look at our indigent care system and the factors threatening it. Public Health Programs-Although all levels of government make some contribution to the care of the uninsured through subsidies or direct provision of health services, their efforts are inherently limited in scope.50 Federal programs established in the 1960s and 1970s have faced steadily declining resources throughout the 1980s. State and local programs similarly face resource constraints. The main federal efforts are grant programs: The Maternal and Child Health Services block grant to states, to provide preventive, primary, and specialized care to low-income women and children; • The Community Health Center program, which provides direct support to urban and rural community health centers that furnish primary and prenatal care and other health services to medically underserved populations; • The Migrant Health Centers program, whose grantees provide care to migrant and seasonal farm workers; • The Preventive Health Services block grant to states, for discretionary use for any of several specified preventive health priorities; • A variety of other programs and grants targeted to specific populations (the homeless, those in rural areas) or health care needs (family planning, black lung disease, AIDS). The Public Health Service administers these grants, which help state and local governments and private nonprofit organizations provide facilities, services, and personnel for underserved populations. In most cases, federal monies are combined with state or local government funds, private funds, or insurer payments. How many persons are being served by these programs is not clear. But it is clear that the programs do not fully meet the needs of the populations they are intended to serve-let alone all those not covered by public or private insurance. The migrant health centers are estimated to serve only 14 percent of the migrant population-about half a million of the 3.5 million migrant workers and their families.51 Community health centers are estimated to reach 5.35 million persons (not all of them uninsured)-or about 15 percent to 20 percent of the 25 million to 30 million persons living in the nation's medically underserved for all the direct health services programs listed here is just under $1.5 billion in 1990.52 But even if they were fully funded and successfully reaching all their target populations, these federal public health programs would not fill the gaps left by private and public health insurance. They are aimed at specific groups and specific problems, and the range of services they provide is sharply limited. None of the programs, for example, includes inpatient hospital care. One other federal initiative deserves mention in the context of care for those who cannot pay: the HillBurton program, which provided support for hospital construction and renovation in exchange for a commitment by the hospitals to provide free care and below cost care to persons with incomes less than 200 percent of poverty. Although no new grants and loans under this program have been made since the mid-1970s, some of the facilities that received assistance have ongoing obligations to provide at least some free care into the 1990s. A few are obliged to provide free care throughout their existence. And all Hill-Burton-assisted facilities are prohibited from denying emergency services to community residents on the grounds of inability to pay (however, they may bill for services rendered). 53 There have been serious questions about the adequacy of enforcement of the Hill-Burton free care requirements, however, and, in any event, the obligations are tiny compared with the need. The total amount of free care that such hospitals are obliged to provide is $180 million in 1990; and only $1.8 billion in additional care is required over the remaining life of the program. 54 State, county, and municipal governments finance, subsidize, or furnish indigent care-or require providers to furnish it-in a variety of ways. In all but three states, either state or local government has at least some legal obligation to provide indigent care to some patients.55 In 18 states, the responsibility falls solely on the counties. In four others, counties have this responsibility only if they operate a hospital; otherwise the responsibility belongs to the state. In eight other states, responsibility is shared between counties and state or city governments. 56 The state or local insurance programs for non-Medicaid low-income or medically uninsurable persons described earlier account for only part of state and local spending for the uninsured. Additional funds go to direct support for the provision of services, chiefly in public hospitals and clinics, and primarily in the South and South Central regions. 57 State and local subsidies for hospital services alone were an estimated $3.1 billion in 1988, according to the American Hospital Association (AHA). Of this amount, $0.7 billion went to support facilities that were wholly reliant on public or charitable funds. The remaining $2.4 billion was in the form of subsidies to facilities that also received payment from insurers and patients. 