A 1980 HHS study showed that a substantial amount of expenditures for emergency room services are oftentimes unnecessary. The study showed that 86 percent of patients seen in emergency rooms were not emergencies. However, to meet such needs, hospitals have to have the staff and equipment readily available on a full-time basis to provide care. Such care in emergency rooms is generally more costly than comparable care in a physician's office in addition to being an inappropriate use of health resources. 72 The increasing number of hospitals which have become teaching institutions also tends to increase health care expenditures since their costs are generally believed to be higher than non-teaching hospitals.73 Teaching hospitals incur both direct and indirect costs associated with conducting graduate medical education training programs. Direct costs include the salaries of interns and residents.74 The indirect costs are translated into higher patient care costs incurred by hospitals with medical education programs. Most of the higher teaching hospital costs are related to indirect costs, including the use of different services and the availability of more facilities and more staffing. According to some, a portion of these higher costs are also attributable to severity of illness; sicker patients who require more intensive care are often referred to teaching hospitals because these hospitals use the 75 latest medical technology and procedures. The presence of interns and residents also drives up spending because the process of graduate medical education often results in very intensive treatment regimens for patients. Furthermore, since the interns and residents are at the facility to learn, extra demands are placed on other staff, which leads to higher staffing levels. Finally, HHS noted that in fiscal year 1980, an estimated $1.2 billion was spent on resident stipends and benefits.76 The circumstances surrounding the availability and use of nursing home beds has also driven up health care expenditures. Many patients remain in hospitals because of the unavailability of nursing home beds or are inappropriately placed in nursing homes. (See pp. 92-94 and 134-136.) The emergence of hospitals owned or operated on a for-profit basis has created some concern regarding their impact on access to care and costs. Some suggest that such facilities tend to cater to only those patients who can pay for care or for whom reimbursement is readily available.77 On the other hand, some contend that other patients may be turned away or transferred to public hospitals for care.78 79 Some contend that the growth of investor-owned organizations is attributable to efficiencies in their operations. For example, when compared to other community hospitals, for-profit hospitals employ fewer personnel per bed but have a higher number of admissions per bed.80 In addition, for-profit chains may be able to take advantage of volume discounts and other economies of scale. 81 On the other hand, a study based on California data and published in 1983 showed that both costs and charges were higher in for-profit hospitals than in nonprofit hospitals. The study also noted that prior financing methods offered opportunities for hospitals to maximize reimbursements. The federal and state governments have adopted changes in their reimbursement methods, however, such as Medicare's prospective payment system. The impact of such changes on investor-owned facilities remains to be seen. 82 The federal health care systems have also had an impact on health care spending. We have issued numerous reports pointing out cost-saving opportunities available in these systems. However, these programs have, for the most part, been immune from cost containment efforts mandated in other federal programs and adopted in the private sector, although the agencies have taken some actions on their own initiative. The main issue for the direct care programs, however, is not so much the manner in which they operate but whether such systems continue to be needed in their present form. (These issues are further discussed on pp. 52-53.) WHAT ALTERNATIVE WAYS OF DELIVERING As the costs of conventional medical care have increased, both public and private payers of the nation's health care bill have begun to look for less costly ways of providing such care. In response to this, many alternatives to the traditional costly methods of providing care in hospitals and nursing homes and to the fee-for-service method of paying for physician services have been developed. Because of the relative newness of many of these alternative delivery modes, it has been difficult to determine their overall cost-effectiveness or to measure the quality of care provided. Nevertheless, preliminary evaluations of several alternatives offer some promise of substantial costsavings. Health maintenance organizations HMOS serve as an alternative to the traditional fee-for-service system of health care. They provide comprehensive health services to their members in return for a prepaid, fixed payment regardless of the quantity of services provided to any particular member.83 Three major types of HMOs are generally recognized. These are classified by type of physician participation; that is, (1) prepaid group practice (PGP) or staff HMOs, (2) individual 84 practice associations (IPAs), and (3) network HMOs. Under PGP or staff plans, services are delivered at one or more locations through a group of physicians who contract with the HMO to provide care or who are employees of the HMO. Under IPA plans, contractual arrangements are made with community physicians who treat HMO members out of their own offices. Network HMOs contract with two or more group practices to provide health services.85 According to a 1983 report, the HMO industry is in a state of transition. Kaiser-Permanente, one of the original HMOs, is the largest nonprofit HMO with about 4.4 million enrollees. Second in size are the Blue Cross and Blue Shield HMOs with 1.8 million members. The number of for-profit plans, however, has been steadily rising. Of 391 HMOs operating as of March 1985, 174 were group/staff models, 180 were IPAs, and 37 were network HMOs. HHS also estimated that 152 were owned by for-profit companies. Also, many more nonprofit HMOs are managed by investor-owned firms, such as large insurance companies.86, 87 Efforts to promote HMO development To promote HMOs and to control escalating health care costs, the Congress enacted the Health Maintenance Organization Act (42 U.S.C. 300e) in 1973. Key provisions of the act included -assisting public and private organizations to develop --requiring certain employers to offer the option of membership in a federally qualified HMO to employees; and --preempting restrictive state laws and practices which From fiscal year 1975 through fiscal year 1983, HHS funded a total of about $364 million in grants and loans to HMOs. 89, 90 In addition, HMOs are authorized to be reimbursed under the Medicare and Medicaid programs. 