One major competitive strategy for increasing costconsciousness in the health care marketplace is to introduce more cost-sharing into health insurance plans. Research has shown that when deductibles, coinsurance, and copayments are increased, consumers choose to utilize fewer services than when fully insured. Cost-sharing designs could be income-related to avoid the objection that the poor may be disproportionately hurt by such measures. (See pp. 169 to 172 for a more detailed discussion of cost-sharing.) 86 Advocates of market reform have also recommended extending these strategies to public programs. For instance, voucher plans could be used in the Medicare program to establish fixed dollar contributions from the government to purchase health benefits protection from the private marketplace.87 Voucher plans, which have also been proposed for use in state Medicaid programs, would encourage consumers to shop carefully for health benefit coverage and create competitive pressures on insurers and providers.88 Other health care experts express concern about competitive strategies. For example, they point out that many of the strategies require that consumers make more health-care related decisions. Because consumers are relatively uninformed and health decisions often must be made at critical points, that is, when ill, consumers may not react as expected by advocates of competition. Also, increased cost-sharing may raise financial barriers to access, especially for lower-income persons, or delay consumers from seeking care. This, in turn, could raise total health care costs if health conditions worsen and more costly care is ultimately needed. Private sector strategies As health care expenditures have continued to increase, many health insurance companies and self-insured corporations have taken initiatives to reduce spending. These include redesigning health benefits plans, increasing employee cost-sharing, developing health promotion plans, increasing utilization review and claims management activities, and implementing second opinion programs for elective surgery. Health care coalitions have also been formed in response to the financial burdens of spiraling health care expenditures on businesses. These rising expenditures have challenged businesses to educate themselves about the causes of these increases and to participate actively in the health care system. WHAT CHANGES OCCURRING IN THE FUTURE EXPENDITURES? Dramatic changes are occurring in the health care market affecting the ways health care is delivered and paid for and also producing competition among providers for patients. Significant among these changes are the emergence of a for-profit industry in the health care field and business coalitions to deal with increased expenditures. The potential impact of these changes on providers, payers, and patients is considerable. As this is occurring, significant changes are taking place in the composition of the U.S. population. To an increasing extent, the population is becoming older, consuming an everincreasing percentage of the health care dollar. To a large extent, success in containing future health care expenditures will depend upon how health care services are provided to the elderly. Recent changes in the health care system Until a few years ago, there was a perceived need for more physicians and hospitals and the policy of this country was designed to increase this supply. Today, this situation has, for the most part, been reversed. Many believe that the nation currently has an excess supply of hospital beds and occupancy rates, and admissions at many hospitals have declined. At least in some areas of the country, some believe that an excess supply of physicians currently exists and in only a few more years, they anticipate an aggregate oversupply may exist. Along with these developments, fundamental changes have occurred in the methods of paying for health services during the 1980's. For example, hospitals and nursing homes are now frequently paid on the basis of a predetermined rate. In addition, changes in third-party payment coverage have placed consumers more at financial risk for health services. These developments have, to a considerable extent, changed market incentives, causing providers and consumers to be more cost-conscious. The effect of these developments has been to stimulate increased competition among providers to retain their share of the health care dollar. As a result, several alternative delivery systems have emerged or been expanded during the past 5 years, including --freestanding emergency centers, surgery centers, and --home health care; --prepaid group practice systems, such as health --preferred provider organizations (PPOs). HMO enrollment increased almost 22 percent from mid-1983 to mid-1984.89 Nearly 2,300 ambulatory centers now exist.90 Furthermore, physicians are, to an increasing extent, entering into arrangements where they are paid on either a salaried or capitated (per patient) basis, such as in HMOS or biomedical research facilities. (See chs. 2 and 3 for a more detailed discussion of these developments.) Interviews with senior managers of 25 nonprofit and for-profit hospital systems showed that many were considering expanding into a full range of alternative services and businesses, such as HMOs, home health agencies, nursing homes, retirement centers, and medical product companies, in order to diversify and encourage the flow of dollars and patients into their hospitals.91 Emergence of for-profit firms in the health care industry One of the most significant developments occurring during the past few years has been the rapid change in the institutional structure of the U.S. health care system. Specifically, the following changes are taking place: --A shift in the type of ownership and control from nonprofit and governmental organizations to for-profit companies. --The emergence of multi-institutional systems controlled by national health care corporations or nonprofit organizations rather than community boards. --The shift from single-unit