1996·l997 "d. Chicago: .-\mert"an Ho.<p"al ,\..<oCla[¡On. 1997 3. .\ wide range in fund rerurn.. BUSlnessWeek. December 28. 1998:l56. 4. Ho.pital management compan,... New York: r.P. .'vlorgan &: Cu.. ¡anu· WI 11, 1999. 5. Blecher .\-13. Even rIghter time.. Ho.p Health Ne[Worlu 1998;i:!( 23- 24):13. 6. Ho.p"aI. fear additlOna! .\-Icdicare trim.. Modern HeahhcJXe. January 4. 1997:3. 7. rear R. HMO, ;Ire n:uo"ing from ~Iedicare. ..:iring ~igh ",,,t>. ","ew York Time>. Qember~. 1998:.-\10. 8. A year of more and Ie.... .Modorn Healtheare. January ll. 1999:-I,8. 9. ","ew ¡e"'Of rcgulamn prepare tor talœover of tinaneia.lly troubled HII'. BNNs .'vbnaFd C= R.:porter. November 4.1998:1086. 10. Nearly 60 percenr of HMO. Iou money in 1991. Palm Beach Garden., Fla.: Woiss Ratings. .\uguu 31. 1998. 11. Gordon S. UntÔlirtv r~eti"g R....s. Bo.ton Globe. January 8. 1999. 12. H~ugh R. ['ay da¡;e. Ho.p Health NetwOrks 1998;72(23·24):32·4. 13. Florida. H.\10s barely brcair "von in 1998 due to ..:ontinucd ..:omp.tI- con. rising eom. BNA's ~I;¡naged C= R.:porter. December 30. 1998: I;!5 L 14. HMO induury report 8.2. rart [I. St. ['aul, .Minn.: rnu'r>tuuy.Oem- ber [998:59.h15. .~Iore ['r~h hir by tirunClal bad neW,. .\lode," Healthcare. ",,,vember 30. 199t!:6. 16. Hud.on T. Capital ..:ri.i.. Ho.p Hcalth Ne[Works 1998;72(23·24):30. C)1999. .'vla.s..aehwcm .\-Iedid Society. TIl<.: :'-i<.:w En:;l.\nJ ¡ourn.1i of ~1<.:JI(:n<.: I i L[ 11 : .J.. _ I~a. tI1 L-_.. P,)liçy R"port THE A.'v1ERlCAN HE'AL TH CARE S YSTE.\-1 Physicians and th~ Changing Medic:u Marketplace I THOMASI80DENHEIMER. M.D. :.-- As m<.: 20m century dos<.:s, me pral:tÙ.:e of mcrJ- ¡cim:: in the United StJ.tes faces chalknges as great J.s it ever hJ.S. On the one hJ.nd. med- icJ...! scit;nce .lnd technology h.lve brought unimagin- J.bk bendì.ts to th<.: AmericJ.n population. On the other h.lnd, these advances have contributed m the esc:l1ation of heJ...!th c.lre costS above wh:lt many peo~ plc .If(~ :lblc to pay. Physicians .ll'e caught in the middl<.: - pressured by private J.I1d gov<.:rnmentJl purchasers of heJ.lth C.ll'e co keep (OStS down, while driven by th<.: public .lnd their own proti.::ssionJ.1 stJ.nd.lrds to do everything that might be bendìcd for each patient. In me 1980s, employers and governments chose mJ.nagcd carc as the prdi.::rrcd vehide for cost con- t.linment. By the mid -1990s, physicians and patients J...!ike were resisting the sh.lcldcs that rTun:lged (arc J.ppe:.1red to have placed on them. ::-.Iearly 70 percent of 6000physici:.1ns in 22 markcts survcyed in 1998 (h:.1rJ.cterized themselves .lS .lgJ.inst m:.1naged care. Forty-six percent said th:.1t thçy "often think about leaving clinic.lI practicc."l .\Üny physicians see themsdv<.:s J.S <.:ngaged in J. power struggk with mJ.nJ.gçd~(J.re plans. Lntil rc- (emly, most observcr:;' picked m.lnaged (:.1re as the winner. A majority of Americans were enrolled in heJ...!th mJ.intenJ.nce organiZJ.tions (HMOs) or pre- ferred-providcr orgJ.niZJ.tions ,PPOs). .\ibnaged care was given credit tor the slowing of intlation in hc;J...!th ClI"e costs from 1993 to 199ï. The growth in physi- cÎJ.ns' .lVerage annual net incomes dropped from ì. 2 percent tor the period from 1986 through 1992 to 1.7 p<::rcent for 1993 through 1996." The stocks of tor-profit H.\-10s scored big on WJ.ll Saeet. In th<:: past two Y<::.ll'S, J. revers:.11 has uken pbce. Only one mird of HMOs recorded J. profit in 1997' The VJ.lue of HMO stocks has tumbled. Some::: H.'vl0s have scurried J.WJ.Y from less profitable mar· kets. He::::tlth care COStS threaten to rise J.gain,4 erod- ing (he confidence of purchase:::rs dlJ.t commerciJ.1 mJ.naged C:lre is the::: J.I1swer. The public and mem- bers of the me:::dicJl protcssion .ll'e deffia.nding that kgislarors regubte mJ.naged~care pbns. The control exerciss.d by mmJ.ged care over clinical decisions IS LN£Jll~;/O(7 ) 584 February PI, 1999 ? :rlðL/ - s8f: ] \ve.lkenin~. .~s enrollmenc in rpo~ hJ.s surged. the proporti<;n at' brge ¡;mployers' \....orkers wh(; :lre c;n· rolled in H.\10s Ius dropped, trom 33 percent in 199ï to 30 perccnc in 1998.; Suddenly, the OUt· come of the wncest between physicians .ll1d man- aged-cJ.re pbns is uncertain. In ú\.1is report, [ will discuss me incerJ.ction between physicÙns .illd manJ.ged OIe in rdation 1:0 five topics: plwsiuam' urganizations. methods of comp<.:nsating phvsiclans, the amount of time physicians spend wim patlents, me rel.ltions betw<.:en primary cJ.re pro- viders ,Ind specialists, ,Ind the phvsiciJ.n work torce. b thl: pendulum swinging .l\VJ.y tram saingent cost cooaol .lnd me dominJ.nce at' heJ.lth pbns? PHYSICL\:-JS' ORG.-\:-JIZATIONS .\ilanaged C.ll'e has spJ.wned J. bewildering variety of organizations within which physicians work, indud-' ing independent prJ.ctice associJ.tions (IPAs), intc:~ gnred medicJ.I groups, compJ.ni<::s mat manage: phy- sicians' practices, phvsiciJ.n - hospital org:lnizations, and group- and stJ.tf·modd H.\10s. ¡PAs For severJl rcJ.SOns, [P~-\.> .1re me most num<.:rous of physicians' managed-care orgJ.nizJ.uons. By contrJ.ct- ! ing with IPAs mJ.t comprise hundrcds of physicians, H.'v[Os can cheJ.ply creJ.te networks of physicians. As \oosdy knit groups of sdf-<.::mployed physicians, [PAs allow physiciJ.ns to obtalO contrJ.cts with HMOs without mJ.king substantiJ.! ch:.1!1ges in meir prJ.cticcs. Physicians remJ.in in their offices. caring tor people enrolled in sevcral H.\ilOs .lnd PPOs J.S well as thc:ir non - mJ.nJ.ged ~CJ.re pati<.::nts. IPAs come in mJ.ny shap<:s .lnd sizes. Those on the West COJ.st often receive .1 per-member (cJ.pitation) pavment eJ.ch month tram an H.\il0 and cJ.n be held financially r<:sponsiblc t'or most nonhospitJ.1 ex- penditures. H.\il0s often ddegJ.te to these risk·b<:ar· ing IP~'\s the responsibility to conduct utilizJ.tion reo view, the credenrialing of physiciJ.ns, :lnd quality improvemenr anJ co decidc on physiciJ.I1s' çompen~ sation. In (ontrast, on the EJ.st Coast, some IPAs are nothing more thJ.n pands of physicians with which H.\lOs conaJ,(t and that hJ.ye link orgJ.Oizational structure. .-\5 r.t1ese non - risk-bearing .lssocÎJ.tions ma- ture. they can gr.lduJ.llv b<.: ddegJted responsibility tor credenriJ.ling, utiliZJ.tion revie".v, and quality J.S~ 5urJ.l1C¡; J.I1d C.ill b<:gin co J.ssume rìnam:ial risk. West Coast and East Coast IPAs are not distinct modds bur insteJ.d cJ.n be considered poles of a continuum (OswJ.ld ::-.I, ;.¡ ationJ...! Ir~\ Coalition: personal com- munication). IPAs have surprised pundits who previously viewed them as a temporarv step on the road to more co- hesive organizations of physiciJ.ns. However, because of deffiJ.Od from consumers who prefer to choose among lJ.!'ge net\vorks of physicians, IPAs arc grow~ HEALTH POLICY REPORT - :1 ~ Ii ing tastc:r than othl:[ physicians' org;mizJ.rions. The proportion of H.\-lO enroUees who participJ.te in IP.'\s increased from 19 percent in 1984 to 42 percent in 1997.h Rcccndy, many IPAs have fallen on hard times. Rates of capitation from HMOs have tJllen, while paoems' dem;mds tor services have climbed. IP.,\:¡ tend co distribute their income to their physicians rather than build up large reserves to cover long-term fi- n.1flcial losses. Several IPAs have tà.ikd, and others tJ.ce serious operating deficits.7 Medical Groups Medical groups J.re medium-sized or large multi- specialty group practices of which physicians are em- ployees or employe(>O\vners. In 1980, there were 14,1 IJ.rge mu!tispecialty groups (each including 50 or more physicians), with a total of 23,000 physicians; in 1996, these numbers had increased to 387 groups, with 69,000 physicians..~ Sixty-four percent of large medicJl groups are owned by physicians, 9 percent by hospitals, 17 percent by universities, and 10 per- cent by other entitics.9 Two generations of groups populate.: the medicJ.! bndscJ.pe: older, often prestigious institutions such :l5 the .\-byo Clinic in Minnesota, the Cleveland Clinic in Ohio, and the Ochsner Clinic in LouisianJ., and neW groups, such as southern California's Health- Care Partners Medical Group and Friendly Hills Healthcare Network, which originated within the milieu of managed care. In the torrid marketplace of southern California in the 19805, several medicJ.l groups provided huge incomes for their physicians by negotiating capitation J.nd risk-sharing agreements with HMOs J.nd by reducing c:~pe:1d.itures through right control on the use of hospital services.lo The golden days of California's medical groups came to an end during the 19905. Calitornia's em- ployers ratcheted down the premiums they paid to HMOs, and HMOs, in turn, reduced capitJ.uon pay- ments to mediCJ.l groups. To preserve their ability to negotiate: with H.\-10s from a position of strength, medical groups believed they had co grow. Most sold their assets to hospital systems or to investor-owned physician-practice-management companies. Although some of tr.e phvsicians who led the groups earned b::;c so.;¡r.~ or' money from tht:sc saks, the ave:age physician W:lS confronted with new corpor:lœ owners, whose eyes were often turned toward 'W;¡il Street. Physician-Practice-Management Companies PhysiciaI1-practice-managemem companies are for-profit companies that own or manage physici:lns' practices and opaatc in multiple markets. Over the past few ye:lrs, these entities, such as MedParcners, FPA Medical Management, and PhyCor, have grown rapidly, purchasing physici;ms' offices, medical groups, and IP.\s. Physicians ;md medical groups can sell their assets to physiciJ.n-practiCl>manJ.gement com- panies tor cash or stock or can ..-::ontract with them to obtain HMO contracts J.nd mJ.nagement services (e.g., billing, purchJ.sing of supplies, personnel man- J.gement, and intormJ.tion systems). Many physi- ciJ.n-practice-m;magement ..:ompanies otfer only sin- , gle-specia!ty care J.nd make their specialty services J.vailablc to HMOs, PPOs, [P.'\:¡. employers, J.nd hos- pitals. Others J.re multispecia!ty ..:ompanies that con- tract with payers to provide ;¡il clinical services.l1 In 1997,110,000 doctors were affiliated with these companjes.l1 [n 1998, two of the three large, multispecialty physician-practice-management companies coUapsed, leaving thousands of doctors scrambling to rebuild their practices. In July, FPA Medical Management declared bankruptcy; it currently owes CJ..!itornia physicians $60 million. [n November, MedPartners pulled out of practice management; its 10,000 atñl· iaced physici;ms may choose to buy back their prac- tices from MedParcners, allow their practices to be sold to a hospital or other buyer, or begin their C:lfeers J.new.13 Some physicians who had sold their practices to a physician-practice-managemem company tor 5300,000 J.re now unJ.blc to buy the practices back ;md arc left without office statf, cquipment, or money owed to them for previous savices rendered. Those who received stock in a physician-practice-manage- ment company rather than cash fared even worse; the value of MedPartners stock fell from $28 to $2 per share, the value of FPA stock from 540 to 51, and the value of PhyCor stock from $33 to 57. {~~. .. ..r f. , . Physician-Hospital Organb.:ations Hospitals may form physician-hospital organiza- tions to contract with HMOs and pros on behalf of both their own institutions and physicians. In ad- dition, many hospitals have purchased physicians' practices outright, although hospitals have been losing J. median of 547,000 per physician per year by doing SO.l4 By forming physici;m - hospital organizations or acquiring practices, hospitals are J.ttempting to en- hance the loyalty of their medical statTs and thereby improve or protect their market share. About one third of medical practices with three or more physi- cians participJ.te in a physician - hospital organization tor the care of at least some of their patients.? Many physician-hospital organizations, having an excess of specialists ;md J.11 incentive to kee::p hospital beds filled, have high medical cOStS and are financially troubled. Yet these:: organizations are growing in some areas of the country and may succeed in torming provider-sponsored org;mizations that contract di- rectly with employers and with Medicare. Group-Model and Staff-Model HMOs . Group-model and staff-model HMOs are a vener- able form of physicians' organization but have recendy ~ I '. Volumt: 340 Number ì . 585 ---,_._"~--.~ Thc ;-'¡cw En~L\nJ f'JlHn,d of .'v\cdl~inc c\pcri\:nœJ 'itJgIution in pJtient enrollment. In group-model H.\[()s such JS KJiscr PermJnente, JO H.\[O contrJ.cts with OOe or more i!1tegrJ.ccd medi- c,lÌ groups [Jthcr d1Jn \vith J diffuse network of phy- '1(I.\m, StJtf.model H.\-[Os hire phvsicÌJns directly. :\" :1C'.V gC1crJtiu!1 ufsutf-mndel H.\[Os mrb<.:cd dur- ill';; rhc p,m dcoJc whcn PrudcntiJl. CIG::-:.-\, .-\etIu. HUr11.\t1J, Jnd other E-L\[Os hired phvsiciJns JS em- piu\·e¡;s. .\[ust ¡un: )uld utl' th\:se stJtfmodel effort:s ,\S :ìn.lI1cÌJI tiilures. .\kdPJrtners buught. Jod is now sdling, 'iome of th<.:s<.: sutl'-modd or¡pnizJ.tions, Individual Practices and Small Group Practices ,-\ccording to the c(onomist bmes Robimon, ...\ kdi<.:J.1 g:oups Jnd phvsicÌJn net\vorks - th<.: :1e,lrt or' the mJ!1Jl!;eJ (Jrc s\"Stcm - Jrc trJ.t.dk Jnd rÌn.\nciJily vti!ncrJ.t:'Ie. ['rJct;cc [\:wnw.;s Jr\:- dedin- ins :\S costs ris<.:, . . . .\bny phvsicÌJn org:mizJ.tions Jre bleeding red ink Jt precisely th<.: time wh<.:n th<.:y rice th<.:ir greJtest nœd fÒr cJ.pitJ.l investments,"ll These risk-Jssuming org;lI1izJtions receive much J.t- tention. even though 65 percent ofself.cmployed phy- siciJ.ns prJ.(tice in the SJme typ<.: of sm<lll ot1ìce (ti;wcr dun tÒur physicÌJns) occupi<.:d by physicÜns 10 Y<':J.rs Jgo. ¡, :\in<.:tv-two percent of physicÙns luv<.: Jt !c<lst one contrJ.ct with J mJ.nJ.ged-cJ.re pl<ln,lò but in most rCl!;ions of the country theSe contr;1cts come directly tr(;m th<.: HMO or pro or arc routed through ~ looselv knit EPA Jnd thus shitt link risk to the phy- sic!Jn. Th\: stJ.ving pow<.:r of privJ.t<.: physiciJns' omc· es contrasts with th<.: turmoii of physiciJns' orgJ.l1l- LJ.tiol1s thelt b<':elr risk. METHODS OF COMPENSATING PHYSICIANS During the cJ.rly <lnd mid-1990s, t(;<.:-tor-service lJ:lvm<.:nrs sc<.:med to be giving wJ.Y to cJ.pitJ.tion or sJ.hri<.:s, pJrticubrly in prim<lry CJr<.: settings. .-\<..:cord- mg to J numb<.:r of ob~rv<.:rs of m<.:dicJ.l prJ.cticc, cJ.pitJ.tion pe<lk<.:d in 199~ JS J m<.:d1J.nism of pJ.ym<.:nr ot' primJ.rY Clr<.: physicians, Jt l<.:J.st in urbJ.n J.reJ.s. Th<.: proportion of physicians' revenu<.:s received trom cJ.p- luted contocts dropp<.:d from ~...¡, p<.:rc<.:nr in 1996 to 7.0 percent in 19971"l~ Th<.: stJ.ndard mJ.nag<.:d- c.;";:;; tormuh - capiution to pri:TIJ.[\· (.lre physicÎ<lns lod tee- tor-servicc to sp<,:cÌJ.lists - hJS b<.:<.:n reve;:rsed b\' 1 numb<.:r of HMOs J.nd IPAs. PrimJ.rv cJ.n: Dhv- s(ciJns otten r<.:cciv<.: discount<.:d f<.:<.:-tor-se·rviœ c'on~- p<,:oS.1tion. .mil sp<.:ciJ..lists ar<.: incr<'::1Sinu:lv being com- p<.:nsan:d by clpitJ.tion. Since [Wice ;s· mJ.ny ~heJ.lth un: dolbrs Jre consumed in speciJ..lty cJ.re JS in lxi- mary cJ.r<.:, compens;:lting specÎ<llists by capitJ.tion has wnsidaJbl<.: potentiJI to reduce COSts, [n contrast, tt:e- tor-savice p<lvm<.:nt to primJry care physiciws mJ.Y S<lve money tor HMOs; in mJ.rkets in which cJ.pit.ltion P.lV!TIcnts Jre J!TIple, physicÎ<lns p<lid by cJ.pitJ.tion Cln elrn mor<.: p<.:r Jv<.:rJ.g<.: pJ.ti<.:nr visit thw those who I -1[<': reimbursed on J. discounted tc<.:·tOr-s<.:rvice b;:lsÎs. 586 . F~brllHV l~, 19')') M.my HMOs Jnd [P:\s luve rcli<.:d on bonus in- œntive pJyments to [educt th<.: usc by primJ.ry cJ.r<.: physiciws ot' speciJ.Jry, Jncilbry, lnd hospiui s<.:rvices. In 1993, 5ï pcrc<.:nt of primJ.ry Clre physiciJ.ns in mJn<lgeJ-care orgJ.nizations in CJlit()rniJ reported teeling pressun:d to limit r<.:tàrals.l~ Lately, lJ.rg<.: bo- I1LlSeS contingent on [hc r<.:striction of s<.:rvices hJv<.: com<.: L1nd<.:r J.rtlck trom phvsicÎ<lIls .lI1li the public. A m:nd Ius cm<.:rg<.:d to ti<.: bonus pJymcnts not only to low-cost CJ.r<.:, but JIso m m<':<lsur<.:s of th<.: qUJ.lity of cJ.r<.: Jnd p<lti<.:nr s<ltistJction, THv1E SPE:-IT BY PHYSICIANS WITH PATIE:-ITS Ev<.:n JS inœmives to r<.:strict J.cœss m cJ.re m<lV b<.: ckdining in importJI1<':<':, the pr\:ssur<.: to lI1<.:re;1se pro- ductivity appeJ.rs r<.:knrkss. From 194:3 to 1935, th<.: durJ.tion of the JverJ.ge visit to :1 physici<lJÙ office ti;!1 trom 26 to lÏ minut<.:sY)·~1I Among timily prJ.ctition- ers, th<.: aV<.:rJ.ge visit in 1935 bst<.:d 14 minutes.~n \V11eth<.:r or not there l1<1ve rec<.:ndy b<.:i.:n lJ.rge reduc- tions in the tim<.: physici<lns sp<.:nd with patients, 75 perccnt of primary CJ.re physicÜns in m<ln<lged-cJre prlctiœs in CJiit()rni.l r<.:ported pr<.:ssure to s<.:e mm<.: pJ.ti<.:nts p<.:r dJ.y.l~ Th<.: shortening of p<lti<.:nrs' visits Ius consequences in terms of physiciJ.n-pati<.:nr relations. In one sur- v<.:y, half of the pJti<.:nts report<.:d h<lving left their physiciJ.n's office not knowing; wlut they hJ.d been told or wlut th<.:y w<.:r<.: suppos<.:d to dO.21 Ldtèr writes, "Th<.: on<.:<.:-Iullow<.:d doctor/patient rebtion- ship hJ.s be<.:n r<.:duœd to mere sound biti.:s <':x- ! changçJ durin~ hurri<.:d uftìcc visits, and th<.:rapeutic ! words of empJthy [1;1V<.: b<.:<.:n replJced with l'rozJ.c scrips."H Ameri<.:J.l1s m<ld<.: 619 million visi[s to Jlt<.:r· nJtiv<.:-m<.:dicin<.: prJ.ctition<.:rs in 199ï, .1 number <.:x- œ<.:ding thi.: to[Jl number of visits to primJry cJ.re physiciJ!1S, lJ The growing popubrity of Jlterl1<ltive he<lkrs m<ly b<.: rebted to th<.:ir spending J.d<.:quate <lmounts of tim<.: with th<.:ir pJti<.:nrs, l4 RELATIOi'oI BETWEEi'oI PRIMARY CARE AND SPECIALIST PHYSICIANS [r, the bte 19ïOs, H..\[Os ~nit:ated .\ gltek<.:<.:p<.:r sys- tem thJ.t reqwr<.:d pJti<.::m to ()btain authorizJtion trom [heir primJry Clre physicÌ<lns to ~Çlin J.cc<,:ss to , providers of JÜgnostic eVJ.luJ.tions ,md specialty car<.:. Often, primJrv c;:lre physiciJ.ns could grJ.J1t such JU- thoriZJtion only by first obtaining JpprovJ..l from the HMO, B<lrri<.:rs to specialt'., (J.re hJ.v<.: been a promi- nenr subjec[ of compbint by Pltienrs regJ.rding m.ln<lged cJ.rc. In response to the diss.ltisbction of consumers <lod physiciJ.!1S, mJ.ny mJ.n<lged-cJ.re orgJ.nizations hJ.vc initÎJ.ted open KCCSS to spccÌ<llry CJr<.:, Jbolishing the gJ.tekeep<:r system. Op<:n 1CCCSS to speciJ.lists could increJ.se costS to HMOs, [PAs. and medicJ.1 groups "~. < ,.j¡. J,,'\ '. " HEALTH POLICY REPORT .:.... by .m estimated:; percent.:s not .1 small .lmount for IP.\s .lnd medic).l groups on the edgt: of insolvency. Evt:n without the gJtåeepcr system, primJry (arc physicÜns :md spt:cialists may rem.1in in cant1ict b\> -:.1us<.: spcnding by m.1n.1gcd·(.1re arganiz.1tions on medic.11 C.1re is orten limited by fixed budgets. If one "roup of physicians reœives more mon<.:y, ,mother must recei\'e less. .\s .1 result, m.lny specialists .U'e join- mg singk·speei.1lty orgJnizJtions, ..:reating monopo- lies for specÎ.llists' services within regional markets .1nd gaining .l bettèr price for thcir saviccs. To what ckgn:..: such spccialty "eJrve-outS" will disrupt or- g.1niz.1tions th;J.t provid..: compreh..:nsiv..: (arc remJins co b..: sccn. THE PHYSICIAN WORK FORCE Of the ï38,()()O physicians in the United States in 1996,600,000 (81 pt:rcent) wt:re engaged in pJtient (arc, Of these, almost 70 percent were specialist5."6 By me year :WOO, the number of physicians c:J.ring for p.1tic:ntS will have increased to 203 per 100,000 pop- ulation, as compared with 115 per 100,000 in 1970."7 This growth in tht: physiciJIHO-popul:1tion ratio is .1ttriburJblc to increased numbers of specialists."'" Evidence that there is :111 oversupply of physicians, parti..:ubrly sp..:cÎalists, is suong."~ Mort:aver, physi- cian's assistants and JdvJn..:.:-prJ..:tice nurses Jre ex- pt:eted to number 168,000 in the ye:lr 2005, further rt:ducing the need tor physiciJns."9 In 1996, sub· st:lntial percent:lges of gr;.1.duarcs of residency :lnd subspecialty progr;.1.ms reponed difficulty obtaining cmploymcnt: 56 percent of those in pulmonary and -:ritical care medicine, 47 pt:rcent in :lnesthesiology, -!-! percent in g:lstro<.:nterology, 41 percent in oph- thalmology, 24 percent in general surgery, 23 per- cent in intern;li medicine, :lnd 7 percent in f:lmily pr:lc- tice.30 Extrapolating from data on st;J.ffing :It the Kaiser He:llth Plan, Weiner suggestt:d in 1994 that i only 112 physicians per 100,000 population would be nt:edecl in the ye:lr 2000, r:lther man tht: 203 pa 100,000 projccccd to be pr:lcticing at th:lt timt:; he tort:cast that there would be a tot:ll surplus of 165.000 physicÎ:1ns in 2000.3\ A more commonly lcccpted estimate is that given by me Council on Gradu:ltt: Medical Education, which propost:d that 60 (Q 80 gener:llists and 85 to 105 spe..:i;.1.lim (a tot;li of 145 to 185 physicians) pt:r 100,000 population would be nt:eded by 2000.31 Though m.1ny geogr:1phic areas h:lve surpluses of physicians, rur:ll :lre;.1.S - where 20 percent of the population livt:s - :lre served by only 9 pacent of the nation's physll.:ÍJns. Inner cities are simil:J.rly un- d..:rservedY' Although minority-group physicians :lre more likely than white physicians to care for under- served populations,33 only 12 percent of medic;li stu" dents :lre from the undcrrepresenœd minority groups (bl:1cks, i\kxican Americans, mainland Puerto Ricans, and Amt:rican Indians) th:lt make up 24 percent of the popul.ltion. B..:tween 1996 .1nd 1997, tht: num· bt:r of members of underrepresented minorities en- tering medical schools d..:clined by 7 pacenr.H How docs the surplus of physici:lns relate to tht: issut:s concerning mJnagcd Clre: First, if enrollmt:nt in HMOs, p:lrtÍ<.:ubrly in group- or st;.1.ff-modd H.