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�PHOTOCOPY
PRESERVATION
��SENT BY: XEROX Telecopier 7017; 3-31-93 ; 5:12PM ;
4156275690-
202 690 6064;# 2
WILLIAM M.
MERCER
INCORPORATED
March 31, 1993
SENT BY FAX AND FEDEX
Ms. Linda Bergthold, Ph.D.
White House Task Force
on Health Care Reform
The White House
1600 Pennsylvania Ave.
Washington, DC
Dear Linda:
Thank you f o r thinking ofroeon the question of potential
national health care cost savings generated from 24-hour
coverage. As you can see by the attached press release and
b r i e f i n g paper. Mercer has been retained by the California
Workers Compensation I n s t i t u t e (CWCI) t o develop an
economic model for t h i s plan for California. By the end of
1993 we w i l l have a more precise answer to your question on
cost savings.
Since I know you cannot wait that long f o r an answer,
please keep these facts i n mind:
1.
Approximately $20 b i l l i o n i s spent nationally on
workers compensation medical care, 40% of a l l employer
work comp loss costs;
2.
Managed care i s being conducted very infrequently f o r
workers compensation at the present time;
3.
HMOs and other managed care e n t i t i e s have saved 20%30% i n excessive medical u t i l i z a t i o n f o r group health
plans;
4.
I n j u r i e s at work w i l l occur regardless of which
national plan i s chosen. My guess at t h i s time i f a l l
providers were forced t o deliver eill workers
compensation care through HIPCs with HMO-style managed
care f o r worksite injuries (either capitated or with
deductibles, co-payments and coverage l i m i t s ) maximum
national savings would be $4 b i l l i o n t o $6 b i l l i o n —
less than one-half of one percent of the nation's
health eare b i l l .
Employers would not see these
savings immediately, but only after savings are
translated into experience-rated premium reductions.
3 Embareadero Center Suite 1250
Box 7440 / 94120
San Francisco CA EWiii
416 :393 5200
Fax .115 393 5663
A
k J.w.L
h
^
�SENT BY: XEROX Telecopier 7017; 3-31-93 ; 5:12PM ;
4156275690-
202 690 6064;# 3
WILLIAM M.
MERCER
Ms. Llnaa bergthdia
INCORPORATED .
March 31, 1993
Page 2
5.
Workers compensation i s regulated by 50 d i f f e r e n t
states.
An ERISA-style preemption would have t o be
legislated t o accomplish national coverage.
You also asked f o r any estimates on auto l i a b i l i t y : At
present, i t i s very d i f f i c u l t t o get auto l i a b i l i t y cases
i n t o managed care since almost a l l care i s directed by the
patient or the attorney.
Under a HIPC arrangement,
employers would not benefit since they generally do not pay
for auto coverage.
Any HIPC medical savings through
managed care would, over time, simply reduce individual
auto premiums.
For both sorts of changes, be prepared f o r l e g i s l a t i v e
hearings featuring victims i n wheelchairs. For workers
compensation, expect t o see a paraplegic injured worker
brought forward by a labor union. For auto l i a b i l i t y ,
expect t o see a maimed passenger i n a car accident brought
f o r t h by a p l a i n t i f f attorney. Both advocates w i l l argue:
"Do you expect t h i s innocent victim of the negligent acts
of others t o pay for part of his/her care or to be forced
to see only certain physicians for his/her care?" Expect
immediate legal challenges i f such a law i s passed.
Good luck, Linda,
more.
Call me at 415/627-5457 i f you need
Best wishes,
Gregory Johnson,
Principal
GJ/ra
Enclosure
cc: Arnold Milstein, M.D.
Bruce Noda
3 Enibercadero Cantir Suits 1250
Box 7440 / 94120
San rrancinco CA 94111
Linda.Itr
416 :I93 5200
Fax •115 393 5663
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P.03
�CAPTTTATED, RISK ARRANGEMENTS
HENRY FORD HEALTH SYSTEM (HFHS) Detroit, Michigan
Susan Swandu Dir Public Relations HAP
Linda Taylor. Corporate Director of Market Communications
313/552-6076
313/874-4040
Henry Ford Health System (HFHS) is a major comprehensive health system with 21
affiliated entities. Two of these affiliates are managed care plans:
Health Alliance Plan (HAP) with more than 400,000 members and 3000 employers,
HAP is Michigan's largest managed care plan and one of the 10 largest in the nation.
Medical Value Plan (MVP) 36.000 member HMO in Toledo, Ohio.
Oryanigatinnal Stmcture: HFHS. a non-profit directorship corporation, is the shareholder
of all its affiliated entities.
Medical Value Plan is managed by Fairlane Health Services Corporation and jointly
operated by HFHS and The Toledo Clinic Inc.
Health Alliance Plan's (HAP) network includes 40 medical centers, 1,500 physicians and
affiliations with over 30 major hospitals, including those of HFHS.
Metro Medical Group, the medical center division of HAP. is staffed by a 120-physidan
group practice with eight outpatient centers and a rehabilitation andfitnesscenter.
Population Served: In the 7 counties which define HFHS's service area, half the population
is covered through HMO or PPO arrangements. HAP represents 43.4% of Southeast
Michigan's HMO market
Of HFHS patients: 33% are covered by HAP managed care products, 31% by other private
insurers, 29% by Medicare. 7% by Medicaid and uncompensated care accounts for 3%
Serviees Prnvided: HAP offers the following plans:
* an HMO
a PPO called HAP Choice
' Senior Plus for Medicare-eligible members
• a Medicare complementary coverage program
* a Medicaid program
* other custom options, such as point of service or exclusive provider arrangements
Members receive complete medical coverage, with few deductibles for a wide range of
servicas-from routine physicals and eye exams to well-baby care and health education
classes. The basic benefit package includes complete hospitaliztion and worldwide
emergency coverage. Some plans include Rider Options. These options range from
prescription plans to sponsored dependents.
a
Financing:
The HAP HMO is a mixed model including group, staff and IPA. The group and staff
models are paid on a capitated basis and assume fullrisk.A reinsurance option is available
through HAP for HMOs assuming full risk. HAP assumes fullriskfor IPAs and contracts
with hospitals and physicians in a given community. Physicians are paid on a HAP fee-torschedule, hospital out-patient on a percent of charges. As a rule, hospitals are paid on a
staofied per-diem basis so that payment varies by type of care, for example a med-surg day,
a OB day, an ICU day will differ.
�CAPITATED, RISK ARRANGEMENTS
AvMed-SantaFe Gainesviile. FL
Edward C. Peddie. President and CEO
Manlyn L Tubb. Semor Vice President
904/372-8400
Founded in 198Z SanteFe Healthcare is Florida's largest not-for-profit health system which
integrates health maintenance plans, a network of community hospitals and a broad range
of patient care and support services. Although the system began as a group of small and
rural hospitals, today the health maintenance plans account for 68% of operating revenues
while the hospitals contribute 28% of operating revenue.
Oryanizational Stmcture: Sante Fe Health Care is the umbrella corporation for 15 separate
corporate entities, all not-for-profit. SantaFe entities include: 4 community hospitals and
I tertiary care medical center, a mental health hospital an inpatient rehabilitation center,
an outpatient rehabilitation center, an urgent care center, afree-standingsurgicenter and
medical practice buildings, a retirement community, home care, hospice care, and
community care which administers programs associated with grants such as the Older
American Act grant Of the 4 community hospitals, 3 are in rural areas and are being
refocused to a primary care orientation where the emphasis is on outpatient and emergency
services with limited inpatient service. Williston Memorial Hospital is leased from the dry.
AvMed contracts with 85 hospitals and 4,753 physicians.
Florida HealthAccess, one of the health maintenance plans, is a public-private partnership
with the State and the Robert Wood Johnson Foundation.
Population Served: AvMed Health Plan, a SantaFe system entity, is licensed to operate in
24 counties in Florida. AvMed services are used by 00 companies. In 1991 there were
214,656 AvMed members: 81% were HMO enrollees, 11% PPO, 8% in a Medicare
HMO. Through Florida HealthAccess, AvMed offers coverage to 10,045 individuals
employed by small businesses in Tampa, Orlando and Gainesville.
Service* Provided: HMO, Medicare and PPO coverage includes primary care, inpatient
care, skilled nursing and rehabilitation. AvMed offers three plans: high, standard and basic
options with varying co-payment schedules. Medicare is high option only.
Ffnanrinp Premiums for 90% of Av-Med plans are based on community rating, the
remaining 10% of the plans are experienced rated.
Thirty-three percent of physicians are paid on a capitation basis; 25% of provider (including
hospital) contracts are capitation contracts.
There is a stop-i
policy covering acute hospitalizations only, for HMO and Medicare
plans. The PPO product is reinsured for all claims (hospital, physician, drug, etc).
Stop-loss coverage for self-funded groups is handled on a case by case basis through both
specific and aggregate reinsurance.
10/92
�-"APITATED.
R I S K .-^IRA-NGEMENTS
GEISINGER HEALTH PLAN Danviiie. PA
William Macflain. Semor Vice President and Adnumstrauve Director "17/271-6836
Linda Densberger. Marketing Cooroinator "17/271-6488
Geismger Health Plan iGHP\ rounaed in 1972. :s one ot :he nation s tirst rarai HMOs.
Originally ratnaeo to the vicuury ot Danville Pennsylvania, it was reorgamzea in 1985 ana
is currentiy licensed to operate in 24 counties. GHP has oeen identified as tne largest rural
HMO with more than 123.000 enrollees. 24 hospital contracts ana 936 onmary ana speaaity
care physicians.
nryamyational Stmcture: Geismger Foundation is the corporate parent tor a regional
system ot health care. Eight separate entities operate under the corporate umbrella
including GHP. a not-tor-oront health maintenance organization (HMO).
Poouiation Served: Every year, more than 2 million people receive care in tne Geismger
system including 31.000 hospital aamissions and more than 1.100.000 outoatient visits.
Percentage ot Gross Pauent Servtce Revenues oy Payor Class: Medicare 37*%. Meoicaid
We. BC/BS \7%. Commercial i inciuaes GHP^ 30%. Self-Pay/Other o%.
GHP -spresents cwo-ihiras ot ail commercial payors.
Sgnnccs Provided: GHP provides a rull range ot services including preventive and primary
care, acute care (inpatient ana outpatient), rehabilitation services, home health and skilled
nursing. Speciality services include: Life Flight (a critical care transpon program). MRI.
hyperbanc medicine chamoer. lithotripsy and a Level I trauma center.
The basic benefit plan may be augmented with one or more of three options. Options cover
prescriptions, refractions, and impacted wisdom teeth. Varying copayment levels tor opuon
packages are available.
Health care services for enrollees are provided primarily by Geismger Clinic physicians 1480
physicians through a mam campus and 47 additional sites). The Qimc is tne rounn largest
ambulatory care practice m the country. Independent physicians, as well as 20 community
hospitals in more than a dozen communities, also deliver services to GHP members.
Financing: GHP is a commururv-rated HMO. Rates are based on the pnor year s claims
expenence and adjusted by contract mix. Twice each year. GHP provides an ooponumty
tor individuaii tor apply tor enrollment (7.1% of GHP membenhip). Acceotance is
contingent upon approval of an evidence of insurability (medical history tormi. Groups ot
25 or more employees receive an 8% discount rate (retlectmg decreased admimstraave
costs). Small groups (2-24) receive a 4% discount rate. Otherwise, rates are the same tor
all enrollees with similar plans.
GHP carries reinsurance tor catastrophic cases such as heart transplants. The Clime is paid,
by GHP. on a capitated basis. All physicians in the Geisinger system are empioyea by tne
Clinic: the Clinic contracts with other physicians on a fee-for-service or a per-case oasis.
The Clinic has an internal stop-loss program.
Payment for hospital services inside the Geisinger system is based on a formula wmcn is a
combination of per-diem. percent of charges, and risk sharing. Outside contracts tor
hospital services are paid on a per-diem schedule except for specialty hospitals wruca are
paid on a per-case basis.
^
J
�CAPITATED. RISK ARRANGEMENTS
CONTRA COSTA HEALTH PLAN
Contra Costa County, CA
Milt Camhi. Executive Director
510/313-6004
Established in the early 1970s. Contra Costa Health Plan is a county-sponsored HMO serving a
diverse cross-section of the San Francisco Bay community. The 23.000 individuals who are
managed by Contra Costa Health Plan include County employees and their families, the medically
needy, the medically indigent (including the homeless), the elderly, and small business employees
in the private sector. Despite this divenity, less than 2% of members disenroU in any month.
Organizational Structure: Contra Costa Health Plan (CCHP) is one of eight operating divisions
of the County's Health Services Depanment. Other operating divisions include the Memthew
Memorial Hospital various ambulatory care clinics, and pro/grams specializing in public health,
mental health, environmental health, and substance abuse.
CCHP contracts with private hospitals for out-of-plan emergency care and for some specialty and
ternary care not available at County hospital (15% of ail services). CCHP is exploring strategic
alliances with other health plans to provide back-up specialty and ancillary services not available
through the County. Until its closure in 1991. CCHP used the Veterans Administration Hospital
in Maninez for such services.
Satellite Geriatric Clinics have been established with the assistance of various businesses, cities, and
John Muir Hospital There are discussions with local school districts for school-based family
practice oriented community clinics. Clinics will also serve as vocational training sites for high
school students.
Contra Costa has contracted with neighboring Solano county to provide prenatal care and deliver
Solano's Medicaid-eligible babies. A joint venture with Brookside hospital allows Medicaid
mothers, enrolled in CCHP, the option of delivering at their local hospital (Brookside).
Population Served: There are some 850,000 residents in Contra Costa's community. CCHP serves
5,500 County Employees and their families, 5,500 medically indigent adults. 9.500 Medicaid
members, 1,200 seniors, individuals not eligible for group coverage (e.g^ self-employed), single
parents, children and young adults, and the medically uninsurable.
Forty percent of enrollees are 18 years of age or less.
^fyigea Provided: Over 85% of Contra Costa Health Plan's medical services are provided by
County health fadlites. Over the past six years, ER utilization has decreased 24% following the
implementation of fast-track triage capabilities using an urgent care clinic adjacent to the ER and
a toil-free 24-hour emergency telephone advice program.
Financing: Contra Costa is a prepaid health plan. Discounts are given to non-smoking group
members. There is a special lower premium for single parents and children-only health coverage.
Physicians are salaried County employees. Affiliated divisions are reimbursed on a percent-of-cost
basis (as approved by the State). Providers outside the organization are paid using the Medi-Cal
rate schedule or on a per-diem/per-case basis.
There is a stop/loss reinsurance policy which takes over after the plan incurs $ 100,000 in expenses
on a case. A targeted case management program has realized a saving of $100,000 since its
incepnon two yean ago.
10/92
�CAPITATED, RISK ARRANGEMENTS
THE COUNSEUNG PROGRAM OF PENNSYLVANIA HOSPITAL Philadelphia. PA
Bernard McBride, Director. :i5/829-5225
The Counseling Program of Pennsylvania Hospital offers three behavioral health product
lines: employee assistance programs, preferred provider arrangements, and managed
behavioral health programs. Gients include the School District of Philadelphia, the
Southeastern Pennsylvania Transportauon Authority, Aetna Health Plans, and PruCare ot
Philadelphia.
Organizational Stnicmrc
The Counseling Program, incorporated in 1985, is a private, not-for-profit, wholly-owned
subsidiary of Pennsylvania Hospital. The program comprises three regional offices, ail of
which are monitored by the depanment of psychiatry at Pennsylvania Hospital.
Population Served
The service area covers metropolitan Philadelphia, Pennsylvania's Lehigh Valley, northern
Delaware, and southern New Jersey.
The EAP enrollment is currentiy 130.000 (up from 20,000 lives in 1989) and the managed
behavioral health programs cover over 42,000 lives.
SgrvicM Covered
A full range of psychiatric and substance abuse services from assessment to inpatient to
outpatient and aftercare are offered through Pennsylvania Hospital and an outside network
of contract providers.
Financing
EAP services are offered on both a fee-for-service and a per-employee capitation basis. The
preferred provider arrangements are generally priced on a fee-for-service basis with a case
management fee and a direct service fee. Managed behavioral programs are provided on
the basis of a per-employee full-risk capitation fee that is based on benefit plan design.
in addition to the clinical staff of the Pennsylvania Hospital The Counseling Program
contracts with a network of over 125 providers who are reimbursed on a salaried or fee-forservice basis. The Counseling Program also contracts with intensive outpatient programs
and hospitals throughout the service area on a negotiated discount basis.
�CAPITATED. RISK ARRANGEMENTS
SOUTHWEST CATHOLIC HEALTH NETWORK (SCHN) Phoenix. AZ
Kaihenne J. Byrne. President ana CEO o02/263-3067
Southwest Catholic Health Network i SCHN) offers two managed care plans. One is the
Pascua Yaqui Health Plaa a contract with the Indian Health Service. The other is Mercy
Care Plan i MCP), one of 14 capitated plans serving the state s Medicaid program known
•is Arizona Health Care Cost Containment System (AHCCCS).
AHCCCS. which began as a demonstration project in 1982. awards two year contracts to
capitated plans through a compeutive bidding process. Plans are required to bid by county
and by member category (SSI is a category.)
AHCCCS is funded through a combmation of state, county and federal monies and some
•nird-party liability recoveries. The federal portion is in the form of prepaid capitated
oayments. In turn. AHCCCS reinsures pians on a capitated basis. Mercy Care Plan is at
:inanciai nsk for its enroilees health care costs, however there are a limited numoer of stoploss measures when MCP exceeds reinsurance thresholds, as with members in special
catastrophic categories such as AIDS.
OrgamTatinnal Stmcture: Southwest Catholic Health Network is a 50/50 joint venture
formed in 1985 by two Catholic health care systems in Arizona. St. Joseph's Hospital and
Medical Center in Phoenix, and Carondeiet Health Care Corporation in Tucson. St
Joseph's operates SCHN. Mercy Care Plan (MCP) and the Pascua Yaqui Health Plan are
subsidiaries of SCHN. MCP is a not-for-profit Individual Practice Association (IPA) model.
Pnoniation Served: Mercy Care Plan currently serves 68.000 Medicaid eligible enrollees.
which represents the majority of SCHN's managed care population. Pascua Yaqui Health
Plan has 3J00 members.
Services Covered: MCP is required to provide a full spectrum of care including preventive
and primary care, acute care (inpatient and outpatient), rehab, and long term care (if
enrollee is eligible). Scope of services includes: dental sealants, home health care, medical
supplies, equipment it prosthetic devices, podiatry services and transplants.
Preauthohzadon is required for specialist and hospital services.
Financing: Mercy Care Plan is reimbursed on a prepaid, capitated basis by AHCCCS.
AHCCCS reinsures capitated plans at levels that vary according to member category, by
plan size and by diagnmit, such as for AIDS.
Within the network, primary care providers are also paid on a capitated basis, hospitals are
reimbursed by deep-discount state formula (Adjusted Bill Charges), and specialists are
reimbursed on a discounted fee-for-service basis. Enrollees (patients) are asked for nominal
copayment for physician office visits (SI) and ER visits (S5).
6/92
�CAPITATED. RISK ARRANGEMENTS
SHARP HEALTHCARE San Diego. CA
Peter K. Ellsworth. President and CEO
Sharp HeaithCare maintains 60 to 70 HMO. PPO and direct employer contracts. Nearly
half of San Diego's 2.6 million residents are enroilea in some type of managed care plans.
Oryamzational Smicmre: Sharp HealthCare is a countywide system of 5 hospitals (U3J
beds). 7 medical group pracuces. 14 clinics. 5 skilled nursing faoiities. and related speaaity
services.
Population Served: Sharp is responsible for 322.000 enroilees which is 22% of San Diego
County s managed care market.
Services Provided: The system offers comprehensive care including primary and acute
services, occupauonai health, home health, longterm care and rehabilitauon.
Network and Provider Payment:
Capitation contracts provide about one-third of the
system s gross revenues (S985 million m 1991.) Physician groups in Sharp Heaithdre are
paid under some form of capitated plan.
�PROVIDER COLLABORATION
NORTHERN MICHIGAN HOSPITALS. INC. BURNS CLINIC AND NORTHERN
MICHIGAN COMMUNITY MENTAL HEALTH. Petoskey, MI
Richard Darga, Director. Mental Health Services
616/348-^43
A partnership has been developed between providers in the public and private sectors in
rural northern Michigan to deliver a full continuum of mental health services to patients in
the community. Included are: Northern Michigan Hospitals (NMH), a 300-bed regional
referral center with a 14-bed inpatient psychiatric unit: the Bums Clinic a physician group
pracuce: and Northern Michigan Community Mental Health (CMH), a full-service
community mental health center.
Organizannnai Structure
All three providers are separate legal entities, but have signed formal agreements outlining
their responsibilities and working relationships. In January, 1993. CMH and Bums Clinic
will relocate to NMH so that all services will be physically centralized. The building will
become an access point for all public and private patients. NMH, CMH and Bums Clinic
will jointly appoint a psychiatrist whose time will be shared as follows: 20% as medical
director of mental health services at NMH; 50% in Burns Clinic outpatient: 30% in CMH
inpatient.
Population Served
The network's primary service area is a four-county area of approximately 100,000 in
northern Michigan. However, because NMH is a regional referral center, the service area
extends to additional counties in northern lower Michigan and the eastern Upper Peninsula.
Petoskey is a resort area and attracts a lot of elderly people.
Services Prnvided
Inpatient, outpatient, day treatment and residential mental health services are currently
provided. Development of two new services is underway: a parnai hospitalizauon program
and a psychiatric intensive care unit that will accept involuntary patients.
Financing
All entities will lease space from NMH. NMH hasfinancialresponsiblity for renovations
necessary to create a new partial hospitalization unit and psychiatric intensive care unit. .All
three providers have negotiated contracts with each other for purchase of services.
�PROVIDER COLLABORATION
COMMUNITY MEDICAL CENTER ana ST. PATRICK'S HOSPITAL Missoula. MT
Grant Winn. President -06/723-4100 ana Lawrence White Jr.. President 406/721-9666
This is an example ot two hosoitals. in a cwo-nospital town, working together and with local
government. Over the past eignt years, sjoliaborauve etforts geared to eiiminaung
duplication and improving access to the meaicaliy indigent include:
* a joint venture in home health care (1984)
' shared MRI services 11987)
' a mobile lithotripsy network for hospitals in Western Montana (1990)
purchasing 16-bed Clark Fork Valley Hospital to keep it a viable organization
providing health care services to Plains. MT. a rural community
Partnership tor Access, an outpauent clinic tor the medically indigent
1
1
Organizational Stmcture: The two. not-tor profit hospitals are independent entities.
Panners in Home Care is a not-tor-protit joint venture entered into by the two hospitals and
.he city of Missoula. The joint venture provides home health services and operates a hospice
program and case management service as separate subsidiaries.
St Patrick's owns the MRI. By written agreement. Community Medical Center leases the
equipment The two hospitals share a microwave link to relay test results to off-site
physicians.
Clark Fork Valley Hospital is owned by Community Medical Center and St Patrick's
hospitals.
The Partnership for Access outpatient clinic is located in the Missoula City-County Health
department but it is a separate, not-for-profit entity with a board of directors represented
by the public the hospitals, and the medical community. Consumers account tor 51% of
board representation.
Population Served: 30,000 residents in Missoula of which 9.000 are medically indigent
Plains has a population of 2.000.
^crvi«1 P^dtd' Collaborative efforts offer the following services: home health care,
visiting nurse, hospice, case management MRL free office visits for the medically indigent
inpatient and outpatient hospital services in Plains.
Financing: The Partners in Home Care earns a net revenue of S3.75 million. Partnership
for Access is supponed by physicians providing free exams (valued at SSOO.000 annually),
the hospitals providefreemanagenal support and lab and ER services worth S50.000. the
Board of Health pledged 584.000 in in-kind services. In addition, the city and county
contributed S48.000 and the hospitals S55.000.