58 The extent of state and local assistance for nonhospital services is less clear. Overall, states spent $1.9 billion of their own funds on personal health programs in 1987; local health departments spent another $0.9 billion (not counting state subsidies), 59 These funding levels, which do not all go for care of the uninsured, fall grossly short of the need. Even public hospitals can no longer rely on local government to make up their full losses on uncompensated care. The National Association of Public Hospitals (NAPH) has estimated that its member facilities would average a 30 percent operating deficit without public subsidies, and have a 7 percent deficit even with the subsidies. 60 This is not for want of effort by local governments. The Prospective Payment Assessment Commission (ProPAC) has noted, for example, that state and local appropriations for public hospitals rose 41 percent between 1980 and 1984. Public hospitals' costs for the uninsured almost doubled in the same period. 61 Two factors appear to have contributed to the growing burdens on public facilities. The first is greater demand-not just the rise in the number of uninsured persons, but also new pressures such as the AIDS epidemic, widespread drug abuse, and violent crime. The second is the erosion of privately subsidized care in private or nonprofit hospitals. This includes care given to patients who are not expected to pay (traditional charity) and bad debt from patients who were expected to pay when care was provided. Charity Care-Traditional charity and bad debt are discussed together for two reasons. 62 First, data limitations make it difficult to distinguish between the two. Second, and more important, studies indicate that most bad debt is incurred by persons without adequate insurance who would have difficulty paying substantial bills. Uncompensated care furnished by hospitals is the focus of this discussion because the extent of hospital services to the uninsured is fairly well documented. It should be emphasized that physicians and other providers also provide uncompensated care. As much as 10 percent of all physicians' services may be going to patients without charge or insurance payment. 63 Uncompensated care cost hospitals $10.7 billion, 6.3 percent of total expenses in 1988 according to the AHA. The extent of the private subsidy-uncompensated care minus state and local contributions— amounted to $8.3 billion or 4.9 percent of total expenses, in 1988. Hospitals are providing more free care than they were at the start of the decade, when the equivalent figure was $3.0 billion, or 3.9 percent of total expenses. 64 But their ability to continue to afford this burden is in grave doubt. Providers of care cover their losses on uninsured patients from their charges to those who can pay. This means that employers and insurers are paying much of the cost of uncompensated care. They are increasingly looking for ways to avoid this hidden tax through preferred provider organizations (PPOs) and other negotiated discount arrangements, which successfully restrict their liabilities to their own workers or subscribers. With the Medicare and Medicaid programs also restraining payment rates, hospitals are steadily losing the cushion they need if they are to finance care for those who cannot pay. Shrinking finances are not the only cause for alarm. As the ability to finance uncompensated care is going down, the need for such care is increasing. Drug abuse, AIDS, and violent crime are all disproportionately concentrated among the poor, who are most likely to be uninsured. So, too, is the problem of low birthweight babies. By late 1989, one in 10 of all infants born alive in New York City required neonatal intensive care, at enormous cost. 65 And in some parts of the country, the special needs of low-income groups are compounded by the need to provide care to a growing population of undocumented immigrants, who are almost entirely excluded from all health care coverage. When resources are limited, even hospitals committed to serving the poor and uninsured limit the care they provide.66 Other hospitals are eliminating the services most likely to attract medically indigent patients such as emergency rooms and trauma centers. This trend may be curtailing access to care for the adequately insured population as well. In some areas, for example, hospitals are dropping out of regional trauma systems because a high proportion of the patients treated in those systems lack coverage. Everyone must travel farther for emergency care as a result. 67 IS OUR HEALTH CARE SYSTEM IN JEOPARDY? The strains on our system of public subsidies and charity care are the symptom of a larger problem. Explosive increases in health care costs are beginning to jeopardize access to care even for adequately insured Americans, and whether we are getting full value for our health care dollar is being increasingly questioned. Rising Costs Since 1960, health care expenditures have increased over 800 percent, growing annually more than twice as fast as general prices. In 1960, health care expenditures were 5.2 percent of gross national product (GNP); by 1988, health care expenditures had reached 11.1 percent of GNP, or $540 billion. 