\itOs, grows slowly, perhaps the projection of the net:d tor physicÍJns offered by th..: Council on Gr:ld· U.1te Mcdical Education, 185 pt:r 100.000 popul:1- tion, will turn our (Q be more re:llistic th:ln lower es· timJtcs. Second, the observation that physicians spend less rimt: with patients is not consistent with the inl.:rease in [ht: physician-to-popubrion r:ltio. A gre;.1.tt:r number of dinicÍJns would bt: expt:cced to mt:;.1.n th;J.t thost: dinicians were lcss busy. Yet in mJny practiœs. paticnts wait davs or weeks to get .1ppointments - .1 pcculiJr phenomenon in an er:l with .1 physicÍJn surplus. In a rect:nt survey, 60 per· cent of specialists and 70 percent of primary C:lre physici:lns said they did not perceive that there is a glut of physicians. 3S This par:ldox hJS no clear expla- n:ltion and should be a topic for furtha rese:lrch. .. ;' WHAT NOW? The h.tturt: is unsettled. For the past few ye:lrs, premiums pJid to health piJ.ns have bardy incrt:ased, whereas m:lnaged-c:lre org;.1.niz:ltions' t::<pcndirures, p;J.rticularly tor drugs, have grown. Perhaps tor the next tcw ye:lrs, premiums will incrt::lse, HMOs and physici:1n oqpniz;.1.tions will prosper, and the man- aged-c:lre mJrkt:tpl:1œ will stabilize. But perhaps not. Employers .1nd governments may balk :It p:lying more, and their resisunce m;.1.V t:ventuallv cause commercial manJged (arc to tàd~ away..,^·J7 . Physi..:ians' rcsistanœ to man:lged care will prob:l- blv continue.. ~ The Americ:ln Medic:ll Associ:ltion advocates an end to cmployment-bascd health insur- Jncc :lnd suppOrtS tht: implcmcnt:ltion of mt:dical savings al.:counts .1S :In J.ltern:lrivt: to m:ln:lged carc. Howevt:r, tht: :lssociation no longt:r sp<.:aks tor the t:ntire medic:ll prorcssion; only 43 percent of physi- cians tod:lY :lre mt:mbers, as comp;.1.n:d wim 82 pt:r· cent in 1962. Somt: physicians' org:lniz:ltions may lttemp~ to t:s- tablish physician-run managed-c:J.re plans by opting to particip:lte in programs such as .\'kdieare -;.. Choice. The fisl.::1.1 colbpse of physici:ln - run he:llth pbns such as the Calitornia .\'kctic;li Associ;.1.tion's Calitorrua Ad- vant:lge plan poses doubts .1bout wht:mer physician- run org:lniz:ltions can sucCt:t:d without :ldopting managed c:lre's cost-control mech:lnisms. Some physicians m:lY refuse to contr:lct with m:ln- Jged-care plans. Othc::rs will not kt he;lim pbns dic· t:lte tht: terms of mt:ir man:lged-c:lre contr:lctsj 400 physicians in Dalbs rt:cently terminatt:d meir con- tr:lcts with :\ema's HMO. About 20,000 physician- employees, many working in government institutions, h:lvC joined unions. { Volume 340 :--iumber ï . 587 ; I I The New England TournaI of MeJiçine Even if commercial managed care tJils, the medical protcssion will not return to its sratus betùn: man· aged care. The number of physicians in practice who J.re employees jumped from 24 percent in 1983 to 43 percem in 1997,16 signaling :10 alteration in prac- tiLc parrcrns. A number of physician leaders wish ro build on the successc::s of managed care - berrer pre- ventive serviccs J.nd the melding of physicians into clinician-run groups orienœd toward high-quality Clfe. The necessity For physicians to practiœ in J.n c::nvironment of fixed budgets is unlikely to change. The contIict bctwec::n the potential of medical sci· ence J.nd the reality of limited dollars is permanent. REFERENCES 1. The ['In .vkd Sto< Ql,laJity CaralY'f Physi<lan SmdY. .-\nn .~b",. .\lich.: .\kd S"r Grol,lp. [9<iX. 2. Levir K. Cow,n C. ßr'den ß, Sriller I, Sensenig :\. Lazenby H. Sa- rinnal healch expendirures In 1997: mure slow growfh. Health .-\Jf(.Vlill· wnoJ) 19<18;17(6):99·[lO. 3. H.vIO Induscry repo~ 8.1. Minneapolis: In<<rSrudy Publicatlons. 1998. 4. Freudenheim .VI. Emplovees f,cin!! 'teep incn:=s in healrh "o,c.. Sew York Times. Sovember 17. 1998:1. 5. Freude"heim .'01. (Loosely) mana!!ed can: IS in demand. Sew Yurk Times. Seprember 19, 1998;CI. 6. Enrnllme"f mnCml,le' [Q dimb :u HMOs olfer Ie", re,trlctlve pia",. Dig Managed Care 1998;1(9):10·3. 7. Hagland .vl. When [PAs toil. Calif :Vied 1997;8(7):30.~ó, 8. vtedieal "roup prac"ce, i" rhc US. [')99 cd. (I,iClI¡O: .-\nle[1can .vkd· leal .-\>.sodation, [999. 9. Medical group, i" the US. 1996 ed. Chicago: Amen"n .Vledi,,! .-\s.so. Òac;on, [996. 10. Room."" Ie, C...",lin" LP. 11,e grnwth "f medieal group' paid chrough eap;cari"" in California. N Engl I Med [995;333:16M.7 11. Rob;n,on Ie. FinanÒal capital and intellectual "aplc,l in phYSIcian pracoee management. Healch AJf(,"lillwood) 1998;lÏ(~);53.7~. 12. Gilbm.n M. Practice manage... go t'rnm boom", bU'f. PllVSldJnO< Fi· n,nÓal Sew,. Sovember [5, [9911:1.36-7 13. TokarskI C. Doc",,, weigh "pcio", wirh McdPlrtne,,' ",it. .-\merJcln .\;ledi,,! :--.'ews. December 7, 199X:!, 311, 14. B"norf .\1, Dubow SF rmprn";"g thc ¡¡nandal pert'>rm.nce' oÎ (OS. owned pf1YSleiJ" prac\\ccs. He.ltheare Fi".ndal .\tanal¡eme"[. AUgllSc [998:38·~0. 15. PhYSldan markerplace ,ur;";,,, 1997/98. Chicago: ;\merICJn .\ledical ,\5S0ClJtion, ¡99X. 16. SOClocconomle characceri";,,, of medical praericc 1997/9/1, ChieJgo: :\.mcric.:an :VkJi~;¡J .-uso¡,,:iation. 1 ytJX, 588 ¡:"bruJ.rY Ii!, [<)<)<) ......... 17. PhvSlcIan marke!pllce ,ta"'''e. 199ó, Cincago: .\mer;can .\;\Cdieal As- \ocij,[ion, 199ï. 18. Grumbach K. O'mo"d D. Vran\zan K, fllfe D. l1indm,n .-\JI. Pnmarv cJ.rc plw~u':l.1ns· expericnce ()ftin.1nÖ¡¡i in(cnuv~s In mJni1~cd-¡,;.1rc .sy:s.tcms. N E"I¡I I .\;led [9911;339:l510·21. 19. ¡':in~cr .\L. RL:rlc:t:tlons 00 rhc 'inUfq('.l Jm;tor\ lite: from the ·~O~ in rhe ';;0,. vied Econ [<)911;75'101:170·110 20. The N,monal .-\mbul.[()rv .vledical elfe "urvev. Series l3. No. 93. H\'~¡t[svtllc. ~\J.. :--¡J,[lonal C.:nU::f ~i>i £-k:J.irh :->{,1[:~[1~:'i. l ~~X. 21. [)1.\LHtco .\tR. The rok !If r.:hc ¡''JhV'\IG.1n :n :hc t.:mcrgin~ !1c:1.Jrh ":.1rc t:n'l."1rf>nmcnf. \VCS( r ,'vled t 9~X:lóX:31~-3.~. 22. LLIÚ:r J. ."Ì..IV j pr::¡.vc::- tc)r hcajth (i1rc:\ :\.Hun::. Hospi[J.1s & Ht;~r:h ~kt- works. Jul..... ;). ItJ9S:.'t:·-t_ 23. S¡,e"bcrl¡ 01,,1. DavIS R.ß. Etrner SL. .;t .11. Tre"d, In llrctl1..ive med· Il.;mC ~15C in (he Coned Su[e::, 1990 ~ 1 Y()i: :-CSUh:5 of .1 rollow'\Jp nJ.fion3.~ mr-'ev. IA.\tA [Y911;180:1569·7'i. 24. Dclbanco T. Lceche" 'plde..., ""d """'Iogy: predilec!io'" lnd predic· tlons, fA:VI.-\ [99~:230:1560·1. 25. W.,lker L. [s rhe ~..ckceper , Jving brecd~ Bus HeaI[h 1<)<.111; 16( 11:30·6. 26. (u,fnun r. .vtorrz E, Pew Heajch Prnte'.IIo".' c.>mm''''on. Srrengch· ';"I"g 'òdcrll GME policv. .,." ['ranclS,n: Pew He.ICh Prole",ons Com· mi....:-.II)["¡. O..:robcr 1 ~9:i. 27. itlV" .vIL. Ki"Jil¡ DA, .\ report card ,," ,he pl".,iCl..n work li.ree in rhe Cn"ed SU[cS. SEngi I .v\cd 1')<}6;33~:392·6. 28. St.:hrocr..lcr SA. How ~,j,n we tell whether ~hcn: .Ire. rou many or [On rc.w rhv<ICian,! The case lor bc"chmarking. IA.\I.-\ [')9ó;276;11\~1·.J. 29. Cooper R.A. Laud P, D;«r;eh CL. Current .nd prn)ce'ed work¡(,cce of ''''''phy,iClan diniclan.. lA-VIA 19YII;180:7I1X.<i~. 30. vliller R.S. Dun" ,\;IR.. R.iehrcr TIi, Whircomb .VlE. Emplovme"c· ,cd<Jng expericnces of rcs;de"t ph)"'ieian. enmplc[ing traini,,!!> during 1996. lAMA 1 <)9/!;1110:ï77·1\3. 31. Weiner ¡P. ['orcc:ls,i,,!! ,he etfce" oÎ heal[h ret"rm on US phv,idan wnrkti>ree reqlllreme"" ev;de"ce Irom H.VlO "arling p.ttetl1.. lAMA 19'H:172:211·30. 32. C¡HlfH.:d no G(.j,JuJ.[~ .\kJi~.d ~~JU¡';..H1(\n. Eig,ìuh report: Mtu:nr: ~1n:: t'lwç;iÒan -;uppl~ :1nu rct1ui~mcnu: tc:tt1l1g COC~\1 E rc:cnmmcnuJr:iuns. W:ulllnl5mn, D.C,; Government Pr¡"tò"l¡ Olfice, ¡Illy [99<>. 33. Kumammy .VI, Grumb",h K, Drake .\;t. Of ll. The role of black lnd Hi'pa";e phy,i~ia". in prov;Jing health car<: for u"de"crvcd r<>pulauo"s. S En151 ¡ Med 19'ió;33~:13( 5·[(), 34. C,,,,,,cil "" Graduare .\;ledieaJ EduCJcio". Twellih repurr: Inll"",c;es in mediCine. Washinl¡mn. D.C.: Government Prlnu"l5 OI!Ïec. .vlay ['NX. 35. DIogo S. H.\\O !.:XCI.:S d.Jiln f)vc:r~urrly of Joc.:ror:î. ~ but Jo\:s don't: ,ll.!;rCC. .\mcril.;J.n ,\1c¡jkJ~ ~cw~. S\:"pu::I1i.h~t 7', t9'JX;()·lO, 36. Ginzbcrl¡ E, O"ow .VI, .vlanal¡ed eate - .. look blck .lIld l look lhe.d. "' ¿ngl f .vkd 1997;33ó:lOllI-l0, 37. itchn.n ..\, 11,e Jcdi"e lnd \,11 of "'"n>.;ed c,\re. Hu,p Health Se'· "'orb 19<)¡¡;i1( 13):70.72. 38. I(,."irer ¡P. Doc!or Ji"'''ncem. '" Engl ; ,v1cJ l')<)X;3J<):15~3·5. "I ()'il), .vlassaehmerr, .\1cdicJI SUClety, HEALTH POLICY REPORT He<\lth Policy Report THE A.'ilERICA~ HEALTH CARE SYSTEM Medicare JOHN K., IGLEHART W HE~ .vledicJ.n: WJ.s emceed in 1965 J.S the heJ.!th cJ.re linchpin of President Lyn· don Johnson's Great Society, its J.rchitects considered this insurJ.nce progrJ.m t~r the elderly only an imerim step toward the broader goal of uni- versal health cJ.re coverage. I That goJ.! has never been ! achieved, although MedicJ.re is the nation's single largest source of payment for medical cJ.re, insuring 39 million beneficiaries against the financial conse- quences of acute illness. Since Congress established the program, the benefits covered by Medicare hJ.vc remained largely unchar.ged, with the exception of a few added preventive services, and they J.re certain- ly inJ.dequate by current medical standards. Mcdi· care expended $214.6 billion in 1997 in two lJ.rge funding streams: Part A, for hospital services, and PJ.rt B, for physicians' services. These two types of care are financed from four different sources, the most important of which is mandatory contributions by employers and employees. The other three are genaal t;LX revenues, premiums p:Üd by beneficiar- ies, and deductiblcs J.nd co payments. Medicare is the subject of this report, the fourth in ::he ('.lrrent series on the .>\merican health cJ.re svs- œm. H .\ledicJ.re's hospit5Hinancing scheme, like that of the Social Security program. is grounded in the principle of social insurance, which requires ail em· ployers and employees to make payments to a trUSt fund. Some 151 million employees make mandatory contributions to .\kdicare's Pan A Hospital Insur- J.nce Trust Fund during their working years, with the promise of receiving benents after they retire. The money contributed by employees that finances Medi· cJ.re's Hospital Insurance Trust Fund is not set aside to meet thÓr own future health expenses. Rather, it is used to cover the m<:dical bills of the people who are currentlv covered bv Medicare. All eligible ben· etìciaries M~ automatically enrolled in Part A, which finances inpatient hospit~l services, continued treat- ment or rehabilitation in a skilled-nursing tàcility, ;lOd hospice care for the terminally ill. Medicare's other major component, supplemental medical insurance (Part B), waS modeled after tradi ~ tional indemnity coverage :lnd WJ.S initially created to win the suppOrt of RcpublicJ.ns tor the program. Enrollment in Part B is voluntary, although the vast majority of benefici:lries sign on. Pan B pays tor physicians' services and outpatient hospital services, including emergency room visits. :J.IT1bulatory surgery, diagnostic tests, laboratory serviLCs, and durable med- ical equipment. Cnder Part B, .\kdicare pays 80 per- cent ot' the Jpprovcd amoum (according to a tee schedule.:) tor covered services in excess of an annual dcductible of S 100. Overall, 89 percent of Medi- care's annual revenue now comes primarily from peo- ple.: who J.re less than 65 vears old, through payroll t:lXes. income taxes, and imerest on the trust fund, and 11 percent comes from the monthly premiums contributed by elderly beneficiaries. THE CHALLENGE FACED BY THE HEALTH CARE FINANCING ADMINISTRATION Medicare and Mdicaid (which I will discuss in my next report) are administered by the Health Care Financing Administration (HCFA), a beleaguered ted· eral agency that is criticized by observers on all sides as bureaucratic, rigid, and at times, overwhdmed by its administrJtive responsibilities, whieh have grown exponentially in the 1990s. In contrJ.st to its vast charge, HCFA is a remarkably small agency, primar- ily as a consequenœ of "downsizing" that occurred during the administration of President Ronald Rea- gan. Since HCFA's creation, its spendir.g on behalf of .\i1cdicJ.re beneficiaries has increased by a factor of ,limost 10 (from 521.5 billion in 1977 to 5214.6 bil- lion in 1997) and the population eligible for Medi· care has grown from 26 million to 38.6 million. But the fulkime-equivalem staff of the agency has re- mained about the same, at roughly 4000 people. The pertormance of HCF:\. will come under closer scru- tiny this year because the Republican-controlled Con- gress plans to conduct hearings on its performance. But in the view of 14 distinguished people from dif- ferent parts of the political spectrum, indudir.g three , tormer HCFA administratOrs (Dr. William L. Roper, Leonard D. Schaeffer, and Gail R. Wilensky), the agencv's probkms Me not all of its own making. The 14, recently urged Congress J.nd the administration to reexamine what they consider the inadequat<: re· sources at HCF:\'s command: "The signatories to this statement believe that many of the difficulties thJ.t thr<:aten to cripple HCF:\ stem from an un- \villingness of both Congrcss and the Clinton ad- ministr:ltion to provide the J.gency the resources and J.dministrative tlexibility necessary to carry out its mammoth J,ssignment."s Despitc HCF.\'s problems, Medicare is a higWy popular tèderal program, paniculJ.rly among its ben· etlciarics, many of whom could not afford health in- surance coverage if they had to pay its entire cost. i ,vkdicare beneficiJ.ries include 34 million persons over [N£J/'vl Volume 340 :--lumber -! . 327 Jt{¡l. 2~) /111 f 3.27- 332 J The ;-¡ew Eogl:1od fOlHOJ.\ of '\{cdicine ; 'f . I; the age of 65, 5 millioo of all ages who are perma- nentlv disabled. and 284.000 with end-stage renal disease.ó In 1993, almost three quarters of elderly people reported J1lnual household incomes of less than 525,000, at a time when per capit:1 Medicare <:xpenditures averaged 54.083. In the estimation of a recently departed HCFA administrator, Bruce C. \fbdeck, Medicare is "an extremely powerful weap' i on for reducing poverty tor the elderly and dis- abled.": But not all its beneficiaries support the pro- gram's role as a redistributor of income. On July 1, 1988, when President Reagan signed into law the ,y1edicare Catastrophic Coverage Act, its financing mechanism represented a formal acknowledgmem by Congress of the disparities in economic status among the elderly. The law called tor "an enormous increase in beneficiary contributions"K by elderly peo- ple with greater means to help finance the care of people with lower incomes. Less than twO years lat- er, on November 22, 1989, Congress repealed the law after coming under pressure from a vocal minor- ity of rdatively affluem elderly people, who resented paying higher premiums, and from the pharmaceu- tic:1l industry, which was concerned that a new out- patient drug benefit would lead to federal price con- trols. Since the law's repeal, there has been no cap on beneficiaries' out-of-pocket liability. Public-opinion polls show strong and consistent support tor Medicare 9 and its intergenerational so- cial compact; most beneficiaries who require medical çare reœive far more from the program than they contributed in payroll ta.xes, and far more than mem- bers of the baby-boom generation, the first of whom will turn 65 in 2010, are likely to receive. For exam- ple. a couple retiring in 1998, with om: wage earner who ¡Jaid average Medicare ta.xes since 1966, would .:..1\'; cVlltributed a tot~ of 516,790, with imerest, not including the employer's equal contribution. The present value of futúre Part A benefits tor such a couple is esrimated at S 109,000, more than six times the J.mount they paid inco the trust fund (Foster RS, HCFA: personal communication). Medicare is so popular that politicians who are seen as threatening it put themselves in jeopardy, as Republicms learned to their regret in 1995. After newly dectc:d Republican majorities took control of the House and Senate and set out to cut the budget by trimming Medicare, their plan was vetoed by President Bill Climon as too draconian and was stroogly opposed by the dderly, who helped Climon win redection the next year. \Vhereas many billions of dollars separated what Republicans and Demo- crats were prepared in 1995 to excise from Medi- care's future growth, Clinton tocused on a figure that ordinary .'\mericaos could comprehend: the ad- ditional 5264 that Republicans wanted an elderly couple to pay in annual Medicare premiums. As. Charles N. KJ.hn III, a former Republican congres- ,i ¡ , I I: . I ill , Ii :1 ,\ 328 . January 23, 1999 ,.... sional starT member who was centrally involved io the issue. wrote recently, "President Clinton used the Part B premium issue to transtorm the debaœ."lo MEDICARE'S FI>lANCIAL PROBLEMS In 1992, I repom:d that Medicare's trustees esti- mate:d that the program's Hospital [nsur:mcc Trust Fund would run OUt of money by 2001.\1 With bank- ruptcy looming, [ concluded that Congress would have to soon decide how to close the gap between the: program's income J.nd its expenses. Its options were further paring payments to providers, raising taxes, reducing benefits, asking beneficiarÎcs to pay more of the costs, or some combination of these op- tions. Five years later, Congress tollowed a fOrmula that it has applied <.:onsistendy over the past twO dec- ade:s. In the Balanced Budget Act of 1997,12 Con- gress extracted the vast bulk of savings to the Medi- care program (5116.6 billion over the period tram 1998 through 2002) from future payments to pro- viders. To balance the budget and extend the solven- cy of the hospital trust fund to 2007. Congress took 56.5 percent of the government-wide savings con- tained in the Balanced Budget .-\ct from Medicare's estimated future !;xpenditures, although the program represents only 12 percent of federal spending. In the process of shaping the Balanced Budget Act, Congress largely insulated beneficiaries from greater financial liability, but legislators also got a taste of the dilemma that looms ahead when the baby-boom population transforms Medicare's demographic char- acteristicslJ and health care costs nearly double over the next decade, as HCFA projects.1o! The Senate. whose members stand for election every six years, as compared with every twO years tor House members, showed J greater willingness to ask beneficiaries to shoulder more of the financial burden. The Senate voted to raise the age of initial eligibility for Medi- cJ.re tron: 65 to 6 ì years,15.[6 to J.djust a beneficiary's Part B premium on the basis of his or her income. and to require copayme:nts for home health services. House members. always running tor reelection and therefore more sensitive to the concerns of elderly voters, rejected all three of these ideas, relying in'- stead on reductions in payments to providers. ( RESTRUCTURING MEDICARE With the enacrment of the Balanced Budget Act of 1997, Congress and the: Climon J.dministration J.pproved the most far-reaching reforms in the: 34- year history of Medicare - some 300 provisions that are: certain to add more complexity to the pro- gram. In the process, Congress greatly expanded the: responsibilities of HCFA and the Medicare Payment Advisory Commission, which Congress created to monitor the administration of the program.17 The reforms were intended to expand the choices among private health plans that beneficiaries may select by HEALTH POLlCV REPORT '. 'j I I: (t~ating th<.: new ;\-kdiCJ.re -'- Choice progr::tm and to str~ngthen ykdic;w:'s t1nances by induding policies further constraining payments to providers in the trJ.ditional tee-tor-service program and in mJ.naged- , care plans. ;\lthough news reports have focused on problems in the early implementation of MedicJ.re.....Choice, most beneticiaries 1re still covered under the pro- gram's traditioml compon~nt - that is, indemnity insuranœ combined with fee-tor-service payments to physicians, the model that prevailed when Medi- care began. The program's original structure re- mains intact except tor the imposition of adminis- tered prices rnrough L'1e prospective payment system tor hospitals lnd the ;\-tedicare fee schedule tor phy- sicians' services. Cnder Medicare's traditional insur- ance program, a!! physicians and hospitals that meet Medicare's conditions of participation take part in the program without regard to whether they are af- filiated with health plans or aggregated in medical groups. In 1997, 33 million Medicare beneficiaries were still in the traditional program, which cost an estimated S 183 billion, representing 88 percent of total .\-kdicare spending that year. ¡vlost of the provisions of the Balanced Budget Act of 1997 that applied to traditional Medicare coverage reduced its growth instead of moving to upgrade it, as called tor in a recent study by the Na- tional Academy of Social Insurance.l8 Congress di- rected HCFA to replace Medicare's cost-based reim- bursement method with more restrictive prospective payment approaches that would apply to postdis- charge services, the fastest-growing component of , Medicare in the 1990s.l9 These services include care i in skilled-nursing tacilities, hospital outpatient serv- ices, inpatient rehabilitation services, and home health i care. The growth of home health services, one of tWO major ykdicare benefits tor which there is no ¡ cost sharing by the ben.eficiary (the other is clinical laboratory services), has been particularly explosive; total expenditures increased from $2 billion in 1988 to more than S 17 billion in 1997, largely because of increased rates of use. In 1988, about 5 percem of beneficiaries received home health care services, with the 1verage user receiving 23 visits. In 1997, 1 in 10 beneficiaries received home care, and the average number of visits exceeded 80Y MEDICARE+CHOICE The ykdicare- related provisions of the 1997 Bal- anœd Budget Act to which Republicans attached the greatest ideological importance were those that expanded che array of insurance plan choices beyond I tèe-for-service indemnity coverage and health main- tenance organizations (HMOs). Congress directed HCFA to offer options involving provider-sponsored organizations, pretèm:d-provider organizations, pri- vate fee-tor-service plans, a.nd on a limited basis, med- ical savings accounts that combine high deductibles , .Wlth 1 tax bcnetit. Congress .11so requircd the agen- cy to devdop 1 method of adjusting its payments to health plans so 1S to rdkct more JCcuratdy the ac- tual heaÎth statuS or recent medical <.:xperience of pa- tients. ~u-~~ In the 18 months since the enactment of che law, the policy Congress designed and HCFA has set J.Dout implememing to broaden participation in the .