6/92
�PROVIDER COLLABORATION
SOUTHWEST COMMUNITY HEALTH CUNIC (SCHC) Houston. TX
Sue Denosowia. Qimc Director "13/779-6400
Soutnwesi Community Health Clinic opened in 1991 and is Houston'sfirstprivatized public
health came. Houston did not have a puoiic health clinic pnor to 1991. Sisters ot Chanw
SCH). a not-tor-pront. Catholic mmu-hospital system, responded to a City of Houston
Health and Human Services Department request for proposal to provide care to low income
residents of southwest Houston.
Onfamzational Stmcture: Sisters of Chanty is contracted by the city to provide prenatal
well-child and immunization services. It is a one year contract with options to renew for two
years: the initial contract has been extended for a second year. Public hospitals in the
Hams County Hospital District. Ben Tauo Hospital and LBJ Hospital provide obstetneal
delivery services, high-nsk obstetneal care, and ultrasound services for the majority of
Soutnwest Community Health Clinic s patients. Baylor College of Medicine's Midwifery
program prepares the prenatal protocols and supplies the certified nurse midwives. It has
always been the case that post-partum care is provided by family planning clinics operated
by the city and Planned Parenthood.
Population Served: Many of the medically underserved in Houston are immigrants,
particularly from Central America. In the tint year. SCHC had 13,757 prenatal and wellchild visits and 13.547 immunizations. The city contract specifies a monthly goal of 729
prenatal visits. 5SS well-child visits and 1,954 immunizations.
Sgrvices Provided: Prenatal well-child, immunization, and TB skin testing services, social
work, nutntion counseling, health education, and community outreach and referral services.
Financing The city awarded Sisters of Charity a contract for S880.000 to provide
services. $756,000 in additional funding came from a Sisters of Chanty of the Incarnate
Word congregational gram. The Baylor Midwifery program is contracted by the clinic for
a set amount of dollan per month.
6/92
�PROVIDER COLLABORATION
SIOUX VALLEY HOSPITAL and NEW ULM MEDICAL CLINIC New Ulm. MN
Robert Stevens. Administrator 507/354-2111
In 1988. this 85-bed not-tor-pront rural hospital joined forces wuh the for-profit clinic to
recruit physicians and create a more erficient health care system. Today the hospital and
clinic share a single medical record system, maintenance/security and housekeeping
departments, a medical waste disposal system, laboratory and radiology departments,
materials management, secretarial services and marketing. The hospital and clinic also
share employees even though the hospital's workforce is unionized and the climes is not.
Oryamyfltinnal Stnicmre: The hospital and clinic are two legally separate enuties. but they
have joint strategic planning and physician recruiting. Robert Stevens is the administrator
tor both the hospital and the clime. Sioux Valley hospital is owned and operated by Health
One. a not-for-profit multi-hospital system. Sioux Valley rents space to another hospital
St. Joseph Immanuel for renal dialysis services.
Population served: The population of New Ulm is 14.000. Sioux Valley Hospital's service
area population is 30.000.
Services Provided: Primary care, acute care (inpatient and outpatient), home health,
rehab, lab and radiology, renal dialysis, and a fitness center.
Financing. The hospital owns all capital equipment; the clinic rents the equipment on a
per/use or per/day basis. For example, the operating room microscope is rented on a daily
basis, a slit lamp on a per/ use basis. To avoid possible Medicare fraud and abuse
complications, only the hospital provides lab and radiology services for Medicare and
Medicaid pauents.
6/92
�COMMUNITY HEALTH STATUS FOCUS
SOMERVILLE HOSPITAL Somervilie. MA
Linda Cundift Vice President. Division of Community Health 617/666/4400
Norman Geirard, President
Somervilie Hospital is one of forty-mne national demonstration sites for the Hospital
Community Benefit Standards Program (HCBSP). Hospitals demonstrating a systematic
approach to community service, in accordance with national standards, may be certified by
the HCBSP program. In 1971. Somemlle Hospital established the Division of Community
Health Services. The Vice-President for Community Heaith Services, one of five vicepresidents comprising senior management at Somervilie Hospital is responsible for
Somerville's community benefit program. Outreach efforts geared toward improving the
communiry heaith status and containing health care costs include:
* Collaboration with the Somervilie Health Depanment for a local community
health agenda which identified key priorities for action. This process involved
an assessment of health status and heaith priorities, as well as availability of
existing programs and resources in Somervilie.
* Two neighborhood heaith centers making primary care geographicailly accessible
to the two most isolated and impoverished sections of the city.
• a cooperative with Mount Auburn Hospital for maternity and obstetrical care.
• Car RING, a program to call patients newly discharged from the hospital
Nurse outreach coordinator for the city's Haitian population.
• Teen connection, a comprehensive high-school health clinic
a
OrganiTatinnal Structure: Somervilie Hospital is a private, non-profit, hospital
with 91 medical-surgical beds, including eight intensive care beds, an Emergency department
and four off-site clinics.
The cooperative with neighboring Mount Auburn Hospital is structured so that Somervilie
nurse practitioners provide primary health care and ML Auburn Hospital obstetricians and
midwives oversee the deliveries and emergency hospitalizations at Mount Auburn.
Population Served: There are 77,000 people within the four square miles which define the
city of Somervilie. They are a predominantly working class populace with an influx of 12.000
immigrants since 1988. most of whom are non-English speaking, undocumented, uninsured
and underemployed. This low income, densely populated community has one physician per
12.000 residents, which is far from the federal standard of one physician per 3.500 people.
Sgryire* Provided: The role of the Division of Community Heaith is to address the needs
and gaps in service not being provided by local private physicians, specifically, primary care
and health promotion. Although the hospital has no maternity or pediatric inpatient
services, it has become the major provider of prenatal and pediatric services in Somervilie.
Financing: Program funding for 1988 required S2.8 million. The hospital provided
75% through insurance, fees and other contracts. Other sources include state contracts 20^.
foundations 3%, and Federal monies (Title X) 2%.
" '92
�COMMUNITY HEALTH STATUS FOCUS
NORTON SOUND HEALTH CORPORATION Nome. Alaska
Carolyn Michels. President 907/443-3311
Clinton Gray. Administrator
Finalist tor the 1992 Foster G. McGaw Prize which recognizes hospital excellence in
community service. Norton Sound Health Corporation (NSHC) is the sole health-care
provider in the Bering Straits Region ot Northwest Alaska. NSHC offers innovative rural
heaith care delivery systems which have improved the health sums of the people in its 16
village service area. These efforts include:
* Itinerant Provider Program which transports medical and dental services and
skilled professionals to villages. Each hospital department visits every village
at least once a year.
* The Homemaker Program providing home chore services for elders and disabled
adults. Services range from laundry and bedmaking to hauling water and fuel.
* Infant Learning Program, a home-based screening and specialized instruction
program for children from birth to three years of age who are developmentally
delayed, physically handicapped, or atriskfor such a condition.
* Environmental Health (OEH) assesses village sanitation facilities and village health
clinics systems, oversees a rabies prevention program and Qouridates drinking
water.
* Northern Lights Recovery Center for alcohol/drug abuse, including residential
treatment aftercare, an inmate program and prevention/community rehabilitation.
Organizational Structure: Norton Sound Health Corporauon has a Hospital Services
Division and a Community Health Services Division. The NSHC Board of Directors is
composed entirely of consumers, one board member from each village. The corporauon
delivers services by authorization of the Native people of the region through resolutions
passed by tribal governments (IRAs. named for the Indian Reorganization Act). IRAs also
select the majority of the Board members.
population Served: NSHC serves a largely Eskimo population that is divided into three
distinct cultures-ihe Central Yupia. Siberian Yupiq and the Inupiaq, a population of 8.500
residing in an area roughly the size of Oregon.
^ryira* Prnvidad: The hospital maintains 19 acute care beds and 12 long term care beds,
as well as an outpatient clinic and emergency room. Community Health Services include
eye care, audiology, dental care, and general health promotion activities.
Financing: NSHC was formed in 1970; initial funding camefroma grantfromthe Federal
Office of Economic Opportunity for a demonstration project to study the viability of
consumer-directed health care delivery. The bulk of the Corporation's revenues (60%)
come through a contract with the federal Indian Health Service. Other revenues come from
tint and third-panv payments (23%), state grants (12%), and small donations (6%).
7/92
�COMMUNITY HEALTH STATUS FOCUS
SOMERVILLE HOSPITAL Somervuie. MA
Lmaa Cunaiff. Vice President. Division or Community Health 617/666/4400
Normand Girard. President
Somerviile Hospital is. one ot tortv-mne national demonstration sites tor the Hospital
Community Beneiit Standards Program i HCBSP). Hospitals demonstrating a systemauc
approach to community service, in accordance with national standards, may be cernned bv
the HCBSP program. -In 1971. Somerviile Hospitai established the Division ot Community
Health Services. The Vice-President tor Community Heaith Servrces. one or" five vicepresidents comprising senior management at Somemlle Hospital, is responsible tor
Somerville's community benetit program. Outreach efforts geared toward improving the
community health status and containing heaith care costs include:
' Collaboration with the Somerviile Health Depanment for a local community
health agenda wnich identified key pnonties for action. This process involved
an assessment ot health status and health pnonties. as well as availability of
existing programs and resources in Somerviile.
' Two neighborhood health centers making primary care geographically accessible
to the two most isolated and impovenshed sections of the city.
" a cooperative agreement wuh Mount Auburn Hospitai for maternity and
obstetrical care.
* CareRING. a program to call patients newly discharged from the hospitai
* Nunc outreach coordinator for the city's Haitian population.
* Teen connection, a comprehensive high-school heaith clinic
' 60+ Health center, community-based geriatric medical & podiatry care.
Oryanizational Structure: Somerviile Hospital is a private, non-profit, hospitai
with 91 medical-surgical beds, including eight intensive care beds, an Emergency depanment
and four off-site clinics.
The cooperative agreement with neighboring Mount Auburn Hospital is structured so that
Somerviile nurse practitionen provide primary health care and Mt. Auburn Hospitai
obstetncians and midwives oversee the deliveries and emergency hospitalizations at Mount
Auburn.
Population Served: There are 77.000 people within the four square miles which define the
city of Somerviile. They are a predominantly working class populace with an influx of
ilOOO immigrants since 1988. most of whom are non-English speaking, undocumented,
uninsured and underemployed. This low income, densely populated community has one
physician per 4,400 residents, which is below the federal standard of one physician per 3.500
people.
Sgrvice« Provided: The role of the Division of Community Health is to address the needs
and gaps in service not being provided by local private physicians, specifically, primary care
and health promouon. Although the hospital has no maternity or pediatric inpatient
Services, it has become the major provider of prenatal and pediatric services in Somerviile.
Financing: Program funding for 1991 required S3.6 million. The hospital provided
35% through insurance, fees and other contracts. Other sources include state contracts 10%.
foundations 3%, and Federal monies (Title X) 2%.
8/92
�HEALTH STATUS FOCUS ARRANGEMENT
MOTION PICTURE AND TELEVISION FUND Woodland Hills, CA
Lois Green. Director ot Corporate Development 818-876-1090
Edwina Dumap-Moms. Development Associate 818-876-0865
The Motion Picture and Television Fund was founded in 1921 by Hollywood pioneers as
a charitable relief organizauon for entertainment industry workers. Now the Fund
provides heaith care, social and residenual services in a unique public-private
partnership that clearly illustrates how an industry can address the health care and
human care needs and issues of its members.
OrganiMtional Structure: The MPTF is a not-for-pront organization that provides a
wide spectrum of services at the Motion Picture and Television Hospital and Woodland
Hills Health Center: Bob Hope Health Center. Hollywood: Studio Heaith Center.
Buroanx: the Country House: and the Frances Goldwyn Lodge. The Industry Heaith
NetworK is the managed care component of the Fund through which industry employees
contracting with the networic receive appropriate, cost-etfecuve levels of care. CedarsSinai Medical Center. Los Angeles, also is a participating provider in this network.
Population Served: The community that the MPTF serves includes as many as 250.000
eligible people employed by the motion picture, television and related industries,
retirees, and the dependents of employees and retirees who live in the Southern
California area. In addition to those in front of the cameras, industry employees include
such people as set designers, electricians, transportation workers - 20 percent of whom
work full time for one employer and the vast majority are not wealthy. The majority of
the Fund's eligible community belong to one of four major industry health pians with
which the fund works closely in its efforts to serve its community.
Service* Provided: With a strong focus on primary care. MPTF provides a wide range of
services including acute and intensive care, skilled nursing care, Alzheimer's care,
surgical services (both inpatient and outpatient), and outpatient care. Additionally,
MPTF provides such social services as individual and family crisis counseling, group
therapy and suppon groups, financial counseling and assistance, case management and
AIDS/HIV education and referral: residential services, including an assisted-living
retirement home; and child care, including sick-child care.
Financing: The source of funding for programming at MPTF comes from unrestricted
contributions and donations as well as a payroll deduction program (similar to United
Way) that is. run within the studios and guarantees nearly S2 million annually.
10/92
�COMMUNITY HEALTH STATUS FOCUS
FRANKLIN REGIONAL HOSPITAL Franklin. New Hampshire
Caroi Co mom-Adams. Heaiih Educauon Manager 603/934-2060
Winner or the 1991 Foster G. McGaw Prize tor Excellence in Communiry Service.
Franxlin Regional Hospital is a 49-bed rural community hospital In 1985. Franxlin's
leadership mads a consaous decision to expand the hospital's role from that of an acute
care taciiity to that of a coniffmnity wellness center. To that end. the hospital
estaoiished a Heaith Educauon Department and a Prenatal Depanment and brought
together all of the community's health and social service agencies, civic groups and
churches in a network to prevent duplication of services and maximize communication
among local health and social service professionals in order to better serve residents.
Programs geared toward improving heaith status include the following:
Cancer screemng. education, and prevention
A orenatal clinic to meet tne neeos of women who otherwise could not afford
meoicai care
Elderly fitness and movement programs
More than 70 health education programs, a school wellness program, and
training
of volunteer emergency service personnel
Oryanizatmnai Stmcmre: Franklin is a nonprofit facility and the leader of the Franklin
Area Network descnbed above. The network was formed in 1986 and continues to meet
every other month to plan and evaluate projects. Projects are planned with a broad base
of professional and civic representation; changes are made and programs are added or
dropped based on community input.
Pflpyiatinn Served: Franklin Regional Hospital serves 14 towns located in three separate
counties of rural New Hampshire. Franklin, the area's largest population center, is home
to 10.000 people. The other towns served range in population from 800 to 4.000. More
than 15 percent of the population is aged 65 and over, and teen pregnancy, alcohol and
substance abuse, and cancer are all serious health problems in the region.
5 r ^ Provided: The range of services offered includes preventive and primary care,
adult and pediatric acute care (inpatient and outpatient), social services, and transitional
care in the form of swing bed placement
r r i
Financing: Preventive health and wellness programs are funded by the hospital the New
Hampshire Public Heaith Service, the United Way, and the New Hampshire Charitable
Trust.
10/92
�COMMUNITY HEALTH STATUS FOCUS
ST. LUKE'S HOSPITAL Cedar Rapids. IA
Linda DeWolf. Associaie Vice President Commumrv Services 319/369-7191
Samuel Wallace, CEO 319/369-7204
St. Luke's Hospital is one ot forty-nine national demonstration sites for the Hospital
Community Benefit Standards Program (HCBSP). Hospitals demonstrating a systematic
approach to community service, in accordance with national standards, may be certified by
the HCBSP program. Significant outreach efforts include:
* Healthy Linn 2000. an 8 year plan with health goals for the year 2000 based on
national and local information. Overall objectives are to:
• increase the span of healthy life for the citizens of Linn County
• reduce health disparities and
• achieve access to preventive services for all.
An annual progress report with a state of the health of Linn County" document
will be made available at the end of each year, beginning summer/fall of 1993.
* Five Seasons Day Care Center. Iowa's largest not-for-profit child daycare center.
This is a seven panner consortium including St Luke's, the school district and five
corporate sponsors.
* VHI Health, providing mobile diagnostic technology to rural areas across the state.
* Child Protection Center of East Iowa offering centralized access for the
coordination of services to abused children, thefirstrural model in the United
States
* Indigent Home Care, provided in affiliation with Visiting Nurses Association,
nrggniyatinnal Structure: St Luke's Hospital is a 560 bed not-for-profit hospital STL
Health Resources Co a subsidiary, owns and manages 15 rural clinics with 23 physicians
and manages three rural hospitals. In its collaborative efforts. St Luke's position will vary
from that of leader to partner or resource, as the situation warrants. Many endeavors are
private/public For example, Heaith? Linn 2000 is sponsored by the Lirrn County Health
Department in conjunction with St Luke's Hospital Mercy Medical Center and the United
Way, and various county organizations.
M
Population Served: .Although the majority of St Luke's patients come from the urban
surroundings of Linn County, St Luke's overall seven-county service area is predominantly
rural. In 199<X thirty-two percent of inpatients were medicare, 13.6 percent were medicaid
and 10 percent were children.
^ryfrgs Provided: St Luke's provides a full spectrum of health services including acute care,
long term nursing care and health promotion. With 66 specific services in all St Luke's is
Iowa's second largest in terms of number of sevices offered.
Fiffflnriny Si Luke's programming has multiple funding sources including local state and
Federal government, national and local charitable organizations, and patient fees. In
addition to services in kind, the hospitai contributes approximately 20% of the S2.6 million
needed to support outreach efforts.
7/92
�I*
COMMUNITY HEALTH STATUS FOCUS
MOUNTS1NAI HOSPITAL MEDICAL CENTER Chicago, IL
Mount Sinai Hospitai Medical Center is one ot nineteen nauonai demonstration sites for
.ne Hospital Community Benetit Standaros Program. Outreach efforts geared to the
community health status include:
• Mount Sinai/Ryerson Steel Partnership for low-income housing rehabilitation
(over $50 million in total reinvestment)
• Spanish Health education series on local television
• school-based clinics in three Chicago High Schools
• Southwest Community Heaith Center serving the LeClaire Courts public housing
development
' Home PsyCare. treating chronically mentally ill
" Pediatriac Ecology Unit, opened in 1985 as the first, hospital-based child abuse
unit in the country
' Level in Perinatal Center (one of six in Chicago)
• Level I Trauma Center (one of four in Chicago)
OryaniTatmnai Stmcture: Mount Sinai Hospital Medical Center is a private, not-for-profit
institution. Operating affiliates include Schwab Rehabilitation Center. the Chicago Center
Clinic System with 12 sites and a network of( #) Mourn Sinai Care Centers which provide
primary care.
PnpM'ap"" s*rw± The urban West Side of Chicago. In 1990, Mount Sinai cared for
16.194 inpatients and provided 544.078 outpatient occasions of service. They are the major
provider of primary care in inner city Chicago.
Servicg* Provided: Mount Sinai and affiliates provide a full range of services including
preventive and primary care, acute care (inpatient and outpatient), rehab, home health.
Level I Trauma Center. Level III Pennatai Center.
Financing Less than six percent of patients are privately insured. Due to patient mix.
deductions from Gross patient care revenue means that Mount Sinai collects only forty-nine
cents on every dollar billedforhealth care services provided. For FY 1990. the hospital
achieved a slight surplus of $75,000 due in large pan to the Medicaid disproportionate share
adjustment formula.
6/92
�COMMUNITY HEALTH STATUS FOCUS
GREATER SOUTHEAST COMMUNITY HOSPITAL Washingion. D.C.
Thomas W. Chapman. President 102/574-6000
Winner ot the Foster G. McGaw Prize in 1989. Responding to drastic change in community
economic status over two decades, z'rom a largely middle class commuter neighborhood to
an urban area populated largely by the poor and elderly, Greater Southeast Community
Hospital offered the following outreach programs:
• High Risk Infant Care and Prenatal Education
• Adult Day Care
' Neighborhood High Blood Pressure Watch
• Clothing Closet
• Housing Redevelopment (542 units of affordable housing for 1.700 citizens:
69 units are designated for the elderly)
Off*ni«tional Structure: Not-for-profit Community Hospital is the centerpiece of the
Greater Southeast Healthcare Center. The System houses the first PPO in the region, a
medical equipment supply firm and two pharmacies. Outreach programs are supponed by
varying organizations such as the D.C. Department of Human Services, four community
churches, and the National Bank of Washington.
Population Served: GSCH serves 635.000 residents of Southeast Washington. D.C and
Southern Prince Georges County, Maryland. Patients age 65 and older account for forty
percent of hospital admissions. In 1983. fifty percent of the total number of delivenes at
Greater Southeast were to mothers under the age of 17 years.
5 yicg* Provided: Range of services includes preventive and primary care, acute care
(inpatient and outpatient), and home health.
fir
Fjpan«nf
Funding for outreach programs comes from the hospital itself and its
foundation. D.C government grants. Federal govemmem grants. Travenca Development
Corporauon. and other charitable organizations, as well as volunteer services and donations.
6/92
�m
COMMUNITY HEALTH STATL'S FOCUS
METROHEALTH SYSTEM Qeveiand. Ohio
Hemv E. Manning, President and CEO 216/459-5701
Winner ot the 1988 Foster G. McGaw Prize. Significant outreach erfons include:
' Maternity and Infant (M&l) Perinatal Outreach Program which hires and trains
women from Cleveland's neighborhoods to act as outreach workers, canvassing
door to door, encouraging pregnant women to use M&I services.
' a partnership with Giddings Elementary School sending a pediatrician to the school
one half-day each week
' a Downtown Drop-In Center offering primary care services to the homeless.
' The Qark-Metro Development Corporation, a joint effon dedicated to promoting
commercial development for community economic health.
' A foster grandparents program
Oryflnizanonai Struemre: MetroHealth System is a not-for-profit umbrella corporauon for
;nree hospitals, a rehab center, a skilled nursing facility and seven primary care service sites.
Independent organizauons under the MetroHealth System umbrella engage in varied joint
etforts with organizauons outside the System.
Population Served: The citizens of Northeastern Ohio in general and Cuyohoga County
in particular. County population is 1.4 million.
Sgnnees Provided: MetroHealth offers a full spectrum of services including preventive and
primary c&re, acute care (inpatient and outpatient), rehab, and long-term care. A diverse
set of services range from a regional burn center to dental home care.
Financing: MetroHealth System is the largest provider of Medicaid and indigent care in
the state of Ohio: it provides dose to 50 percent of the indigent care in Cuyohoga County.
Medicaid and indigent care account for nearly 54 percent of MetroHealth's patient mix.
The majonty of MetroHealth's commercial payors are managed care plans: contracts with
various managed care plants represent dose to 16 percent of patient mix.
6/92
�12/21/32
to
10:15
002
DRAFT
COMMUNITY CARE NETWORKS
DEFINITION
Community care networks arc local consortia of health care providers, practitioners,
community gixjups, and others who organize to provide a continuum of care to an enrolled
population.
PimLIC ACCOUNTABILITY
Community caic networks shall:
1.
measure and publicly report on the satisfaction of network enrollees, providers, and
practitioners;
2.
develop and implement a community health status improvement process in which
the network shall come together periodically with other community organizalions
to I) create a baseline community health siahis assessment; 2) identify and
investigate community health status problems; 3) in coordination with conununiiy
organizations, implement measures designed to remedy these problems; and 4)
evaluate the efficacy and effectiveness of such measures;
3.
provide an effective procedure for developing, compiling, evaluating, and icponing
performance measures, statistics, and other information (which sluril be published
and disseminated on an annual basis and which the network sliall disclose to its
members and the general public) regarding 1) the cost of Us upenuions; 2) the
patterns of utilization of its services; 3) the availability, accessibility, and
acceptability of iu services; 4) to the extent practical, developments in the health
status of its members; 5) a uniform set of enrollee liealili and clinical performance
measures; 6) network ownership and governance; 7) financial pcrfunnance; and 8)
such other matters as may be required;
4.
have organizational arrangements for an ongoing quality assurance program for its
health services which 1) stresses health outcomes; and 2) provides review by
physicians and other health professionals of the process followed in tlie provision of
health services;
5.
develop and iinpletnent a pnxeiu for reflecting clinical guidelines in the provision
of care by the network;
6.
enroll persons who are broadlyrepresentativeof the various age, social, and
income groups within the area it serves;
�12/01/92
10=15 .