68 Expenditures are expected to reach 15 percent of GNP by the year 2000.69 Since 1965, health care spending has tripled as a share of government revenues and business receipts.70 Compared with general inflation rates, health care spending increased faster in the 1980s than in the 1970s, despite unprecedented efforts by all major purchasers to control their costs. Several key factors contribute to this escalation. "If we examine the health systems other countries have adopted, while they vary widely, we find two common denominators. They provide protection for all their citizens, and they have effectively established a process which provides some measure of control over how much of a country's resources its health system can consume. Now while the U.S. health care system has many, many wonderful attributes, these two features are missing.... [W]e can embrace them without detracting from the good our system has to offer." -Walter B. Maher, director, federal relations, Human Resources Office, Chrysler Motor Corporation First, for the majority of Americans with adequate health insurance coverage, the very presence of that coverage shields them from the costs of the medical care they obtain and may sometimes encourage use of unnecessary or wasteful services. Second, various pressures encourage providers to furnish care even when they are not certain it is necessary. Many payers continue to use reimbursement systems that reward providers for increasing their patient load or intensifying the services they provide to each patient. And as described below, fear of malpractice liability and uncertainty about the benefits of alternative treatments make physicians loath to withhold a service in case it should prove beneficial. Finally, advances in technology are costly. New technologies based on advances in biology, pharmacology, physics, and engineering have brought about measurable improvements in the length and quality of life, but they are not cheap. Many innovations can transform the practice of medicine for the better, even though payment methods and uncertainty can encourage their overuse. Some observers believe that technology may be the major factor driving increases in medical care costs over the long term, and that we may eventually have to choose between ever higher expenditures, on the one hand, and slower adoption of new treatments, however beneficial, on the other. Employer Costs and Responses As the purchasers of insurance for most Americans, employers are under enormous pressure to cope with rising health care costs. In 1965, employer-paid group health insurance represented 2.1 percent of total labor compensation; by 1987 it had tripled to 6.2 percent. In 1987, health spending was equivalent to over 94 percent of after-tax profits, compared with about 14 percent in 1965 and 74 percent in 1984.71 Although full data for the most recent years are not yet available, private industry has been reporting insurance premium increases over the last three years, in the range of 15 percent to 25 percent.72 services declined from 15 percent to 5 percent. The number of workers having to pay less than 20 percent coinsurance dropped from 80 percent to 41 percent in the same period.74 Although the most prevalent deductible in employer-sponsored insurance remained $100 from 1980 to 1988, the number of participants with a deductible of $150 or more rose from less than 10 percent to 40 percent.75 Many would applaud these benefit changes, on the grounds that they encourage employees to be more responsible in the use of health services. Moreover, these changes were accompanied by an additional benefit: increases in the number of workers in plans that limit potential out-ofpocket costs for enrollees, enhancing "catastrophic" protection. 76 More troubling is increasing reliance on a second way of shifting costs to employees: reducing the employer's contribution to the basic insurance premium. The proportion of employees paying $30 or more per month for individual coverage rose from 3 percent in 1986 to 13 percent in 1988. For family coverage, the proportion paying $100 or more per month went from 5 percent in 1986 to 16 percent in 1988. Average employee payments for their own coverage rose 32 percent between 1988 and 1989, while the workers' share for family coverage rose 20 percent.77 Employers' cost saving efforts have begun to arouse employee resistance and have become a major source of labor unrest. Health care concerns were at the root of an estimated seven out of eight of the nation's labor-management disputes in the last two years. 78 This trend can be expected to continue. "Ultimately, health care costs cannot be controlled at the bargaining table. Thus CWA and the IBEW also proposed that [AT&T] work with us to promote and achieve health care reform." - James Irvine, vice president, Communications Workers of America Growing anxiety about the burden of retiree health benefits compounds the pressure employers face. Many businesses provide full health coverage to retirees who have not yet reached age 65 and supplemental coverage to retirees who are eligible for Medicare. But future health benefit obligations do not have to be fully funded or carried as a liability on corporate accounts, unlike pension benefits. "We are a large company, with more than The General Accounting Office (GAO) has estimated that, as of 1988, the unfunded health benefit liability for persons already retired was $221 billion, and the potential liability if corporations were to keep their promises of retiree health benefits for their active employees was $402 billion.79 The Financial Accounting Standards Board (FASB), whose minimum requirements for corporate accounting are widely used, has decided that the future obligation for retiree health benefits should be shown as a liability on corporate accounts. If the FASB's decision