91 Recently, HHS began demonstrations of a new concept in the Medicare program to cover services offered by social HMOS (SHMOS). The SHMO model is designed to provide long-term care needs in addition to acute and preventive care needs on a prepaid basis, thereby controlling costs with a fixed budget. 92 SHMOS provide not only the usual range of HMO services but also home care and social and community services. The intent in providing these services is to avoid unnecessary and costly institutionalization. In 1977, for instance, the Congressional Budget Office estimated that 10 to 20 percent of patients in skilled nursing facilities and 20 to 40 percent of those in intermediate care facilities could be cared for with a less intensive level of care or outside of institutions.93 Private sector promotion of HMOS HHS has moved to turn further development of HMOS from the public to the private sector partly in the belief that the private sector was better qualified to do this.94 The private sector has apparently responded favorably to this federal initiative. Insurance companies, Blue Cross and Blue Shield plans, and other private sponsors have all provided substantial funds to promote HMOS. 95 Based on data collected by InterStudy, about $1 billion of the $1.2 billion known to have been invested in HMOs from 1974 to 1980 came from private sources.96 In a 1983 report, the National Industry Council for HMO Development, composed of business, labor, health, and community leaders, stated that public offerings of for-profit HMOs were attracting a high degree of financial interest on Wall Street. Moreover, in response to this competition, nonprofit HMOs had joined forces in many cases to form national corporations for joint marketing and new investments. In order to increase access to capital, some HMOs have recently converted from nonprofit to for-profit status.97 The Council also noted that widespread geographic growth of HMOS had occurred. For instance, HMOs were established in 42 states. In addition, In addition, the competitive impact of HMOs, measured as successful penetration into specific geographic areas, was also evident. In 1983, for example, the following areas had significant HMO penetration rates based on population: Los Angeles (27.4 percent); Minneapolis (31.9 percent); San Francisco (36 percent); and Portland, Oregon (23.6 percent). As of June 1984, about 7 percent of the U.S. population was enrolled in HMOS, 98 although it is predicted that by 1990, 15 percent of the entire U.S. population may be receiving health care from HMOs. 99 Many individual businesses have also begun to actively support HMOs, including Chrysler, John Deere, Ford, General Mills, and IBM. Chrysler, for example, has sought to control health care costs by offering direct financial incentives in the form of savings bonds to employees who recruited co-workers into the company's HMO. John Deere's HMO, which enrolled 40 percent of its employees in 1983,100 was described by HHS as a model of industry support for HMOs.101 Are HMOs cost-effective? Numerous studies have compared HMO performance with the traditional delivery of health care. Most studies have focused on cost-savings achieved by HMOS in comparison with the fee-forservice system. However, other studies have focused on the satisfaction of HMO enrollees and the quality and accessibility of care provided. The various studies have reached different conclusions on the effectiveness of HMOs, and frequently the studies had data problems which precluded conclusions from being reached. In 1982, for instance, the Congressional Research Service cautioned that the evidence to date on HMO effectiveness was incomplete and frequently inconclusive.102 However, some of our studies and studies done by others have attributed cost-savings to HMOS. In a 1978 study, for example, total costs for HMO enrollees were found to be 10 to 40 percent lower than for those with conventional health insurance. Most of this difference was attributable to rates of hospitalization 30 percent lower for 103 the HMO group than for those with conventional insurance. Similarly, in a 1981 report, we found that for 12 HMOs studied, the hospital utilization rate was about 59 percent lower than the rate for the general population and about 38 percent lower than the national average for Blue Cross members. 104 We also addressed the question of whether this lower hospital utilization rate was attributable to cost control efforts or to enrolling people who, because of their age, sex, or health status, required less health care. To explore this further, we compared the actual hospital utilization rates of the 12 HMOs studied with rates that normally would be expected for groups with the same age and sex compositions. We found that the lower HMO rates were not attributable to beneficial selection of enrollees. A 1980 AMA report reached a similar conclusion. 105 We identified certain health delivery practices used by HMOS that controlled hospital utilization, such as --advance screening of hospital admissions, --using more outpatient services, --monitoring lengths-of-stay, and --providing home care. Reported cost-savings resulting from such measures have been substantial, according to our study. 106 |