003
DRAFT
Page 2
7.
not expel or refuse to enroll any applicant or limit coverage of services csublUUul
by the independent commission for any applicant because of his heaiih biaiu* or bis
requirements for health services;
8.
develop and implement a process for the credcntialing and renewal of crcdcnliab
of network providers and practitionen;
9.
develop and implement a process for coordinating network capacity platiiiiiig and
capital acquisition and publicly report decisions regarding capacity plans and
capital allocation;
COORDINATION AND INTEGRATION OF CARE
Community care networks shall:
1.
utilize a unified medical record that is accessible to all components of the network
and assures confidentiality of patient information, consistent with state law;
2.
utilize a common patient registration system;
3.
provide the uniform set of benefits established by the independent commission;
4.
make assurances that at least SO percent of the health services used by a network's
enrolled population are provided by network owners, co-owners, or networks
participants who are paid on a capitation risk-sharing basis;
5.
be covered by a common malpractice policy for services provided to network
enrollees;
6.
provide care within a defined service area;
7.
provide out-of-arca coverage for network enrollees;
8.
give consumers within their enrolled population free choice of primary caregiver
within the network;
9.
assure lhat at least 25 percent of each network's enrollees are not enrolled in ihc
public program, except in areas in which there is a dispropoilionate sliaru of public
program enrollees.
�.12/01/92
10=16
004
DRAFT
Page 3
FINANCIAL SOLVENCY
Community care networks shall:
2.
have afiscallysound operation;
2.
have adequate provision against the risk of insolvency;
3.
assume full financial risk on a prospective basis for the provision of beneftib
established by the independent commission, with limited exceptions such as
reinsurance;
4.
adopt an arrangement to protect enrollees from incurring liability for payineut of
any fees which are the legal obligation of the network;
5.
have satisfactory administrative and managerial arrangements.
�ATTACHMENT 7
THE ROLE OF HEALTH INSURANCE PURCHASING COOPERATIVES
IN HEALTH CARE REFORM
Much attention recently has been focused on proposals to reform the health care system
through "managed competition." But managed competition is yet another concept that is
not yet fully defined in the health care reform debate. In fact, various reform proposals
have adopted a managed competition approach, yet all are somewhat different in exactly
how they would implement the concept. Key among the variables to be defined are the
role of Health Insurance Purchasing Cooperatives (HIPCs) and Accountable Health Plans
(AHPs).
While President Clinton's health care reform plan is not expected until May, managed
competition is expected to be the underlying approach he proposes. Alain Enthoven, the
creator of managed competition, has recently signed on as a consultant to the White House
on this issue. Thus, the debate between now and May will center on defining the roles of
HIPCs and AHPs. The AHA's efforts in this area will focus on redefining these concepts
to accommodate our vision of community care networks.
This paper provides some background on the managed competition concept, which will be
supplemented with a presentation during the Regional Policy Board meeting. The paper
then focuses on one aspect of managed competition, the role of HIPCs in health care
reform. The consistency of HIPCs with AHA's vision for reform is discussed and some key
questions are raised for discussion.
IN THE BEGINNING
The managed competition concept was first developed and proposed by Alain Enthoven
and Richard Kronick, two Stanford economists who argue that although the current market
for health plans is not competitive, a reasonably efficient and fair market structure can be
achieved through the use of collective agents, called public sponsors. These sponsors
would "contract with competing health plans and manage a process of informed,
cost-conscious consumer choice that rewards providers who deliver high-quality care
economically." Put simply, these sponsors would aggregate the buying power of small
employers and individuals in order to assure coverage at a reasonable price. From a
practical perspective, this approach would be used to enable easier comparison shopping by
standardizing the insurance packages offered and making comparative information readily
available to help consumers choose their coverage wisely ~ hence the label
"Consumer-Choice Health Plan."
1
1 Enthoven A and Kronick R, "A Consumer-Choice Health Plan for the 1990s" The New
England Journal of Medicine, Vol. 320, No.l, January 5, 1989, pp. 29-37.
�ATTACHMENT 7
Page 2
As originally envisioned by Enthoven and Kronick, the key role of these public sponsors is
as a broker of services and responsibilities would include "selecting coverages to be offered,
contracting with health care plans and beneficiaries about rules of participation, managing
the enrollment process, collecting premium contributions from beneficiaries, paying
premiums to health plans, and administering both cross-subsidies among beneficiaries and
subsidies available to the whole group." In addition to these new agencies that would pool
individuals and small and medium sized businesses, public sponsors in the
Enthoven/Kronick view also include large employers and HCFA.
2
HIPCs: A CONTINUALLY EVOLVING CONCEPT
This original notion of managed competition and the role of public sponsors has been used
as the basis for other prominent proposals for health care reform including the ideas
advanced by Congressmen Cooper, Andrews, and Stenholm, members of the Conservative
Democratic Forum (CDF), a group of about 60 conservative democrats in the U.S. House
of Representatives, and the Jackson Hole Group, an ad hoc and changing collection of
health and other executives, leaders, and experts. Within the CDF's managed competition
proposal, these public sponsors have evolved into Health Plan Purchasing Cooperatives
(HPPCs). Within the Jackson Hole Group, the public sponsors are called Health
Insurance Purchasing Cooperatives (HIPCs). Under both proposals, the public sponsors
would contract with Accountable Health Plans (AHPs) for health care coverage.
While the concept of HPPCs or HIPCs may sound the same, there are subtle, yet important
distinctions in the roles carved out for these entities. These distinctions raise larger
questions about how these entities might ultimately be defined in any national health
reform plan. Perhaps the most important question to be answered: What kind of power
and authority should be granted to the HIPC as opposed to national or local level decision
makers?
Conservative Democratic Forum. In CDF's bill (H.R. 5936) introduced in the last session
of Congress, HPPCs were defined as state-chartered, nonprofit corporations with exclusive
geographic territory (one per state, unless the state chooses to subdivide into smaller
HPPC areas). In CDF's view, the HPPC plays primarily an administrative function, acting
as a go-between for small employers or individuals and the AHPs. HPPCs would act as a
broker for these purchasers and would beresponsiblefor the following:
(1) offering to enrollees a menu of AHPs during an open enrollment period;
(2) providing to enrollees cost, quality, and enrollee satisfaction information for each
AHP;
2 Ibid.
�ATTACHMENT 7
Page 3
(3) collecting individual and small business premiums and distributing them to
AHPs; and
(4) risk-adjusting payments to AHPs based on a federal formula and administering
premium and cost sharing reductions for low-income enrollees.
HPPCs would have a Board of Directors appointed by the governor in each state. In
addition, HPPCs would be required to contract with all AHPs qualified by a national board
but could terminate an agreement with an AHP for (unspecified) "good cause."
Jackson Hole Group. The managed competition ideas advanced by the Jackson Hole
Group continue to evolve as the composition of the group changes and as new ideas are
raised and fleshed out. At present, however, the Jackson Hole Group appears to envision
HIPCs as somewhat more powerful decision makers than does CDF. Many of the HIPC
responsibilities outlined in the two plans are the same. The key distinctions between CDF
and the Jackson Hole Group's concept of HIPCs appear to be as follows:
(1) the Jackson Hole Group would limit the number of HIPCs to one per state,
while CDF would leave the decision about numbers of HIPCs to the governor in
each state;
(2) the Jackson Hole Group views small business associations and chambers of
commerce competing to be designated as HIPCs. The Board of Directors of the
HIPC would be elected by all the participating employers and the self-employed.
CDF would have HIPC Boards appointed by the governor of each state;
(3) the Jackson Hole Group would initially give HIPCs "wide latitude" in their initial
choice to offer AHPs until AHPs are more widely available. CDF would require
that a HIPC offer all qualified AHPs in their area;
(4) the Jackson Hole Group appears to envision a more active role for the HIPC in
terms of both measuring and monitoring AHP performance and compliance with
program goals. CDF would have the HIPC disseminate cost, quality, and
enrollee satisfaction information, but would not specifically be involved in AHP
performance monitoring.
(5) the Jackson Hole Group increasingly sees HIPCs as negotiating "best price" with
AHPs. CDF envisions no similar negotiating role, allowing AHPs instead to set
their own premiums as they determine based on market forces.
Clinton Administration. The HIPC concept is currently undergoing further evolution as
the managed competition model is being discussed as a basis for President Clinton's health
reform proposal. Some inside and outside the administration have already expressed
concerns about the feasibility of certain aspects of HIPCs and about their potential power
�ATTACHMENT 7
Page 4
and influence in the health care system. Others have suggested an expanded role for
HIPCs to include certain health care planning and allocation decisions. Over the next
several months, the debate on this issue will center on pegging the role of HIPCs
somewhere along a continuum that ranges anywhere from a purely administrative function
at one extreme to a planning and resource allocation function at the other.
HIPCs and AHA's VISION FOR REFORM
AHA envisions a reformed health care system in which purchasers of care contract directly
with community care networks for the provision of services. We favor the creation of
insurance pools for small businesses and the self-employed, but have not carved out a
separate role for a HIPC-like entity. While the role of states and stateregulatoryagencies
in AHA's vision for health care reform has not yet been fleshed out, it is scheduled for
RPB debate later this year. Those discussions will focus on exactly what responsibilities,
HIPC-like or otherwise, should be allocated to the states.
DISCUSSION QUESTIONS
The following questions are offered for discussion both to assist us inrespondingto
managed competitionreformproposals that seek to define the role of HIPCs and to
provide a beginning look at the issue of state responsibilities in areformedhealth care
system.
1.
Authority and Function. What kind of authority should be granted to HIPCs or other
similar entities? Should they serve strictly administrative functions or should they take
on moreresponsibilityfor issues ofresourceallocation? Should they be permitted to
contract with less than all qualified AHPs? Should they have the power to negotiate
paymentratesas a single, consolidated purchaser? Should they be able torequirethat
an AHP expand its service area to encompass underserved populations? Should
HIPCs have the authority to monitor AHP performance (e.g., collecting and reporting
cost or quality data, evaluating adherence to professional quality standards) or should
this be the role of the entity that qualifies AHPs?
2.
Structure. How should HIPCs be established and structured? What types of entities
would best fulfill the role of HIPCs decided in question 1? Who should govern the
HIPCs?
3.
Franchise. How should the number of HIPCs in an area and the geographic area they
represent be decided?
�LEGAL ISSUES RELATED TO
HEALTH CARE REFORM
and
INTEGRATED DELIVERY SYSTEMS (NETWORKS)
ANTITRUST
The a n t i t r u s t laws may i n h i b i t or prevent the formation, s t r u c t u r e
and/or operation of i n t e g r a t e d provider networks. Current guidance
does not address the unique nature of the health care market;
c e r t a i n a c t i v i t y i s per se i l l e g a l under e x i s t i n g law.
Both
h o r i z o n t a l and v e r t i c a l i n t e g r a t i o n issues should be considered.
Issues:
•
C o l l a b o r a t i o n among providers who would otherwise compete
•
R e s t r i c t e d competition among network members
•
Exclusion of some providers from network
•
Agreements t o a l l o c a t e services w i l l be necessary
•
Network could include a l l competing providers
Options:
•
Regulatory guidelines f o r network formation/operation
•
Regulatory approval or waiver process
•
Note: Regulatory approaches w i l l not address per se v i o l a t i o n s
•
Q u a l i f i e d immunity ( t i e d t o p u b l i c a c c o u n t a b i l i t y of network)
•
Limited exemption (perhaps short-term moratorium)
LAWS REGULATING PROVIDER REFERRALS
The Ethics i n Patient Referrals Act ("Stark law") and the Medicare
Fraud and Abuse Law ("anti-kickback law") r e s t r i c t provider
r e f e r r a l s i n a manner t h a t w i l l i n h i b i t reorganization of the
h e a l t h care system i n t o more e f f i c i e n t d e l i v e r y networks. While
these laws address t r u e payment-for-referral abuses, they should
be modified t o accommodate and f a c i l i t a t e formation of integrated
d e l i v e r y systems.
Issues:
•
A c q u i s i t i o n of physician p r a c t i c e by a h o s p i t a l or r e l a t e d
e n t i t y ( s p e c i f i c a l l y , payment f o r i n t a n g i b l e assets)
•
Group p r a c t i c e exception (Stark law)--needs t o be broad enough
to encompass i n t e g r a t e d d e l i v e r y s t r u c t u r e s
•
"Safe harbor" p r o t e c t i o n (fraud and abuse law) f o r network
models t h a t d i r e c t p a t i e n t s t o c e r t a i n providers
�MEDICAL LIABILITY
The medical l i a b i l i t y system should be modified and accompanied by ;
clearer medical p r a c t i c e guidelines to ensure f a i r compensation and
deter the c o s t l y p r a c t i c e of "defensive medicine." S p e c i f i c a l l y
w i t h regard t o network formation and operation, a l l enrollees i n
a network (and a l l providers f u r n i s h i n g care w i t h i n the network,
f o r purposes of care furnished t o enrollees) should be covered by
one l i a b i l i t y p o l i c y .
TAX
EXEMPT STATUS
Current IRS p o s i t i o n s on p r i v a t e b e n e f i t / p r i v a t e inurement and
" i n s i d e r " status may l i m i t the a b i l i t y of exempt e n t i t i e s t o :
•
•
•
use c h a r i t a b l e assets to c a p i t a l i z e new ventures
pay incentives t o p r i v a t e i n d i v i d u a l s f o r a t t a i n i n g cost
reduction goals
purchase physician p r a c t i c e s or other p r a c t i t i o n e r s ' assets
Current "community b e n e f i t " analysis may preclude exempt status f o r
provider network e n t i t i e s t h a t do not d i r e c t l y provide services.
CORPORATE PRACTICE OF MEDICINE
This s t a t e law d o c t r i n e , where i t e x i s t s , i s an obstacle to
innovative d e l i v e r y system s t r u c t u r e ( f o r example, the d o c t r i n e
precludes employment of p h y s i c i a n s ) . Federal pre-emption of the
d o c t r i n e would provide f l e x i b i l i t y f o r s t r u c t u r i n g networks.
ERISA
The f e d e r a l ERISA law pre-empts a state's a b i l i t y t o regulate
employee welfare b e n e f i t plans and s e l f - i n s u r e d h e a l t h b e n e f i t
plans.
ERISA waivers (with appropriate p r o t e c t i o n s ) would be
needed to allow s t a t e implementation
of h e a l t h care reform
initiatives.
MEDICARE BILLING
Current p o l i c y precludes i n t e g r a t e d d e l i v e r y systems t h a t contract
w i t h independent provider groups from b i l l i n g the Medicare program
d i r e c t l y f o r medical services, and the r i g h t t o assign payments i s
restricted.
These p o l i c i e s should be modified t o accommodate
increased i n t e g r a t i o n .
USE OF ADVANCE DIRECTIVES
Increased use of advance d i r e c t i v e s , p a r t i c u l a r l y given the high
cost of " l a s t days" care, w i l l h i g h l i g h t issues r e l a t e d t o s t a t e
law c o n f l i c t and providers who choose not t o implement l i v i n g w i l l s
and durable powers of attorney f o r h e a l t h care.
�APR-01-i993
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P.01
FACSIMILE COVER LETTER
DATE:
TO:
FROM:
April
1 , 1993
Rick K r o n i c k
John E. Wennberg, MD, MPH
Director
The Center for the Evaluative Clinical Sciences
Dartmouth Medical School
7250 Strasenburgh
Hanover, NH 03755-3863
Voice Phone:
FAX Phone:
(603)
(603)
650-1684
650-1225
STOPPED
�RPR-01-1993 13:33
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Per Capita Resource Use Profiles:
Three Arkansas Communities
FrE8+
Beds*
Hope
11.1
4.0
610
1,125
Texarkansas
22.5
5.5
1,030
1,419
Nashville
10.4
4.7
480
$@
Medicare#
889
+ Full time equivalent numbers of hospital employees
per capita invested in health of local residents (per
1,000 residents)
* Numbers of Hospitals Beds per 1,000
@ Dollars per person spent on hospital care
# Reimbursements per enrollee for local residents in
the Medicare Program.
Note: Small area analysis reveals the amount of resources
used per capita by local residents of hospital market areas.
Typically, there are large differences between neighboring
communities. In this example from Arkansas, Nashville
residents receive much less per capita than residents of
Texarkansas; Residents of Hope are in an intermediate
position.
P. 02
�PPR-01-1993 13:33
FDN INF MED DEC MAKING
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Hospital Beds Allocated to Serve the
the People of Nashville according to
Location of the Hospital
Number Beds/ % of all Market
Share
Location of Hospital of Beds 1,000 Beds
Nashville
55.9
3.1
89%
56%
Texarkansas
7.6
0.4
3
15
Hope
2.1
0.1
1.3
3
All Places
85.5
4.7
.—
100%
Small area analysis reveals how many resources are used
by local residents and where those resources are allocated.
This table shows hospital bed allocations for the Nashville
hospital market area; Nashville hospital has 61 staffed
beds; 55.9 of these are used by local residents and the
hospital has 56% of the market share of local
hospitalizations. Texarkansas hospitals have 15% of the
share and contribute 7.6 beds to serve local residents.
The neighboring area of Hope contributes 2.1 beds.
P. 03
�flPR-01-1993
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FDN INF MED DEC MAKING
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Adjusted for sociodemographic characteristics
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SB &
FDN INF MED DEC MAKING
l s 2 s
The Threshold Effect of Hospital Bed Availability
Elliott S. Hshcr, MD, MPH 1.23
John E. Wennberg, MD, MPH
ThfrfeseA.Stukel, PhD
Sandra M. Sharp
3
3
3
(1) Department of Veterans Affairs Medical Center
White River Junction VT
(2) Department of Medicine & (3) Center for the Evaluative Clinical Sciences,
Dartmouth Medical School, Hanover NH
Please do not quote or cite without permission of the authors.
TEicxliESF 3/19/93
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�— 1 3 : 3 7
FDN l^F MED DEC MAKING
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Abstract
Objective. To examine the impact of hospital bed availability on longitudinal patterns of hospital
utilization.
Design. A retrospective cohort study based on Medicare claims data.
Setting. All non-federal acute care hospitals used by the populations of Boston and New Haven.
Study Population. All patients hospitalized in Boston or New Haven during 1984 or 1985 for
one offiveconditions (acute myocardial infarction, stroke, gastrointestinal bleeding, hip fracture or
potentially curative surgery for breast, colon or lung cancer) were assigned to the cohort
corresponding to their earliest such admission and then followed until death or July 1,1987.
Main Outcome Measures. Crude and adjusted rates of readmission during the 42 months
following study entry.
Results. The relative rate of readmission in Boston compared to New Haven for all cohorts
combined was 1.46 (95% confidence interval -- 1.34,1.60) and were similar in each cohon:
myocardial infarction - 1.37 (1.19, 1.58); hip fracture » 1.64 (1.33, 2.02); stroke -1.40 (1.20,
1.65); gastrointestinal bleeding-- 1.53 (1.20,1.96); cancer/surgery-- 1.64 (1.33,2.02). The
relative rates of readmission were also consistent across time and in each age, sex and race stratum
of the study population.
Conclusion. Ourfindingsare best explained by a threshold effect of bed supply thatresultsin an
increased probability of hospital admission at any given physician-patient encounter in areas of
greater bed supply. We conclude that global constraints on resource availability may be required to
control hospital costs and reduce geographic variations in hospital use.
TEiexuESF 3/19/93
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p
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Introduction
Health care use rates vary dramatically across geographic areas and pose a challenge to
policy makers in terms of both equity [Wennberg, 1982 #20] and outcomes [Wennberg, 1990
#26]. In 1990, per-capita health care expenditures in Massachusetts, New York and California
were over $2800 but were less than $2000 in 11 other states.fGAO, 1992 #60] Aggregate
hospital use rates vary as well, with more than a two-fold differences in per-capita hospitalization
rates observed for apparently similar populations in different communities. [Wennberg, 1973 #16;
Wennberg, 1977 #17; Siu, 1986 #14; Wennberg, 1987 #24; Fisher, 1992 #38] Whileratesfor
most surgical procedures vary considerably, the pattern of geographic variation is considerably
greater for medical causes of admission.f Wilson, 1984 #52; Wennberg, 1984 #21; Roos, 1988
#11]
The micro-management of physician decisionmaking through practice guidelines and precertification review has been widely advocated as a means for controlling costs and reducing
geographic variations.[Schramm, 1992 #37] The theory underlying this approach is that excess or
inappropriate utilization can be defined using practice guidelines developed by panels of experts.
In contrast to "classic" prepaid group practices such as Kaiser-Permanentee or Group Health
Cooperative of Puget Sound (C-HMOs), which, because they own their own hospitals, rely on
private sector health planning to limit hospital capacity and therefore utilization[ Kronick, 1993
#76] the Independent Practice Association (IPA) and related models for managed care rely on
micro-management to contain costs. The Medicare program has also relied on related strategies of
utilizationreview.By 1990, more than 90% of patients with private health insurance were subject
to some form of utilization management, predominantly through pre-admission certification and
concurrent utilization rcview.f Sullivan, 1991 #58; Iglehart, 1992 #56}
This paper examines the pattern of hospital utilization experienced by residents of New
Haven and Boston to challenge an important assumption underlying the theory that aggregate
TEiexuESF 3/19/93
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�APR-01-1993 13:39
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P.13
expenditures can be contained by micro-management of the doctor-patient relationship. We posit a
threshold effect of hospital capacity on the clinical judgements of physicians regarding the
hospitalization of patients. Previous studies of theresidentsof these two communities revealed
that while they are demographically similar and receive more than 80% of their care in teaching
hospitals, Bostonians have substantially more hospital beds available and their overall admission
rates are nearly 50% higher.f Wennberg, 1989 #25; Wennberg, 1987 #24] In this study we report
thefindingsof a retrospective cohon study of Boston and New Havenresidents.The cohorts are
formed on the basis on an initial hospitalization for stroke, myocardial infarction, hip fracture,
gastro-imestinal bleeding and potentially curative surgery for cancers of the bowel, lung or breast.
These were selected because most physicians agree lhat patients with these conditions should be
hospitalized; hospitalization rates for these conditions, which therefore tend to reflect the incidence
of disease (i.e. patient demand), have been shown to vary little in their discharge rates across small
geographic areas[ Wennberg, 1984 #21; Roos, 1988 #11} The study focuses on the patterns of
readmission of these patients over a three and one half year period following their initial admission
for one of these conditions. Regardless of their initial diagnosis, age, sex or race, the members of
the Boston cohons are on average almost 50% more likely to be re-hospitalized in each subsequent
six month interval. The effect is consistent across all subgroups ofthe cohorts examined and for
almost all medical causes of readmission. The findings raise significant questions about the
feasibility of utilization review as a means to address variations in care or to achieve hospital cost
containment.
Methods
Data Sources
We used routine hospital discharge data (Medicare Pan A) for New England and the
corresponding enrollment file (Denominatorfile)maintained by the Health Care Financing
Administration. The hospital dischargefilescontain a record for each hospitalization for residents
of the specified geographic area,regardlessof where it occurs and include patient and hospital
TE text: ESF 3/19/93
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�APR-01-1993
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P.14
identifiers, admission and discharge dates, and certain clinical andfinancialinformation: up to five
diagnoses and three procedures are recorded (using ICD-9-CM codes), as well as diagnosis-related
group (DRG), and Medicare-reimbursed charges. The annual Medicare Denominatorfilescontain
demographic data on all persons enrolled in the Medicare program, including dates of birth and
death, gender, race, and ZIP code ofresidence.Unique identifiers allow the linkage of these two
data sources to define the study population and to compute population-based utilization and
mortality rates.