\kdicare+Choice program has been fraught with proble.ms. .-\5 of last :-Jovember, the date when HMOs in which .\ledicare benefiÖaries were already enrolled were required to intorm HCF1\ whether they planned to continue their participation in the program, 43 of the 347 plans lnnounœd their imention not to re- new their contracts with .\kdicare tor 1999, citing financial losses and other problems as the main rea- sons. Another 54 HMOs announced plans to reduce the number of geographic areas in which they werc prepared to enrotl Medicare beneficiaries. These changes affect the coverage of some 406,000 bene- ficiaries. Because almost all these enrollees live in ar- eas where other HMOs operate, they have the op- tion or' switching to another such plan. Beneficiaries who do not live in 1reaS with other HMOs will have to rerurn to Medicare's traditional insurance pro- gram and, in alllikdihood, to purchase supplemen- tal coverage to pay for th<.: additional benefits that HMOs offered elderly enrollees (coveragc of out- patient prescription drugs is the most expensive of these). Th<.: plans cited several reasons tor withdraw- ing from Medicare or from sekcœd services areas. They considered HCFA's payment rates as reduced by the Balanced Budget .-\ct toO low and the law's new regulatory strictures as implemented by the agen- cy too burdensome. An estimated 87 percent of all beneficiaries atkctcd by the withdrawals of insur- ance plans were enrolled in tor-profit plans (as com- pared with 68 percmt of 111 .\kdicare beneficiaries enrolled in HMOs).23 Dr. Robert 1\. Berenson, director of HCFA.'s Cen- ter tor H<.:alth Plans and Provid<.:rs, said in an inter- view that Medicare had been overp1ying health plans that operate in markets with high per capita rates and that HCF1\ had no plans to support: rate increas- es, 1S sought by the industry: , :¡I i~1 ~: 'If ¡ Ii II :.\' : ~ !' In 1999 pavm.:nt r:lt<.:s will VJ.rv from ..\lmost 5800 in Stan:n Isl1fld, ~'k~v York, to ..\bout' 5380 in many rural areas. . \'vlut we ..\r.: wimt:ssing is ,hat H.'vlOs ..\~e t:ager to <.:n- roll .\kdicue bencr1ei..1ri.:s in high-payment lreJ.S, but they an: dropping out of marginal-paymem are:ls. . . . EJ.eh de- cision m pull out of J. service 1rea mJ.kes sense as a O;lfrow busioess decision. But whe:1 you ldd up J.ll of these deci- sions, the H.\[O indusuy is losing ..I reputaLÎon tòr reliabil, Ity J.nd s!J.bilirv. And that is ..I verv untÜrtunatc [("cnd tÒt the industry J.od the .\kdicarc population. Indeed, it CJ.sts in some doubt that :l compeLÎtive market might bc a solu, tion to MedicJ.rc's long-term nnJ.l1cial problems. Volum<: .HO :-.lumber 4- 329 Ii The: Ne:w England J ou mal of ,\1e:dici ne Ii ,I :1 :i !, CONFLICTS A..\10NG PHYSICIANS M~dicare's schedule of physicians' fees, lik~ the prospective payment syst~m that pits differ~nt kinds of hospitals against each other, provokes conflict be- tween m~dical generalists and specialists. Th~s~ dis- put~S have grown in prominence ever since 1989, when Congress direct~d HCFA to develop a sched- ule of physicians' fees. H In search of savings and greater ~quality in Medicare payments to generalists and specialists, Congress said the schedule should be based on a resourc~-based relative-value scale that would take intO consideration thre~ distinct types of cost that doctors incur: th~ir time, energy, and skill (referred co as physicians' work); practic~ exp~nses such as medical equipment and offic~ spac~; and premiums tor malpractice insurance.2S In 1992, th~ Physician Paym~nt Rc::view Commission estimated that by 1996, when the new payment schedule was due to be fully implemented, fees paid to generalist physicians would be 39 percent higher than they would have been under the previous payment meth- od, whereas those paid to cardiothoracic surgeons and ophthalmologists would be 35 percent and 25 percent lower, respectively. a How accurate was the commission's 1992 estimate? As Table 1 shows, family and general practitioners saw a cumulative increase of 36.1 percent in their average payments from Medicare between 1991 and 1997. But because Congress required separate but unequal relative-value-scale conversion factors for surgical and nonsurgical services, many specialist physicians fared better during this period than the commission had earlier estimated. For example, the cumulative reduction in Medicare payments from 1991 to 1997 for cardia thoracic surgeons was 9.3 percent and that tor ophthalmologists was 18.4 percent. As Table 2 shows, Medicare has reduc~d payments for many of th~ procc:dur~s p~rformed by cardiologists, gastrO- enc:::--::,hgists, and optlthalmologists. The Balanc~d Budget Act of 1997 directed HCFA to cease to ap- ply different conversion factors and established a sin- gle conversion factor (payments to physicians are the product of the number of relative-value units estab- lished for each service in the fee schedule and the conversion factor). HCFA set this factor at $34.73 for 1999, a chang~ that will most likely lead to fur- ther reductions in Medicare payments to surgeons. Recently, what has provoked the most controversy among medical organizations in regard to Medi- care's fee schedule is the way in which HCFA plans co phase practice expenses into the payment form- ula, as required by the Balanced Budget Act. The agency, believing it was following congressional in- tent, proposed to phase in practice expenses in a way that had the effect of granting generalist physicians higher payments and specialists lower payments. The dispute prompted 11 specialty societies (represent- ing cardiologists, gastroenterologists, ophthalmolo- ::1 I I 330 . hnuary 28. 1999 ,..- TABLE 1. CHA.'GE [:>I AVEAAGE MED!CM,E PAYMENT RATES, ACCORDI:>IG TO ,-\REA OF PR.\CTICE, FROM 1991 TO 1997.· GROUF OF I'HVSIc:lANS AND AREA OF P"ACT1CE ANNUAL CUMU....T1VI CHANGE CHANGI percent Generalist phy,id>n. F:unily >nd general practice 5.3 36.1 Imemal medicine 2.6 16.5 Medie:i1 ,ub.pedali.u CMdiology -2] -15.0 Gastro<:[\t..rology -2.6 -H.~ Other H 15.3 Surgeons Gener:i1 "'tgery 0.0 0.1 Dermatology 1.5 9.0 Ophthalmology -3.3 -18.4 Ofthopcdic .utgery -0.3 -1.7 Cardiothor.odc .urgery -1.6 -9.3 Urology 1.9 12.2 Other 0.7 4.1 ·Data = from the analysis by the Medic= Payment /\d. visory Commission of claims for a >ample consisting of 5 percent of bendkiaric:s in 1991 through 1997 (Hayes Kl. Medicare Paymem Advisory Commwion: penon:i1 commu' nication). Values ,hown are .verage percent changes in pay. men t ratcs. gists, and different types of surgeons) to file suit last November 4 in U.S. District Court to halt the im- plementation of what they called HCFA's "unlawful transition formula."26 The plan, scheduled to take effect January 1, 1999, would cost members of the 11 societies 5495 million in Medicare payments over the next three years, the suit ass~rted. But a coalition of primary care medical groups, which formed the: Practice Expense Fairness Coalition, disagreed, say- ing in a letter to HCFA, congressional committees, and others that if the plaintiffs won their court case, it would undo a compromise fashioned in the Bal- anced Budget Act that had settled a divisive debate within the medical profession.26 The American Medical Association (Pu.\1A) has re- mained neutral on this matter, recognizing that its physician members are divided by it. But, on other matters related to Medicare, the association has carved out a unique relation with HCFA that holds both pluses and minuses for it. The A,¡vlA helped develop Medicare's tì:e schedule: and also publishes Current Procedurat Terminotogy, the widely used manual for coding physicians' services. Moreover, according to V1adeck, the agency has "largely delegated to [the Pu.v1A] responsibility for maintaining many of the sys- tem's technical aspects. This requires the increasingly disputatious specialty societies to go through an Pu.\1A process to achieve some of their objectives."7 On the other hand, the A.MA came in for sharp criticism over its role in the development of draft guidelines for documenting cognitive services (evaluation and (~-,' \ HEALTH POLICY REPORT TABLE 2. .\VER.\GlO ~!EDIClRE r.\\':\IE:-'"TS FüR SELE<..'ED Hrc!i·VoU:.\t£ r:tOCEDL:RES. :\CCORDI:-IG TO SrECL\LTI. 1:-< 1991\:"'0 1997." S"'¡CIAl TY >NO PROCEDURE C.cdiology EchocJ.rdiogr:1phy of hC:lrt: He.lft :m.l<;e (3D) multiple CJ.n.1iov.:¡scular ~trc:s.s rc:.sl: C"mplerc eleem>eJcdiugc'phy Doppler coior· [¡ow \lltc3<orlOgc'phv R.epon on deerroeacctiogc'phv Doppler e:th(Jc;1(l1io~raphv ()f hC:lf[ Cúronary-.l(tcry diLu:lOn Gastroenrcrology Colono.s(c~py ,\nJ rc.mov;:Ü of Ic:slun DiJ.g:nosri~ ;.:olono5&.:oPY C pper g'Slroontest1nal endoscopy .lnd blUpsy Ophthalmology RcmovJ.l of C;1[::1.ract 4,[1d inscrrion of kns Eye. I.:xamination :tod rre:Hmcnr Eve e..mination tor .",bli.hect p,tien< Trc.l<ment "f loc,lil.ed retin,1 tc.."n Ey~ ~:<J.rn.ínJ.[ion tor new patient TrC;1[mcnt of t.;:<.t:cn:sivc or progrcs.sivl.; retinopathy Fo¡lnw~up !.:J.rc ::.rtct' l~cr i.:a[~r:::u.:[ surgery Ultr:;i.sounJ I:x::1.rninatinn ()f i...")'C 1991 1997 CHANGE 1al~ars . 215.60 202.06 -Ó.on 5 3 1.\>\ ~ó911> -tUU t3 t."3 109.56 -l6.M 29.70 ~ï.H -7.ón 94.45 10773 t".lO 1..1.28 [l.04 -10.lIJ t04.X9 9 \.2.. -[301 l.517"'2 1133.1.. -"5l1J 567...0 406.07 ~ 28..3 3 352.01 264.64 - 2~.:J2 , 3..7.45 20736 -40.32 U5i1.63 912.67 -32..~ 1 4.0.06 53.10 20.54 3S.C1() 36.39 3.96 702.75 7~0.9!1 5..... 50.33 7-\51 ..x.os 733,:9 II('>!I.~!I tX.49 5 t 7.5n H7.GO -52.27 66.35 67.')9 2.F "Data MC tr"m ,he Jnaly.i. by the Mcdic,re Paymcnc Adv;.my C"mm,,' ,i"" "f ctJim. tor a ..mplc 'on.i.ning of 5 percent of ¡'end;ciacle. in 19'1l ,hmugh 1997 (H.lYcs K¡, Mcdicare P'yment ,-\dvi,,,ry CommisSIon: per· ,00::11 ~ommt.lnicJti()r'I). mJ.nJ.ge.:me.:nt) in the me.:dkJ.l record. :'.:~ On bJ.lJ.nce, Vhdt.:<.:k sJ.id, tht.: re!J.tion between HCF:-\ J.nd the ,\lv1.\ is "functionJ.l tor both parties, J.lthough thl; I e.:xtem to which it prOtects the.: inrcrr.:sts of pr:Kticing I phvsiciJ.ns, even that traction that bdong to the ,\.'vL\, is subject to inw;asing question.'" GRADUATE MEDICAL EDUCATION CnJascoring the incn':J.singly precJ.rious nacurr.: of Mc:diure's stJ.tus as the !J.rgt:st explicit financing sourœ tor gfJduate mc:dicJ.l t:ducation, Congress took J. nrst step in the BJlanced Budget Act toward chang- ing this policv bv reducing the progrJ.m's funding ror this purpose.:. 2~ Of the felkrJ.l prognms ::md agen- Cles thJ.t support gnduatc medical education l M<.:di- o r<.: , .'vkdiuid, and the departmc:nrs of Detènse and Vettra!1S ,\tfJ.irs). .'vkdicare is by far the LJ.rgest singk source of such funds. ¡\kdicare.: recognizes the costs of education in t\'/o ways. It provides direct medical- education p:.wments to hospitJ.ls that cover a share of resid<.:nts' stip<.:nds, t'i¡;ulty sJ.laries. and J.dministratin.: expense, and it provides al1 indirecr medica.h:ducJ.- tion J.djustment that rdkcts the added cOStS of PJ.- rie11t care associar<.:d with the operariol1 of œa.chiog programs.)O ~- "..,-,'-~ ...----.-. '--,._-'-'-~,~,-_.~ [0 [997, ,'vkdicare\ indirt.:ct medica.l-edue:ltion .lJ. ustm<.:nt wtaleJ $4,.6 billion. [11 the B.lbnc<.:d Budget Act, Congress reduced .'. kdiure 's indirect suppOrt r(Jr m<.:dical <.:dUC.ltion bv 55.6 billion over th<.: n<.:xt tour years by changing th<.: tÒrmub to mJ.k<.: the pay- me.:nts less generous. '\kdiCJ.r<.:·s direct paym<.:nts tor graduate m<.:diol c:JucJ.tion totJ.lcd 52.2 billion in ns- cJ.l [9<)7. Tht.: buJgr.:t lq;islJ.tion r<.:dw.:<.:u .\kdicare's dirt.:ct payments over the next nve.: ye.:ars by J.n estimat- ed :5700 million. The.: (t.:ducrions in payments to teaching hospitals were partially otfset by returning to th<.: hospitJ.ls J. portion of the prr.:mmms Medicare pays to mal1agt.:J-care plans. Th<.:st.: funds, e.:armarke.:J tor e.:dw.:ation .lnd .1mounting to some 5-1: billion, will be returne.:d in J.nnuJ.l inst.1llments of 20 pc:rœnt over tht.: lÌve-year period trom 1998 through 2002. Although th<.: B.1bnce.:d Budget :\ct signJ.kd the inte.:nrion of Congress to cut back ¡\kdica.re's com- mitment to financial suppOrt for t<.:aching, several members of the National Bipartisan Commission on the Future of Medicare have urged more fundamen- tal chang<.:s in ferlefa.l policy as it appli<.:s to graduate m<.:dicJ.l education. Congr<.:ss cre.:ated the commission, J. body whose.: delib<.:rations have be<.:n contentious because some of its 17 memb<.:rs were appointed by Republicans and som<.: by the.: Clinton administra- tion. Its report to Congress is due March L Senator Phil Gt:lmm (R-Tc:x.), who is a member of both the bipartisan commission and the Senate Fin.1nœ Com- mittr.:e, which has jurisdiction over Medicare, has propos<.:d that support ror graduate.: medical erlu...:a- tion be subj<.:ct to the grt.:att.:r scrutiny of the .l!1nual .lppropriations proce.:ss rJ.ther than take.: the torm of assistance.: to which teaching t'icilitit.:s arc e.:mitl<.:d .1C- cording to a nx<.:d pavmmt tormub. Th<.: AssoÒation of Am<.:rican M<.:dical Colkges (:\..\.'vIC) Strongly op- poses this proposaL With che departure.: of N<.:w York's two s<.:nators - the der\:ac last November of Repub- licJ.n :\Honse M. O·.\mJ.to J.nd announcc:ment by Demol:rat Daniel Patrick .'vloynilun that he.: will re- tire wh<.:n his term e.:xpires in 2001 - proposed clungt:s in kt.kral polio' on gt:lduate me.:dicJ.1 t.:du- cation that arc oppos<.:d by th<.: .-\.A.'vlC must b<.: tJ.k- en more s<.:riousl1". For nunv 1"<':J.r$, O'Amato J.nd .'v!ovnilul1 used thc:ir positions on the FinJ.ncc: Com- mittee essentiJ.llv to ve.:to .1IW ch.1nge$ in MedicJ.re.:'s policv on support tor teaching. -1 I I , f t I :¡ ;; " " i FUTURE DIRECTIONS As tht.: 2ist century nClrs JI1d the.: baby-boom population heads closer to rt:tirt:mt.:!1t. the change.:s includr.:d in the BJ.bnced Budge.:t Act J.re strictly J. down payment in tams of closing :Vkdicare's fund- ing gap. Economist Victor Fuchs e.:stimaœs that "if the trends of the pJ.st d<.:cadc: or tWO continut.: until 2020, thc dJt.:rlv·s he.:alth care.: consumption in that year will b<.: approximately 525.000 p<.:r pe.:rson (in 1995 dollars), cump;ued with 59200 in 1995."·!I In Voluln, 340 :--lumber 4: 331 The: ~e:w England Tournai of .\{c:di..:ine me short term, provoked by President Clinton's in- sistence mat thl: current tèderal budget surplus be used to shore up the financial base of Social Security, Congress plans to consider replenishing the coffers of me: Social Se:curity program even though Med.i- cJ.re is sbred to run out of monev first. When it does focus on .'vledicare: again, one p~oposal that may be considered sl:riously would make thl: government's t'Ìm.ncial obligation more predictable and shift more of the risk to bene:ficiaries. It has gained the support of Senator John B. Breaux (D-La.), chair of the :--J"ational Bipartisan Commission on the Future of .'vkdicare, a number of commission members,32 and prominent economistS of various persuasions.33,H The proposal would replace Medicare's commitment to provide a defined set of benefits to all eligible bene- ficiaries with J. "premium suPPOrt" system. Ail ben- eficiaries would receive a predetermined amount to be applied to the purchase of a he:lith plan providing defined benefits. The amount would vary according to the beneficiary's age, sex, geographic area, health- risk status, income and assets, and use of services. If a bcneficiary wanted benefitS that went beyond those that could bc purchased with the voucher, the amount of which would probably be rdated to income, he or she would be responsible for the additional coSt. In many respects, thc proposal resembles the Federal Employee Health Benefits Plan. Beyond financial questions, Congress must con- sider how to improve Medicare's benefits package, which is bascd on a model of acute care that is whol" ly inadequate tor the many ddl:rly beneficiaries who hJ.ve chronic illnesses.35.36 A critical shortcoming is Medicare's f:J.ilure to cover outpatient prescription drugs~ particularly because most Mcdicare HMO en- rollees do have such coverage.37,38 Congress has tak- cn note of this disparity and may well examine it this ye:1r. In any event. balancing the hl::1lth care needs of chc popubtion digibl<i for .\kdic:m: wim the avail- able resources will be a continuing challenge well into the ne:w millennium. R.EFERE¡..,¡CES ,I 1. B.lil R."I. Wh,t Medi",",,'s ,cchitem h,d in mind. He,lth Alf(MilI- wood\ 19<.15;14(4),61·72. 2. Igkh", fK. The .-\merteln heoJth ClCe system - e~pendicures. ~ Engl ¡ ~Ied 1999:340:70·'" 3. ;;:urrncr ?.. The .-\mcrican hcolm "re w"em - he:u,h insu,"",ee coV- al>;e :-: Ens! I _\Icel 1999:340:163-8. ' 4. {¡Iem. The Americln heoJth care sy>rcm - emplover.sponsored hellm ,:overage. :-: Eng! r .\loel 1999:340::48-51. 5. Butkr SM. Dlnzon P~1. Grlelison ß. Ooen le'ter to Cong,",," & the ExCCUCl"e: ,t1sis ¡'ldng HCFA & millions ot' .-\mericans. HeoJth AJf (~Iill- ,vood) 1999:l3( li:3-l0. 6. "'i5>enson .\R, Rcrrig RA. ~Ieeliclre', enel-Itlge ren:u disease program: currem mcus :uld fucure prospem. HcoIm ,\If (Millwood) 1999;18( 1); 161·79. , ] ] I : ¡ 1 I II 332 bnuary 28, 1<)99 1. Vhdcek fie. The politlcol ecOnomy of Medielre. Heal,h .\tf(Millwood) 1999:l8( 1):11·36. . 8. ."Ioon M. "'\Cdi"re now and in ,he futu,"". W>$hington, D.C.. Urb.n In"icure Pre", 1993. 9. BernsteIn f, Stevens Ro'\.. Public ooinion, knowledge. and ."Iedicore re' form. Hellth .-\JfIMillwnod) 1999:13(l):180-93. 10. Kahn C~ (![, Kurrner H. Budgcr bills and Mcdiclre policy: ,hc poli· ncs o(,he 3BA. Hellth .\lfIMillwooel\ 1999;l8(l):37·47. 11. [glehlr' JK. 111< :\.mer1Can hcolth core w"em: ~\cdiclre. ~ Engl I ."\cd l')9~;3:!7:1467·n. 12. B.lianccd Budge' :\<:r of l <)97. P.L. lO5·33. L05th Congre", August 5, 1997 13. "'kKusick D. Demognphl, '''Ue> in "'\cdicore ,eform. HeoJth Alf (Millwood) 199'1:18( l):l94·20i. 14. Smith 5, Freeland "'I. HetTIer 5, ,\lcKuSlek 0, Hell,h Expenditures Pco cenon Telm. Thc ne" :en ye'" of heoJth spending: what docs the fu· cure hold! Hellth .\If I "'Iillwood) 1998;17(5 ):128,40. 15. WJldm,nn TA. P~tential elTeers of "-¡SIng Mediclre', eligibility age. HeoJth .\If (Millwood) 199R;17(:):l56·64. 16. Sheils I, Stlpleron D, Ceous ¡, Fishmln A. Re,hinking me Medicare digibiliry age. Wl>hingwn. D.C.. :-<l"Onll Cn,li,ion on HCllth Care. 199M. 17. "'!edielCe r,yment Advisory Commi"ion. Report m ,he CongreilS: ¡;on,ex' for a changing .\1edic= progrom. Wl>hington, D,e.: Medk:u-e rlymem Advisory CommiilSion. 1998. 18. Study Ponel on Capi"cion and Choice. Strueruring Medic= choices. Wl>hingmn, D.e.: ~lcional A<:ademy of 50cioJ Insunnce. 1998. 19. Wekh HG. Wennberg DE. Weleh W1'. The use of Mediel,"" home heoJ,h core servicC$, N Eng! I Med 1996;335:324-9. 20. KoiISirer ¡P, Angell M. Risk adjus'menc or risk .void,nec! N Engl I Med 1998;339:1925·6. 21. leuoni LI. .....yani.n IZ. B..e, OW, Bur"in HR. Plying mo,"" fairly tor Medi","" <:lpltlëcd <:lre. N I::ngI I ."!ed 1998;339: l 933-8. 22. Kutmer R. 111e rISk· adjustment deb.te. N Engl I Med 1998;339: 1952·6. 23. Neum,n P, Langwell K.M. Mediclre's chuice explusiun! Implie'tiuns tnr benetid,rics. He,lth .\If (Millwnod) 1999;18( 1):150·60. 24. Igleharr IK. The new I,w on MediclCe's paymenu '0 physici,ns. N Engl r Med 1990;322:1247-52. 25. Hsiao we. Broun P, Ynceml D. Becker ER. Estimating physicians' work for 1 resour'e·b>sed relltive,vllue sc,Ie. N Engl I Med 1988;319: 835·41. 26. :\.scon C. SpecIalists suc "vcr prlcriec expense rule. ,\merican .\lediClI :-Jews. ~uvember 23-30. 1998:1. 27. K.usiccr IP. Angell M. EVllultion and mlnlgement guidelines - tòtll· Iy t1,wcd. N Engl I Med 1998:339:1697-1I. 28. Brett A5. New guidelines tor coding physici,",' services - a srcp backwlrd. N EngI f Med 1998;339:1705·1!. 29. Iglchan IK. Mcdic.cc ,nd gndUltC mediClI eeluClcion. ~ I::n81 r Med 1991!:338:40:·7. 30. Fishman LE. Mcdi"cc p,yment with an eduelëionlll,bel: fundlmen' "Is and ,he IÌJcure. WlShingrnn, D.e.: A"oei,'¡on "f AmeriCln MediClI Colle!!:cs, 19[16. 31. ¡:~ehs VR. Hcal,h ,.'·0 ,or ,he elderly: how much! Who will pay ,or i,? Hellth Alf(Millwooli, 19QI!;18( l)H1. 32. Se"fini MW. :'-Jow, :he h"d plCt, Nlrion,¡ fourn,t. :-Jovembcr 21, 1998:17í4·MO. 33. Alcon HI. Rci>ch,ucr RD. The McdielCc retorm deblte: Whlt is ;he nex' Hep? Hell,h AIf(,\1illwooJ) 1995;t4(4):3,30. 34. WilenskY GR. :-<ewhouse ¡P. .~lediclCe: Whlt'> nght! Wh,t'> wrong! Wh,t', ne,,! Hcol,h .-I.tf(Millwood) 199<J;II!(l):92-L06. 35. C",sel CK, Bcsdine RW. 5iegel t..e. Remuccuring ."ledic"e tor the n<" century: Whlt will beneticllncs rcollv I1ced! HeoJ,h ,\.tl" ("'Iillwood I 1999;13( 1):ilM·31. 36. <Nhi,ellw :-<:\. W;¡rden GL. Ree"mining ,he Jelivery sy"em lS p'" of Medie"e reform. Hell,h AIf i "'Iillwood) 1999:18(l ):132-43. 31. D,yis M, P"i"l ¡. Chulis G, ot al. Prc>eripnon drug cove"8e. uCllizl- tion. :uld spending amung MediClrc beneticiorics. He.