organizations operating in one Some experts predict that the health care system will eventually be dominated by very large health care corporations.93 An example of diversification in the health care industry is represented by National Medical Enterprises, Inc. This corporation operates a diversified multihospital system. In addition to acute care hospitals, it operates nursing homes, psychiatric facilities, alcohol and drug rehabilitation centers, home health agencies, medical product and durable medical equipment distributors, and a retail pharmacy chain.94 Similarly, Hospital Corporation of America (HCA), in addition to operating acute care hospitals runs more psychiatric hospitals than any other operator in the United States. addition, HCA recently purchased a company and was involved in purchasing another one which would enable it to sell health insurance in 35 states.96 95 In Nonprofit community hospitals have begun to react in a similar fashion. Some are now part of multihospital systems which can share resources and purchase at more competitive prices.97 An example of this is the recently formed national nonprofit American Healthcare Systems. It will market health care services nationwide, including HMOS, PPOs, and other alternative delivery systems. In addition, it will develop and market purchasing, materials management, and shared service programs. The systems' 233 member hospitals make it one of the largest nonprofit diversified companies in the country. 98 An important issue raised by these changes revolves around their impact on expenditures, access to and quality of care. While answers to these questions are not evident at this time, some believe that the for-profit organizations will have a positive impact on expenditures by improving management and efficiency of operations. of operations. Others believe that they will tend to shift costs, particularly to public hospitals, by providing care to the adequately insured patients and "dumping" high cost patients with few resources on the public hospital system. Similarly, there are differences of view concerning the issues of access and quality. Some believe that both access and quality will be adversely affected by the desire of for-profit (and nonprofit) institutions to maximize revenues and reduce expenditures. Others believe that improved efficiency will have a positive effect on patient care. Development of health care coalitions Each year, American businesses spend many billions of dollars in health care. Such expenditures are adding considerably to the costs of goods and services produced in the United States. For example, in 1983, businesses paid about $80 billion for health insurance premiums,99 up from $43 billion in 1978.100 Health care expenditures at General Motors added more than $480 to the price of each vehicle manufactured in 1982. In 1983, General Motors' health insurance costs were estimated at $2.2 billion.101 In a hearing before the Joint Economic Committee in April 1984, a Chrysler Corporation representative stated that the company would spend more than 102 $400 million on employee health care in 1984. Ford Motor Company spent $742 million for health care costs in 1983, which added $300 to the cost of each vehicle produced in the United States. 103 In response to these expenditures, businesses have taken action to make changes in the design of their health benefits programs and collect price and utilization data on providers. However, it became apparent that these actions were not enough and a strategy which could only be accomplished through collective action was needed. The development of health care coalitions or local business groups on health have been the most recent business response to the need for collective actions. 104 In Although there is no common definition of what a coalition is, the primary objective is an interest in health care cost containment and problem solving at the community level.105 this regard, business coalitions have undertaken a variety of activities aimed at containing spending, including: --Sponsoring educational programs for corporate leaders on hospital finance, reimbursement, and health care cost issues. --Designing and evaluating health benefit plans. --Encouraging choice of health plans by workers featuring alternatives such as HMOs, home and ambulatory care, and preadmission testing. --Collecting and analyzing data on health care utilization and costs of care, and conducting utilization review programs. --Sponsoring health education and promotion programs designed to change attitudes and lifestyles of workers. --Participating on local planning agency and hospital boards and participating in the legislative process. 106 The overall impact of coalitions on health care expenditure increases is difficult to assess. This is, in part, because many of these activities are relatively recent and have not had time to be thoroughly evaluated. In addition, many of these activities tend to be confined to certain cities or geographic areas, making their impact relatively small and the potential for their duplication difficult in other areas with dissimilar characteristics.107 However, according to studies done for HHS, individual companies and local communities have succeeded in containing health care spending as a result of coalition activities. For example, the Toledo Business Coalition on Health Care convinced the state of Ohio to reverse its decision to approve construction of a $25 million expansion of a suburban hospital. Among other things, the Birmingham Employer Coalition persuaded physicians to assess the usefulness and cost-effectiveness of routine hospital admission tests, initiate action to remove excess hospital beds, and discontinue weekend hospital admissions, except on an emergency basis. The Dayton Health Care Coalition began a major activity to increase competition in the Dayton area. The coalition's efforts have resulted in the establishment of two HMOs. By 1982, about two-thirds of the employees of a Dayton business, the Mead Corporation, had enrolled in the HMOs.108 |