Study Population and Statistical Methods
The study population consisted of all Medicare beneficiaries who were between 65 and
99 years of age, who resided in the Boston or New Haven hospital service areas on January 1,
1984, and who were hospitalized during either 1984 or 1985 for acute myocardial infarction
(AMI), stroke, gastrointestinal bleeding, hipfracture,or major, potentially curative surgery for
colon, lung or breast cancer. The DRGs and ICD-9-CM codes used are in the Appendix. The
Boston area includes Boston, Chelsea, Revere and Brookline; New Haven includes New Haven,
West Haven and East Haven. Patients with more than one eligible hospitalization (e.g. a cancer
hospitalization and a subsequent myocardial infarction) were assigned to the cohort corresponding
to their earliest discharge within the enrollment period.
Three analyses were carried out. First, we calculated crude readmission rates for each
six month interval following index admission for the Boston and New Haven members of each of
thefivecohorts and all cohorts combined (Figure 1 a). We also calculated crudereadmissionrates
for each six month interval in each of the following strata of the combined cohorts (Figure lb): (1)
age 65 to 74, (2) age 75 and over (3) males, (4) females, (5) whites, and (6) non-whites. In each
interval, the number of members of that cohort surviving to the beginning of the interval was the
denominator for the rates; the numerator was the number of discharges during the following six
months. Patients were withdrawn on date of death, emigration or the study end date, July 1,
1987, whichever occurred first.
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Second, we used the Zeger and Liang method for the analysis of longitudinal interval count
data to compare relative rates of readmission and confidence intervals in Boston and New Haven
throughout the entire 42 months of follow-up.[Zeger, 1986 #77] This method was used to
calculate the summary relative rates shown on each graph in Figures la and lb. The models
controlled for the following covariables (where appropriate): age, sex, race, the specific clinical
cohort to which the patient belonged (e.g. AMI), and a time-dependent covariate, interval since
index admission. The model takes account of patient heterogeneity in admission rates because
some patients are sicker than others; correlations among the number of admissions for each patient,
and the time dependence of the admission rate. To test for interactions in the model for all cohorts
combined, we included all first order interactions between place of residence, age, sex, race and
the cause of index hospitalization (AMI, hipfracture,stroke, gastrointestinal bleeding, and cancer
surgery). A likelihood ratio F-test was used to assess the significance of the pooled interaction
terms. If the pooled test was significant, a simultaneous test procedure was used to eliminate
subsets of the interaction terms to simplify the model without increasing the overall size of the
testEAitkin, 1980 #64}
Finally, we combined allfivecohorts and examined cause-specific readmission rates in
Boston and New Haven, according to the Major Diagnostic Category of the DRG to which the
patients's readmission was assigned, excluding those MDCs within which fewer than 50
readmissions occurred (Figure 2). For those causes of readmission where over 99% of cohon
members had only a single readmission during the follow-up period, we used the Cox Proportional
Hazards Model .[Cox, 1972 #65]
For the few causes of reaadmission where more than 1% of
individuals had multiple admissions, we used the Zeger and Liang model to estimate relative
readmission rates. All statistical tests were performed at the 0.05 level and were two sided.
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Results
Assignment Rates to Boston and New Haven Cohorts
Bostonians were slightly (8%) more likely to be hospitalized for one of thefiveLow
Variation Conditions leading to study entry during the two year enrollment period.(Table 1). Only
for hipfracture,however, was the Boston assignment rate significantly higher than that observed
in New Haven.
Cohort-specific aggregate hospital utilization.
Longitudinal analyses of hospital utilization rates following study entry overall and for each
ofthefivecohorts are shown in Figure la. Differences across cohorts are apparent. Readmission
rates are highest following Acute Myocardial Infarction and are lowest for those in the Cancer /
Surgery cohort In each cohon, however, consistent differences across the two communities are
apparent. Readmission rates are significantly higher for Bostonians in each cohort The higher
likelihood of readmission is also consistent over time; in only one of the 35timeintervals is the
readmission rate higher among New Havenites. As can be seenfromthe summary relative rate for
all cohorts combined, readmission rates are on average 46% higher for Bostonians.
The lower Boston threshold for readmission is ubiquitous, evident in nearly the same
magnitude among older and younger Medicare enrollees, men and women and white and nonwhite racial groups (Figure lb). It is also seen for almost all causes of readmission, when
classified either by MDC (Figure 2) or for the most common individual DRG's (data not shown).
The only exception to the condition-specific increasedriskof readmission are readmissions for
diseases of the eye and hepatobiliary systems, although the 95% confidence intervals for these
relative rates include the point estimate for the overall readmission rate.
Comment
Bostonians hospitalized for myocardial infarction, stroke, hipfracture,gastrointestinal
TE text: ESF 3/19/93
page?
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FDN INF MED DEC MAKING
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P.17
bleeding or for potentially curative surgery for cancer have a 46% higher average discharge rate
over the subsequent three and half years than residents of New Haven hospitalized for the same
indications. The increasedriskof hospitalization is seen for all subgroups of the cohorts, whether
classified on the basis of demographics (age, sex, race) or on the basis of clinical characteristics at
the time of admission (cause of admission). The increasedriskextends to virtually all "high
variation" causes of admission, including many surgical conditions. The highest relativeriskwas
for mental conditions.
Differences in patient needs are unlikely to explain the differences in hospital use rates
observed in our study. The conditions that define the study cohorts were selected because medical
practice dictates that virtually all patients with these conditions should be hospitalized when the
condition is diagnosed. It seems highly unlikely that Bostonians with heart attacks, strokes, hip
fractures, gastro-intestinal bleeding, breast, lung and colon cancers, regardless of age, sex and
race, are consistently sicker than their counterparts in New Haven. If the higher hospital use rates
in Boston were determined by patient characteristics one would expect tofindat least some
hospitalized cohorts where subsequent use rates in the two cities were either similar or where New
Haven residents had higher hospital use. Yet we found higher Boston use rates in all of the
subgroups we examined.
The consistency of the elevatedriskfor rehospitalization argues that it is not due to
differences among patients, but to some aspect of the environment in which they are treated.
Previous studies have shown that the numbers of hospital beds, personnel and inpatient dollars
invested in the health of Bostonians is more than 50% higher per capita than for New
Havenites.f Wennberg, 1987 #24; Wennberg, 1989 #25)
The level of investment in hospital care
for the residents of these two communities is a complex function of the numbers of local beds, the
intensity of their staffing and associated technologies and the patterns of regionalization that
developed over the years. The uses made of hospital beds are not closely governed by explicit
theories about the value of the hospital compared to less technologically intense care nor by
TE icxu ESF 3/19/93
page 8
�flPR-01-1993 13=43
FDN INF MED DEC MAKING
603 650 1125
P. 18
empirical evidence lhat hospitalization is beneficial for the specific condition under treatment
Rather, the excess hospital capacity itself appears to exert a diffuse effect on the clinical threshold
for admission for most acute and chronic medical conditions.
This threshhold effect presumably operates as follows. Where the indications for
hospitalization are absolute, patients in each community will be hospitalized. Our own and prior
analyses^Wennberg, 1987 #24; Wennberg, 1989 #25] show thatratesof hospitalization for such
"demand-driven" conditions differ by less than 10% in these two communities and that variations
in therateof hospitalization for these conditions arerelativelylow wherever they have been
examinedfWennberg, 1984 #21; Roos, 1988 #11] But even in low rate areas such as New
Haven, hospitalizations for "demand driven" causes of admission such as hean attacks, strokes,
gastroenteritis and hip fractures account for less than 20% of hospital use for medical conditions.
The remaining 80% of medical admissions are for conditions which display a "high variation"
pattern of utilization when useratesare compared across geographic areas.f Wennberg, 1984 #21]
For these patients, the clinical decision is more difficult. The consistency of the increased relative
risk of hospitalization over time and across all clinical subgroups suggests that the threshold effect
operates as a constant multiplier on the probability of admission at any given clinical encounter
where one of the questions faced by the clinician is: "should I hospitalize this patient?" When, as
in Boston, capacity is greater, then the resident in the emergency room or the clinician in the office
will more often answer yes, if for no other reason than it is quite frequently easier to deal with sick
people in the hospital than elsewhere.
The threshold effect does not work as a simple sorting mechanism on the basis of relative
severity of illness. On a per capita basis, nearly twice as much is spent on Bostonians for terminal
care; a significantly higher proportion of deaths among Bostonian Medicare enrollees occur as
inpatients compared to New Havenites.f Wennberg, 1989 #25]
Limitations
TE lexu ESF 3/19/93
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�APR-01-1993
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P. 19
Although our cohort studyreportsdatafromtwo communities only, ourfindingsare
consistent with prior cross-sectional studies demonstrating a strong positive relationship between
the availabity of hospital beds and hospital admission ratesf Wilson, 1984 #52; Paul-Shaheen,
1987 #8] and suggest a mechanism that may explain them.
We also recognize that the administrative data upon which this study was based provide
only limited clinical information with which to adjust for potential case-mix differences between the
cohorts. We selected our study population based on prior analyses showing that hospitalization
rates for thefivestudy conditions vary little across geographic areas and are thus likely to represent
incident events identified at a similar point in their episode of illness. Although differences in casemix between the patients hospitalized for a specific indication in Boston and in New Haven are
likely to remain, these differences should be randomly distributed across areas. Cohort-specific
analyses of age and sex adjusted case-fatality rates, which may be used as a crude indicator of
base-line case mix, suggested that this was the case: thirty day mortality rates in Boston were
lower for three of the cohorts and higher for the remaining two. Nevertheless, subsequent hospital
utilization revealed a consistent pattern of higher utilization in Boston. The consistency of the
effect suggests its independencefromthe clinical characteristics of the cohorts.
Poligy Implications
Ourfindingshave important implications for managed care. Classic health maintenance
organizations, which use population-based planning to effectively set limits on the per capita
numbers of hospital beds they own and the physicians per capita they hire, are well situated to deal
with the threshold effect of supply on utilization. Other forms of managed care, however, depend
to a large extent on the micro-management of physician decisionmaking, through such approaches
as utilization review and pre-admission certification, to achieve cost containment goals. Most
communities in the United States have per capita supplies of hospital beds that exceed by far the
2.0 beds per 1000 used by classic HMO's. Ourfindingssuggest that the tools of micromanagement are unlikely to be successful at constraining hospital utilization sufficiently to achieve
TE text: ESF 3/19/93
page 10
�APR-01-1993
13:44
FDN INF MED DEC MAKING
603 650 1125
P.20
that level of hospital use.
Two bairiers stand out Thefirstis practical. If one wished to use individual case review
to bring Boston's hospitalization rates down to the level observed in New Haven, virtually all
admissions would have to be reviewed. Hospitization rates in Boston were higher in every
cohort, age group, and time interval and were higher for almost all causes of readmission, whether
surgical or medical. The development and implementation of a review process would be both
expensive, intrusive and inefficient.
The second is conceptual. It is unlikely that the pattern of variations observed in this study
could be due to poor clinical decision-making detectable by administrative review. In both Boston
and New Haven more than 80% of the patients are admitted to hospitals affiliated with medical
schools. One would have to assume that Boston physicians were almost 50% more likely to make
poor judgements. On the contrary, we believe that in both cities the physicians are making difficult
decisions in the setting of significant uncertainty. Patients with heart attacks, strokes and hip
fractures must be admitted to the hospital. Many others clearly do not require inpatient treatment,
such as the otherwise healthy elderly patient with a viral upper respiratory infection or with
mechanical low back pain. In between, however, there is a vast gray area of clinical care, where it
may be reasonable to treat the patient in either setting. Many of these will entail difficult
judgements at the milder end of the disease spectrum. But some will be severely ill. A higher
proportion of Boston patients who die do so in the hospital. Is this inappropriate? What review
criteria should be used to exclude them?
This interpretation of ourfindingssuggests that administrative oversight of the individual
clinical encounter is unlikely to be successful as a cost-containment strategy. Recent experience is
consistent with this argument. Although utilization review is associated with modestreductionsin
costs compared to fee-for-service plansf Feldstein, 1988 #673, the impact is primarily upon rates of
surgical procedures[Wickizer, 1991 #68] and the widespread adoption of these approaches during
the past decade has failed to stem the overall growth of health care expenditures. Moreover, the
TE texu ESF 3/19/93
page 11
�^ APR-01-1993 13=45
FDN INF MED DEC MAKING
6 0 3
6 5 0
1 1 2 5
P.21
managed care organizations that rely on these approaches have yet to demonstrate a significant cost
advantage over traditional fee for service indemnity plans.fLangwell, 1992 #75} The threshold
effect suggests that constraints on the supply of health care resources are more likely to be effective
in controlling the growth of health care spending. Evidencefromother countries and several states
supports this contention. Hawaii's health commissioner, for example, attributes much of that
state's success in controlling health care costs to their limits on hospital capacity.!Lewin, 1992
#69} At 2.5 beds per thousand population, Hawaii has fewer beds available for its population
than does New Haven.
Acknowledgements
This study was supported by a grantfromthe Agency for Health Care Policy and Research (R18HS05745) and by a grantfromthe Health of the Public Program of the Pew Charitable Trusts and
the Rockefeller Foundation, San Francisco, CA. The authors would like to thank Robert Glynn
and Grace Lu-Yao for their statistical input on this paper.
TE text; ESF 3/19/93
page 12
�RPR-01-1993 13=46
FDN INF MED DEC MAKING
603 650 1125
P.22
Figure Legends
Figure la. Readmission rates for each subsequent sue month interval following index
hospitalization for study cohorts in Boston and New Haven. Bars show crude readmission rates in
each interval. Adjusted relative rates and 95% confidence intervals derived Zeger and Liang
models.
Figure lb. Readmission rates for each subsequent six month interval for all cohorts combined in
each specified stratum of the study population. Bars show crude readmission rates. Adjusted
relativeratesand 95% confidence intervals derived from Zeger and Liang models.
Figure 2. Relativerisk(dots) and 95% confidence intervals (bars) ofriskof readmission in each
MDC for which at least 50 readmission occurred during the study interval. Estimates based on
Cox proportional hazards models for all except the following, which were based on Zeger and
Liang models: All readmission, all medical readmission, all surgical admissions, MDC 5M.
TE texu ESF 3/19/93
page 13
�PiPR-01-1993
13=46
FDN INF MED DEC MAKING
603 650 1125
Table 1
Rate of Assignment to Cohorts, by Place of Residence
Assignmgnt Rate*
Cohort
(N Boston, N New Haven)
Boston
New
Haven
Ratio of Boston
to New Haven
(95% CI)
Acute Myocardial Infarction
(1628, 458)
19.0
18.3
1.04
(0.94,1.16)
Stroke
(1422,371)
16.2
14.8
1.10
(0.98, 1.23)
Hip Fracture
(1235, 258)
13.2
10.3
1.29
(1.13, 1.47)
Gastrointestinal Bleeding
(881,238)
10.2
9.5
1.08
(0.93, 1.24)
Surgery for Cancer
(690, 235)
8.1
9.5
0.87
(0.75, 1.01)
All Cohorts Combined
(5,856, 1560)
67.x
62.x
1.08
(1.02, 1.14)
* Assignment rate (per 1000 residents), indirectly adjusted for age, sex, race using New Haven
population as the standard.
TE table 1, MAR 93
DRAFT
March 16,1993
P. 23
�•
fiPR-01-1993
800
13=47
FDN INF MED DEC MAKING
603 650
800 n
All Cohorts Combined
1125
Stroke Cohort
Boclon
£
N»wH«v»n Relative Rate: 1.46
(95% CI 1.34, 1.60)
600
i
400
2
200
I
Ol
5
LLLLu
liiiin
1
1
1
1 2
•
»
1
*
»
•
6
6
400-
200-
1
I
Relative Rate: 1.30
(85% CI 1.22,1.58)
1
111
I
III
••
1 2
3
4
6
6
Relative Rate:
5
200-
I LU
11111
1
2
3
4
S
6
iseo•
200H
400
S
6
7
I
200-
UiL
III ii
III
1
2
3
4
S
6
7
Interval Following Index Admission
Cancer / Surgery Cohort
1.69
Relative Rate:
cc
400
"* 200
7
1.66
(95% CI 1.36,2.02)
I "
Interval Following Index Admission
5
I II
e
o
"5 400
«
7
(95% CI 1.40.2.04)
400
4
Relative Rale:
1.43
(95% CI 1.14.1.80)
a 6oo-
Hip Fracture Cohort
S 600-
S
800 n Gastrointestinal Bleeding Cohort
Interval Following Index Admission
8001
2
Interval Following Index Admission
Myocardial Infarction Cohort
£ 600
LLILE
i % ,
111 I 111
.
7
Interval Following Index Admlailon
800
Relative Rate:
1.45
(85% CI 1.25.1.68)
• 600*
kill I U
Illllll
1 2
3
4
5
6
7
Interval Following Index Admission
P. 24
�RPR-01-1993
13=48
800n
FDN INF MED DEC MAKING
603 650
600
Age 65-74
i
400'
•
New H«v«n
Relattv* Rait: 1i2
200
Ralallve Role: 1.44
lllllli
1
U
2
3
I
5
6
1
7
I Besion
B K)«wH«ven
3
600
Male
600
2
400
200
Relative Rate: 1.56
I
Q
600
L. 11 I n
ll li i.«
2
3
4
5
6
Botlon
New Haven
•
Sosien
B
New Haven
Illllll
0 l « i l , T « ,
1
2
7
•
1
400
200
liLU
Illllll
.
1
2
3
.
4
.
5
I
3
i
i
6
Intervel Following Index Admission
7
4
m.
I
5
«
6
7
Interval Following Index Admission
eoo-i
Relative Rate: 1.49
(95%
_
(95% CI
CI 1.14,1.96)
1
Relative Rate: 1.43
200- Wn wfa mfA m% wzi
Non While
600
7
hlllU
E
Interval Following Index Admission
600
6
(95% CI 1.26.1.59)
Illllll
1
5
Female
(95% CI 1.35,1.79)
3
4
Interval Following Index Admleslon
Interval Following Index Admission
800
I L I ui i
Illllll
200
H
4
(95% CI 1.30,1.60)
I
I 400
H
Boaoo
600
(95% CI 1.32,175)
I
P.25
Age 75+
• Becion
•
600'
1125
White
|
B
600-
Boston
New Haven
Relative Rate: 1.48
(95% CI 1.35.1.62)
i
1
3
|
400-
*
200-1
III hi I LI
Illllll
1
2
3
4
5
6
Interval Following Index Admission
7
1
�APR-01-1993 13=48
FDN INF MED DEC MAKING
2
H
All Readmissions
All Medical Admissions
1M Nervous System
ZMEye
3M Ear, Nose Throat
4M Respiratory System
5M Circulatory System
6M Digestive System
7M Hepatobiliary System
8M Muskuloskeletal
9M Skin and Breast
10M Endocrine, Nutr.
11M Kidney and Urinary
16M Blood, Immunologic
17M Myeloproliferative
18M Infections
19M Mental Conditions
21M Injuries, Poisoning
All Surgical Admissions
1P Nervous System
2PEye
5P Circulatory System
6P Digestive System
7P Hepatobiliary System
BP Musculoskeletal
9P Skin and Breast
11P Kidney and Urinary
12P Male Reproductive
H
h
603 650
h
1125
P. 26
�APR-01-1993
13=49
FDN INF NED DEC MAKING
603 650
1125
P. 27
All Readmissions
All Medical Admissions
1M Nervous System
2M Eye
3M Ear, Nose Throat
4M Respiratory System
SM Circulatory System
6M Digestive System
7M Hepatobiliary System
8M Muskuloskeletal
9M Skin and Breast
10M Endocrine, Nutr.
11M Kidney and Urinary
16M Blood, Immunologic
17M Myeloproliferative
18M Infections
19M Mental Conditions
21M Injuries, Poisoning
2
H
1
3
h-
TnTOI
p
T"?
�Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a publication.
Publications have not been scanned in their entirety for the purpose
of digitization. To see the full publication please search online or
visit the Clinton Presidential Library's Research Room.
�Health Care Reform Task Force
New System Organization
Chair: Walter Zelman
March 24, 1993
GROUP HEALTH INCORPORATED
�DRAFT: FOR OFFICIAL PURPOSES ONLY
MEMORANDUM
Date: A p r i l 3, 1993
TO:
Risa Lavizzo-Mourey
and A r n i e E p s t e i n
From: Dave Jackson
S u b j e c t : UPDATE ON RATIONALE FOR INFORMATION-RICH ENVIRONMENT
I.
Role o f Q u a l i t y i n t h e Reformed System
A) I f one i s t o c a p t u r e t h e s h o r t term a d m i n i s t r a t i v e (Back
O f f i c e ) s a v i n g s , much c a r e and i n s i g h t must be d i r e c t e d a t
s i m p l i f y i n g t h e unnecessary v a r i a t i o n s i n d a t a r e q u i r e m e n t s by
s t a n d a r d i z i n g an a r r a y o f "forms", b o t h paper and e l e c t r o n i c .
However, i f one wishes t o access t h e major s a v i n g s i n t h e
h e a l t h c a r e system, t o decrease waste and i n e f f i c i e n c i e s w h i l e
enhancing t h e q u a l i t y / o u t c o m e s o f our h e a l t h c a r e endeavor, we
must understand and h e l p c r e a t e a r e l a t i v e l y i n f o r m a t i o n r i c h
environment. Only i n such a s e t t i n g , can t h e movement t o
quality
improvement have any chance o f success. The
o p p o r t u n i t y t o improve q u a l i t y and outcomes ( f r o n t o f f i c e ) ,
and hence save s u b s t a n t i a l l y l a r g e r amounts o f r e s o u r c e s t h a n
c o n t e m p l a t e d i n t h e a d m i n i s t r a t i v e p r o j e c t i o n s , i s one t h a t
must be encouraged and enabled.
This w i l l r e q u i r e p r i v a t e
s e c t o r a c t i o n s , w i t h complementary b u t l e s s s t r u c t u r e d and
l e s s i n t r u s i v e governmental r o l e s .
B) The p u b l i c needs and i s demanding assurance t h a t t h e
changes proposed i n t h e h e a l t h c a r e r e f o r m package w i l l n o t
s a c r i f i c e q u a l i t y f o r c o s t s a v i n g s . Q u a l i t y assurance i s a
c e n t r a l aspect o f t h e need t o respond t o t h e " s e c u r i t y "
concerns o f t h e American people r e : t h e h e a l t h c a r e system.
C) The system must p r o v i d e adequate i n f o r m a t i o n t o s u p p o r t i n
m e a n i n g f u l ways t h e e x e r c i s e o f i n f o r m e d c h o i c e by i n d i v i d u a l s
and promote t h e e x e r c i s e o f a c c o u n t a b i l i t y by p u r c h a s i n g
c o o p e r a t i v e s . Many consumer advocacy groups and business
l e a d e r s a r e a l r e a d y almost p l e a d i n g f o r a s s i s t a n c e i n becoming
p r u d e n t purchasers o f "value" i n h e a l t h c a r e . They c l e a r l y
u n d e r s t a n d t h a t t h e y can n o t be s u c c e s s f u l i n meeting t h e i r
g o a l s i f t h e y are l i m i t e d t o p u r c h a s i n g h e a l t h c a r e s e r v i c e s
based o n l y on p r i c e .
D) T o t a l Q u a l i t y Management o r Continuous Q u a l i t y Improvement
r e q u i r e s an i n f o r m a t i o n - r i c h environment t o be e f f e c t i v e .