¡,h .\If (.~lillw( udi 1999;18( 1):131-43. 38. ,"Idlride TD. Disparities in "CO" to Mediclre mlnlged Clre pllns lnJ their beneti". HcoJth AfflMillwood) 1998;l7(6):170·I!O. ;;) 1999, MlSSachu,"'" Medic:u Sodety. !( . Health Access- SummitWorkgrau p Rescheduled - Meeting Two Tuesday, September 12, 2000 12- 2PM Lunch will be provided for you Jefferson General Hospital Auditorium AGE N. D A. · 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 refiects the changes recommended at the July 17th meeting. We would like to discuss and revtsethis- attachment so it describes-, in-broad and simple 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 MeetingSeries 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 atthlocke@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 Îs 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 A T T A C H MEN, T 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 Amenca's Rural Communities, National Rural Health Assocíation, 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. Funding Sources To the greatest extent possible, funding sources will be organized to better support the local health care system. Spending,lmpacts 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. 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 pfimartly concerns the-eastern part of· the- county-the area included- jn. 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 Bremertonl 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. 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. 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 servÎces 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, Încome 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 1 07 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 income 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 În 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 % 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; PT/OT; orthopedic: psychiatry; and, urology. There;s 1 physician assistant working in the orthopedic practice. . Physician to Population Ratios i COGME i 1999 2000 mid- I Jefferson Jefferson standard Primary Care Physician 1 : 1 ,862 1:1,625 : 1 : 1 ,428 Specialty Physician , 1 :3,200 1 :2,844 I 1:1,053 Totat Physician I 1:1,177 1 : 1 ,034 i 1:606 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 Flowl 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 levef· constitutes an estimated 14-.9% of- the- ·tota~ 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 10% federal 35% other private- funds 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 Jnsur-aAGe Sponsorsh~: 1998. Insurance l JeffersonCounty i Washington State Sponsershrp i Number; Percent-' Number i Percent Commercial I 12,368 : 48.5% i 3,354,327 ~ 59.0% ! Medicare ! 5,789 : 22.7% 733,593 ¡ 12.9% . Medicaid 2,628 : 10.3% I 750,270 i 13.2% Basic Health Plan I 1,534 i 6.0% 219,661 I 3.9% I -. Uninsured I 3,18S : 12.5% 625,383 i 11.0% I I I I E~lilllcllt:d Population- I 25,500 ! 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 serviœs are availab!eanduti-1ized. 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 earfy-1990s, thehea~th insurance fndustryh-as 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: canso I idati on/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 payout 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 Uninsured Medicaid ·foo-for -service BHP foo.for-service Medicare foo-for-service Commercial fee-far-service & PPO Medicaid managed care BHP ~ G¡} "9- Medicare managed care Commercial HMO TOTAL enrollment 3188 1448 o 5457 11728 1180 1534- 332 2£J 25507 Dercent 12% 6",(,. 0% 21% 46% 5% 6'%0 1% 3% 100% may be statutorily authorized comments includes self-insureds all KPS; KPS exit as of 11/1/99: CHPW to replace 11/1/99 99~_-KPS; CHPWto replace 11/1199 87% are GHC and affiliates mostly PEBS; mainly KPS with some GHC. Regence. Health Plus 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 I I Jefferson County ! Estimated Uses of Health Care $s in 1997 Estimated Total Estimated I US% Spending far Percent Estimated . I of T ata! Jefferson Co. Spent In i Amount Spent Expenditures ! Spendinç¡ Residents County in County ¡Health Services. and ~. - 96.9% $38;743.095.60 67.6% $59,983,948.45 Personal Health Care 88.7% $81,233,359.95 71.7% $58,243,887.76 Hospital Care 34:6% $31,687,421.13 58.4% i $18,492,659.02 Physician Services 20.0% $18.316,428.40 70.0% $12,821.499.88* Dental Services 4.5% $4,212,778:53 90.0% $3,791;500.58 Other Professional Sevices 5.5% $5,037,017.81 95.0% $4,785,166.92 : Hame Healttr Care 3:0% · $2,747,464.26 95.0% 52,610,091.0"5 I Drugs and Other Non- ! $8,608,721.35 ! B5.0% I DurãfJte-s 9.4% $7,317,413~15 i Nursing Home Care 7.6% I $6,960242.79 80.0% ¡ $5,568,194.23* r- Orfier Personal Health Care 2:6% r $2; 3S1', f35, 69 ! 80.0% $1,004,008.55 r- Vision Products and Other I t I I ì I ì ¡ Durables '1.3% i $1,190,567. 85 i 80.-0% I $952,454.28 Program Administration and Net I 15.0% I $228,955:36 I i Cost ofPiivate Health Insurance 5.0% i $4,579,107.10 Government Public Health I ! I i Activities 3.3% I $3,022,210.69 ! 50.0% i $1,511,105.34 Research and Construction 3.1% $2,839,046.40 30.0% 1$851,713.92 Total Health Care Expenditures on I I I Behalf of Jefferson Residents 100% : $91,582,142.00 ! 66.4% I $60,835,662.37 *£stimate 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 OtsTRŒUT¡QN- OF 1997 JfiFf.ERSON-COUN.TY PERSONAL HEALTH CARE EXPENDITURES Vision Products and Ot1'\er Durables -1% OO--Pefs<J"al He"~R Care 3% Nursing Home C;¡re 9% other Professional Services 6% Dental Services 5% Hosp~,,1 <:are 39% Drugs and other Non- Durables 11% Home Health care 3% Physician Services 23% 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, SummitWorkgroup Meeting, Three Tuesday, October 31,2000 12,.... 2PM Lunch will be provided for you Jefferson General Hospital Auditorium A G. E. N D_ A · Summary of Last Meeting and Update (Attachment 1) · Presentation of Information Requested at Last Meeting (HandoutatA4eeling) · Speaker and Discussion, Greg Vig~or. 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(œ,aol.com. 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 ~'._'.. I I I Estimated Number Percent Total E. Jefferson Population t 26,600 100% Uninsured i 3,200 - 5,700 12%- I 27% (under 65) I I-Underins~ured - Medicare----· ..-..------... -.----.... - I 5,800 22% I J= L Underinsured - Other Unknown ,~- 3,600 - People with income below 100% FPLlFIG 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 men-taT healih----·· I Community- - Counselin"g, Jefferson Mental Health I I I Services, 31 private counselors ~hemical dependency Jefferson Community Recovery, Grey Wolf Ranch, Ltreatment Safe Harbor Recovery Center I physical therapy Jefferson General Hospital, Kah Tai, Port PT, Dirksen PT, Ouilcene PT I occue_ation~ltta~raeY._ Jeffer~on Gen~~?1 Hospita}, Kah Tai. ~~entists__ _ -113 rivate practitioners i chiropractor~ 5 rivate ractitioners ~ home care Care ivers, Jefferson General Hos ital i assisted living I, adult group homes 4 (21 beds) in Port Townsend, 1 (6 beds) in Ouilcene, 1 I ~I (5 beds) in C~imacum Townsend ¡ I n_ 0'."_______ j I I 5. Information from DOT on transportation and health access Available thought DOT website_ 6. 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SIC Employer Average Average Code Industry Firms Employment Annual Wage TOT AL 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 41 Local and interurban passenger transit . 42 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 60 Depository institutions 9 75 21,786 61 Nondepository institutions . · . 62 Security and commodity brokers . · . (V'\()!()(¡ 3(1;; I'M ',,>1, C"lIlIl\ I'. &. I' hllp;lI\V\V\V _ \Va_J;.:{)\!"sJllll1"ailahrll1r~ 1'''11' p/ <: 11<:1111'.111111 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 . 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 lMtA IO_8ue 10/301003:05 I'M ¢ ~~ e$~~~ \%i~ .~ ~ ~ þ ~ "~,Where is' rura,I"healtb,heading? byGreg Vigdor, PreSident, Washington Heailh .foi¡~q~ti?n ..' _, _ \:'!, ~ '. . - ~ ":,,-~..\,~., : ~ ~~"i ~. -~.-.~ _\. ,i.;fA' ,.., you confId!,nt Y0'F far, wI! ~~, apPf"";,,he? Ifi'i _iF': <)9~1 d7,tv~ the development , ," local rural health. ... primarily. as a:. question of.. ~ ''"c<, c¡t new 1I{"teIlÚc models ': . - system Will b;- around' " covora.ge:.....~.thë rndividuat' '~:,'.~ìt~sii'rance. (2) ¡,;ov¡,-'rn- : "fifty years from now,? Many insured? But ;'nmany commu- .'mWi.t; and (:J) voluntary . '.>~·~·~ura1 health care' leaders aré' : ;~/~Jîities., eveli"~h~~. ,'v{e 1;1.~.~~" \ ~~;~;';~~~~fi~~ ~.:~;?on_ 'Sõ"tOcu.~on the ~a;y-ìo-da.y spent alo~ ofe~ergy mal<inç-i-,~'" Theïnsurance model I,~~ .~h~enges of aUl·vtvi~~ ~~~E:1 in~,~4~~l.S ha.~e hea.lt~' _.. '~p.1f-? provide COVel"ilg'e fur .. ',~~.l~nge~~~ questionS. ~"'1~.ov.era~~~~,~·¡h~.vè~'I1ot_p~~e:· ,. Î~~\~.:~."a ~ommuruty . are outside ,the re~,1m of . ;-surothe~'ãrO'prOV1ders to·. .::¡ ~:tþ:r.cn:~~~,·priYate business ;;§~~i*7~ll}~ì:::~- the future of health in your :health ca.Ì-e, ~nd On what ~r,"9m \;other variation. This communIty, a fut"re that will tenn.g, Iiut as soon as you ""'mM"1 ònly mlÙ<es sen"e in Create systems of caI"ing d~rea.so c.?sts f:or one payer, :,' ~~ ,~c~:Jn~ term. if you call get a!)d .~~]_pport for the next gen~ yo~. inc~ them for a.nother_,::'.)beY.ond just capturing ma.rket eration. an,d the generation Me:~~Y~J:ii.ie."Solutions such ~'o;I :r·~.sþlire~.if the model can active- after that, and even the one ~~~~iI~g c.o-payments creat7 '.:' ly improve health. HeUer care after that. ,~situation in which more pea- " ~.ment is one way of Even though every ruralple'<Vill c~oose to do without ".. doipg this; investing "profits" ~="::~~e:"~::::~~:~.i'~±i~ttin~;:n~~~::~~,~~~~~'tufe~~l1Ca1th activi- problems: problems of s<:a.le, . ,:diPic8, Unable to pay at all. .,?'~*J'h~:g,ovei'ninent ttlodel severo resource linùts,and The finalblock, providers. :: Wç)Uld~ve the responsibility lack of a long-term COTIUlÜt- are.facingá multitude of ,·:>;':t;µ;;~~ ley:elto reconcilc " ",,-:.' " .. '. ..:.~,~~,,~:,.,\ -: ':.,'. ment from partners outside ',' issues,Wh<\tsçFices should"" 'c;~::?0- <I?estions about con- .~~§J_L~~.~: \; ~d.. ~º:f~rth:.!3ut are tl~e1e J~~~t~i~~,~~~~~ bUBines~? .A.~~,~' ~ l~o~ites, ,:.: ¿-: 1v1'"' \ e!,ougl¡ to secure a 10n¡r-t!''?1:! ¡ ~., sq on , " . ,', ,:\,t;' ~ I'tí;ition to plari· . , ,.:; ~i i ',-.. -, '''.',...., ,,", '-<;.1._, ,,' ~>'l- . lil<eJLwacky,deabutthis future :for,rural health m ~"f ~""W,thout a coordinated ¡....!;. WI'lIZ> nQr,the fmure, and m.ay ,"<{;ó.\ c'è¡~"'""" ' '.-,~' . ,-:1 ....~" ·r~". . ',~.,. ,.,.....¡;-" ;W:.J¡.'-'~'" , . ":"'!wa.s,:¡,lieprelli1Seoftheorlg,. your ,1'00:pmuruty? ~ : "~'f '.r~,.y...:tppr~.8.£~,tl>;~.t mcorporate~ ~~ ...~ ~~ !?ur~~nse of personal, 'i. .....1" ,.. . , \ye need to take a b'g[el";'-;ò ¥:;..µu-ee building blocks, unm· ;(;"'3 ~íc#:~<!- µnerty . ; ~ ~lue ,cr<;>ss plan a.nd more systemIc Vl~W'" pf the' ': ~wt.endèd ~~quences :~, ~~~ ÎI;~~~~I ~PI~t.ary model woüld~' .,r.ç.~:. R~al hßa1th care leaders - r ..) ~~ .. ~&:'\;'~I~"'''''''" ;, .~<... - ., need to fllld more endurlng problems. and, especially, any . meVltably occur People fall l:. 'Í;' a strong !l1lsSlOn to .' ' 'sil;':¡'iqns we con"'de~: ";~"ìitlt:~;;~Σt~~ ~r~!<'" ProVl¿~r,~;>f#i:\l~i~~ a !§ç~ il~ltl'-'~y~~~' ·.t!,,~el~ for thinking about " '~Where-are !-htee e$"ential "/~<lo J.·t æ' 'a.id:'fI~tIi plans : ~ . ,'i'. h bù.i1ding I'e1atlOn-~<f::" ;,. ine,!Jong-t<:rJR., futill'e We \ . ·bilii'dmg"iíl':-J.~6 ¡,¿ our- 'h--'~' th~;"';:J.;,: vi ~¿,..:'; P<,·" , , t., ,~-: };. .;.',;. b' "'~ ,,' ·at}.he Washington Health , . _ _ ' '<':_ . ','< '~. !-""".a '.:I'se J.~" C "'e,....ree 'oc..... -"" ^ ,(.; . . .' te .'t i' ~\ ~ 4,1. 1 c ~. I,· _~:.r.-. Jt....~~- ':'!If S... ~\.'!! . ,~ -»'~FQtindation are enga.ged LIl a '. ~·\8YS rn.; .e.l.~.9.1viduAls~y¡~ I I~ fi tenœof ' ~ ere. and .[Õ't.~,:.):~l.¡a;+." .,' '..need health care; those,wh' ~'.ca.recontmues :.YloÚld req(¡ire j,,!,~~~y.,"1actlvIt"'s to:~p'pport ··;1);;~~D!~E~~~g~ ;~ ;~~~~ ',',' ;th, e car. e; (þh. Y.. .S.lO. "'.n.s. tho"p,.. "'·".r'.;...·IO~. g'tm~. I. utU1'!!¡Qf. rurJi...1 ~'''. . I.;a; ntì. on . . . r~. :..t.:!e..,"IhY, r,., .r·, ~'i~'" ,~s. 19~~~~~'~a~~.~ pi?Vi~~~t~th~,~~Ìl:~1r~t~ 'th~ êl6þiit ',:: ~. , ~:, ~ '~~" ~roc~~~~~:ü4~ ~~:;,;: : .'~_ . ,~:,_, _! ::~~q;~t~.~sourcea. .to -- bl'..·Ji·">a1" .,.,,:, .'.'.' .".' ~';;¡;"''''''''''{''.''.'''...' '.'. ''', ,.{.c,,<,. '·"':i:;11f.1. ,,' "'" ",' """'''.''.;'.."ase. lectnumñer,ofcommun,- ,pu 'c. e th,~~.pes. etc.). ""t,:,·~pw ~',.w~ntto or~"he:, ,_..eY·"'Md ill"o"ts,de of ,,"t-":'~.. ., ::;¡..: I'. . _ ~~,fi~?,t ta.$~,~ to C9~.~t Y~.~..~¿;s~~....r~~r.e are.t~,~~ ,c;tift'e!~:,~):i:1ormt$~fountable goveI't1~,,'~~ /les ,i~~rested In trYln~ ao~p. l!ldmduals top,~ $ystem So ' ,ent:Q),'gaIllZlIlg pnnClples tha.f:;....men~: sy~te"m. It IlÚght seem' "', new ,,:~proaches, We will also .. '-. -' '. .;" ;,,:,'?:~;~'~'" ,/~' .~.:~,': . . (:st~~$~ a dear1nghOllse to ",":Úf:'.' Whaí does :t me,~::l m ;·\n.r:m!Z8 it! Community Group Meets Who is the community? What are the prnhlf~IIl';" What are the resourGes? Pay~rs far health care ãnc\ t'tealln p@[J~le Individuals need healUI " carl!! and h !'::Jllh Or\ (I~\I;:~ 1t,~ "'is le~!l What are the opportunities? Private market ValunliHY (l:cmrnulll!y cooperi1!lv~J What would each mean to our Gommunltv? What is our choice? help conununities st;J\" of others' efforts, But ultimately. t"Il r'~d care leaders arc t.l1,c un 1:: who can Ill..a.ke Ch<1ngc· And. as ,much as you alï~ challcn'ged by the shorl ' crises that compti(;:ltl' ';(;'.;' hfe and brin.g so 11111(: t: . ~nty to your health :j"~','<' the ultimate lC;ldel·s!".:.l!1 cha.l.!enge we all f.-we ~::; \:'-:oSh~~t~:~~~e for genf:l"¡l - ~~ ').. -- Adapted from a presen!J!iC!' the Northwest Regional pUr)' Health Conference/asl ¡¡¡cUC;; THE WASHINGTON HEAL TH FOUNDATION'S FUTURE OF RURAL HEALTH PROJECT OVERVIEW AND ELEMENTS INTRODUCTION AND OVERVIEW Maintaining health care service in rural communities lias 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 ofthe 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 undeIWay 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-tenn 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 conunon message. Second, we will also use it to conunUIÙcate 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 tenns oftheir 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@whf.org. " Draft: October 2000 Health Access Summit Workgroup 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 he~don 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/federalleadership 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 atthlocke(GJ.aol.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 HCF A 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. ~ CIJ (D () p.J ::r I--" 0 ("""'t- O ::r' ........ 0 ~ > H; ::r: 0 ~ ('D U ;:¡ 0 C s:: ~ 0 r¡q r::::r' ........ ""1 ~ Z ........ ,-+. ('D ~ ~ ::I -. ::r () 0 0 ""1 -. () rJ:J ........ -< ~ ,-+. ~ -<: '-< ::r: 0 rJ:J Þ';"'" --- ('D 0 ""1 ::: (D N ""1 ('D ........ > a @ cr.¡ -. ~ C/) r./J 0 -. ~ 0 ::I ~ (D s:: 0"\ ,-+. :=;:'<..< 0.. ""1 ::s r::T ~ '-' '-< ::r ~ 0 0.. (D S ~ 0"\ 0 § C/'.) ~ """1 H; ('D ~ ~ Þ--' ~ -.) en 0\ ~ 0.. ~ ::s ~ ~ S ::r ........ _. PJ I n~ 0 tv -. VI ~ ,-+. ~ ....... . ::s ""1 N 0 N cr.¡ 0 _. en ("""'t- ea N ::r r,r.¡ ~ =:r- 0 0 ....,J -. 3 ~ ('D -. 0 ~ ::s ::s (Jq 3 ,.., ð ::: ('D ,-+. s:: 0 s- ea 0 0 {JQ "'"t 0.. ::: ::s ,.., ('D 0 ~ s:: -. ~ "'"t ::3 ~ 3 ~ (JQ ~ ('D 0 0.. -. ~ a -. ~ ::s ('D ~ =- (t> :;J = ~ ~ ..... I I; Î 'Ii '~ ~ ~ = ~ CI:l ~ ~ ~ rÞ ~ = Q.. ~ ~ Q CI:l ~ (þ r-J fIIIIto- CI:l ~ ~ :;J rÞ ~ ~ == ::. ~'.f :'11- '~r '~, t: Ii '~ i :-: o Rural Landocapo I'1oj.... 2000 UW H..lth Policy A.alys;a l'1o....m 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. lI.u..1 Landacap" Proj."" 2000 I.IW H..lth Policy Analysis Pto....m Stress! Challenges to Rural Health Systems Falling payment levels (BBA. managed care. Medicaid, BHP) ,., Fewer providers to share increasing workloads t /., Greater dependence on public programs / funding (e.g., effects ofl-601) Fewer health plan options .. ... Sustainable, quality, accessible ruml health servicc providers Higher rates of self·, ____.. small business. and ~ seasonal employment Chronic provider / ,./'../ service shortages ,. Inability to obtain eCQnomies of scale I ~ '-. Higher rates of "' uninsurance, lower rates ., of Medicaid enrollment , " (among eligibles) ., Longer delays in payment ~ from health plans Lower average income, higher average age Weaker economic bases Run) LaAdKa"" P",joct, 2000 UW Heald! Policy An.lrsi. P"'8",m Assetsfor Rural Health Development . .: " , - .rnea!l;WiIlíssion- focused healtlrservices .~:Str~ng:ge~~~~standcross-trainingtrad.ition -Welrorgañ.ized advocacy Rural l.ando<:."" P"'jec~ 2000 uw He.aUh Policy Åß.idysi. Program Renewed Sense of Urgency Rural Landsca"" Ptojea, 2000 UW Healllt Policy "'\luysis Pto..-rn Targeted Policy Options :,' " . /:1".\:., 'n' .:',. ···lI1SunJµcacoverageiliiórigh.pti5licprograms · Add pur~l1asihgoptions '(:_":>?;~¿:'~~_~f~,':::::fj,;'::':~':'~;¡;':"::.:, '. ... :~~:;_ . .' ." . .'. ·:rncreåsi#3.Ilaribiai'supportfoi'þroviders "",·..;Ij~~~f~:~~~~~~~~~::~~adesigh'arion' criteria' ", . Increase support for telemedicine Rural L."d><a"" Ptojea, 2000 UW Healllt Policy Analysi, prognarn Broad-Scope Policy Options IWraI Landscape Project. :000 UW Health Policy Analysi. Pn>l r1Im Community Economic System RuraJ Lãndscape Project. 2000 UW Health Policy An.lysis Program Econometric Model Design Data Bases -Health System - Economy -Population -Other Conto"" B~y Coulf om... of CommuniI}' ond Rural HooItII (360) 70S~7904. B<lYerly.Coutt@doh.W1L OY RuroJ Landscape Projecl. ZOOO UW H..ltII Policy Analysi. Propam Health System -. Economy ... ',; ',':',' :::::::,:~: · sal~~Tax:.Rev~riuës . ? RLiraJ LUld¡cape Project. 2000 IJW Health Policy A.nalysis Pro¡ram Economy / Population -+ Health System ~~1~;~~,::'<':.~~~-:~·t,::~,::.i,:~~~ ~.~ :: ", ":" ,:~ ,,"::::~),>:C':: ,', , ': . $.,JJiée:fféêiS~o ';~è:oñåmìc' andpopwation, changes on:;", :~_·:-:;~h·.""·.;, :::',f~J~:tJ,f~::::·:~, ..:/~~" .' ' ':. Rural Lancbcape Pn>jec:l, 2000 uw Health Policy Analysis ,,",pm 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 HEAL TH POLICY ANALYSIS PROGRAM Health Polícv Analvsis Program Aaron Katz Project director / report co-author Jack Thompson Faculty associate Katerina Skariba Research assistant Study Team School of Medicine Amy Hagopian Report co-author Washington 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 Vince Schueler, Health Workforce Specialist Health Policy Analysis Program University of Washington 1107 NE 45th Street, Suite 400 Seattle, W A 98105 (206) 543-3670 www.hpap. washington.edu Consultants Lance Heineccius Lead, econometric model Margot Nelle Lead, focus groups Washinb'10n State Ot1ìce of Community and Rural Health Understanding the Changing Rural Health System Landscape in Washington State RLRAL 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 detennination 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: I, 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 ITom the state OtTIce 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 of2000, and 5 I 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 Washington Health Policy Analysis Program and consultants Margot Nelle and Lance Heineccius under a contract ",,;th the Washington State Department of Health, Office of Commll1Ùty and Rural Health. Rural Health Policy 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 ret1ected in this report - were on target. ~Iethods 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 Folic)' Discussion Document. The Setting The 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 These examples suggest both the size of the chaIlenge and the potential for success in addressing persistent 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 BaJanced Budget Act (BBA) and the concurrent pressures of managed care and insurance market tluctuations, These realities add to the challenges that sma!1 communities in rural America have long tàced 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 gro\V1h, 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_l .:. 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 .:. 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 'd .¡ prov1 ers. .:. 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. 5 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 1-5 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 V A 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, since 1983, been riding a fiscal roller coaster whose ups and downs have been driven largely by shifts in Medicare payment policy Because rural hospitals are highly dependent on Medicare Rural Health Polic}' ... J 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 tìrst 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 tìve-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. I I The relief rrom 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 lOO beds. both Medicare and total facility margins are continuing to fall through the year 2000 and will only stabilize at very low levels. U 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 remote rural hospitals (defined as acute care fàcilities of 15 beds or less located 35 miles ITom another hospital). The program calls for states to develop their own guidelines within the fairly broad federal rules to designate CAH facilities. HCF A 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" 1--1: · 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 at1iliations. Access to relevant, practical information. Successful coordination and control of local health care dollars. Well informed community providers and residents. · · · · · · · · · Rural Health Policy 4 Final Report, Au!