These d a t a and i n f o r m a t i o n r e q u i r e m e n t s a r e d r i v e n i n l a r g e
p a r t by f o r c e s a t t h e l o c a l " d i r e c t c a r e p r o v i d e r and p l a n
l e v e l , and must be p r i m a r i l y r e s p o n s i v e t o t h e q u a l i t y needs
as d e t e r m i n e d a t those s i t e s . But t h e r e a r e w e l l - v a l i d a t e d
measures o f q u a l i t y outcomes (and o c c a s i o n a l l y l i m i t e d process
measures s t r o n g l y l i n k e d t o outcomes, such as c h i l d h o o d
�Page 2
4/3/93
DRAFT: FOR OFFICIAL PURPOSES ONLY
i m m u n i z a t i o n r a t e s ) t h a t can be used t o h e l p f a s h i o n a
m e a n i n g f u l " r e p o r t c a r d " , which can empower i n t e r - p l a n and
i n t e r - p u r c h a s i n g c o o p e r a t i v e comparisons, as w e l l as p e r m i t
assessment o f n a t i o n a l progress over t i m e towards improvement
i n a l i m i t e d number o f c r i t i c a l l y - i m p o r t a n t q u a l i t y measures.
Many o f t h e d a t a r e q u i r e d f o r such a program w i l l a l r e a d y be
c o l l e c t e d by t h e Plan t o s u p p o r t c l i n i c a l management needs and
t o meet Plan Q u a l i t y Improvement r e q u i r e m e n t s . The p r i v a t e
sector i s already
f o r c i n g t h e c o l l e c t i o n , a n a l y s i s and
p u b l i c a t i o n o f much more e x t e n s i v e d a t a / i n f o r m a t i o n
than
envisioned
i n t h e H e a l t h Care Reform Q u a l i t y Task Group
proposal.
E) S i m p l i f y t h e d i v e r s i t y and c o m p l e x i t y o f d a t a s u b m i s s i o n
forms and r e q u i r e m e n t s , w h i l e e n s u r i n g t h a t t h e system has
access t o t h e i n f o r m a t i o n necessary t o meet t h e g o a l s n o t e d
above.
I b e l i e v e t h a t i t i s v i t a l t o design the h e a l t h care i n f o r m a t i o n
system so t h a t i t s p r i m a r y g o a l s are t o s u p p o r t t h e management and
c l i n i c a l i n f o r m a t i o n needs o f t h e p a t i e n t , t h e p r o f e s s i o n a l s , and
p l a n management. Over t i m e t h i s system w i l l p r o v i d e r e a l t i m e
d e c i s i o n s u p p o r t f o r t h e care p r o v i d e r , as w e l l as t h e i n f o r m a t i o n
r e q u i r e d f o r t h e Plan's Q u a l i t y Improvement program and o v e r a l l
P l a n management. I n t h i s environment, which a l r e a d y w i l l r e q u i r e
s i g n i f i c a n t d a t a c o l l e c t i o n and i n f o r m a t i o n a n a l y s i s e f f o r t s a t t h e
l o c a l P l a n l e v e l , t h e d a t a s e t s r e q u i r e d f o r t h e Purchasing
c o o p e r a t i v e and n a t i o n a l h e a l t h board q u a l i t y i n f o r m a t i o n programs
s h o u l d be a v a i l a b l e l a r g e l y as b y - p r o d u c t s o f t h e p l a n s ' own
internal
information
systems
( a t a measurable b u t modest
incremental
c o s t and s u b s t a n t i a l s u b s t a n t i v e
and p e r c e p t i o n
benefit).
�fiPR-B2-1993
13U5
FOT1
COMP 2. BENEFITS
TO
912026906064
ARCO
HUMAN RESOURCES
FACSIMILE TRANSMISSION
DATE:
LOCATION/ f z ^ J )
PHONE:
^fo
1
^04M—
FROM:
LOCATION/
PHONE:
fet3)4&
^—'
NUMBER OF PAGES
(INCLUDING COVER)
COMMENTS-
^
? L Q
327/
J
exPeitve^fte
wv-rv
LJR ON
P.01
�flPR-02-1993
13=15
FROM
TO
COMP 8, BENEFITS
F8YC9/CHEMXCAL
912026906064
MFDOTCY
TOTAL AnTOAL ADKX88X0M8
450
A
D
X
I
8
8
Z
0
H
o
o
400
350
300
250
200
150
100
50
0
1992
TSAR
T
AVZRAOl LSHQTH 07 STAT <AU08)
A
0
11
X
8
8
X
0
H
8
30
2d
26
24
22
20
18
16
14
12
10
8
6
4
2
0 .
(27.85)
(20.66)
(15.35)
1990
+-
1991
YBAR
11
"
V
P.02
�APR-02-1993 13:15 FROM
COMP & BENEFITS
TO
912026906064
P8YGB/
BSD DAY8/1,000 COV1MD LIVES
D
A
Y
8
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
1989
1990
1991
1992
YSAft
m
ABHUAL ZHPATZIMT COSTS
8
7
N
Z
L
L
Z
0
V
4
e
3
($6,721,332)
6
5
($4,166,439)
($3,110,792)
($3,147,741)
2
1
0
1989
1990
1991
YBAR
12
1992
P.03
�C a l c u l a t i o n o f AFDC Savings
I n f i s c a l year 1991, average AFDC b e n e f i t s p e r f a m i l y a r e
e s t i m a t e d a t $388 x 12 = $4,656, p l u s annual a d m i n i s t r a t i v e c o s t s
of $592 p e r f a m i l y f o r a t o t a l c o s t o f $5,248 p e r f a m i l y .
There
were 4,362 thousand f a m i l i e s on AFDC d u r i n g t h e y e a r , f o r a t o t a l
c o s t o f $22.9 b i l l i o n .
I f 25 p e r c e n t o f f a m i l i e s l e f t w e l f a r e , as
r e c e n t work by M o f f i t and Wolfe suggests, s a v i n g s would amount t o
$5.7 b i l l i o n .
Source o f Data:
1992 Green Book
�Case Study 7:
Clinical Quality Improvement
^MediQuaT
Armed With MediQual Data,
Borgess Cuts Costs by $2 Million a Year
A
t Borgess Medical Center in
Kalamazoo, Michigan, MediQual comparative outcomes information expedited clinical process
improvements that cut cardiac costs
by nearly $4,000 a case, saving more
than $2 million a year.
These savings enable Borgess,
which performs more than 650 openheart procedures a year, to offer area
eraployere a one-price package for
coronary-artery bypass graft (CABO)
surgery. For significantly less than the
price employersformerlypaid for
bypass surgery, alone, the Borgess
package covers evexytfaing—from preoperative testing, to hospital and
physician fees, to accommodations at
a nearby hotel for the patient's family.
The one-price package for specialty
services, called a "carve-out," is the
hottest new healthcare reimbursement
phenomenon—one directly linked to
the elimination of variation in clinical
processes and costs. Here's how
Borgess did it
media. Both The Wall Street Journal
and network-television, in stories
about the nation's healthcare crisis,
used Kalamazoo as an example of
how hospitalrivalryin a small city
can drive up costs.
By the early 1990s, a coalition of
more than 30 area companies had
formed and was demanding that
Kalamazoo hospitals begin demonstrating the value of their healthcare
we've been willing to pay for it...we
still are—up to a point."
A Strategy for Continuous
Quality Improvement (CQI)
"Our customers were sending us a
clear message—fine-tune your
practices and control your costs," said
Borgess President, R. Timothy Stack.
"We knew the two requirements were
inextricably linked. Examining and
changing our clinical processes
through continuous quality improveUT customers were ment was central toreducingour
sending us a clear message costs. It was critical that we improve
our processes and give purchasers
—fine-tune your practices performance data showing we provide
and control your costs. It the highest quality caic at the lowest
possible price."
was critical that we
Having decided continuous quality
improve our processes and improvement was its best strategy to
cut costs and demonstrate value,
give purchasers perforBorgess decided to focus initial
clinical-care improvements on its
mance data showing we
high-cost processes—
provide the highest quality high-volume,
those for cardiac-procedure Diagnosis
care at the lowest possible Related Groups (DRGs): valve repair
A Force for Change
or replacement; coronary-artery
price."
la the 1980s, fierce competition
bypass graft (CABG), and percutanebetween Kalamazoo hospitals
ous transluminal coronary angioplasty
Borgess
Medical
Center
produced superior healthcare, but at a
(PTCA).
President, R. Timothy Stack
steep price. Therivalrycaused
duplication of services—and duplicaArmed with Data
tion of costs. By 1989 large business- services. Coalition board member, Dr.
es in the area—Upjohn. James River Theodore Cooper, Upjohn chairman Continuous quality improvement
relies on the conversion of clinical
and Western Michigan University—
and CEO, summed up the coalition's data into informadon about the
were comparing costs across the state point of view in a speech before the
clinical process. Comparing actual
and openly criticizing Kalamazoo
Kalamazoo Academy of Medicine.
outcome
rates to expected rates
hospitals for high prices. The situation "We have very high quality of
reveals
opportunities
to reduce
even caught the eye of the national
medicine here," said Cooper, "and
variation through process
Paget
�Case Study 7:
Borgess Medical Center, Cardiac DRGs
improvements. Borgess, a longtime
MediQual Systems client, based its
CQI strategy on MedisGroups patient
data and outcomes information in
MediQual*s Database. Borgess
adopted MediQual's 4-step CQI
model:
1. Compare actual outcome rates to
expected rates to reveal opportunities
for improvement.
2. Establish a quality improvement
team.
3. Analyze die clinical process to
identify and eliminate process variation.
medical records for cardiac patients.
Practice, consulting and peer-review
guidelines were studied, as well as
statewide Medicare data, national
practice trends, and other information.
Flow charts and cause-and-effect
diagrams were created to aid analysis
of the cardiac-care process,frompreadmission processes through discharge.
Vice-President of Medical Affairs,
These analyses revealed several
"fueled motivation for evaluating and
costly process problems, including:
changing our cardiac processes, and
was critical to assuring physicians that routine use of pre-printed testing
quality was not being compromised as orders, inconsistent pre-procedure
testing, inefficient admission policies
costs were being reduced."
and poorly coordinated discharge
planning.
A Team Approach
^^J^he MediQual information fueled motivation for
evaluating and changing
our cardiac processes"
Stack organized several qualityimprovement task forces representing
every facet of the medical center's
4. Measure the results.
cardiac-care process, including
surgeons,
cardiologists, cardiac nurses,
MediQual data gave Borgess
laboratory
technicians, and cardiacessential clinical insight Into each
care
technical
specialists. Physician
aspect of its CQI process:
support, which is crucial to CQI
* Comparative outcomes information success, was easily gained because the
focus was clinical data and process
for identifying variation.
improvement, not individual physician
practices.
* Risk-adfyutment for developing
"Including people from the entire
clinical paths.
cardiac-care system helped us get a
* Clinical information and database true picture of all the various process
issues influencing quality," said Stack.
for measuring results.
"Our experience reaffirmed the quality
improvement concept that 85 percent
* Physician-specific outcome
information for selecting physicians of quality problems are process
related, not people related."
for its preferred-provider
organization.
CardiacPath Protocols
The CQI team implemented several
quality improvements designed to
eliminate the waste, duplication and
rework uncovered in the process
analysis. To assure a consistent cardiac
clinical process, the improvements
were incorporated into CardiacPath
clinical protocols developed by
Borgess cardiac specialists. More than
3,200 hours went into creating the
treatment paths for thefivecardiacprocedure DRGs. CardiacPath provides a road map for all the events
involved In executing physician orders
and for the sequence of care-team
activities,fromdiagnostic testing
through inpatient rehabilitation.
"Physicians are extremely supportive of the paths," said Tolchin.
"Having events occur when and how
Studying the Process
they should makes physicians' lives
To help understand the factors driving easier and reduces theirrisks.This is
Identifying Variation
To identify variation between Borgess cardiac-procedure costs, the Borgess not 'cookbook' medicine; the paths
results and the norm, Borgess physi- CQI team merged cardiac cost data
standardize execution of the clinicians compared their cardiac mortali- with MedisGroups clinical data. Hie
cian's orders, not the orders themresults enabled the CQI team to create selves."
ty, length of stay (LOS) and charge
rates against severity-adjusted national arisk-adjustedprofile of Borgess
Evaluatingresultsunder clinical
cardiac-procedure patients. The team
and regional norms in the MediQual
protocols is critical. MediQual
Comparative Database. This compari- then created a typical cardiac-procedure patient bill, covering all typical comparative outcome data is used to
sonrevealedthat while Borgess's
monitor the clinical paths according to
cardiac mortality rates were within the procedure charges—room and board, clinician-established standards for
pharmacy, lab, radiology and other
norm, cardiac lengths of stay and
mortality and morbidity, post-surgical
ancillary charges.
charges were, indeed, significantly
infection rates, and recovery time. The
To pinpoint any clinical factors
higher.
Borgess monitoring system is unusual
"The MediQual information." said influencing cost variation, the team
in that it measures the financial
studied MedisGroups data and certain
Sanford Tolchln. M.D.. Borgess
Page 2
�Case Study 7:
Clinical Quality Improvement
for materials the hospital already had cost-effective drugs, resulted in
on hand. Clinical-preparedness
pharmacy charge reductions of about
policiesrequiringfull-readiness of
$550 a patient.
surgical team, equipment and supplies
in case a patient suffered complica• Radiology: about $350
tions during coronary angioplasty were reduction per patient.
also increasing costs and charges.
Overall improvements that shortened
Streamlining communication between average length of stay for cardiac
staff and contractors, decreasing
patients and eliminated duplicate Xreaction time in emergencies, allowing rays saved patients about $350 in
supplies toremainunopened until they radiology charges.
were
needed, and reducing inventories
Changing the Process,
for some surgical supplies helped
Reaping the Savings
lower charges by approximately $750 • LOS Reductions
Reducing cardiac LOS by almost two
Less than a year after the CardiacPath a patient.
days yielded across-the-board cost and
protocols were implemented, Borgess
charge savings.
recorded significant savings. Examples
include:
implications of the improvements as
well as clinical outcomes.
Borgess markets thefiveclinical
paths to businesses as CardiacPath, a
prefeired-provider organization
offering cardiac care at a competitive
price. MediQual outcome information
was used to select physicians with
superior outcomes to participate in
CardiacPath.
Tabit i
CardiacPath Cost Reduction Analysis
• Laboratory: about $800
Annual
Ave. Cost
redaction per patient
Cost
Reduction
Annual
Reliance on standard pre-printed lab
Difference
orders for all cardiac patients had
Per Case
Procedure
Volume
become commonplace at Borgess,
resulting in unnecessary testing and
$898,194
Valve Surgery
93
$9,658
charges. Asking physicians which test
(DRG 104-105)
results they actually used in making
care decisions, and at what point in the
$1,428,948
CABG Surgery
524
$2,727
patient's stay they needed the results
(DRG 106-107)
to make a clinical decision enabled the
Borgess CQI team to create lab-test
$1,957,240
packages appropriate to specific
$1,670
PTCA
1.172
groups of rjtrAiar patients. This
(DRG 112)
eliminated certain standard orders and
Total Cost Difference $4,284,382
revised others, greatly decreasing
Qncludcs Fixed and Variable Costs)
unnecessary tests and charges. For
example, the number of lab tests in
• A pre-procedure evaluation system
one routinely ordered cardiac lab
• Pharmacy: about $550
was
established for consistent
package wasreducedfrom18 tests to
reduction
per
patient
examination
of all elective cardiac7. These improvements, and others,
Variation and duplication in prescrip- procedure patients. This enabled all
lowered overall lab charges by about
tions between physicians and hospital pre-procedure testing to be completed
$800 a case.
units, andrisingdrug costs were
at least three days before admission.
continually increasing pharmacy
• Operating Room: about $750
charges at Borgess. In addition,
• The admission policy was changed to
medications—such as aspirin and
reduction per patient
have patients admitted the morning of
laxatives, prescribed to be adminisUnnecessarily large inventories, surgery, rather than the day before.
tered "M needed," rather than on a
duplication of surgical supplies, and
regular schedule—were being transdiscarding unused surgical materials
• The CQI team created a discharge
ferredfromunit to unit along with the plan to be followed consistently for
were contributing to high operatingpatient. These medications often were every cardiac patient,fromthe day of
room charges. For example, lack of
not used and were discarded.
communication between Borgess
admission.
Standardizing orders between units
operating-room technicians and
and physicians, tracking "as needed"
perfusionist contractors resulted in
medications, tightening the pharmaperfusionists supplying and charging
cy's drug formulary, and emphasizing
Paged
�Case Study 7:
^
2
Borgess Medical Center, Cardiac DRGs
CardiacPath Patient & Financial Outcome Comparison
Pre-CardiacPath
(rrUh 18-monA
Procedure
inflation
Ave. Tot. Ave.
Chances LOS
Post-CardiacPath
factor)
%
Mortality
Ave. Tot
Charges
Ave,
%
LOS MortaUty
Valve Surgery
(DRG 104-105)
$54,017'
13.4
10.2
$40,122'
10.6
4.3
CABG Surgery
(DRG 106-107)
$37,648'
11.1
2.7
$33,913'
9.9
2.7
$17,566
3.8
-9
$15,738
2.4
.7
PTCA
(DRG 112)
whether coronary angioplasty, surgery,
or neither, is the most appropriate
treatment.
Less than a year after implementation
"We saw-bundled pricing for
of CardiacPath, the mortality rate for CABG as a trend we wanted to be part
valve surgery had dropped by more
of," said CEO Stack, "and we knew it
than half, from 10.2 to 4.3 percent.
couldn't be done until we had our
Average length of stay for all five
clinical processes and costs under
cardiac-procedure DRGs had decontrol These savings are only the
creased by almost two days, and
beginning. We expect our one-price
average total costs had dropped almost package to increase our volume, and
$4,000 a case. These savings are
that, coupled with our continuous
especially significant considering
improvement philosophy, will lower
medical care for 70 percent of
costs even further."
Borgess's patients is reimbursed
according to afixed-paymentplan.
The Next Step—
The reduction of variation in clinical
processes and the resulting cost
Clinical Benchmarking
savings were fundamental to Borgess's Borgess is further refining its clinical
ability to offer businesses a one-price process by incorporating MediQual's
CABG "carve-out" package covering Clinical Benchmarking Services into
both physician and hospital fees for its CQI strategy. MediQual uses
considerably less than the former price clinical informationfromthe 12
of the CABG surgery alone. Another million patient records in its database
benefit the package offers employers is to identify hospitals with benchmark
assessment of each case by a surgeon, outcomes for particular diseases, then
cardiologist and anesthesiologist as to documents the benchmark process
enabling hospitals to adaptfromthe
Outcome
Improvements
diseases. MediQual has found that
hospitals with the best outcomes have
adjusted their treatment processes to
meet-the needs of different risk
groups. Borgess is using that information to tailor its clinical processes to
the high- and low-risk KCF subpopulations MediQual has identified for
CABG.
"KCF analysis is like focusing a
powerful microscope on our clinical
process," said Tolchin. "The insight
we are gaining will enable us to
present ourselves as the center of
excellence for CABG in Michigan."
For more information on
MediQual's Clinical Benchmarking
Services, MedisGroups Software, and
the MediQual Comparative Database
call (508)366-6365.
Btaef
MttOttlSyMMU,!*. CBdtacPlUhnir
BMBWMMlMlCMUr.
best
J^CF analysis is like
focusing a powerful
microscope on our clinical
processes."
One of the essential elements of
MediQual's benchmarking service is
identification of high-risk and low-risk
patient subpopulations. These groups
are identified by ranking key clinical
findings (KCFs) according to their
association with mortality in particular
Page 4
MediOual Systmu. Inc.
1900 West P«rk Drlv*
W a t l m r n u a h . M A 01581
ink of
�Case Study 6:
Clinical Quality Improvement
MedisGroups® II:
Challenge The Process
j oving beyond inspection quality
control, Clinical Quality Improve| ment focuses on the production
processes themselves. The discovery of
imperfections in a clinical process provides an opportunity to improve thequality
of a product or service through a constant effort to reduce waste, rework, and
complexity. By identifying and analyzing variation in clinical processes,
healthcare organizations can improve
outcomes and continuously demonstrate
the value of its products and services.
patient records, can be used to measure
variance in the results of clinical processes, focus on the cause of variance, act
to remove the cause, and monitor the impact of the action taken (Figure 1).
Many of MediQual's 500 client hospitals
successfully use MedisGroups II to increase the effectiveness of their Clinical
Quality Improvement efforts. The following case study illustrates a proven
client strategy for "challenging the process" using MedisGroups data.
support a systemforcontinuous quality
improvemrnt. As a MedisGroups client
for over six years, Forbes had access to
the clinical data necessary to immediately initiate programs to identify and to
prioritize clinical processes for further
analysis by their quality improvement
teams. In place for over 2 years, the
medical staffs commitment to this quality program has enabled Forbes to realize significant improvements through
the elimination of unnecessary variation
in clinical outcomes. As a result of these
improvements. Forbes will also realize
significant financial returns through the
reduction of waste, rework, and complexity (Figure 2).
This case study describes how Forbes
applied the MediQual Model for CliniMedisGroups II, the nation's leading
cal Quality Improvement to
quality management system,
FIGURE 1
identify and analyze varienables healthcare professionals to systematically
ance in outcomes for DRG
analyze clinical processes
89 (PNEUMONIA. PLEUusing valid statistical methRISY > 17 WCQ.
ods. The MedisGroups software system classifies each
MEASURE TO IDENTIFY
patient's severity of illness
VARIANCE
at admission based on key
Forbes is a member of the
clinical findings, and then
ALPHA Health Network, a
measures changes in the
non-profit PPO established
patient's status over the
in 1985. ALPHA was
course of hospitalization,
formed through the colleckeeping track of the nature
tive efforts of hospitals and
of all services provided. This
physicians in western and
approach allows hospital
central Pennsylvania to
management to generate
provide data to support their
reliable reports on three criti- MediQual defines Clinical Quality Improvement as the continuous
quality improvement propractice of reducing variation in clinical processes to producegrams.
better To this end, ALcal dimensions of quality imoutcomes.
provement: the effectiveness
PHA uses MedisGroups data
of clinical intervention; the
to produce comparative
appropriateness of inpatient admissions
reports regarding outcomes and resource
and surgical procedures; and the effi- CLINICAL QUALITY IMPROVEMENT
use for member hospitals.
ciency of treatment to achieve a desired AT FORBES
patient outcome. MedisGroups objec- Working closely with physicians, Forbes One of these reports, shown in Figure 3.
tive clinical information, in addition to Health System, a 784-bed hospital sys- summarizes Forbes' findings for DRG
comparative norms compiled from tem located in Pittsburgh, Pennsylvania, 89, including observed and expected rates
MediQual's database of over 6 million has restructured their organization to for outcomes and resource use.
Measure
Monitor
Focus
Paget
�Case Study 6:
Community- Acquired Pneumonia
of Pulmonary Medicine. The results of
this review revealed several important
characteristics regarding this patient population:
FIGURE 2
8%
Reductions in Resource Utilization at Forbes
Fiscal Year 89-90
• 90% were admitted through the
Emergency Department (ED).
• 12% of the patients had Acute
Myocardial Infarctions; 25% had
lung cancer; and 33% had orders
to not resuscitate.
• 26% were in acdve sepsis.
LOS
Ancillary
Charges
Total
Charges
• 31% were greater than 85 years
of age.
Net Total
Charges
This detailedreviewof Clinical SumExpected rates are derived from MeFOCUS
O
N
THE
CAUSE
maries and medicalrecordsalso ruled
diQual's Comparative Database based
The
preliminaries
of
this
analysis
were
out
possible data errors and physician
on a hospital's severity mix for a given
accomplished
through
a
focused
review
responsibility
as the cause of variation.
patient population. The "standard ratio"
Although
some
variation could be parof
MedisGroups
Clinical
Summaries
and
in Figure 3 represents the difference betially
attributed
to complications and
then
medical
records
for
major
morbid
tween expected and observed rates. (A
comorbidities
in
DRG
89 patients, Forbes
and
mortality
cases
in
DRG
89.
Medisratio of 1.45 means the hospital's obmanagement
appointed
a multidiscipliGroups
Clinical
Summaries
display
key
served rate exceeds the expected by 45%.)
nary
team
to
analyze
the
actual stqps in
clinical
findings
(KCFs)
and
other
deThe P-Value reflects the result of a test
the
treatment
of
pneumonia
in order to
scriptive
data
for
an
individual
patient.
for statistical significance. This test
idenrify
other
possible
sources
of variThese
reports
can
be
used
by
quality
immeasures the degree to which the variation.
Flow
charts
were
created
to proprovement
teams
to
gain
a
better
underance between two variables could be due
vide
a
better
understanding
of
the
procstanding
of
the
different
factors
which
to chance events. (The larger the numess
flow
and
how
this
process
could
be
ber, the greater the probability is that the could influence the outcome of a particustandardized
and
simplified.
The
team
variance is due to chance.) By compar- lar process.
also developed cause and effect diaing actual hospital rates of outcome to
expected rates, Forbes is able to deter- This initial review was completed by Dr. grams for this process to focus on the
mine whether the outcomes of their clini- McGarvey with assistancefromthe Chief causes of variability. Variation was
shown in four areas:
cal processes significantly vary from an
established norm.
FIGURE 3
As Figure 3 reveals, Forbes had a significantly higher combined rate of major
morbidity and mortality in DRG 89 as
compared to the expected rate (adjusted
by Forbes' severity mix for this DRG).
Thisfindingwas of particular concern
because the observed rate of major
morbidity/mortality was 28% higher than
the expected rate and statistically significant at the .01 level. Under the
leadership of Richard McGarvey. MD,
Medical Director at Forbes, the clinical
process for treating pneumonia patients
was selected for further investigation to
determine the cause of the variation.
DRG 89, Simple Pneumonia and Pleurisy
Age>17 whh Complication and/or Comorbidity
January 1,1989 - September 30,1989
Cases o 98
Observed
(0)*
Expected
Major Morbidity and Mortality
Lenoth ol Stay
Outcomes
Average Anclllaiy Cltargst
Average Total Chargas
(Er
Ratio
(0/E)
Significance
(P-Value)
19.30
15.04
1.28
0.01
11.22
9.83
1.14
0.04
$6,152
S4.267
1.44
0.01
$10,142
$8,893
145
0.01
'OiNtrvW-MiulRah
' -EUMlll- MjHMl Rim BMM (M SMMtr Mil
Page 2
�Case Study 6:
Clinical Quality Improvement
two blood cultures, and the initiation of which often missed legionella and mycoan appropriate antibiotic therapy. In the plasma. Medical literature suggested that
event Respiratory Therapy is unable to 15% of these pneumonia cases could be
acquire an adequate sputum specimen caused by legionella which is often diffiwithin four hours, Nursing should begin cult to culture. Therefore, the team sugdie administration of the antibiotic or- gested that these organisms be covered
• Specimen cultures were often
dered. If the patient is a direct admission empirically by the use of erythromycin.
saliva, not sputum, resulting in
normalflorafindings.
or if a dijgnosis of pneumonia is made
several days after admission, the same The above recommendations were
Coordination;
procedures should be initiated by the adopted by the Medical Executive
Committee and educational presenta• Cultures were not always obtained floor nurse."
tions were scheduled with each clinical
in ED where 90% of the pneumonia
The team also recommended a respira- department to communicate findings.
patients were admitted.
tory care sputum induction protocol to At these meetings, standing orders were
• Nursing Units were not always aware aid in the timely diagnosis of respiratory discussed as well as clinical observainfection. The purpose of the protocol tions regarding the management of DRG
of the ED actions.
was to provide the laboratory with a 89 including effective antibiotic therasputum specimen acceptable for analy- pies and the appropriate use of consultaAntibiotic Treatment:
• Antibiotics were not always started sis. As part of this protocol, the respon- tions.
sibility of collecting a specimen would
in ED.
be given to Respiratory Therapists inMONITOR THE PROCESS TO
• Other less common causes
OBSERVE IMPACT
of pneumonia were not
Six
always covered routinely by
"Forbes subscribes to the phtiosophy that months after the recommenwere adopted, Forbes
standard therapies.
real improvement in quality depends ondations
reevaluated DRG 89 outcomes
understanding and revising the processes,
and determined that no statistiConsultations:
not relying on inspection or searching for
cally significant variation existed.
• Use of Infectious Disease
and Pulmonary consults were outliers. A basic underpinning to this An initial report of this reevaluation showed that mortality rates
not always consistent
philosophy is that measurement and data
collection are essential to identifying alone in DRG 89 had decreased
6.5% in the first quarter followopportunities for improvement and for ing the above actions. Further
analysis offinancialdata for DRG
ACTTO IMPROVETHE PROCESS monitoring results."
— Barry Roth. President, Forbes Health System
89 showed that this improved
To address the causes for varioutcome rate was associated with
ation identified above, the mula significant improvement in
tldisciplinary team developed a
set of protocols and standing orders to stead of Nursing. The therapists would Forbes' operating margin. Twelve months
make die process of treating pneumonia make two attempts at collection before following the implementation of this
at Forbes more consistent and, therefore, notifying the physician. In order to as- improvement plan, the positive trend
sure that specimens were sputum and not initially documented continued to be obmore effective.
saliva, the laboratory was instructed to served. At present. Forbes continues to
Hospital-wide standing orders for pa- gram stain all specimens. The primary examine the extent of the impact on
tients with a pneumonia diagnosis were goal of the sputum induction protocol clinical outcomes and other means for
proposed by the team in order to expe- was to provide the physician with the in- streamlining the DRG 89 treatment procdite the collection of cultures and treat- formation needed to make an accurate di- ess further.
ment of pneumonia patients in the ED. agnosis of any respiratory infection within
The proposed standing ordcre stated: 24 hours of admission.
CLINICAL QUALITY IMPROVEMENT:
"Any patient admitted to the hospital
through the ED with the diagnosis of The ordering of blood cultures and anti- A RETURN ON INVESTMENT
pneumonia will have standardized or- biotics was also standardized. The find- The impact ofreducingvariation in a
ders initiated in the ED at the time of ings of the quality improvement team clinical process can significantly imadmission. These orders include: the Showed that the common antibiotic ther- prove patient outcomes and reduce costs.
collection of a sputum specimen by a apy for community acquired pneumonia Figure 4 displays DRG 89 outcomes
Respiratory Therapist, the collection of was cosdy third generation cephalosporins daw for eleven hospitals in MediQual's
Diagnosis:
• Sputum cultures were not ordered
routinely because theresultstoo
often showed normal flora.
Page3
�Case Study 6:
Community- Acquired Pneumonia
FIGURE 4
The Impact of Reducing Variation in Clinical Processes
DRG 89, Simple Pneumonia and Pleurisy
Major Morbidity/Mortality Rates by Hospital
Group
Hospital
Morbidity/Mortality Rate
Observed
Expected
Impact of Morbidity/Mortality Rate
on Total Charges ($000)
1
2
6.2
12.2
2
6
10.2
40.4
3
9
12.9
23.7
4
6
8.3
4.3
5
13
14.7
4.8
6
20
18.4
-7.3
7
36
32.6
•15.2
8
13
9.8
-9.2
9
19
15.0
-42.8
10
32
24.9
-17.6
11
37
23.2
-61.4
A
B
1.0
for Hospital 9 if it decreased variation
"With over 750physicians on staff at Forbes, it was essentialbelow
to the norm.
approach quality improvement in a cooperative manner. MedisThe above example demonstrates the
Groups helped gain physician support for our quality improvepotential financial gains of variation
ment program because the data focused review efforts on trends
reduction for only one DRG. As in the
and processes rather than outliers. Today, we use MedisGroups
case of Forbes, improving clinical outcomes
data in working with physicians to solve mutual problems, en- by reducing variation in the treatment of DRG 89 patients resulted in a
courage dialogue, and seek opportunities for continuous quality
substantial decrease Inresourceconimprovement."
sumption. This decrease has in turn re— Richard McGarvey, M.D., Medical Director, Forbes Health System
sulted in a 7% drop in total charges...a
decrease that could result in a signifiComparative Database and the impact and the observed number multiplied by cant reduction in total operating costs at
of variationfromthe nonn on total chaises. a hospital's average charge difference Forbes.
Group A represents those hospitals whose for non-morbid and major morbid DRG
observed major morbidity/mortality rates 89 patients.) Because fewer resources As healthcare costs continue to soar, a
in DRG 89 are less than the expected are required to treat non-morbid pa- hospital's ability to meet customer exrate; Group B represents those hospitals tients, Group A hospitals realize signifi- pectations and to demonstrate the value
with higher than expected rates. The cant savings in terms ofresourcesas of its services will be critical to its surpotential impact of clinical variation on compared to Group B hospitals. Those vival. The key to meeting this chala hospital's bottom line can be substan- hospitals in Group B could significantly lenge is continuous quality improvetial. The last column in Figure 4 illus- benefitfromreducing variation in DRG ment. For many of MediQual's clients,
trates this financial impact in terms of 89. For example, if Hospital 9 reduced like Forties, MedisGroups has become
total charges for DRG 89. (The impact its variation by 21 %, it could save nearlyan integral pan of their Clinical Quality
on total charges equals the difference $43,000 inresources.This favorable Improvement strategies.
between the expected number of cases financial impact could be even greater
Page 4
MediQual Systems, Inc.
IVW West PMrk Drivf
Westburough, MA 01581
(SOS) 3tf 6365
�P002/008/F87
04-02-93 01:34 PM FROM WILLIAM M. MERCER
Companies Report Savings
Through Coordination Of Benefits
338.-9
1-18-91
Coordination of benefits (COB) enforcement saved an average of
5.1% of paid claims In 1989, according to a survey conducted by A.
Foster Hlggins & Company, Inc. Findings were based on responses
from nearly 2,000 employers representing all 50 states, which have
programs that cover more than 12.5 million employees. The survey
also found that commercial carriers and Blue Cross/Blue Shield organizations achieved better COB returns than did third party administrators.
This Research Report describes current COB strategies used by six
companies, and any savings they have tracked.
AMERICAN STORES COMPANY
SALT LAKE CITY, UTAH
American Stores pays benefits as the primary plan for
the covered employee. If another family member's plan
qualifies as the primary plan, American Stores will pay
up to 100% of its allowable expenses, less what the
primary plan has already paid. If the primary payor is a
health maintenance organization, American Stores will
determine benefits based on services thai would have
been provided by the HMO, regardless of whether the
claimant actually utilized the HMO facility.
AMOCO CORPORATION
CHICAGO, ILL.
Amoco's plan is primary for employees and secondary for spouses covered by anoiher plan. The company
adheres to the "birthday rule" in determining plan status
for dependent children.
Benefits arc coordinated with those provided by any
group plan or group prepayment plan (HMO) that is
sponsored or contributed to by another employer or
employer association, or from a union health and welfare fund.
Medicare coverage or any other governmental program i s not considered another group plan, except in the
case of an individual who is Medicare-eligible due to
end stage renal disease. Therefore, if an employee or
dependent is covered under the Amoco plan, as well as
by Medicare, the company plan will always be considered primary.
Amoco reserves the right to subrogation for any reimbursements from a third party for covered expenses.
as the result of a lawsuit, or under a contract or insurance
policy.
CENTRAL ILLINOIS LIGHT COMPANY
PEORIA, ILL.
From Jan. 1, 1990. through Aug. 31, 1990, Central
Illinois Light experienced COB savings of $1,952,969.
The plan covering the person as an employee, member, or subscriber (anyone other than a dependent) is
primary. The plan adheres to the "birthday rule" for a
dependent child when parents are neither separated nor
divorced. With separated or divorced parents, coverage
is primary for the parent with custody of the child,
secondary for the spouse of the parent with custody of
the child (if the parent has remarried), and tertiary forthc
parent without custody of the child.
The plan that covere the employee as an active employee is primary versus the plan that covers the inactive
or retired employee. Also, the plan that has covered an
employee for a longer period of time than another plan
is primary.
Central Illinois Light coordinates benefits up to reasonable and customary expenses. The company reserves
the right torecoverexcess payments from claimants,
insurance companies, or other organizations. The
amount of payment includes the reasonable cash value
of any benefits provided in the form of services.
The plan provides primary coverage for persons eligible for Medicare due to age or disability, unless the
person elects to terminate participation in the plan and
receive Medicare as primary coverage.
bene f l u
250 S. Wicker Dr., Suite 600, Chicago. Qlinois 60606-5834. (312} 993-7900
© 1991 by ChtrlM D. Spencer & Asodatci. Inc.
�04-02-93 01:34 PM FROM WILLIAM M. MERCER
338.-10
1-18-91
P003/008/F87
Companies Report Savings
Through Coordination Of Benefits
The law does not permit the plan to provide benefits
supplementing Medicare for covered persons and covered dependents. If Medicare is elected as primary
coverage, coverage under an employer plan must be
terminated.
The provision is administered by Equicor, Subam's
carrier. Eligibility isreportedto Equicor once a month.
Information includes other insurance coverage data,
which the employeefillsout on the enrollment card.
Subaru's COB savings from Aug. 1, 1989, through
July 31,1990, were 3.8%. Greater savings is anticipated,
MOTOROLA
however,
due to the change to a benefit-less-benefit
SCHAUMBURG, ILL.
coordination. The plan is currently non-contributory for
Motorola pays benefits as a secondary plan only in the both individual ami family coverages.
event that the primary plan has not paid the amount that
XEROX CORPORATION
Motorola would have paid as the primary plan. At no
STAMFORD, CONN.
lime will the company pay more than it would have paid
as the primary plan.
Xerox's COB savings for 1989 were $1.3 million.
Any expenses paid for by the insured will count
According to the terms of the company's plan, bentoward the plan's deductible and copayment limits. If efits provided by Xerox, when coordinated with another
the primary plan pays more than the amount Motorola employer's plan, will not exceed those that would have
would have paid for allowable expenses, any payments been paid by Xerox if no other coverage existed.
made by the insured to the primary plan will count
A plan without coordination of benefits pays its bentoward Motorola's deductible or copayment limit.
efitsfirst,withoutregardto any other plan.
Motorola's plan does not pay for or coordinate benWhen spouses both have coverage through their emefits for services provided by or authorized by an HMO. ployers, the plan that covers the individual as an emThe plan also does not coordinate or subrogate benefits ployee is primary, and the plan that covers the spouse of
with any private party, automobile, or school insurance. an employee is secondary.
The "birthday mle" is used to deieimine primary or
The "birthday mle" is followed for dependent chilsecondary coverage for a dependent child.
dren. For the child of separated or divorced parents, the
following rules apply: if a court decree specifies which
SUBARU OF AMERICA
parent isresponsiblefor the child's health care expenses,
CHERRY HILL, NJ.
that parent's plan is primary. Otherwise, the plan ofthe
PriortoJuly 1,1990, Subamretaineda COB provision parent with custody of the child will be primary. Benefits
under which employees couldreceivereimbursement
for stepchildren are coordinated as if the child were the
for up to 100% of expenses. As of July 1. 1990, the stepparent's natural child.
Q
company changed to a benefit-less-benefit provision.
Under this provision, the plan pays only the amount it
would have paid had it been the primary payor.
�04-02-93 01:34 PM FROM WILLIAM M. MERCER
P004/008/F87
Practical Issues in Administering
Welfare Benefit Programs
for Two Career Families
7
employers—whether the voluntary re- efit elections and make new elections.
vocation or change of coverage by a The newer Proposed Regulations prospouse
under one plan should trigger the vide that, in addition to a family status
As two career households have become
commonplace, employers and third par- other'srightto make an election change change, a participant may change a benties that are charged with administering under his or her plan—and will offer sug- efit election due to a coverage change by
group welfare benefit programs have been gestions for responding to related issues an independent third party provider that
confronted with a myriad of issues as a that arise in light of the Proposed Regu- results in a significant curtailment or cessation of coverage or a significant indirect result ofthe two career family. The lations.
crease in the cost of coverage provided
general concept of indemnificaiion* as
under a cafeteria plan." A practical isIdentifying
well as standard insurance contract prosue can arise where a participant under
"Cost
or
Coverage
Changes"
visions requiring coordination-of-benefits coverage and subrogation, have long Under long-established cafeteria plan one employer's cafeteria plan has a spouse
provided effective vehicles for avoiding Proposed Regulation 1.125-1, benefit (or other dependent) who is covered undouble coverage issues that arise when a elections under cafeteria plans must be re- der a secondary plan; should a cost or
participant in one employer's group in- stricted to prohibit a participant who has coverage change under the secondary emsurance program is both covered as a pri- elected and begun to receive a benefit ployer's plan be deemed a coverage change
mary insured under the employer's plan from revoking his or her election for the by an independent third party provider
and covered as a spouse or dependent un- remainder of the year. An exception to for which the participant is entitled to
der another employer's plan. However, this prohibition permits participants to modify his or her benefit election under
in light of recent cafeteria plan Proposed revoke a benefit election after the cover- the primary employer's plan? Consider
Regulations that condition participant age period has commenced, provided that the following example.
and dependent rights to modify existing the revocation is on account of and con- Ann, a panicipant in the health plan
coverage on the occurrence of certain sistent with a change in family status. offered by ABC Company underthe ABC
"cost or coverage changes" or "family sta- The most recent proposed cafeteria Company cafeteria plan (ABC plan), does
tus changes," an employer whose partic- plan regulations purport to clarify and not elect to cover her spouse (Ben) unipant or dependent is covered as a depen- expand the rules regarding when partic- der the ABC plan at the beginning of the
dent or participant under another em- ipants in cafeteria plans may revoke ben- ABC plan year. Ben, who has been covployer's plan (the secondary plan) may
face practical issues when determining
The Author
whether a circumstance affecting the secondary plan is an event that should lead
Patricia B. Miles is an associate with Baker & McKenzic,
to an exercise of rights by the participant
San Francisco. She formerly was associated with Chevron Corunder the employer's plan. Too liberal inporation as a corporate benefits administrator. Ms. Miles is
terpretation of the requirements may lead
a graduate of Northwestern University and Golden Gate University School of Law.
to anything from adverse selection under the employer's plan to adverse tax
consequences for failure to properly comply with the regulations.* This article will
fa*"examine one issue that frequently arises
with regard to two career families that are
covered under the plans of different
by Patricia B. Miles
2
3
5
6
�04-02-93 01:34 PM FROM WILLIAM M, MERCER
P005/008/F87
ered under ihe XYZ Company heaiih
ofthe health plan and, in lieu thereof, unrelated employer (such as ABC Complan (XYZ plan), voluntarily revokes cov- to rccci ve on a prospective basis, cov- pany) to provide health plan coverage
erage under his employer's plan during erage under another health plan with to another plan's participant who elects
his plan's open enrollment period due
similar coverage.
to revoke his or her coverage.
to premium cost increases under the XYZ The most logical interpretation of the
plan. Ben's revocation occurs after Ann's regulation suggests that it is to be read
Identifying
open enrollment period has passed. Ann, within the context of the participant's
"Changes in Family Status"
therefore,requestspermission to make (i.e., Ben's) plan since an employer can
Although it is clear that the proposed
a midyear election change to add Ben to only increase or decrease participants*
cafeteria
plan Regulations do not inher coverage under the ABC plan. Ann elective contributions under its own plan.
tend
for
cost
or coverage changes unargues that Ben's voluntary revocation Starting from this premise, it logically
der one spouse's plan to trigger an elecof coverage under the XYZ plan is due follows that the premium payment in- tion change under the other spouse's
to a "cost or coverage change" and that, creases described are those that signif- plan, certain changes that affect one
under the cafeteria planregulations,such icantly increase costs under the partic- spouse's coverage may be deemed to be
a change is a permissible ground for pcr- ipant's own plan (here, Ben's plan-— a change in family status under the regmittingamidycar election change. Is ABC the XYZ plan), and any corresponding ulations. In such a case, a midyear elecCompany required to permit Ann to changes to premium payments are con- tion change is permitted.
make this change to cover her spouse? templated to occur under the particiChanges in family status for which a
A cost or coverage change is described pant's plan. This means that Ben, who benefit election change may be permitin Q&A-6(b) of Proposed Treasury Reg- is here faced with significant cost changes ted are described in Q&A-6(c) of Proulation §1.125-2, which states, in rele- under his plan (the XYZ plan), clearly posed Treasury Regulation §1.125-2,
may change his election or revoke cov- which states, in relevant part:
vant part:
erage entirely. However, the regula(c) Certain changes in family sta(b) Significant cost or coverage
tions
cannot,
expressly
or
impliedly,
be
tus. A cafeteria plan may permit a
changes—(I) Cost changes. If the
read
to
create
an
obligation
on
the
part
panicipant
torevokea benefit eleccost of a health plan provided by an
of
ABC
Company
to
permit
Ann
to
tion during a period of coverage and
independent, third-party provider
make a midyear election change to cover to make a new election for the reunder a cafeteria plan increases or
decreases during a plan yearand un- Ben. Because the regulation is to be read maining portion of the period if the
within the context of the participant's
revocation and new election are both
der the terms ofthe cafeteria plan,
own plan (here, Ben's plan—the XYZ on account of a change in family staemployees are required to make a
plan), a cost change under the XYZ plan tus and are consistent with such
corresponding change in their preis not a validreasonfor permitting an
change in family status. For purmium payments, the cafeteria plan
election
change
under
Ann's
plan
(i.e.,
poses of this paragraph (d), exammay, on areasonableand consistent
the
ABC
plan).
Indeed,
the
last
senples of changes in family status for
basis, automatically increase or detence
of
paragraph
(b)(1)
prohibits
an
which a benefit election change may
crease ... all affected participants'
employer
from
permitting
elective
conbe permitted include the marriage
elective contributions... for such
tribution
adjustments
or
revocations
on
or divorce ofthe employee, the death
health plan. Alternatively, ifthe preaccount
of
changes
in
the
cost
of
a
health
of the employee's spouse or a demium amount significantly inplan
other
than
those
expressly
described
pendent, the birth or adoption of a
creases, a cafeteria plan may permit
in
paragraph
(1).