{Ust 2000 Rural 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 deliverv svstems 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 rrontier 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 them1\ politicians have 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, AUKUst 2000 outcome of the summit was the creation of the Rural Health 2000 Coalition: which was charged with 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 trom summit participants about the challenges facing rural health care. A second summit is scheduled for October 26, 2000. with the expectation that the momentum tòr payment refòrms can be sustained. ]000 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%, iffimds 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. Finally, the Legislature passed a Supplemental Budget that replaces some local revenue lost as a result ofInitiative 695. The state OtTtce of Financial Management estimated that the initiative would cut County Public Health Account funds by $255 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 13 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.2o 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 Development Council: Western Washington Area Health Education Center: University of Washington School of Medicine: Washington Hcalth Foundation; and others. Rural Health Policy 6 Final Report, August 2000 [nadeqlwte numbers of health care professionals Provider shortages persist in rural communities across Washington and the US, As of June L 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 \ifedicaid and other low income populations. [n suburban and urban areas, many hospitals. clinics, and medical practices are available to meet the health care needs of local residents, to share the tinancial 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.21 Inadequate professional support systems lead to burn-out and threaten the ability of rural communities to maintain an adequate network of providers. 22 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 unprofìtable service lines. In the early 1970s, the federal government began responding to the practitioner shortages by instituting the ~ational Health Service Corps loan repayment and scholarship programs, Community and Migrant Health Centers, Health Professions Shortage Areas, Medically Underserved Areas, training programs for mid-level practitioners, J-l visa waiver program, and others. Washington State also instituted a variety of programs designed to redress shortages. Organi=ational, 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 at11icting 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 tinancing and delivery systems that are governed separately. Rural health advocates have organized previous efforts to address these and other issues: · In 0ìovember 1993, the Statewide Office of Rural Health and the Washington Rural Health Association convened a Rural Health Care Reform Workshop in anticipation of the state's Rural Health Policy 7 Final Report. August 2000 . new .:omprehensive health system retòrm law. The workshop stressed local leadership and network viability. flexibility. provider shonages. and the needs of special populations. :-\. year later. the two organizations held a tòllow-up workshop, "Implementing Health Care Reform: Setting a Course tòr Rural Washington." The workshop summary23 added new concerns to the previous list: complex and costly administration of private and public insurance programs: regulatory and tinancial 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 tòrms or manifest in new ways. such as the potential impacts ofInitiative 695 and the now- "refined" tèderal Balanced Budget Act. What is new, however, is the convergence of these issues into a stark picture of rural health systems in tinancial 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 access to health services in the United States. While uninsured rates have continued to rise nationally, Washington State has one of the smallest uninsured populations - 9.5% - measured as a percentage of all state residents?4 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 tinancial distress for providers.· Cuts in Public and Private Pavrnents 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 Administration. both to be completed in late 2000. seek to quantify and analyze the relationships between caring fOT low income patients and financial stress in medical practices. Rural Health Policy 8 Final Report. Au/?Ust 2000 sources25 Despite an eight-year boom in the economy. voter-passed tax initiatives like 601,695, and additional proposals that will be on the ~ovember 2000 ballot in Washington state put tìnancial pressure on all state programs - including yfedicaid 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 60 I 's limits on state spending and potentially by 1-695' s provision that requires a public vote on all tax increases (1-695's constitutionality is being determined in the courts). even as the state's budget surplus has grown to an estimated $1 billion. The federal Critical Access Hospital program offers cost-based payment to rural hospitals for their yfedicare patients. but only a few states have followed suit with their y[edicaid 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 tìnancial relief to rural hospitals and other satèty net providers by delaying or reducing cut,s in outpatîent payments (it temporarily restored about $17 billion of the $44 billion the BBA cut.;6). Nonetheless, selV'ices like hospice care, durable medical equipment, therapy services, and ambulance transports will still tèel the BBA pinch of reduced payments. The BBRA also did not relieve the requirement that rural hospitals participate in the outpatient prospective payment system. After Medicare's PPS system went into effect in 1983, many rural hospitals 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 !--INfO grew from 53% to 82%.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 signitìcant 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?9 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 hospital. And the loss of its hospital can lead to a community's loss of its physicians and other health care professionals. Rural Health Policy 9 Final Report, AUJ?1Ist 2000 That being said, it is important to recognize that research demonstrates (and common sense validates) that a 10%1 improvement in market share has tàr 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 ruraJ 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 oflocal public health agencies - to conduct population based health activities has become a major concern since the passage of 1-695. The Public Health fmprovement Plan began the transition of personal health services out of public health departments. 1-695, 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:3! · Bremerton-Kitsap Health Department cut communicable disease and tàmily 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 FTE sanitarian, and .4 FTE 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, RuraJ 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 ruraJ 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 ruraJ 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 ruraJ counties. And it appears that only two health plans in 2001 will service Children's Health Insurance Program enrollees in Washington. Rural Health Policy 10 Final Report. Aui{Us/ 2000 ~rore than 30,000 Medicare beneticiaries - and their health care providers - in 19 counties were affected by health plan decisions to cut their Medicare service areas in 2000 For 200 I, an additional 20,000 - 30,000 Medicare enrollees may be aftècted 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 IToze 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 tTom mail-order companies undermine the sUlY'ival of community pharmacies. Taxpayers and other payers are unable to make up for these revenue shortfalls. Aging plant and eauipment When small margin or negative bottom lines are experienced tor consecutive years, the way rural hospitals manage their cash flows is to fail to fund depreciation. This means that plant and equipment 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 to day's rural hospitals were built or renovated with tèderal 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 tàr which they may not qualify in any case given declining bond ratings that result tTom 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 identiíied several other critical issues facing rural health systems today, including: Rural Health Policy 11 Final Report. August 2000 · Growth in regulation and oversight of 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 staf'fthat 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 mayor 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 fàr 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 I suggests, the simultaneous peaking of the "too" problems ~ too few providers, too low payment, too tèw 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, ta.'Xes, 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 .\' tress! Challenges to Rural Health Systems . . . . .. ...,.............,..........................,.... ............................. - . . . . . . .. ......,............,.............. .... --... -- --..... ---. --...... -- ---. --~. - .~_.. ',' --.~.... ".-............".. ---. --....... --..,... . -... --.... ------.... --..., ',' ..... ..........................---..........................-. ........................---........... "",.....,.............. .......----.... .................. ----.........----, ........--........ Falling pavm~nt levol, IBB,\. managed care. \Iedicaid. BHP) "I>~ Falling hO'pital net ~ op~.,.ating incom~Qt¡~ F ewer providers to ihare increasing workloads ~ l,reater dependence on '" public program. funding /(e.g.. etfec\S MI-ó95. 1-601) Higher rate. Llf ,00f·. ~c" small bu.iness. and ¿::;;.--- ,ea.ona! employment Sustainabl.., quality, I accca.iblc ru~ health .Cl'Iice providen Chronic provider / ~I/ se,vice <hortages ..0 / f) ~O II Inabilit" to obtain ... economies of scale Lower average income. higher av\,;ragc age Fewer health plan options gO~ ~ Higher rate. of I ~ un.in.u":'nc.e. ]úwer ":'Ie. ..... oj MedIcaId enrollment , " (among eligibles) ~Llnger delay. in payment 0" from health plans \V eaker "con om ic bases So, if a solution exists for the rural health financing problem, it's not simply how to find more money (although additional funds tòr specific programs, like loan repayment, may help), but rather 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: 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 ofInitiative 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, ret1ected 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 briet1y 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 and 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 fàirly 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 fòllows: Rural Health Polic,v 14 Fìnal Report, August 2000 · The health care system in Ellensburg (and Kittitas County as a whole) annually accounts for about L 440 actual, direct support, indirect, and induced jobs in the community: $39.7 million in personal income. and $196 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, $11.5 million in income. and about 545 million in local retail sales. Total sales ta.,< revenue as a result of these local sales is about $352,300 per year. In Grand Coulee. the local health care system accounts tòr 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 Ellensbur Forks Grand Coulee Income Multi lier ; .5074 .4908 .4162 For example, each 100 actual jobs in the health care industry in EIlensburg 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 rrom 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 healùl care industry (e.g., food services), indirect jobs are those which support the direct support jobs (e.g.. growing the food), and induced jobs are those which are created from employees spending their salaries in local businesses (e.g., buying groceries or dining in local restaurants) . Rural Health Policy 15 Final Report, Au/?Ust 2000 · The consistency of the tindings 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 specitic community. The Rural Landscape Econometric ~'1odel 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 tèderal 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 retòrm, in general, such transformation is complex and takes time. Moreover, change of this order cannot easily - or perhaps successfully - take place solely as a result oflegislation from Olympia or Washington, 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, tèderal 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 Polic.v 16 Final Report, AUKUst 2000 administrative entity would either prospectively manage the relevant programs and funds on behalf of and with the agreement of the sponsors (ie.. Medicaid. BHP, local government) or retrospectively seek payment tor services rendered fTom those sponsors. Potential government action - Federal: Medicaid and other program waivers: cooperative agreements with the VA and [HS. 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 tinancial 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 fàmilies for whom life changes can lead to changes in eligibility tor various programs; and simplification of payment for providers who would have only one "payer" for this patient population. Potential barriers - the dit1ìculties of: coordinating programs with different purposes, eligibility criteria, and payment methods: obtaining agreement from local, state, tribal, and tèderal 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 benetits. 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 et1ìcient and effective health services for all community residents and to maximize their market share in order to strengthen their tinancial 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 rrom the current managed care market place by its local ownership and intemal-to-the-community accountability. Potential government action - Federal: anti-trust oversight and exemptions. State: statutory or regulatory changes to allow greater flexibility fòr a local, provider-owned entity to bear íinancial risk; statutory or regulatory changes to allow greater tlexibility tòr ~LAA 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. AUJ?Ust 2000 for both tinancial 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 o\'med insurance plans in rural areas; and insut1ìcient scale in rural communities for building insurance infrastructure and managing financial risk. 3, Develop community-accountable, non-insurance ha!ìed 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" tòr their patients; local ownership and governance can increase market share for local providers; mutual tinancial 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 accounts. Rural Health Policy 18 Final Report, August 2000 " Targeted. Short-Term Options Table I lists a selected set of targeted public policy options. For each option, the table shows whether it might affect one or more ofthe 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 ~ Insurance payments and plan rural Policy Options coverage revenues choices providers 1 t. [ncreasc state funding for Health Professions Loan State ! Repayment :md Scholarship Program I : 2. Require Medicaid to pay Critical Access Hospitals on a cost State I basis (consistent with Medicare policy) I I ! · · 3. Increase public grant funding Of payment levels fOf rural Local Local : safety net providers (both fOf medical care and fOf "wrap- State State : around" services such as transportation and translation services) Federal Federal I I I -+ Increase funding to e:-.-pand coverage in public health State State I insurance programs (e.g.. fund the authorized expansion ofBHP Federal Federal i I eligibility to 250% FPL) I I I I 5. Rcvise BHP and Medicaid purchasing strategies to support State State I : local pharmacies (in rural areas) ! i 16. Allow public utility districts to develop tele-communications State , , · enterprises that support tele-health I I i ! 7 Increase payment levels for rural pro\'iders (including home State State health. dental care and emergency services) by public programs Federal Federal i I 8. Expand rural training in health professional education State ¡programs Federal I I I ¡ 9. Streamline HPSAIMU A designation process and add state- State ! i specific criteria :md designation Federal I I I 10. Increase the flexibility of Iv1AA and HC A to contract State State i directly v.ith providers - i - Ill. 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 I 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 proyiders who are starting new programs. phasing out Of 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 Fînal Report, August 2000 Endnotes 1 Gardner, M. 2000. Uninsured Children in Washington State: Findingsfrom the State Population Slln1ey (/998) Health Policy Analysis Program, University of Washington. February 1 National Rural Health Association_ 1999. Access to Health Care for the Uninsured in Rural and Frontier America (Issue Paper). May. J Kristen West. :WOO. Personal communication. CHOICE Regional Health Network. April 10. 4 Edelman, MA and BL Menz 1996. ·'Selected comparisons and implications of a national rural and urban survey on health care access, demographics, and policy issues." The Joumal of Rural Health, 12(3). 197-205 5 National Rural Health Association, 1999. 6 Vick Glenda. 2000. Personal communication. Washington State Department of Veterans Affairs. May 3. 7 Washington State Office of Financial Management. 2000. Postcensal Population Estimates by Race and Hispanic Origin: Washington State, 1990 to 1999. January. 8 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. 10 The Lewin Group. 1999. The Balanced Budget Act and Hospitals: Dollars and Centers of j'vtedicare Payment Cuts. American Hospital Association. Chicago. June. 1] HC1A. 1999. A Comprehensive Review of HOðpital Finances in the Aftermath of the Balanced Budget Act of 1997. Baltimore. March. 11 MedP AC (Medicare Payment Advisory Commission) Report to Congress: lWedicare Payment Policy Nfarch 2000. Washington DC: MedPAC, March 2000 (a).: Mueller K. "Rural Implications of the Medicare, Medicaid and SCH1P 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 HCrA-Sachs. "The Financial State of Hospitals: Post-BBA and Post -B8RA" Baltimore MD: HCrA-Sachs February 2000. 1·1 National Rural Health Association, 1998. A Vision for Health Reform }Vlodelsfor America's Rural Communities. February. 15 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: http://www.ofm.wa.govlbudget.htm#i695 ] Rural Health Policy 21 Final Report, August 2000 IX Association of Washington Cities_ 2000, [Online: http://wwwmrsc,orglawcfiles/i695budgetupdate4-27htm] I() Aaron, H.. ed_ 1996, The Problem That Won't Go Aw~y: Reforming US. Health Care Financing. The Brookings Institution. :0 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, :1 Onnond, BA et al.. 2000, 22 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. :3 Lishner, 0 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, :VI, 2000, 25 Rural Health 2000 Coalition. 1999. PriorWesfor legislative and exec:utive action in the year 2000 to ensure the survival of rural health .\ystems in Washington State. 26 Mueller, K, et al. 1999, Rural Implications of the A1edicare, ¡Vfedicaid, and SCHIP Balanced Budget Refinement Act of 1999: A Rural Analysis of the Health Policy Provisions (P99-1l), Rl;'PRl Rural Health Panel. December. [Online: http://www.rupri.org] :ì Ricketts, TC. ed., 1999_ ::;¡ Spring 1999 spot-study conducted by University of Washington and LeMasters & Daniel, personal communication. 29 Muller, T and R Ordos. 2000. Ho:-.pTrends. 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: I), 81-90 31 Kirkpatrick, V. 2000. Impacts o/NIVET Loss 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 Wa.':ihington 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 £Tom 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 Health Access 5 Ul'Qmit Workgroup Meeting Five Tuesday, January 23, 2001 12 - 2PM Lunch will be provided for you Jefferson General Hospital Auditorium AG£ND-A · Summary of Last Meeting and Update (Attachment 1) · Schedule Last Series of Meetings So far, the4th T uesday.of the month seems to be thebestalternaüve-. How do. March,27st and April 24th look on your schedules? Should our May summittJe' on aweekday or d 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 Of' e-mail atthlocke(iiJ.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. meetìngdates.were scl1eduJedfor January 23rd and February 2¡th, 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 ether 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. Aaron 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 problem for which the state also bears responsibility. The true partnerships that will be required to solve these problems need strong, honest and long-term support from the state. A BOOK REVIEW: TIle crisis of medical training in America. Why Johnny Can't Operate By ARNOLD S. REL~IAN Issue date: lO01.()() Post date: 091 LOO Time to Heal: American Medical Education from the. Turn of ùIe Centurv to the .\1anagcd Care Era. by Kenneth M. Ludmerer Oxford Uni"ersity. Press. 51-+pp. L 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 adequ<'!tely 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 ,md their ~oo 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. 111at is the disturbing message of Kenneth Ludmerer's important book It has SlirTed 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 tÏrst to understand the cxtraordinary 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 transíonned into a vast commercial market. Once considered primarily a social serYÍce 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 CUITent health care problems. Evidence of its deficiencies is accumulating. and public dissatisfaction with the market-based system grow's 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 tllese 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 inSlffimce companies. TI1ese companies. mostly investor-owned, now control nearly all private he,ùth 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 arc enrolled in managed care plans by their employers. who usually pay the major part of the premiums. Managed care spread quickly during the 1980s ímd 1990s. because it promised to control employers' health care costs. which were escalating rapidly under Ule old system of indemnity inslUllilce. Instead of paying whatever doctors and hospitals charged tor each medical service. as in the indemnity system. managed care plans charged employers a set premium in adnmce for an agreed-upon range of benefits. If the employees used fewer individual services. the managed care companies would profit: if Ulcy used more, the companies would lose money. By limiting contacts between patients ,md 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 h<mdsomeh. Managed care plans e:\ercised control 0\"Cf I11cdic<ù services through contracts signed with physicians. and their members had access only to doctors who were under contract with the pl31L The contracts not only also defined the terms of payment, but onen regulated the procedures w1der which physicians could practice. Physicians. for their part. had no choice but to accept this arrangement ¡fthey wanted ,li1 opportunity 10 treat the increasing number of patients being enrolled in these plans. In 1')\)3. the newly elected Clinton AdministratioTL having noted the initial success of managed care insurance plans in controlling medical C:\penditures. proposed a national phm to encourage this foml of insumncc. Rather tban leave matters entirely to the market. the Climon 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 ù1e bill. I ùlOught it was much too complicated. ,md I was disappointed that it proposed nothing to encourage not-for-profit. pro\ider-managed insurance and dclhery systems. I believed thell as I do now. Ù13t commercialization and entrepreneurial incentives arc a major impediment to viable health care reform. In any case. Ù1e defeat of We Clinton plan was a major political setback for the Administration. and it allowed. by default. 311 essentially unregulated managed care market to take o\·er the private insurance business. Note. however. that in controlling e:\penditures on medical services. the 1113113ged ccue companies were serving the interests of employers more Ù1at1 the interests of the employees covered by the insurance. Employers not only pay for most of the cost of the insurance. Ihey also select the insurance plan or the choice of plans available to thcir workers. Employers. and not employees. are ùlercfore ùle customers whom the insurers must eourt. This peculiar re- ,urangemem of Ùle usual relationship between inSluers and beneficiaries is one cause of the current consumer dissatisfaction with managed care. And there is another. cUld perhaps more fundamentaL reason. Before managed care. indemnity insurance companies were paid on a "cost-plus" basis. so there was no conflict between ù1e fm31lCial interests of the insurers and the medical needs of the beneficiaries. Under managed care. the insurance companies are paid a fixed prcnùUlll and so they profit only to the e~1ent Ùillt tJ1ey can limit their payments for medical services. (111e companies refer to these expenditures as "medical losses. " an odd but revealing £cnn.) 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 ¡his arrangement: but it can do little. I think. to correct the basic misalignment of incentives that accounts for tl1e conflict of interest. Patients do not want any restrictions on the medical services recommended by their doctors. but the managed ccue 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 Ùle long-needed rationali71uion of a previously wasteful and unaccountable cottage industry. Not surprisingly. the pri\'ate managed care insurance companies. now wealthier ,md more politically powerful tl1an ever. agree \yith l11ese experts emd are greatly pleased with the transformation. T11eir trade association.. the Health Insurance Association of America (HIAAL is a potent lobbying force in Washington dedicated to protecting ùIe industry's current control of the health care system. H1AA played em important role in killing the Clinton health plan.. and it no,v seems determined to resist any refonns or government regulations that might threaten the business success of its members. 111e American Association of Health Care Plans is another prominent and iní1uential Washington trade group actÍ\cly promoting the interests of managed care companies Most of the money that does not reach the direct proÙders of care (mainly doctors and hospitals) pays for the increasing corporate expenses of the insurance companies cmd pro,-ides income for the innwnerable new healt11 care- related businesses now living off the health carc system. T11ese 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 information technology. Many of these new senices arc supposed to control unnecessary expenditures on medical care, and to make the system more efficient. Whether (hey 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 ¡¡way from the direct providers of medical sef\ices and directed the money elsewhere. True. total expenditures were briefly held in check during the m.id-1990s. but ùley arc once again rising at near double-digit rates. The fraction of total private health expenditures that has been sh.ifted to the corporate overhead of managed care insurers. and to all the other new heaUh care-related businesses. is not precisely known. I would conservatively estimate it to be at least one-tJúrd of the total, or rouglûy $125 billion to $150 billion. Despite ùle claims of the managed care industry. Ùlere 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 tllis fact is generating widespread public di scontent. No wonder. then. that the direct providers of care--the doctors and the hospitals--are so unhappy. TIley believe thcir ability to take appropriate care of their patients is being compromised by the cost management and the coverage decisions of the insurance companies. TIleir own o\-erhead expenses ha\e risen as they struggle to survive in a new competiti\e and commercialized marketplace. and to comply with tllC red tapc and ùle regulations generated by multiple payers. Reimbursement for their services is being capped or reduced. \vhile increasing rewards go elsewhere in ÙIC system. TIle declining morale of physicians. and the economic constraints on medical care now imposed by the private insurance marke!. should worry eve~one. not jusl doctors. More and more employees covered by m,maged care plans. particularly those with serious illnesses or injuries who need medical care the most. arc concerned abont their restricted health care choices and their limited acceSs to specialized medical services. Lately. as the costs of premiums have resumed their fonner rate of inflation. even employers. who had initially demanded that market forces be brought into the healÙ1 inslW.mce field. are beginning to wonder whether the present system willlast--and whether it should. II Much has been \"ritlen and said about all of tllis. 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 ùleir associated teaching hospitals. The market does not treat teaclling hospitals kindly, because they arc much more expensive than their non-teaching competitors. Yet ùley are the wellsprings of modem medicine: the priITIa~' 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 disproponionately large share of the sickest and most complicated (and therefore the Illost expensive) patients. as well ,IS a disproponionate share of the uninsured. And Ùley are the essential pro\ ìders of medical educatioIL 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 Darwini<m free-market philosophy. has little or no interest in helping teaching hospitals bear ùleir heavy social burdens Kenneth Ludmerer is right to wor~ that without viable academic medical centers and teaching hospitals. the future quality of medical care \\Ì1l be in grm'e danger [n telling the story of medical education in the twentieùl century, Ludmerer makes clear that Ùle system of medical education was already in financial trouble for a decade or so before the managed care companies took over the private insurance nmrket. ivlanaged care compounded the problem and converted it into a crisis. TIle education of medical students is ve~' expensive, and the eannarked fTInds 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: bnt 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 paticnts. In the same way. major teaching hospitals had alwa~¡s used these same sources-- particularly payments for clinical care--to cross-subsidize Ùle costs of educating ùleir interns and residents. But this strategy was doomed 10 t~IÎL In the 1970s the policies gO\'erning research grants at the National Institute for Health \\cre made more stringcnt. preveming their use for the support of clinical teaching And in the 1980s reimbursement of physicians and hospitals by Medicare. Medicaid. and pri\ate insurers was cuI back. reducing the clinical income that could be lIsed 10 support cducatiOIL Adding to the economic squeeze on teaching hospitals was thc adoption in the 19805 of a system of hospital reimbursement that essentially paid a fixed amount per patient according to the diagnosis. rcgardless of t he length of stay or the actual costs to the hospitaL Obviously such a system of re-imbursement hits teaching hospitals the hardest. because clinic;ú ~ducation ;md the care of the sickest patients require longer ,werage 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 Ilourished in the quarter of a century following World War n. TIle academic medical centers of the l!nilcd States had responded to the national call for more and better medical care by rapidly expanding ,md multiplying. They did more research and treated more patients. TIley graduated more medical students and produced a growing aI1ny of \\ell-trained specialists and primary care physicians. To do all this. they used whatever funds were readily a\ailable. ignoring Ùle danger of allowing medical education to become heavily dependent on outside sources ùlatthey could not control or even predict. In those halcyon days. when money for medical education was casy and seemingly unlimited. the academic medical establishment was content to li\'e only in Ùle present with no thought for the future. This was perhaps underst:mdablc. but even after the makeshift fimding began 10 decline and the ùlfeatto medical education became more clear. the leaders of the academic medical centers were not inclined to address the problem. I fecl qualified to make such ,ill observation because 1 spent a large part of my career in academic medicine and was active in many of its national organizations. In 198-1-. 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 societ~\ in academic medicine, I wamed that makeshift funding would inevitably fail 10 susta.in medical education ,md would eventually have to be replaced by public support. To justif}' that support, academic medicine should take more responsibility for addressing problems in the h~llth care system of the United States, and be more accountable to the public for its actions, But at Ù1C time. leaders in academic medicine had other concerns. Most of us \vere too focused on the immediate needs of our O\Vn institutions and our 0\\11 medical specialties to cooperdte in seeking more solid support for medical education. let alone to work on solutions for the problems of the .-'\.merican health care system. Ill. The issue became moot after the stunning events of the last decade. Advocalcs of the free market defeated the Clinton health plan. and market-based managed care quickly gained full control of pri\ate health insurance, TIle effect on the finances of academic medical centers was disastrous: survival became :m urgent priority that took precedence over concems for the quality of educational programs. It became impossible for academic medical centers to cross-subsidize educational programs as they had in the past. TIle critical problem was not only the lack of money, but also the lack of time fOf 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 inunediate 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 scarcc commodity. The best clinical education occurs at the bedsides of patients in the teaching hospitals, Traditionally. medical students. intems. and residents had time to examine and get to know their hospitalized patients. to panicipate in tlleir 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 tlle clinical care that they provide. and the payments are not generous enough to support e:\.1ra time for teaching. In addition. the faculty members are expected to see as many patients as possible, as rapidly as possible. TIllis. even clinical care may be compromised. and teaching runs a poor second to that. Moreo\er. OtiC way managed care controls costs is to keep patients out of the hospital WlleSS they are extremely sick. or require major surgery or specialized diagnostic procedures that C<liUlOt be done outside the hospitaL When patients do need to be hospitalizeQ they arc mo\ed in and out as quickly as possible tthe expression in the medical community is "sicker and quicker"). so that the ayerage stay is much shorter thim before. As a result. teaching hospitals. which always had a larger than ,1\'erage share of yery sick patients. are becoming little more than centers for intensi\e care and major surgery In loday's tcaching hospitals. cycnts move too swiftly and patients are too sick to aIJow time for the proper teaching of students. There is much less time for pedagogic discussion and instruction at the bedside. eyen if physicians on the faculty were available to leach. TIle result is that students in leaching hospitals see onl\ brief segments of Ùle medical care process. haye less sustained contacts with patients. and receive less personal b'lJidance from experienced faculty. Interns and residents. for their part. arc so busy coping with large numbers of sick people that they ha\e little or no time to read. attend teaching conferences. or even talk to Ùleir patients. Faculty physicians have less time to teach and Ùleir harried. Q\'er-worked residents have less time to leanl. To sa\e Illoney. most diagnostic work-ups and preoperative evaluations are no\\ 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 particip<mts in such care because they slow things down and occupy too much of the attending physicians' time. TIle 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 ITl<llli1ged as efficiently as possible. TIus leaves no time for teaclung. This growing disjwlction between the new. largely out-patient-based heaJùl 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. TIle Robert Wood Johnson Foundation has been notably active in this field. Yet such initiatives, howevcr commendable, arc little more than demonstration projects. unlikely under the present system to have a major or lasting impact. Neither such demonstration programs. nor LillY other limited and local interventions, can sohe the basic problem, which is that a market-driven. price-competitive health care system has no incentive to suppon a common social good. such as medical education. Indeed. aJl of the incentives in such a system work in Ùle 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 10 be their concern anyway. And whatever limited support the managed care industry might \oluntarily 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 fundameIltals of doctoring. As Ludmerer so painstakingly documents. we are witnessing the dismantling of a system of cliIucal 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 Ùle rest of the world in the way ùley had managed to combine patient care. clinical research. and education into a unilìed and synergistic enterprise. Under financial pressure from the commercialized heaJùI care lll<uket this enterprise is now disintegrating. TIlere is no opportunity to teach or to learn in a health care system driven primarily by cost-contaimnent imperatives. and ùlere is inadequate support for the extra COStS of teaching hospitals Umt 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 wlsure 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 ,ill 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 graduaJly 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 tl1<1I time. and new ones continued to appear tllfOUghout most of the last ccnturv TIle new system was grounded in science and scholarship. and it was committed to advancing medical knowledge and educating physicians. TIlese objectivcs set Americ<m academic medicine apart from the routine delivery of medical services in the comnnmlty at large. Of course. academic medical celllers provided medical care to people who were referred to dleir teaching hospitals. or who came 10 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 filllclÎons made the teaching hospitals much more e:'\pensive than the others. So long as adequate fimds 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 everything. Pressures for cost containment <md 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 lc:ldership. and with some brief general suggestions for reform of the academic establishment that might encourage Tllore public support. But these are little more than afterthoughts in an epilogue. lacking \lIe richness of detail and understanding that chamcterize the body of his work. I do not mean to be too critical: \llÎs 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 docwnenting 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 refoffils. IV. Meamvhilc. how IIave our medical centers been responding') No! very \vell. According to Ludmerer. "the organized effon and political will among medical educators to behave proactively did not appear 10 be great TIle main emphasis was on expanding the clinical mission. even if \lmt threatened to undennine the core principles upon which \llC academic health center was based. Critics who contended that medical education followed the flow of money. not principles. had evidence for that belief." I rlunk that Ius description is accurate: and yet the response of the academic leadership is understandable. even if it is not always admirable. TIley are struggling to keep their teaclling hospitals viable in an economically threatening environment. TIley arc doing what they must do to survive, hoping that help will soon arrive <md the climate will improve. TIley appeal for relaxation in the cutbacks in Medicare. with some modest success. and they ask for contributions to medical education from tile private insurers. with no success at alL TIús is hardly surprising. because neitllCf govermnent nor private insurers are interested in Îlutiatives that will increase health care expenditures. Moreover, the huge budgets and the lavish new facilities of many medical centers make it hard for thc payers to believe IlIat 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 acadenùc prognuns. while others can call on swte appropriations. What both public insurers and prinllc insurers seem to forget is that neither of these sources can come close to replacing the enonnous indircct subsidies the teaching hospitals had received through the indemnity insur:mce system of the past. Public fimding was largely responsible for the continued expansion of academic medical centers in the past half-century. and indirect subsidies hayC been essential in supporting them. Now. with the recent withdrawal of much of the support the centers must adapt and improvise to sun'iye. To surviye in a market-dominated health care system. the academic centers haye had to do what ¡my business in similar straits would do: cut thcir costs and increase their revenues. But cutting costs has meant reducing nursing and other professional and tcchnical staff. This lIas incre..