Because
paragraph
(1)
child of the employee, the terminaparticipants either to make a correonly
describes
cost
or
coverage
changes
tion of employment (or the comsponding change in their premium
mencement of employment) ofthe
under the participant's own plan, perpayments orto revoke theirelections
employee's
spouse, the switching
mitting
Ann
to
make
a
midyear
elecand, in lieu thereof, to receive on a
from
part-time
to full-time employtion
change
under
the
ABC
plan
(due
prospective basis, coverage under anment
status
or
from
full-time to partto
cost
increases
under
the
XYZ
plan—a
other health plan with similar covtime
status
by
the
employee
or the
circumstance
that
is
not
a
basis
for
an
erage. No elective adjustments of
employee's spouse, and the taking
exception
to
the
prohibition
against
perparticipants' contributions or revoof <in unpaid leave of absence by the
mitting a midyear revocation of a cafcations of participants' elections
employee or the employee's spouse.
eteria
plan
election)
technically
would
other than those provided for in the
Election changes are also permitviolate the regulations.
preceding sentence may be permitFor the same reasons, paragraph (bX2), ted where there has been a signifited under a cafeteria plan on account
cant change in the health coverage
ofchanges in the cost ofa health plan. which states that a significant curtailof the employee or spouse attribut(2) Coverage changes. If the cover- ment or cessation of coverage permits
able to the spouse's employment.
age under a health plan provided by all affected panicipants under a plan to Benefit election changes are consisrevoke their elections and in lieu thereof
an independent, third-party provider
tent with family status changes only
to receive on a prospective basis cov- if the election changes arc necesis significantly curtailed or ceases
during a period of coverage, a cafe- erage under another health plan with
sary or appropriate as a result ofthe
similar coverage, also cannot possibly
teria plan may permit all affected
family status changes.
create an obligation on the part of an
participants to revoke theirelections
�04-02-93 01:34 PM FROM [LLIA1 M. MERCER
vm/m/ni
Under paragraph (c) of Q&A-6, ABC be an arbitrary decision based on a cost require consideration of their and anCompany may permit Ann to make a increase under the XYZ plan.
other employer's plan may find it helpbenefit election change due to the follow- For example: Ben, who has been cov- ful to have, at the beginning of the plan
ing circumstances affecting Ben: (1) ter- ered under the XYZ Company dental year, a brief explanation of the circummination of Ben's employment; (2) a plan (XYZ plan) learns that the stances under which midyear coverage
change in Ben's employment status from insurer—Great Smile Insurance Com- changes will be permitted, as well as nopart time to full time (or vice versa); or pany—will be replaced by the Good tice of the next anticipated open enroll(3) Ben's unpaid leave of absence. How- Teeth Insurance Company, a change that ment period under the employer's plan.
ever, the penultimate sentence ofthe para- will not only provide very different cov- This will enable participants to coordigraph states that election changes (i.e., by erage but increases Ben's monthly preAnn) are also permitted where there has mium. Ben voluntarily revokes cover- nate coverage for themselves and other
been a significant change in health cov- age under his employer s plan due, in dependents (e.g., spouse, children or steperage attributable to a spouse's employ- part, to dissatisfaction with the pre- children) where more than one employmem. What does this really mean? Is the mium cost increase under the XYZ den- er's plan is involved. However, as a pracstatement that election changes are per- tal plan. Ben's revocation occurs after tical matter, when the open enrollment
mitted where there has been a significant Ann's open enrollment period has periods of two employers occur during
change in health coverage attributable to passed. However, because Ben's elec- different times of the year, the best strata spouse's employment qualified by the tion change is due to a significant change egy for two career couples who anticilast sentence of paragraph (c) (which states in Ben's health coverage (because the pate midyear changes that will not quallhat benefit election changes arc consis- coverage and cost of the dental plan—a ify as cost, coverage or family status
tent with family status changes only //the plan provided by an independent third changes is to maintain double coverage
clcciion changes are necessary as a result party provider—increased during the for some period ofthe year to ensure there
ofthe family status changes)? Ifso, the two plan year), Ann is permitted to make a is no interruption of coverage on either
sentences, when read together, must lead midyear election change. The change in spouse. This would not lead to addito the conclusion that significant changes Ben's coverage is deemed a "family sta- tional cost to either employer (assumin health coverage attributable to Ben's tus change" under 1.125-2.
ing coordination of coverage, subrogaemployment are only those that arise from
tion
or indemnification features exist) but
Note that because paragraph (c) concither termination of Ben's employment,
would
ensure participant peace of mind,
a change in Ben's employment status or tains no references to cost changes and a valuable feature at any cost. -EBJ
Ben's unpaid leave of absence. But, sup- paragraph (bX 1) expressly prohibits perpose for a moment that the next to the last mitting revocations on account of
Endnotes
sentence is not intended to be qualified changes in cost other than for the rea1. Indemnification is the general mechanism
by the last sentence; what else would com- sons given in paragraph (b)(1) (i.e., by which
an insurer assumes an obi igation to comchanges
in
a
participant's
own
plan),
prise a "significant change in health covpensate an insured by transferring losses to itself
erage attributable to (Ben's) employ- Ben's revocation of coverage under the and conferring an ofTsetting benefit on the inXYZ dental plan would not have led to sured. It implies a reimbursement of loss; therement"?
a permissible midyear election change fore, benefits conferred should not exceed actual
financial losses. Thus, if there is no net loss or
In this event it would be reasonable by Ann, had it merely arisen due to a cost to the insured, the insurer is relieved of its
to conclude that the changes lhat would premium increase thereunder. How- responsibility to pay. R. Keeton, Insurance Law.
constitute a significani change in health ever, where as here Ben's revocation of |i3.1(a) (1971).
2. Coordinaiion-of-beneflis provisions under
coverage attributable to Ben's employ- coverage under XYZ's plan followed a group
insurance plans provide for an order of payment are changes of the type discussed significant change in a coverage op- ment as between one or more insuren/plans where
above and described in paragraph tion due to a policyrevisionby the in- coverage exists for the same irvjury under both
(bX2>—coverage changes. Using this in- surer of XYZ plan, Ann is permitted to plans.
3. Subrogation provisions provide a mechaterpretation, the language of paragraph make the election change to cover Ben. nism by which an insurer can recover amounts
(c) means that changes to a spouse's
Clearly, an employer presented with that arc paid by a third party to its insured when
insurer has already reimbursed the insured
health coverage due to a "significant cur- a midyear election change by a cafete- the
for the covered loss.
tailment or cessation of coverage by an ria plan participant is advised to evalu- 4. Prop. Treas. Reg. §1.125-1, 48 Fed. Reg.
indcpcndeni third-party provider" is as ate it carefully in light ofthe language 19321 (1984). Q&A 14-13. Failure wrcstrici benelcciions will cause the benefit to be treated
much a change in family status as it is of the Regulations. Midyear election efit
as currentiy available to the participant (because
a change due to employment termina- change forms should be designed to re- the participant would be free to receive the bention, employment status or unpaid leave quire the participant to specify which of efit at his or her discretion). If benefits arc not
restricted (i.e., arc currently available), the parof absence. Therefore, in the event of a the permissible grounds under the Reg- ticipam
will be subject to constructive receipt rules
significant curtailment or cessation of ulations provides the basis for the change. under Section I25of the Code and currently taxed
coverage by an independent third party Space should also be provided for the par- on benefits received under the plan.
5. Prop. Trcas. Reg. §1.125-1, 49 Fed. Reg.
provider under the XYZ plan that causes ticipant to provide a brief explanation 19321
(1984), Q&A-8.
Ben to revoke coverage, ABC Com- ofthe circumstances leading to the change
6. Ibid.
pany could permit Ann to make an elec- so that the employer may evaluate the
7. Prop.Tn!as.Reg.§l.l2S-2.54f*/.*e£.9460
(1989).
tion change to cover Ben. But Ben's re- appropriateness of the election.
8. Prop. Treas. Reg. § 1.12S-2.54 Fed. Re}!. 9460
vocation of coverage must not merely
Participants whose coverage decisions (1989). Q&A 6(b).
�04-02-93 01:34 PM FROM WILLIAM M. MERCER
P007/008/F87
Self-Administration Saves Health Costs For Ryder
Ryder Corporation pravtd« benefits to
43.000 U.S. employcM In 1,500 locations. In
1978, Ryder Corporation's health care costs
were $11 mUllon; now the company spends
about S50 million. The costs would have
been much higher, according to Joseph C.
Charles, group director of employee benefits, but the plana are self-funded and selfodminlittiiTvd.
He told the Natioiul Managed Health
Care Congress '89 that cost Increases are
much smaller for companies that self-administer their plans. He said that he had
recently attended s conference with 24 major employers in attendance.
'Those that self-administered had cost
Increases of about 5%," Mr. Charles said.
Three-quarters of the companies did not
self-administer, and their costs went up
15% to 20% with the highest 41 %."
One of the major advantages of being
self-administered is the savings that can be
realized through vigorous coordination of
benefits, he said. Ryder has a very complicated enrollment tarn, he explained, which
allows the processon to get the information needed.
Ryder's coordination of buncfits savings
•re about 9.8% of claims compared to 4.9%
for commercial insurers, he said. Administrative costs run about 5% of the $50 million spent on health care.
Plan Design
Ryder's philosophy is "we're going to
provide cost-effective medical care benefltfl," a position that has contributedtothe
innovative design of its benefit plan.
Mr. Charles noted that when the J.C.
Penney Company went to court over its
coordination of benefits program (see page
70), consultants said they did not know of
other companies that denied spousal medical coverage when the employee's spouse
58
earns a greater income.
"We have been doing that since 1968."
he said. "Ryder does not consider a person
a dependent if they make more money than
our employee."
In keeping with the Ryder Corporation's
desire to provide cost-effective benefits, Mr.
Charles said, there have to be some rigid
controls. "We have an exclusion on drug
and alcohol benefits. You can't do that in
some states, and that's why we're selfadministered. We have an EAP {employee
assistance program] outside the medical
plan and it controls the benefit. An employee can't get the benefit unless he er she
goes through the EAP."
The same rule applies for psychiatric
benefits because of a high percentage of
claims, he said. An analysis of past claims
forms showed that 20% of the confinements
were due to psychiatric problems, and 81%
of those were for dependents.
There are about 6.500 hospitals that are
going after this psychiatric inpatient business, he said. The competitiveness shows
up in their advertisements. "For example,
if you're a young lady and you work, then
you must have stress, and you must have
headaches. Then they ask, 'Do you ever eat
a lot? Do you ever not eat?' 1 don't care
what the answer is, they say, 'Come see us,
we'll put you in a bed for 28 days, give you
an education, you'll be well afterwardu.'
All that stuff has to be managed, and wc
manage it through our EAP."
In addition to mandatory outpatient for
some surgeries, Ryder has a hospital audit
program that saves about $15,000 a year,
which is shared with employees. The company switched from flret-dollar coverage,
put in coft-sharing premiums, and Installed
a comprehensive plan.
"When you make a change, throw some
bones st them," Mr. Charles suggested.
Employee Benetit Plan Revio*
�04-02-93 01:34 PM FROM WILLIAM M, MERCER
-Llk* Mary Poppiiw said, 'with a apoonful
of sugar, the medicine goes down.'" The
little bit of sugar Ryder gave to Its employees Includes flexible benefits, dependent
life insurance, and Individual tax savings
with the flexible spending accounts.
Communications
Teleconferences are expensive, but they
are the best meaiw of communicating major changes in plan design to a large group
of people in different locations, according
to Mr. Charles.
"In 1987. there were rumors throughout
the work force of big benefits cutbacks," he
said. Ryder had a teleconference at which
the chief executive officer told managers
why the changes had to be made and what
the changes were. The teleconference was
beamed from Miami to 30 cities throughout the U.S.
"More than 1.000 people got the same
P008/008/F81
message at the same time. It Is expensive to
do, but if malor changes are planned, it
will be well worth the money" in terms of
allaying unwarranted fears, he said.
Targeted Programs
Wellness programs do not create savings, Mr. Charles said, because all the
healthy people participate, while the goal
is to reach the unhealthy people who are
costing the company a lot of money. Educational programs targeted to high-risk or
problem groups work, he said.
Another problem that can be solved with
education is the improper use of medication. The Phamwceutical Council says that
of the 1.8 billion prescrlptionb. that are issued annually, half are not taken properly.
Educate employees about what will happen if medication is not taken properly, especially those who arc diabetic or on heart
medication."
Q
twahtata - * by 1992 wc wW aelf-ln-
-My<wpp^y hM k««r1ak>D^-
^ thl* party »admii^^
fer«r«aftl*8dMMuWfni^of ;:v. ' ^ ^ M r - H ^ c o N ^ ^ ^ r i s k .
what i M i a J a i J M i M ^ m ^
Docvmber 1989
*
57
�Blue Cross
Blue Shield
of Ohio
2060 East Ninth Street
Cleveland, Ohio 44115-1355
BLUE CROSS & BLUE SHIELD OF OHIO
March 1993
TOWARD A RATIONAL
HEALTHCARE
SYSTEM
A Position Statement
Contact Persons:
Dan Clark
Edward Feighan
Sandra K. Seballos
Kenneth F. Seminatore
216-621-8484
M1J-FU/90
"SHAPING THE FUTURE OF HEALTH BENEFITS"
�Toward a Rational Healthcare System
Executive Summary
The "Cleveland Solution"
Contact Persons:
Dan Clark
Edward Feighan
Sandra K. Seballos
Kenneth F. Seminatore
216-621-8484
The country's leading-edge solution to the access and
affordability issues facing our health insurance system can be
found in Cleveland, Ohio. The approach comes from Blue Cross &
Blue Shield of Ohio (BCBSO).
Like President Clinton's health care proposal, the
"Cleveland solution" i s based on principles of managed
competition, road-tested Cleveland-style, and successful in
Cleveland long before i t was ever endorsed on Capitol H i l l or in
the pages of The New York Times. BCBSO fought for passage of
state l e g i s l a t i o n in 1987, which has enabled BCBSO to save i t s
customers well over $200 million, in Greater Cleveland alone, by
fostering unfettered free-market competition based on price,
developing the nation's leading managed care program and pursuing
the most sophisticated — and successful — anti-fraud a c t i v i t i e s
in the country.
BCBSO i s not l i k e other Blue Cross plans, and i t s
health care proposal i s unique as well. Ohio Governor George
Voinovich has described the results achieved by the Cleveland
plan as "almost miraculous." These include:
•
2% or l e s s hospital (cost per case) i n f l a t i o n
•
t r a d i t i o n a l insurance prices lower than
coverage
•
the country's leading and least expensive small
group health insurance program (Council of Smaller
Enterprises or "COSE") with the broadest coverage
for the most groups
•
a drop from 4th to 19th for the entire c i t y in
national urban hospital cost s t a t i s t i c s
•
the lowest rate of uninsured in a state i t s e l f
among the lowest (40th) in that category
•
the lowest administrative expenses of any health
insurer in the state.
•
highly favorable customer s a t i s f a c t i o n rating.
HMO
�The benefits have not solely helped BCBSO customers,
but have accrued to the entire community as the delivery system
has been induced to become more c o s t - e f f i c i e n t . In fact, i f
every community in the United States had in place BCBSO's brand
of managed competition, enough savings (cost avoidance) could
have been generated to cover 11.1 to 12.3 million uninsured
individuals. Considering that another 12.6 million persons who
are currently uninsured choose not to purchase insurance, the
federal government might then be responsible for insuring only
about 12 million individuals.
The savings achieved from BCBSO's version of managed
competition are primarily from price competition and would be
even greater were America to replicate BCBSO's managed care,
u t i l i z a t i o n and anti-fraud p o l i c i e s . Moreover, once these
individuals are in the ranks of the insured, provider prices can
be driven even lower since providers could no longer claim any
uncompensated care costs for those persons.
The "Clinton Plan"
The Clinton Administration has chosen wisely in looking
to managed competition as i t s model for national healthcare
reform. Considering the Cleveland experience, t h i s approach w i l l
succeed to the extent that i t " s t i c k s with what works." Too many
additional bureaucratic/regulatory mechanisms, such as setting
rates and expenditure targets (global budgets), could blunt the
effectiveness of competitive market forces in reducing costs.
Creation of a National Health Board with powers as
suggested could produce a r i g i d , unresponsive bureaucracy and
lead to unnecessary healthcare rationing. Compulsory coverage
for a l l employees r a i s e s serious legal, policy and cost
questions. Mandating universal community rating could thwart the
competitive process; the proposed " r i s k adjustment" mechanism and
other features c o n f l i c t with the principle of community rating.
And actuarial studies on the effects of requiring an insurer to
guarantee access to coverage reveal that as many persons become
uninsured, due to the increased cost to a l l , as become insured
because of that mandate. So, the overall benefit i s a wash.
Other potential problems include dictating purchasing
decisions through i n s t i t u t i n g price controls, which f a i l e d
miserably when a prior administration resorted to that approach,
or freezing Medicare payments to doctors and hospitals, which
would encourage cost s h i f t i n g . Some systemic problems may not be
addressed at a l l , including excess hospital capacity and the
maldistribution of physicians.
�Furthermore, hospitals must be required to end the socalled "uncompensated care" markup, which adds at least 10% to
each hospital b i l l , once the uninsured population has been
covered. When that happens, hospitalization w i l l become more
affordable, and equilibrium w i l l be restored to the healthcare
system.
I f the states are to be laboratories for reform, then
the notion of capping insurance premiums —
or rate setting
—
to force lowered spending by hospitals, doctors and
pharmaceutical companies also must be rejected.
Ohio t r i e d i t and f a i l e d . In the late 1970s and early
1980s, Ohio refused to approve a c t u a r i a l l y required premium
increases to i t s several Blue Cross plans i f they f a i l e d to check
excessive hospital costs. Not only did healthcare i n f l a t i o n
continue unabated, i t actually escalated, and the Ohio Blue Cross
plans and t h e i r 3 million customers were threatened with
f i n a n c i a l i n s t a b i l i t y as a result of being unable to charge
a c t u a r i a l l y sound rates.
Only when Ohio uncaged the tiger of unfettered freemarket, price-based competition, did the system regain i t s
equilibrium and allow BCBSO to produce the "Cleveland Miracle."
�Th« "Cleveland Solution"
Since "managed competition" became t h e designated h i t t e r f o r
U.S. healthcare reform i n 1993, t h e i n e v i t a b l e o p p o s i t i o n has
surfaced.
" I t won't work,"
they say. " I t ' s never been t r i e d . "
Yet, long before i t was endorsed by The New York Times, the
Conservative Democratic Forum i n Congress and then Presidente l e c t B i l l C l i n t o n , the e s s e n t i a l s of managed competition were
road-tested i n Cleveland by Blue Cross & Blue Shield of Ohio
(BCBSO).
BCBSO, or the "Cleveland plan," i s independent of any other
Blue Cross plan and, as such, has a d i s t i n c t i v e t r a c k record i n
c o n t a i n i n g h e a l t h care costs.
Consider Cleveland's progress regarding healthcare cost and
access since t h e s t a t e l e g i s l a t u r e enacted l e g i s l a t i o n i n 1987
t h a t encouraged competition based on p r i c e i n Ohio.
Since then,
Cleveland - s t y l e managed competition:
o
Has experienced
2% or less h o s p i t a l ( i n p a t i e n t )
inflation.
o
Has dropped from f o u r t h most expensive h o s p i t a l c i t y i n
America t o 19th.
o
Continues t o have Ohio's lowest r a t e of uninsured,
according t o t h e Ohio Department of Insurance; the
s t a t e i t s e l f ranked 40th i n t h a t category,
o
Employers f i n d i t cheaper t o buy t r a d i t i o n a l h e a l t h
insurance than HMO coverage —
i n America where t h a t ' s t r u e .
perhaps the only place
�o
Employers find i t cheaper to buy t r a d i t i o n a l health
insurance than HMO
coverage —
perhaps the only place
in America where that's true,
o
Health insurance rates through a small business
consortium are the best health insurance buy in
America.
o
Generally the lowest administrative expenses of any
health insurer in the state.
We support President Clinton's idea to implement a health
care system based on managed competition.
The Congressional Budget Office and President Clinton's
healthcare t r a n s i t i o n team assert that universal managed
competition w i l l cost upwards of $270 b i l l i o n over five years
before i t s t a r t s to save money.
Clinton i s r i g h t .
However, we believe President
There i s enough money in the system to solve
most of the uninsured problem —
i f the nation adopts the
Cleveland approach to managed competition.
I f the United States adopted BCBSO's managed competition
practices, including cost containment, selective contracting,
managed care and anti-fraud techniques to control health care
expenditures, the savings achieved could be used to insure 11.1
to 12.3 million of the 36.6 million uninsured in the country.
John Burry, J r . , BCBSO chairman and chief executive officer,
t e s t i f i e d in 1989 before a Congressional subcommittee how
Cleveland's success could be replicated elsewhere in the country.
�Solving the cost problem for small business would mean solving
the majority of the U.S. uninsured problem.
Simply, the secret l i e s in giving small business the buying
power and sophistication of big business
—
combined with an
insurer who knows how to negotiate favorable rates, manage r i s k ,
contain costs, uncover fraud, reduce administrative expense and
manage a healthcare provider network.
This success formula i s what we c a l l the "Cleveland
solution" and i s based in part on BCBSO and i t s largest customer,
the Council of Smaller Enterprises (COSE), a network of small
businesses, which serves as a prototype for a health purchasing
cooperative.
Ohio's Governor George V. Voinovich c a l l s BCBSO's r e s u l t s
"almost
miraculous."
"MIRACULOUS" RESULTS
Cleveland's success story had i t s origin in l e g i s l a t i o n
passed by the Ohio General Assembly in 1987, under Governor
Richard F. Celeste, with overwhelming bipartisan support.
The
Health Insurance Reform Act (HIRA) allowed Blue Cross to shop for
better hospital prices and to use i t s substantial buying power to
bring down healthcare costs.
Since then, Cleveland (BCBSO's
primary service area) has dropped dramatically from the ranks of
the most-expensive hospital c i t i e s in the country.
�Prior to passage of HIRA, hospitals enjoyed blank-check
privileges.
BCBSO had spearheaded the campaign for HIRA to
permit the insurer —
for the f i r s t time ever —
to s e l e c t i v e l y
contract with hospitals with price as a prime c r i t e r i o n .
As a d i r e c t r e s u l t of the passage of HIRA, a form of
"managed competition" was born in the State of Ohio in
1987.
Cleveland can a t t e s t that i t s brand of managed competition has
been a major solution to holding down healthcare costs.
Since passage of HIRA, BCBSO has saved i t s customers more
than $200 million in lower hospital costs as a d i r e c t r e s u l t of
"managed competition" and the a b i l i t y to s e l e c t i v e l y contract
with hospitals.
Because BCBSO has pushed down hospital costs,
healthcare economists estimate that a l l Ohio healthcare consumers
have saved an additional $200 million to $300 million —
for
t o t a l savings approaching a half b i l l i o n d o l l a r s .
Other beneficial r e s u l t s since then:
o
Cleveland has dropped from fourth most expensive
hospital c i t y in the U.S.
19th in 1991,
(inpatient cost per case) to
according to the most recent figures from
the American Hospital Association
o
(AHA).
While the national hospital i n f l a t i o n rate increased by
8.3%
in 1991,
Cleveland hospitals experienced i n f l a t i o n
of about half that —
1990,
4.4%,
according to the AHA.
In
while the r e s t of the country experienced
hospital i n f l a t i o n of 7.8%,
Cleveland's was only
1.6%.
�From 1985 through 1991, Cleveland experienced the
smallest actual-dollar and percentage increases of
adjusted expenses per hospital admission among Ohio's
largest c i t i e s , according to the AHA.
(Cleveland, 37%,
Columbus, 57%, Cincinnati, 60%.)
While the cost for small business health insurance has
increased by 152% since 1986 (before HIRA became law),
i t has only gone up one-third that amount for COSE
members who have benefitted d i r e c t l y from BCBSO's use
of managed competition in aggressively negotiating the
biggest discounts from Cleveland-area hospitals.
Since the mid-'80s, COSE's success has been accompanied
by phenomenal growth —
from just over 1,200 companies
to 11,000 companies by 1993 with 66,000 employees and
175,000 covered l i v e s .
Average growth has been more
than 1,000 companies a year.
During those same years, BCBSO managed to keep
increases in i t s policyholders' average cost per case
to about 5% a year.
That was lower than the nation's
rate of general i n f l a t i o n and better than half the
average rate of medical i n f l a t i o n .
Cleveland also has the lowest percentage of uninsured
among the state's principal metropolitan areas,
according to the Ohio Department of Insurance.
(Cleveland, 9.9%; Columbus, 11.2%; Cincinnati, 11%;
Ohio average, 11.5%; national average, 16%.)
Ohio
�i t s e l f ranks 40th out of 50 states in numbers of
uninsured.
According to nationally recognized healthcare
consultants A. Foster Higgins, employers in Cleveland
find i t cheaper to buy t r a d i t i o n a l health insurance
than HMO
coverage —
the only place in America where
that's true.
Cleveland, which as recently as 1990 ranked above the
national average in the cost of health insurance and
the highest in Ohio, in 1991 ranked at exactly the
national average ($375 per month) in health insurance
premiums, according to leading actuarial consultants
Milliman & Robertson, Inc.
In 1990, BCBSO's financial strength and
managerial
expertise allowed i t to step in and help preserve
coverage for a quarter million West Virginians whose
health insurance was threatened by the unprecedented
collapse of a Blue Cross plan in that state.
For years, BCBSO has had one of the lowest
administrative expense ratios of any health insurer in
Ohio.
BCBSO pays about 90 cents of every dollar i t
takes in for direct healthcare costs. As a not-forp r o f i t mutual insurance company, BCBSO included in i t s
administrative expense more than $13 million i t paid in
1991 taxes to local, state and federal governments.
�o
The BCBSO "Fraud Squad" i s the country's most
sophisticated —
and successful —
anti-fraud program.
Total savings realized i n 1992 exceeded $1.6 million as
a r e s u l t of r e s t i t u t i o n , t o l l - f r e e fraud hotline
recoveries, fraudulent payments identified and other
savings.