îsed the routine busy work and ùle 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 tcaching hospitals haw also mC;UII the clímination of unprofitable social and commwùty seryices. To increase their reyenues. more hospitals are aggressiYcly marketing and adveIlising in an cffoIl to attract patients and keep their facilities as tìIiI as possible. Hospitals. e\'en those that arc paIl of the samc academic teaching program. arc 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 :Ire paid large salaries. employ big administratiye staiTs. ;md are judged primarily by their financial performance. TIleir titles. l;mguage. culture. and behavior closely resemble those in American industry. Indeed. they :Ind almost cvel!one else who works in or with large American hospitals. e\en the most distinguished teaching institutions. now regard these hospitals as part of an "industt:". Most stories in the newspapers about hospitals. c"en about noH'or-profit hospitals. arc now to be found in the business section. To blur the distinction between teaching hospitals :md businesses even furtheL se"eral academic medical ccnters haye leased or sold their hospitals to investor-owned hospital chains. in ;m effort to cscape the economic risks of the new health care market, and a few others have dissoh'ed legal tics with their hospitals to allow the latter to compete better in the market. Business philosophy has come to inf1uence the teaching hospitals in other ways. Seeking new sources of revenue, many academic centers contract with pharmaceutical and biotechnology companies to cafl!' out clinical research. Such arrangements are not necessarily bad. if there arc appropriate safe!:,'llards to protect ¡he integrity and the independence of ule teaching institutions and their medical staITs. Unfortunately. this is not always the case. Medical staff involvement in such contract research takes time away from teaching. ;md financial connections with the sponsoring comp<mies sometimes create coní1icts of imerest that affect the objectivity and even the credibility of clinical teachers. TIle proliferating connections between teaching hospitals and phannaceutical tlrms arc threatening the integrity of clinical teaching progrmns through other kinds of arrangements. Sales representatives of drug tlnns have always sought to market their employers' products through visits to practicing physici;ms in their offices. In fonner times, most teaching hospitals discouraged such \'Ìsits with Ille resident staff. believing that their own tàcuIty. and not the pharmaceutical industry. had a responsibility to educate residents and medical studems about the uses of prescription drugs in medical practice. Now teaching hospitals seem eager to cooperate with the phamlaceutica1 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 arc now welcome at most teaching hospitals. They attend and support educational conferences. arc present in ùle operating rooms to ad\'Ìse on ùle use of their companies' new surgical de\'Ìces. 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 0PPOIlunity to hawk their wares. The phannaceutical industry is flourishing. and it has tens of billions of dollars 10 spend on marketing its products not only to physicians in practice. but also to residents in training at teaching hospitals. Hungry for tlnancial support wherever they can tlnd it. teaching hospitals arc turning over increasing parts of ùlCÎr educational responsibilities to ¡he phannaceutical industry. TIle long-tenn effects of this dereliction on ùle quality and the rigor of the clinical education being received by medical students ,md residents in the teaching hospitals nUl~' be devastating. Physicians are supposed to be tmsted and expert advisers to their patients on the effectiveness and the safety of prescription drugs and medical devices. TIley must be relied upon to judge the relative value of competing products. How can they till this role if their practical education in the use of dmgs and devices increasingly is sponsored by the companies 111.1t sell ùlese products':' TIle growing problem caused by the academic-industrial relationship is resulting in serious etllÌcal dilemmas for academic medicine. In a controversial editorial. Dr. Marcia Angell. 111e outgoing editor of TIle New England Journal of Medicine. recently asked: "Is Academic Medicine for S¡ùe':''' 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 DeIXlrtment of Health and Human SeT"ices will be taking a much closer look at the situation. I hope Ilmt 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 J not-for-profit community-based health care system tlmt provides everyone ,,\ith good and affordable care. while supporting medical education and the other infrastructure necessary to advance medical knowledge and improve tile qlk"1lity of health services. To make this change would be a fonnidable task. Even assuming Ùlat 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 tile 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 $4.000 per capita. That is almost certainly more ùum enough to provide decent acute and chronic care for everyone and adequate support for medical educatiolt if tile money were spent in a different. more socially responsive. and better organized manner. The problem lies in generating the political will to reform the present system. Opposition will come not only from anti·government and free-market advocates, but also from Ù1e powerful vested interests whose newly gained hold on Ù1e healÙl care economy would be threatened. All these obstacles notwithstanding, I believe that a major change is inevitable. owing to simple realities. Medical care is an essential human service. It must be responsive to needs and be governed by ethical values. It cannot be successfully distributed. therefore. by unregulated market forces. Medical education is a vital prerequisite for good medical care. It too. as Kenneth Ludmerer's masterful history so persuasively demonstrates. cannot thrive in a market-dominated system. ARNOLD S. RELMAN. M.D. is the former editor in chief of The New England Journal of Medicine and professor emeritus of Medicine and of Social Medicine at Harvard Medical School. (Copyright 2000. The New Republic) --- '''''ë~~... ... ,. . "~'\",:""'íi,U- ~'ti$i:' ,~ ~~,' ., '''f'r\l - __·__·~"""_4 .....~. c' . ;.-}~g~!1arket Turmoil *·-B..,.,,~l'r'mr~ealth Care System ~,' . :'*,I~¡~1M~X}' .. i¡Jj:~!,ø' í ~ ~ ;~ilrr~'l '.' ,. .', .~~... Luna HUI1l'cÔuS With the llJlJ.'5 repe<ll olcull1prehel1sivc health reform m Washington .:)tate, the local health care system entered <In era in which competitive market forces, rather than gov- ernment planning, have become the dominant mlluences shaping the health system's future. AJter five years of this parachgm, the results dre discouraging, Gmwing IW\I'kClturmoil seems likely to ['urther disrupt ~Iccess to health care for vulnerable populations such as the uninsured, rural residents, and people with serious illness or chronic conditions, Such disruption could increase the challenges 1;1ClDg public health services. The he;:dth C;tre "market" IS defined by the tIlteractions Jmong pat\ents, :")n.widcrs, COn" ';lImers, insurers, pUI'cha,;n:; (1i' Insurance (tn'linty <:mploycrs and govcrnlllcnt), and the complex federJI and state regulatory struc- -~~'r'~W?,,·~;,- Table 1: Consolidation in health plans in Washington since 1994 " '~~ f~ 1994 2000 ., ,. P:;~~~:~~~kl'~~t~rg~~. . ·1j'·~{:1~;.¥~t?T~ Blue Cross of Washington and Alaska Medical Savings Corporation QualMed (Eastern WA) Network Health Plan Pacific Health Plan PacHiCare of WashingtöÌÌ d QualMed (Western WA) < ".",. ' "';',(:~'.~"~':..':".~ ,....·'1 .J.',r ..._-~!< \". f"'f~J,,,,~...~œ ,0~~;â~M~:Ilikplàn',i,",.:~,,~y.ii~~f~#~~ïù1æ;P5~~~,-i~s~r " Aetna Health Plan " .... :}!!ìl""c. .". ·...,''''~~·'il..,~''''f:? ., .).¡.{¡~~~~~ Washington Public Health. Fal! 2000 .'..-....i.¡....~~... :;,. ~~~~;~.~~~~~:;~',.,,~~ Rc-, lure, A(;ccss lo health II1sumnc(; is dC(;n,;asll1,L; whde health insurance premiums rise; ne~rly all health plans have lost money in reeem years and some smaller insurers have gone under; hospital margms are shrinking and expected to get worse; physicians are frus· trated with health plan interference, admlllls- trative burden, .\!lel constraints on their income; and consum<.:r trust In the health Clll' system is steadily eroding, Government, at both the state and national levels, has shown little leadership on health care in the past five years ~ although the campaign rhetoric for 2000 increasingly mcludes some health issues Consolidation has become a major trend for health.reblcel businesses: mergers, J(;quisitions, Jncl re-formations of husiness entities that, for the mOSl part, <Ire designed t,) achieve economies of scale, expand market share, and make health-related companies more competitive, Health plans have consoli- daled dramatically (TJble 1), and additional consolidations may raise antitrust concerns The benefits of health plan consolidation have yet to become dearly evident The hoped-for economies of scale have not been realized thus far, as system integration challenges continue to increase overhead costs, To date, major health plans are not experiencing postmerger market share growth, whiic new market cntr;¡nts su(;h ~<; . First Choice and Community Health Plan 01 Washington have shown respectable growth Competition has increased, but the major visible effect has been abandonment of unprofitable lines of business or geographic areas, For example, many managed care pJ¡lIlS have discontinued serving nlral counties, and individual insurance remains unJvailable in most Washington counties (as of September 2000), Many health plans are also discontinu- ing their participation in government pro- grams such as Healthy Options, Basic Health, and Medic<lre + Choice, Few health plans in Washington have reported an underwriting surplus in recent years, Figure 1 presents health plan losses in 37 \VI.,¡''',g¡',1\ 1'"1,1,<,, I.-,,JI!,. hllll1I'll Percent of Premium o 1997 o 1998 . 1999 15 5 o ·5 PacifiC are Premera QualMed ·15 Group Health A"lna (VM) Firs, Choice 2" . ,J -35 *Community Hecllh Pic" of Wo.hi~9'on fi¡.\urr .I: Undcrwrtllt\g lnaqs!ns ¡pr Hr¡l!th Plans ill \V~shinC:lnn ":.th', I ql)7 It) ] ~)\..)l) ""J,'c,c: Hcalth plan filin.>;,; ",ith the ,~'IIICl' or the Insuranœ CommissIOner. 1997,1998, and 1999 for the major insurers ill \\i;lshington State Midyear (bUt for 2000 IIHJlcatc minor improv<:l1\ct\l, bUl 11\OSL plans slill had slightly negative underwriting mar~ gins at midyear These underwriting losses do not reflect interest earnings on reserves and olher income, whieh allowec\lllosl heulth pLms to operate in the black m recent years, The net worth-to-losses ratio for several plans IS problematic, huwevcr, so addiliunal plan Cailun:s ~1I1d Corcnl consolid,lliuns may occur. Hospitals in \Vashingtun have not yet see,n major consolidations, with the exception of thè Swedish takeover of Providence Hospital ill C;CJtt!e, Worsening !"inancinl SI;llltS I1l::1Y force further consolidations (ur closures) in coming years, Through] 998 hospilals were JCttvcly purchasing prilTlary I.:are physician ¡JI'acLic.;cs, ~\ form or vertical mther than hori- wntal consolidation, The new trend appears to be for hospitals to divest or restructure physician-business relationships, primarily for economic 1'C;\SOI1S, Another 1ll~1 0]' economic Figure 2: b.;pcuccl rcdul.'l inns 111 \lcd""nc I'~V<:IlUCS ¡or \Va~hillg- i\'I1 SI:\te hl1spit,\ls duc tl' Ihc f3a:anced Budget Act of 199ï, ,-;ourcc: \VJshington StJIC Hospllal \~:-'\)(."1;¡1 il)Jl. 1998 1999 2000 2001 2002 $0 $-50 $·100 $·150 $-200 $-250 l_._ \ \. \ trend for huspitals and other providers is dcclining Medicare revenues due to cuts tmposed by the federal Balanced Budget Act of] 997, Figure 2 shows the estimated reduc- lions ill Mcdicll'C re\'CIlLlCS I'()]' \V;¡shil\gl('11 huspitals, Cuts will he phasl.'d III uvcr five ye,lrs ending in 2002, with the largesl n:clul:- lions scheduled for the last lhree years. Olll.' estimate suggests these cuts will represcnt 1'ough]y 2% of annual hospital expenses each year. Reccnt congressional dUllln hds Ilwdn- ated or deferred some of those expected CUts, Health insurance purchasers (employers ~Illd govcrnmcnl) ,\IT viewing Ill\' mllSI n'('('n', round of health plan premium Increases wIlh alarm, After relaliv<:ly IlIW dnnual il1crc,I~CS ill the mid-1990s, most health plan premiums are now increasing at double-digil rales, 0111' stl"Utcgy lh<.ll m<.ll1Y Jllldwsl.'l's ,Ire ll\!1:;ldn ing, Of have already auopted, is a "ddined contribution approach," The purchaser ,elS ,t ["¡xed ,¡mount [0 cnntrihulc ;Hlnlt;llly !OW;Hd lhe purchase of employce health bene/Its (the defined contribution) and the employcc or beneficiary must make up the difference IC1 purchase insurance coverage that costs morc Lhan tilt: comrihll1 íl)n, [n a robust lTOIH1II1Y with a tight labor market, lew employers , have been willing to shift a major pl1nion 01 premium costs to <::l11ployces, but l1luny arc alreJ.uy selling up lhe inlrasu'uUurc Ll' b<: able to do so in ¡he event of an econom¡ç downturn, Smaller businesses are more likely to simply uiscontlnuc health hend'its ,¡ lOgetlll'r in ,111 economic downLurn, One addiLional [actor worth following is whether plllpllsed !"celcr;¡1 regulations for J p,lIien! hill u[' nghts will Jllow <:mployees Lo sue self-IUncleu employCl heJlth µlans, If ,his occurs, some experts predict that most self-funded plans will be eliminated and thaL employers may instead offer lheir employees a voucher 1'01 pLlrd,;!s-- ing health insurance (or possibly even health services) on the open market. [n WJ.shingLOn SlaLe, this voucher approach mJY prove difficult gtven the ¡IìSwbility in Lh; individual health insurance market lollow- ing the repeal of univcrs;¡1 access in ¡ 99'5 Adverse selection, J shl.1rt prl'existing (oneli- lioll <:XCILlSIO!1 puiod, ;lml;¡ lTl uin'lllclll 1,,1 guaranteed issue made th is murket Ull prolll- able, Citing excessive losses, lhe lew hea]Lh insurers offering incliviclua] ne¡¡ltn insurance policics froze enrollmenl in 1l)1)H and l)l)l) and rdusccllo sell new polkil's, Thl' 2(10\) Legislature has prov1ded at least a temporary fix for these problems, bUI the longer term linancial vwhililY of Individl\~ll :md sll1~ll! group health insurJncc I'or highn-I'isk lsickcr\ l)l'I's[\ns rl'l11ams LII1Cl' n :\111 / .^ Implications for the Public Health System what d(1cS this nurkel [UIll1()¡ llle;\n fl)r the public health system in Washington) rour pOl<.:ntial imµaClS 5<':1:'111 [ik<.:ly in lhe coming years: o More uninsured: Health plan abandon- Illcnt ,)f unprofitable busincss lincs and geo- grJphic areas, combmed with rapidly escalat- Ing premiums and employers shifting more of I ill' premium L'OSlS [(1 elllpll)yees, arc likely tl) result in an increasing number of uninsured µersons in many arcas of the state. To the extent the uninsured need primary medical care, they may seek services from local public health programs and local emergency rooms. Handling this increased but unfunded de- mand for direct service de1ivery could pose a sni()\ls challellgc 1(1 1ll,1Ily Ipcd puhlic hcalih JurisdIctions, especially in the wake of 1~695, lhe voter initiative that repealed the motor vehicle excise tax and cut state revenues. o Baniers to access in rural areas: Even without the Il1suranCl: µmblems, more rural residents are expected to encounter access difficulties if rural hospitals are forced to close due to insufTicknt payment levels from Medicare. Again, this Sl.:en;lrio may place un- anticipated and unfunded demands on local health Jurisdictions to deal with residents who have no local source of medical care, o Less money available for community health programs: Many not-for~profit hos- pitals support a wide range of community health programs that could heleopardized by 11l1,ll1cia[ difficulties. Current µrograms may be discontinued and new programs appear unlikely given the decreases in net revenue anticipated at most Washington hospitals. o Opportunities and challenges for joint efforts in prevention and health promotion: Given the increasing fows of health care businesses on the immediate financial bottom line, the longer-term benefits of prevention and health promotion are often ignored and sometimes refmed altogether The challenges for public health programs are, 1\1'st, to get the Jlteruion of hospitals, physicians, ~\Ild health plans during these difficult times and, second, to convince them that keeping their enrolled population healthier and identifying illness earlier will be financially advantageous. This will be a tough sell in the near future, as providers and health plans look for new ways to cut costs and avoid higher-than-average- risk patients. W",hIl1gli,n l'lIhlil I k,dlh . bll 2l1[1[1 ~:~.~~~,..~~. . ~..:,,~~~~..:-:'I:.. . ,~.,·'tr " Strain:s on the Rural Health Care Safety Net Vichie Ybarra Progressive health care policy has placed safety net providers in rural Washillgtun Stale l!1 a sorne\',:hat better position than rural providers III u[hn SI,\ll'S. rrom my perspective, however, serious access issues remall1 Cor rural residents of our state. The three pnmary issues I see as most pressl!1g to the sUl"\wal of the rural health care safelY net are Medicaid managed care: rural hospital viability, and health profession development. Meckaiu managed care has created unique challenges in rural areas. Even in areas that have health plans willing to contract with Medicaid. the Jack of sufficient specialty providers needed to create competition on fees cln be J serious problem. While employers and government purchasers are trying to reduce what they pay to health plans, plans operating in rural areas may not be able to pass those rate decreases along to specialty providers and so are at increased financial risk. Nationwide, small rural hospitals are closing at an astounding rate. Their disappearance is a concern because these hospitals represent a vital resource for local primary care. Without a local hospital. many primary care and specialty providers arnimply nof willing to practice ill ¡'ur;)1 ;1IeJS I~ur examp1c, it is dilTicu1t to recruit a physici.m to pro- vide pnmarv µrenatal care without theoppor.tunity to deliv~r bap.i,es. Although" recruiting physicians may be sóinewhãt"lesidifficult 'than 10 years ago, provision9r:Þ:#m:,~Df~,.~ª,~~ÞJ~mMp'~fiftjñ[g~9r£á:t~~·:,; environment that emphasizes preVention:a'nd contiÌ1uityÖf care}'iL;' requires a broad range of other health ,care professionals. Nurses, pharmacists, dentists. den'tal.,hygienists, 'arid Jab tecþriicians !ire also difficult to recruit to rurabiêås:Hci"solýè'this'problem.we;need¡ni-w and creative partnerships that move beyond simplistic clinical place- ments in rural areas and arrangementswith schools to educate these professionals. We know that'heålth'ÞfQfêssiori~students fromlrurab"" areas are much more [¡kely',~ò.PE~<~~~~Q.¡,l~ll'a!}r~'\,~:,:æ~~.§~1I.ff. c[¡mcal placements for health professiml'5tudents shoula nave an'-,,; opportunlty to re':[une ~~;,~~~~1~hp.r2f~?ä?'~'t~~ÇJ~~~~.¡~~}t;.. students from thm commumty.'~'¥i;,. . ~~?'f,~~t Washmgton State has made strides in shoring up the rural health care safety net, but to maintiÜri íi;"hè1ìih""pölièy múst'support;šmalL rural hospitals and the health plans operating in these areas. liealth policy also should enèòÚragêþeålth~' f(jfé,~ii:JÌlsj~ëhöô15'1'f'ó'r'èt~f.:·"· ,.,,'l:~;~.rural areas':';~;~;:;'~~7:~~:'.. c ~., . '~r~~~:;]f:::t;~ '. Vi~hi¿ Ybarra. R N., lvi.pH. ,:¡sä{rèti6~ 0 p anni'rig·àii'a....dëvëîópmeñtårtÏîê:Wài<tma· Valiey Farm Workers Clinic in Toppenish and ~member of the WashingtQn State Board of Health . . ". ¡..:, :..':.:.~\~J:',~¥ ,~~>~..;(, '."-;,".1,~. , l ) Recommended Reading Barker K. Varn~r LK Health :nsura:".Ce Gm still be found. bUI ;TIll'llnlllg choices likely wii! be pricey. Tilc Scwi!c llllIC'. SCIJICI11!Jcr :J. : 99() p', HClnccclus L. f-fca/tll Carr FLIII"Ò. SC'Ulk: \VashinglOn State Hospllal Assoc:ation. 1999. pp 78-86. 128-ì3l1 Tiscomia J. BaLlmgann~r 0 (.-\nhur .-\nckrs~n LlP) The Balanwl13uJget Act vI 199ì tJJàts vn liealLhcurt Operations, presented at The 'v\iashlllgton Slale Hospi- tal Association Annual Meeting, Seattle, Oct. 14. 1999. \Vendleton J: PrvIHc oj' Washington S1a1i: Health Plans. Seattle: WashIngton SuJt~ Hospilal t\ssociation, t 999. pp 1-12. AwhoT L~tf1l:C Hrineccil/s is a health SCr\'IC2S consultant in Seattle. \':¡,".",,"'" ·······'t~'~L:, ,.:.ijf:'~?" , ,Suke 1100 :';i~~Sbdh Avenue ,$eätde,Washlngton :,,,,.(1 ·~-9762 l.;aQO·552.-0612 fI)ç ~«1.5863 WashingtonStateMedical q Education & Research Foundation , '.<:~~~~~:'~::"~'~ , .: (,,~: '".t .. August, 2000 I."'~;;~' ".'t. ,'. 4" .. '1'I1~~~';I' Wither HetlltJl Care? .,': ~'.. ,", ,,' , ,,:,,:::~;~15? Few issues have stÎ1Ted more passion aDd less dispassionate analysis tbantlÙ\i~,~ health care reform. While there seems to be considerable consensus that what,,,\!. constitutes the health care system "status quo" is not working; there' is preciO':':!,0", 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 infonnation that supports an informed discussion of what might be done to restore health to ourhealth 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. ,.', ., ,·,.:~1 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~ Treas1Ifer Sam Cullison, MD, Director ' Jeff Collins, MD, Director Peter Dunbar, MD, .Director 7/61100 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 insW"ance - at first to individuals, then increasingly, to thei.r employers. Health insurance during this period was generally of two basic types: indemnity insurance and insurance plll'Chased through a health care services contractor (such as Blue Shield or Blue Cross). With indemnity insmance, 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 fmancially 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 OPTlONS EVALUATION July 2000 Page 4 Introduction Most patients believed that purchasing insurnnce 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 fmancial 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 ITont nor deal with much of the papelWork hassle. The bene tit design. was virtually identical to indemnity insurance, but Úle legal buyer ofhea1th services was the health care services contractor, not Úle 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 ITom staff~model or group-model "prepaid health plans" (such as Ross-Laos and Kaiser in California and Group Health Cooperative ofPuget 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' fmancial 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 wiÚlin the system or were aUÚlorized ITom extemal 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 modifÿ 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 iTom 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 detennined to be "medically unnecessa¡y." 