Since i t s inception i n 1983,
Fraud Squad
investigations have resulted i n 305 indictments, with a
conviction rate of 93%.
That translates into aggregate
savings to BCBSO and i t s customers i n excess of $23.5
million and sends a warning to providers about BCBSO's
tough stance on fraud.
o
BCBSO has also successfully credentialed the most
sophisticated panel of physicians i n any statewide
network.
Directing patient volume to the most c o s t - e f f i c i e n t , quality
healthcare providers has long-term benefits, too.
Competition
induces greater efficiency among a l l providers and restores
equilibrium to a hyper-inflated healthcare system.
Consider the effect BCBSO has had on Ohio's healthcare
system.
In 1992,
organized labor i n Ohio persuaded the
Republican governor to switch the state employees to Super
SM
Blue , BCBSO's network of preferred providers, a move which i s
projected to save taxpayers between $18 million and $22 million.
Additional tens of millions of dollars are expected to be
saved over the l i f e of the contract (33 months) between BCBSO and
four of the f i v e state public retirement
systems, which mandates
�use of BCBSO's Super Blue
SM
preferred provider network.
The
transaction has been called one of the largest healthcare deals
ever i n Ohio.
In theory, the entire country should be able to benefit from
t h i s approach.
In terms of President Clinton's "managed
competition" proposal, the Health Plan Purchasing Cooperative
(HPPC) would resemble Cleveland's COSE, and the Accountable
Health Plan (AHP) would be akin to BCBSO's Super Blue
SM
product.
As a point of c l a r i f i c a t i o n , COSE i s a small business
association comprised of some 11,000 members.
Although not
designed to be a universal health care plan, i t i s the best and
most affordable health plan the private sector makes available to
small business.
COSE members can purchase t r a d i t i o n a l or HMO
coverage, so regardless of the health of a group, coverage i s
generally available.
Moreover, groups are not priced out of the
plan i f they experience a significant loss.
Rather, they are
protected from rate shock.
Had the United States experienced BCBSO's s t y l e of managed
competition, s u f f i c i e n t savings (cost avoidance) would have been
generated to cover 11.1 to 12.3 million uninsured people.
As
these people are removed from the r o l l s of the uninsured, America
should be able to decrease amounts formerly paid to providers to
cover losses on such patients.
That would produce a multiplier
effect by making healthcare even more affordable and, therefore,
reduce the ranks of the uninsured even further.
�This 12.3 m i l l i o n who could be insured under t h e impact of
BCBSO's model c o n s t i t u t e s 30% of t h e e n t i r e uninsured population.
When one considers t h a t some 12.6 m i l l i o n c u r r e n t l y uninsured
i n d i v i d u a l s are able t o o b t a i n insurance but choose not t o do so,
t h a t leaves t h e f e d e r a l government w i t h perhaps 12 m i l l i o n
uninsured who would r e q u i r e tax-subsidized coverage.
THE "CLINTON FLAW"
I n pursuing a managed competition approach t o healthcare
reform, t h e C l i n t o n a d m i n i s t r a t i o n has wisely chosen an e f f e c t i v e
strategy.
The question i s how t o apply i t i n r e a l l i f e t o
today's complex and v o l a t i l e U.S. healthcare i n d u s t r y — i . e . .
how t o h i t t h e moving t a r g e t .
Thus, t h e C l i n t o n Plan
1
has evolved beyond t h e o r i g i n a l
"Jackson Hole" market-based concept i n t h e apparent b e l i e f t h a t
costs should be arrested immediately
healthcare market t o s o r t i t s e l f out.
r a t h e r than w a i t f o r t h e
The downside i s t h a t an
overly aggressive governmental/regulatory
component i n t h e long
run could undermine or negate the e f f e c t i v e n e s s o f t h e marketbased component.
One example i s the proposed c r e a t i o n of a new oversight
bureaucracy c a l l e d t h e National Health Board.
Most o f i t s
described f u n c t i o n s are already (or can be) c a r r i e d out by an
e x i s t i n g p r i v a t e - s e c t o r agency, t h e National Association of
'Obviously, t h e f i n a l Plan has not yet been announced, and
the w i t h i n analysis i s thus predicated on an admittedly moving
target.
�Insurance Commissioners.
This includes standardizing benefits,
accounting and paperwork.
The exceptions —
adjusting for r i s k s among the Accountable
Health Plans, and establishing global healthcare spending targets
—
pose a danger.
The plan i s unclear on the impact of the Risk-
Based Adjustment procedure on the AHPs and the question of how
the global budget process would d i f f e r from a rationing plan.
Price controls and market forces are as complementary as
square pegs and round holes.
State rate-setting commissions for
healthcare have produced results ranging from substandard to
disastrous —
as in West Virginia, where such a system was
implicated i n the unprecedented demise of a Blue Cross plan and
almost brought down the public employees' insurance plan. I n
general, rate-setting schemes tend to lock i n inflationary
healthcare costs and blunt the a b i l i t y of competitive market
forces to bring them down.
Similarly, universal community rating (single-price),
prohibitions against experience rating and all-payor systems, f l y
in the face of the free market.
Prices should be negotiated
based upon the purchasing power, demographic and other health
c h a r a c t e r i s t i c s of the HPPC, i f new agencies l i k e HPPCs are
necessary i n some communities to do what BCBSO has already done
without any such new bureaucracy.
Universal community rating would force an increase i n
premiums to currently insured groups.
The Health
Insurance
Association of America (HIAA) has estimated that federal
l e g i s l a t i o n mandating community rating, combined with guaranteed
10
�issuance of insurance coverage, would r e s u l t in average rate
increases between 8% and 24% (on top of the normal rate increases
for i n f l a t i o n ) for small groups.
HIAA estimates that the t o t a l
number of uninsured would increase by 2% to 5%.
An a c t u a r i a l
report commissioned by the Ohio legislature concluded that as
many persons would become uninsured as would be insured through a
guaranteed issue requirement.
To escape a guarantee issue requirement, large groups with
favorable health c h a r a c t e r i s t i c s s e l f - i n s u r e . As these groups
opt out of the community rating pool, and ERISA enhances t h e i r
migration, premiums w i l l increase for those remaining smaller
groups who
cannot s e l f - i n s u r e . I f the larger groups who
t y p i c a l l y self-insure were precluded by law from doing so and
were pooled with small business, the increase in costs to small
business would be substantial.
Another problem i s setting the "tax-deductible"
benefits at the lowest-price AHP.
l e v e l of
No matter how basic benefits
are configured, prices w i l l d i f f e r among AHPs because of the
varying r i s k p r o f i l e s of t h e i r enrollees and other factors,
including geography.
The plan proposes allowing some premium adjustment for
geographic location and age of enrollee, but t h i s provision would
c o n f l i c t with the plan's avowed commitment to community rating.
Quality i s also a factor; lowest cost doesn't necessarily
mean best product.
As a l a s t resort, perhaps a better way
11
of
�calculating minimum standard benefit costs could be established
for tax-deductibility.
A larger issue i s philosophical:
Should tax policy be used
to control u t i l i z a t i o n or to define an acceptable product in the
market place?
Shouldn't aggressive managed care practices and a
competitive marketplace dictate price?
There i s also some confusion in the current plan between the
roles of the HPPC (subscriber network) and the AHP
(managed care
plan) which could r e s u l t in additional administrative expenses.
Insurers should continue to administer such things as b i l l i n g
rather than levy premium surcharges and create new quasiregulatory bureaucracies in the HPPCs.
In other ways, however, the plan may not go far enough.
Commendably, i t proposes to absorb the current Medicaid program
and provide a p a r t i a l subsidy for those j u s t above the poverty
level.
However, Medicare might also be consolidated into the
same program, and high-risk uninsurable individuals should be
able to "buy-into" the program based on their a b i l i t y to pay.
Additionally, federal funding for these new consolidated
programs should be turned over to the states to allow them to
devise t h e i r own creative solutions in the crucible of
competition and innovation.
The managed care solution makes
particular sense for Medicaid, which i s both the largest and
fastest growing segment of most state budgets.
others are already embarking on t h i s approach.
12
Michigan and
�We are confident that strategies of s e l e c t i v e contracting,
managed care, u t i l i z a t i o n review and anti-fraud programs, as used
in the private sector, can benefit the Medicare and Medicaid
populations in a similar fashion.
Other issues not yet c l e a r l y addressed:
o
Extending COBRA-like safeguards for continuity of coverage
for individuals for a short time under the new system,
o
Promoting alternative healthcare providers such as physician
a s s i s t a n t s , nurse practitioners and nurse midwives.
o
Establishing global fee b i l l i n g to rebundle
hospital-based
physicians into the cost equation,
o
Guaranteeing a rollback of hospital and physician rates once
cost-shifting i s eliminated by covering the uninsured,
o
Addressing the excess supply of hospital beds and
reconfiguring the national hospital infrastructure,
o
Dealing with an excess of s p e c i a l i s t s and maldistribution of
physicians.
o
Developing a policy toward high-cost cases with
low-
probability outcomes.
o
Encouraging payment for physician performance as opposed to
the "one s i z e f i t s a l l " system that Medicare currently
employs to reimburse physicians.
Central to the success of any plan would be requiring
providers to end the so-called "uncompensated care" markup, which
adds at least 10% to each hospital b i l l , once the uninsured
population has been covered.
Otherwise, the savings w i l l accrue
13
�to the providers' bottom l i n e without producing a reduction in
cost.
As a stopgap measure, federal subsidies could be provided
for at least p a r t i a l payment for "uncompensated" hospital care.
This would be similar to Ohio's existing Care Assurance program,
but would include a sunset provision as universal coverage i s
reached.
F i n a l l y , one version of the current plan proposes a mandate
on a l l employers to provide coverage for a l l employees.
In
r e a l i t y , how any such mandate could be applied to the large s e l f insured groups i s highly questionable from a legal perspective
because of ERISA.
The better approach would be to promote
voluntary coverage through appropriate rating reforms and market
competition.
In a system that works, coverage w i l l be provided
without compulsion.
THE BCBSO PLAN
Without the non-competitive, anti-market embellishments, the
managed competition concept i s a proven antidote to healthcare
inflation.
In fact, BCBSO believes i t would be unnecessary to
convert already successful managed care networks to HPPCs and
AHPs, as proposed.
This f a l l s into the category of fixing something that's not
broken.
Not-for-profit insurers l i k e Blue Cross who have a large
patient volume (more than 500,000 policyholders) and demonstrate
14
�a low annual cost-per-case Inflation rate should be exempt
automatically.
I t ' s the remainder of the system that needs to be fixed
and some additional fixes are needed.
—
They are fixes well within
the reach of an effective public/private partnership.
The market forces of the private sector can be e f f e c t i v e l y
employed to expand access to healthcare by making i t more
affordable.
At the same time, the public sector can do more to
help those who are beyond needing health insurance —
who need
ongoing healthcare i t s e l f or a subsidy to pay for i t .
Such an approach should be three-tiered:
1st
Medicaid should be expanded to cover a l l poor
uninsured, rather than the approximately 40% now
covered.
End hospital cost-shifting that r e s u l t s from
so-called "uncompensated care."
Those who are
uninsurable for medical reasons should be allowed to
"buy i n " to the government program according to t h e i r
a b i l i t y to pay.
the poor.
Destigmatize i t as j u s t a program for
New methods of cost-containment should be
devised, including managed care and the use of private
insurance expertise, to help fund expanded coverage.
2nd
A l l working people (and dependents) not i n the f i r s t
t i e r should be covered by the existing
system.
employer-based
Those who can get coverage through t h e i r
employer should be required by law to take i t , to halt
the inflationary s p i r a l of pools being loaded with
15
�older and sicker members.
"Managed competition"
networks (including preferred providers) need to be
created s p e c i f i c a l l y for small business, which
currently accounts for a major portion of the uninsured
in the U.S.
With the right insurer aggressively
negotiating hospital prices, etc., i t ' s a winning
combination.
COSE received a premium increase of 6%
l a s t year, for example, compared with average Northeast
Ohio small business increases of 22% from other
carriers.
3rd
Those w i l l i n g and able to buy additional healthcare
beyond basic services should continue to have that
freedom.
These would include various elective
procedures, cosmetic surgery, etc.
Basic health
insurance plans should not be mandated to cover such
services.
The federal government should set minimum standards for
mandated curative care with the highest p r i o r i t y for the sick,
dying and disabled.
Biomedical research funding should be
directed at improving the quality of l i f e rather than extending
life.
State and federal government should provide expanded
public health programs for preventive services as an alternative
to additional benefits mandated on employers.
One approach that deserves exploring i s tax-exempt Medical
Savings Accounts to encourage individual consumers to become
prudent purchasers of routine healthcare services. This
16
�approach, endorsed by Nobel Prize laureate economist Milton
Friedman, should save additional dollars and restore health
insurance's fundamental mission of insuring individuals against
larger r i s k - r e l a t e d health problems, as opposed to funneling
dollars for every small, predictable expenditure.
Both public and private sectors can take steps to reduce and
eliminate the worst inflationary pressures —
redundant high-
technology, excess provider capacity and unnecessary and
duplicative t e s t s and procedures, estimated to account for onefourth to one-third of a l l services provided.
And no e f f o r t
should be spared to h a l t outright healthcare fraud, estimated to
account for 5% to 10% of a l l expenditures,
or $40 b i l l i o n to $80
b i l l i o n a year.
^£
A private sector i n i t i a t i v e would be to offer insurance
companies a tax break to encourage them to lower their average
cost per case and reduce the rate of increase.
Alternately, tax
incentives or disincentives for consumers must be
considered.
Government i n i t i a t i v e s should include local health planning
reform —
eliminating costly waste by barring new hospital
construction/expansion
and major capital acquisition when i t
duplicates nearby, available services. They also should include
reducing excessive costs of malpractice and defensive medicine
through legal reforms, including merit rating physicians
according to their r i s k
experience.
BCBSO i s showing what the private sector can do by
introducing major new cost-containment devices in the managed
17
�care area.
These include preferred physician panels and
innovative case management techniques, especially for the 10% of
cases with the roost catastrophic and long-term conditions for
which there are few cures but plenty of high-tech, big-dollar
treatments.
These are the cases that are actually doubling
average medical costs and account for 66 to 75 cents of every
healthcare d o l l a r .
BCBSO supports legislation that would provide needed reforms
to the small-employer health insurance market.
Such l e g i s l a t i o n ,
recently adopted i n Ohio, provides for rating and underwriting
r e s t r i c t i o n s to prevent rate shock and provide guaranteed
renewability and portability of coverage.
These reforms would
aid i n expanding access to affordable health insurance for the
working uninsured.
BCBSO i s also speeding toward a paperless, electronic claims
processing system (now at 80% of hospital claims, 60% of
physician claims and nearly 100% of drug claims) that promises to
make the system even more c o s t - e f f i c i e n t .
By 1995, we expect to
increase the percentage of business i n managed care from less
than half to 70%.
When that happens, i t w i l l be a win-win
situation i n terms of quality, cost-effective healthcare with
l e s s red tape through long-term relationships with pre-approved
network providers.
Here's a basic "to-do
M
l i s t of needed reforms:
18
�£
TOWARD A RATIONAL HEALTH PLAM
1.
Fix MEDICAID —
f u l l y cover the poor, "destigmatize" as
poverty program and offer "buy-in" to medically uninsurable,
s h i f t to more c o s t - e f f i c i e n t managed care coverage.
2.
— provide for "managed competition" networks
SHALL BUSINESS
to enhance small group buying power and reduce prices.
3.
MANDATED BENEFITS
—
eliminate
inflationary state mandates and
set minimum standards for basic
4.
ERISA PRE-EMPTION —
eliminate
healthcare.
federal provision
sheltering
large self-insured groups from state regulation,
including
high-risk pools and other reforms, or extend to a l l groups.
5.
PUBLIC HEALTH PROGRAMS
—
establish and expand public
services
that have not been viable in the private market; e.g..
detection, screening, preventive services.
6.
HEALTH PLANNING
—
eliminate costly waste by eliminating
excess hospital capacity, and setting l i m i t s on duplicative
hospital c a p i t a l improvements and high-tech acquisitions.
7.
BIOMEDICAL RESEARCH
—
direct funding at improving basic
coverage and reducing "large-case"
expenditures, which
generate two-thirds to three-fourths of a l l medical costs.
8.
ADMINI STRATI VE
"paperless"
9.
EXPENSE
—
reduce overhead through universal
(computerized) insurance claims processing.
SMALL GROUP REFORM
—
expand access for working uninsured by
limiting rating and underwriting r e s t r i c t i o n s and
guaranteeing renewability
and portability of coverage.
19
�10.
TORT REFORM
—
merit-rate physician malpractice insurance
according to r i s k experience.
conclusipn
Ohio also has had some experience with a bad idea:
I f the states are to be laboratories for reform, then the
notion of capping insurance company premiums to force lowered
spending by hospitals, doctors and pharmaceutical companies also
must be rejected.
Ohio t r i e d i t , and i t f a i l e d .
In the late 1970s and early 1980s, Ohio refused to approve
a c t u a r i a l l y required premium increases for i t s several Blue Cross
plans i f they f a i l e d to check excessive hospital costs.
Not only
did healthcare i n f l a t i o n continue unabated, but i t actually
escalated, and the Ohio Blue Cross plans also nearly went
bankrupt as a r e s u l t of being unable to charge a c t u a r i a l l y sound
rates.
(Such a f a i l u r e should come as no surprise to those who
remember the damburst of i n f l a t i o n attendant upon President
Nixon's f a i l e d wage and price controls.)
Only when Ohio uncaged the tigers of unfettered free-market
price competition, managed care, the most sophisticated a n t i fraud a c t i v i t i e s in the nation and the l i k e , was BCBSO able to
achieve the "Cleveland Miracle" —
s i g n i f i c a n t l y lower rates of
hospital i n f l a t i o n , inpatient costs per case, small-business
premium rates, administrative expenses and incidence of uninsured
individuals.
20
�That i s not to say that carefully crafted tax incentives (or
disincentives) for insurers and consumers should not be
considered, according to c l e a r l y identified cost-containment
goals.
But tampering with the charging of a c t u a r i a l l y sound
rates i s c l e a r l y not the answer.
Where i s the answer to be found?
l i k e Rochester, N.Y.,
Many have looked to places
and Hawaii for the model for the nation,
and the healthcare systems in those places certainly have much to
be commended. So, too, does the CalPERS model, although i t
focuses primarily on HMO coverage which has not won wide
acceptance.
Unfortunately, what works i n one place may not work
elsewhere.
The r e s t of America does not have the obvious
advantages of a t r o p i c a l island or a community with a
medical/industrial makeup unlike anywhere else i n the country.
Nor California's love for HMOs.
That's where the Cleveland solution i s different.
What
Cleveland has done does not depend on unique or peculiar
circumstances.
I t can be replicated and applied v i r t u a l l y
anywhere where there are excessive costs and creative people
w i l l i n g to work hard to curb them.
21
�
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
Health Care Task Force Records
Creator
An entity primarily responsible for making the resource
White House Health Care Task Force
Is Part Of
A related resource in which the described resource is physically or logically included.
<a href="https://catalog.archives.gov/id/10443060" target="_blank">National Archives Catalog Description</a>
Description
An account of the resource
<p>This collection contains records on President Clinton’s efforts to overhaul the health care system in the United States. In 1993 he appointed First Lady Hillary Rodham Clinton to be the head of the Health Care Task Force (HCTF). She traveled across the country holding hearings, conferred with Senators and Representatives, and sought advice from sources outside the government in an attempt to repair the health care system in the United States. However, the administration’s health care plan, introduced to Congress as the Health Security Act, failed to pass in 1994.</p>
<p>Due to the vast amount of records from the Health Care Task Force the collection has been divided into segments. Segments will be made available as they are digitized.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+1"><strong>Segment One</strong></a><br /> This collection consists of Ira Magaziner’s Health Care Task Force files including: correspondence, reports, news clippings, press releases, and publications. Ira Magaziner a Senior Advisor to President Clinton for Policy Development was heavily involved in health care reform. Magaziner assisted the Task Force by coordinating health care policy development through numerous working groups. Magaziner and the First Lady were the President’s primary advisors on health care. The Health Care Task Force eventually produced the administration’s health care plan, introduced to Congress as the Health Security Act. This bill failed to pass in 1994.<br /> Contains 1065 files from 109 boxes.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+2"><strong>Segment Two</strong></a><br /> This segment consists of records describing the efforts of First Lady Hillary Rodham Clinton to get health care reform through Congress. This collection consists of correspondence, newspaper and magazine articles, memos, papers, and reports. A significant feature of the records are letters from constituents describing their feelings about health care reform and disastrous financial situations they found themselves in as the result of inadequate or inappropriate health insurance coverage. The collection also contains records created by Robert Boorstin, Roger Goldblatt, Steven Edelstein, Christine Heenan, Lynn Margherio, Simone Rueschemeyer, Meeghan Prunty, Marjorie Tarmey, and others.<br /> Contains 697 files from 47 boxes.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+3"><strong>Segment Three</strong></a><br /> The majority of the records in this collection consist of reports, polls, and surveys concerning nearly all aspects of health care; many letters from the public, medical professionals and organizations, and legislators to the Task Force concerning its mission; as well as the telephone message logs of the Task Force.<br /> Contains 592 files from 44 boxes.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+4"><strong>Segment Four</strong></a><br /> This collection consists of records describing the efforts of the Clinton Administration to pass the Health Security Act, which would have reformed the health care system of the United States. This collection contains memoranda, correspondence, handwritten notes, reports, charts, graphs, bills, drafts, booklets, pamphlets, lists, press releases, schedules, newspaper articles, and faxes. The collection contains lists of experts from the field of medicine willing to testify to the viability of the Health Security Act. Much of the remaining material duplicates records from the previous segments.<br /> Contains 590 files from 52 boxes.</p>
<p><strong><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+5">Segment Five</a></strong><br /> This collection of the Health Care Task Force records consists of materials from the files of Robert Boorstin, Alice Dunscomb, Richard Veloz and Walter Zelman. The files contain memoranda, correspondence, handwritten notes, reports, charts, graphs, bills, drafts, booklets, pamphlets, lists, press releases, schedules, statements, surveys, newspaper articles, and faxes. Much of the material in this segment duplicates records from the previous segments.<br /> Contains 435 files from 47 boxes.</p>
<p><strong><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+6">Segment Six</a></strong><br /> This collection consists of the files of the Health Care Task Force, focusing on material from Jack Lew and Lynn Margherio. Lew’s records reflect a preoccupation with figures, statistics, and calculations of all sorts. Graphs and charts abound on the effect reform of the health care system would have on the federal budget. Margherio, a Senior Policy Analyst on the Domestic Policy Council, has documents such as: memoranda, notes, summaries, and articles on individuals (largely doctors) deemed to be experts on the Health Security Act of 1993 qualified to travel across the country and speak to groups in glowing terms about the groundbreaking initiative put forward by President Clinton in his first year in the White House. <br /> Contains 804 files from 40 boxes.</p>
Publisher
An entity responsible for making the resource available
William J. Clinton Presidential Library & Museum
Identifier
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2006-0885-F
Text
A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text.
Original Format
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Paper
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
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Pete W
Creator
An entity primarily responsible for making the resource
Task Force on National Health Care
White House Health Care Task Force
Walter Zelman
Identifier
An unambiguous reference to the resource within a given context
2006-0885-F Segment 2
Is Part Of
A related resource in which the described resource is physically or logically included.
Box 46
<a href="http://clintonlibrary.gov/assets/Documents/Finding-Aids/2006/2006-0885-F-2.pdf" target="_blank">Collection Finding Aid</a>
<a href="https://catalog.archives.gov/id/12093090" target="_blank">National Archives Catalog Description</a>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Publisher
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William J. Clinton Presidential Library & Museum
Format
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Adobe Acrobat Document
Medium
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Preservation-Reproduction-Reference
Date Created
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2/6/2015
Source
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42-t-12093090-20060885F-Seg2-046-022-2015
12093090