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 defmes managed care as "a system or techniques that affect access to, and control payment for, health care services." Others view managed care as any fonn 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. defmitions. 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 fonn 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 Introduc:tion · 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 ofpatiems. As health insurers have adopted managed care, as defmed 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 fmancially responsible for paying providers' bills, not the patient The person (or herlhis 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 ammgement Most self-funded organizations do so because it is financially advantageous. Many of them contrnct 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 fmancial responsibility remains with the self-fimded 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 fmancially responsible for delivering specified health services to those enrollees. Here the buyer becomes very fi"agmented. 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 sub specialist and hospital care, but under a "global" capitation ammgement 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 ammgements makes them extremely difficult to administer and difficult for patients and providers to understand. (See discussion below o.n 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 fmancial 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 eithêr 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 fmancial incentives to physicians. However, in Washington state, capitation appears to be in decline, apparently because of too-low capitation mtes 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 o/payment are properly jilnded and structured to avoid perverse financial incentives (e.g., to withhold care) and provider resentment. 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 nonnal employer- sponsored health program, the most expensive half percent 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, "T¥ho 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. 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-I below, with the buyer of the service shown shaded, and the flow of payments in gray arrows. Exhibit A-I Buying Health Services - Pre-l 930 Payment (Cash) PROVIDER (Physicians, plus Hospitals, Others) Service and Bill 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.) Appendix A July 2000 Page A-I Evolution of the Current System included health benefits and the physician collectives extended their contract care to cover 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 COllilty 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 amollilt 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 fmancially responsible only for an annual deductible, coinsurance (usually at 20 percent), and any difference between billed and allowed charges. The insurer was fmancially 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 Pavment PROVIDER (Physicians, plus Hospitals, Others) --------~ Deductible and Coinsurance, plus any VCR difference INSURER Appendix A July 2000 Page A-2 Evolution of the Current System 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 participaûng 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 Service Participating PROVIDERS (Physicians, plus Hospitals, Others) Contractual Agreement to accept allowed charges with no balance billing. -------þ.: Deductible and Coinsurance Provider Submits Bill to the Insurer Payment . -:' "..,. ."":" ".~. ..',":...::,,:',;'.:',:':'.,:i': During this period an important variaûon 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 ofPuget 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 ór 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 ,:;; lNSURER--PREPÀlnl:ÏEAL THPLAN, "'0,0:.':':' SALARIED or CONTRACTED PROVIDERS (Physicians and Others, often owned Hospitals) ;1ff ./ ./ ./ ./ ./ Copayments ....------ Services, but only as Referrals, or , in emergencies / ...... ,...,../ --- Copayments Payment (contract rates) OTHER PROVIDERS (Specialists, plus Hospitals, ER Care) 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 smnmarized below. The government's participation in the purchase of health services fundamentally changed the nature of that buying 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 amoWlt the provider charged. In addition to controlling the payments, Medicare and Medicaid also began monitoring and intervening in the actual delivery of services, fonning 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 ~edicaid Oversight of Services PROVIDER (Physicians. plus Hospitals. Others) /" ..... ..... Deductible and coinsurance Eligibility - 65 or over, disabled, .nrl ~t;¡P'P rpn;¡1 rlk Eligibility ~ Many Categorical Requirements Annual Premium For Part B Only . ...... "....,,,.... ,. .. :.~:.' .:'."?': "::. .: ··.·..·GOVERNMijNT·.·'···· .. .' . . (Fe~~~IlI~,,1W~diëaré) ..J/.' (F edera¥êtate ·"".1Wedic~1Îd};/· Contract for Utilization Management ,..:"",. . Contract for Utilization Management, plus Tn-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 ::wtll¡:J 1 nnyer flf hp¡:J lth <:PTVlrpc:: h~c:: npc.nmp thp hp::¡lth inC::llrpr_ 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 tenns for Appendix A July 2000 Page A65 Evolution of the Current System the purchase of health services, to give the providers more patient volume and predictability. These tenns 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 Billing and Contractual Agreements Payment (fee schedules, capitation, or discounts) with no balance billing PROVIDER (Physicians, plus Hospitals, Others) Deductibles and copayments 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 alšo-jumped on the PPO bandwagon, rather than contract directly with providers (in Washington, at any rate). The actual buyer in these instances is somewhat 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 CUlTent 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 Unifonn 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 Work (Benefits in lieu of Wages) Services PROVIDER (Physicians, plus Hospitals, Others) Contractual Agreement to accept payments with no balance billing, etc. 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 fmancial 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 diagfalll 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 (PM PM) Capitation Payment Non-Cap Service Providers Copayrnents +- J Copayments - -toJ;:roviders , Refemds and Payment for Authorized Services Premium Coverage Eligibility (work or govt. program) Services Authorized by the Capitated Provider Group OTHER PROVIDERS (Specialists, plus Hospitals, Others) Note: The above is greatly simplified and does not show billing and other infonnation 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 ~ HCF A - 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 - MedicareIMedicaid Managed Care Premium . '. ...... HE,ALTHPLAN .'.>:;'.;..;> ... -. (Risk Bearinglnsurér»·" .... ........ Eligibility For Medicare or Medicaid Billing and Contractual Agreements Payment (fee schedules, capitation, or discounts) with no balance billing PROVIDER (Physicians, plus Hospitals, Others) 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 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 CUITent 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 fmancial 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 defmes 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 phannacy 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 phannacy formulary restrictions; and Appendix A July 2000 Page A-lO 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 [mancial 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: fmancial 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-ll 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; rmancial 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 ifthere 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 comparison is that the · Capitation: requires a large number of capitated lives in the pool funding is adequate in over which to share risk. Small numbers capitation is impossible, 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 Financial Viability (The underlying assumption for this comparison is that the funding is adequate in both payment methods.) 9. Incentives to Improve Health 10. Administrative Functions 11. External Societal Factors -. - Advantages · Capitation: if group can self~administer and excels at delegated managed care functions, can capture most of available premium. Payment is prospective, with minimal delays, and predictable. · Fee schedule: no down-stream risk of unanticipated [mancial obligations due to IBNR or health plan settlements. Working harder leads directly to increased patient revenues. No reserves needed. Disadvantages · Capitation: very costly for physician groups to develop the needed infrastructure. Incurred but not yet reported (IBNR) claims can lead to unanticipated fmancial 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 · Capitation: incentives to keep patient healthy, emphasize prevention. · 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 · Capitation: burden is minimized if delegated functions work well. · 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 · Capitation: incentives to keep patient healthy are attractive. · 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·13 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 &amework 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 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 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 Unifonn 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 ovef\Vhelming 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 papef\Vork burden if the current trends toward complexity continue. · :Many different standards of quality - There are multiple defmitions 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),ßlthough 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-IS 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-IO and A-lIon the following pages. Exhibit A·IO displays the buying arrangements for the private sector (about 60 percent of the total system) and Exhibit A-II presents government entitlement programs. Appendix A July 2000 Page A~16 Evaluation of the Current System Exhibit A-lO Current System Part 1 - Employer-Based/ Individual Insurance, and Individuals Note: Depending on the contract, providers may either biII the PPO, where the claim is repriced and then sent to the TP A, or the provider may bill the TP A directly. Striped shading shows mixed buying responsibility. Work (Benefits in lieu of Wages Billing and Contracrual Agreements Payment (fee schedules, capitation, or discounts) with no balance billing PROVIDERS (Physicians. plus Hospitals, Others) Payment (fee schedules, capitation, or discounts) with no balance bilIs 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-II Current System Part 2 - Government-Based Entitlement Insurance ., ~~L:'!.:,' , >1'" :':".rÌÍÉALTIÏYÒPTIONS .' -;-:W'Månaged Ca~e Plans . . ,.L..X':':":" ~ 'L. ...... Payment (mainly capitation, some fee schedules, or discounts) but with no balance billing of patients PROVIDERS (Physicians, plus Hospitals, Others) Payment (fee schedules, capitation, or discounts) with no balance billing ;' ~:'; : L ,: ~ ., ,. . ,<: L.:.,'. . .. ..':M~DIC~':" . . Risk Plans, ,... . . ." I,".' .. " . Eligibility Premium AAPCC 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-IS 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 88 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, Disadvantages local health care services? · 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 · 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 ofthe 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 1. Spending Impacts · Providers with dominant market positions negotiate effectively. How does the current Disadvantages system promote (or hinder) · Spending determined by market forces, historical inefficiencies. an efficient use of total · Health plan leverage in payment negotiations is overwhelming. health care funds? · Administrative complexity reduces the percentage of total health 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 How does the..model affect · Viability threatened by inadequate payments from plans and the financial viability of government programs. Most medical groups lack market clout physicians' practices? · Health plan leverage in payment determination is overwhelming. · 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 Advantages 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, unifonnity. · 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 cunent environment? · Strong economy has allowed employers to move toward fixed Ifthe economy slows and/or contribution without significant cost shifting to workers so far. . 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 . Aooendix A 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 fimdamental 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 (govenunent, 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 govemment- 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 defmed 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 CutTent 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 unifomùty amplifies the administrative complexity of the system for patients and physicians. · Health plan-specific definitions of quality of care are used, discouraging unifomùty, 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. å. 1"\i"t,::ll..,rI'¡y A Tlllv 7000 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 liUle or no health expenses in a given year. Q) õ.. o Q) 0.. - o ... Q) .0 E ~ 2 Health expenses are NOT normally distributed across the population, but inversely distributed. This is what allows health insurance to work. A very small number of people have extremely high health expenses in a given year. Annual Expense High Expense Accendix 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-I3 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 Pure community rating sets one premium for the entire population, with the many healthy (-80%) subs;d;z;ng the fewe, s;ck (-20%). ~ 100% 95% 90% 85% 80% 75% f/J 70% Q.) 65% f/J c: 60% Q) c. 55% >< 50% w - 45% 0 - 40% c: 35% Q.) (J 30% ~ Q.) 25% Q.. 20% 15% 10% 5% 0% Lorenz Curve of .Health Expenditures In a given year, roughly one third of a normal population will incur less than one percent of total expenses, while the most expensive one percent of the population will incur roughly one third of all expenses. This is what allows health insurance to be affordable: it is not pre-payment, but spreading the risk across many people_ premium ">\0 /2\0 0\0 0\0 0\0 0\0 0\0 ">\0 ,.,0\0 0\0 ~\o 0\0 t2\0 0\0. ~\o 0\0 0\0 ",0\0 nO\o ..2\0 ,::\0 b\o f3\o " 'J ,,<) ~ "C!I 0/ ~'ò "Jr¡;. "':J' bo." ~ ~ W ~Oj 'Cf- focl;) ,\"J '\' 'ò" 'ò"'" C!I Qj "CS Percent of People 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. Why Individual Insurance Has a Higher Risk Profile than Group Insurance Ifhealth 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, ~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 HCF A has selected. To keep their coverage, the beneficiaries must pay any gap between the health plan premium and the fixed dollar amount RCF A 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 HCF A 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 GAD 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 Workgroup- 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 SOH, 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 attlùocke(ãJ.aol.com. ATTACHMENT 1 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 _2ih, March 2th and April 24th. Setting a date for a summit in May was discussed. The Rhody festival is the 3rdweek rn-Mayand-Memorial'Day is" May 2~. Krtswill send out an e-maitaskrngfordater- 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 control" from problems created by his predecessor. He is also interested in assessing his role in helping_ reform the industry (using the bully pulpit), OIC 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 purchase their own care or insurance, they will not have the buying clout of employers and will find 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 are needed will be determined by the delivery model that is used - no consensus yet on that delivery 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 effici~nt. 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 blaming 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 part· oft he risk. Titl'e48" could-beTe;.writtentopermit (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 representthe 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 % the local primary care physicians, has a PHCa, 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; 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 % 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; . 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 10 10 Jefferson General Hospital Commissioners and key staff Jefferson County Board of Health and key staff 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 Meeti ng 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, GeoffMasci, 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. Renejits, Services At their last meeting the workgroup noted that they wanted to tòcus 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 identitied 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. Iníòrmation 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 beneíits package is developed to serve the current population - an aging population, will this make the area less attractive to younger íàmilies 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. 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, GeotfMasci, 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 Ot1ice of the Insurance Commissioner has refused to allow all demonstration sites to be exempt trom 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. Bene.fils Services At their last meeting the workgroup noted that they wanted to focus benetit/services on in-home/less intrusive services and front-end prevention that is determined by conscious choice rather than market place. Benetits 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 scientitic 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 detine 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. Who Provides At their last meeting the workgroup agreed that. at least tor the short term, they wanted to maintain the current local providers. They tèlt that more work was needed to identify a delivery model betore they could address they question of how many and what types of providers were needed. There was general consensus that as the group moves tOlìvard in their process it is important to deal with the reality of their situation and not get overwhelmed with the "what its". 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 tor Medicare, Medicaid and the Basic Health Plan. Employers, employees and individyals 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 tèderal and state funding. Should some sources pay more? Some less'-) Which ones'ì Does there need to be additional money'ì 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 Jetferson workgroup has been discussing throughout their series of meetings. The model calls tor funneling resources -£fom various tinancing 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 tinancing and delivery. Lorna presented two general options tor 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 transtormation 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. Tills 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 Affidavit of Publication STATE OF WASHINGTON) SS COUNTY OF JEFFERSON) NOTICE OF HEALTH BOARD MEETING TIME AND LOCATION CHANGE The Jefferson County Board of Health will meet at 2:00 p.m. on Thursday, April 19, 2001 at Jef- ferson General Hospital,· Follow- ing the Board of Health business, a joint meeting with the Jefferson General. Hospital Commissioners will begin at 3;30 p.m. until 4;30 p.m. The meeting schedule will resume in May which is the third Thursday of each month at 2;30 p.m. at the Health and Human Services Department. Jill Buhler, Chairman Jefferson County Board of Health 3568m 4/18 SCOTT WILSON, being sworn, says he is the pUblisher of the Port Townsend Jefferson County Leader, a weekly newspaper which has been established, published in the English language and circulated continuously as a weekly newspaper in the town of Port Townsend in said County and State, and for general cÎrculation in said county for more than six (6) months prior to the date of the first publication of the Notice hereto attached and that the said Port Townsend Jefferson County Leader was on the 27th day of June 1941 approved as a legal newspaper by the Superior Court of said Jefferson County and that annexed is a true copy of the Notice of meeting time & location change. April 19, 2001. -,-,..,- as it appeared in the regular and entire issue of said paper itself not in a supplement thereof for a period of one consecutive weeks, beginning on the~ay of Apr; 1 ,20..QL, & ending on the l.B..ì.hday of Apr; 1 ,20..QL, and that said newspaper was regularly distributed to its subscribers during all of this period. That the full amount of $ 24. 75 has been paid in full, at the rate of $9.50 ($9.00 for legal notices re- ceived electro . tion. Publisher Subscribed and sworn to before me this18t~ay of April Ñotary Public in and for the State of Washington residing at Port Hadlock