is followed, and these enormous obligations must be added to corporate accounts, some of America's largest businesses could become technically insolvent-a threat that increases the pressure on employers to find some way of reducing their health care liabilities. Both labor and management, then, must view rising health care spending as an increasing threat to their economic well-being. Are We Getting Value for Our Dollars? The United States spends a greater proportion of its wealth on health care than any other country. United States health care expenditures as a percentage of gross domestic product (GDP) have been substantially higher than in any of the other 23 members of the Organization for Economic Cooperation and Development (OECD), which includes other Western industrial nations. In the United States, health expenditures as a percent of GDP were 10.8 percent in 1987.80 In other countries, health care spending as a percentage of GDP ranged from a low of 5.3 percent in Greece to a high of 9.0 percent in Sweden. Canada and France each spent 8.6 percent. On a per person basis, the United States spent $2,051, while Canada, the next highest, spent $1,483.81 With costs so high and continuing to rise, Americans have come to question whether we are getting our money's worth. Even with such high health care 1 spending the United States falls behind many countries that spend much less on health care, as measured by infant mortality, life expectancy, age-adjusted mortality, and other basic health indicators. In 1986, for example, the infant mortality rate for the United States was higher than that of 21 other countries, including Singapore, Spain, Italy, and the German Democratic Republic.82 In 1986, the United States ranked nineteenth in life expectancy at birth for males and fifteenth for females, behind such countries as Japan, Sweden, Canada, Greece and Spain.83 Among the OECD nations, the United States ranked twelfth in total age-standardized death rates per 100,000 for the early 1980s, behind countries like Japan, Sweden, Canada, Iceland, and Greece.84 Mortality statistics for impoverished populations within the United States suggest that pockets of Americans fare worse than citizens of some of the world's poorest nations. Bangladesh is one of the lowest-income countries. Nonetheless, a recent study found that black men born in central Harlem, a lowincome area in New York City are less likely to reach age 65 than men in Bangladesh. Women in Bangladesh, if they survived past the age of 10, also could be expected to live longer than women in Harlem. The high mortality in Harlem was partly due to the large amount of violent crimes and substance abuse in that community. But the greatest single source of the high mortality rate was cardiovascular disease, suggesting that lack of access to services contributed to these statistics. 85 Care in the United States may be superior in many ways that are not measured in these gross statistics. And these statistics reflect many factors other than medical care. Still, as U.S. health care expenditures continue to rise, many question whether we are using our money wisely. Increasingly, these questions focus on the necessity and appropriateness of the medical care most Americans receive. What Is Appropriate Care? There is no single prescription for high-quality health care, and a wide range of practices may be accepted for specific conditions. Thus, a lot in medicine falls in the gray areas of uncertainty where a physician's judgment becomes critical. The most striking evidence of the effects of uncertainty in medicine is found in research on geographic variations in practice patterns, or what is called "small area analysis." These studies have found significant geographical variations in average length of hospital stays, hospital discharge rates, and surgical procedures. Researchers discovered, for example, that the likelihood that a woman in Maine would have a hysterectomy by the time she reached 70 years of age ranged from a low of 20 percent in one community to a high of 70 percent in another.86 In comparing the practice of medicine in Boston and New Haven (cities otherwise similar in medical resources and population health status), researchers found that Boston doctors were twice as likely to perform carotid endar terectomies but only half as likely to do coronary bypass surgery.87 Boston physicians were much more likely to hospitalize Medicare patients than were their colleagues in New Haven.88 Areas with a high frequency of procedures are not necessarily those providing a lot of inappropriate care. Sometimes, a small number of physicians in high use areas are performing a large number of procedures, judged to be appropri ate given patient indications.89 These variations cannot be fully explained by differ ences in the health status of the populations or by standard physician characteristics such as age, specialty, or medical school. The most important factor seems to be differences in the practice styles of physicians.90 While the resulting care may be appropriate, often the procedure chosen is not superior to alternative treatments in producing net benefits for the patient. Which practice styles best produce desired patient outcomes is the central concern of appropriateness research (which is sometimes done within small area studies). This research uses a number of methods for identifying inappropriate use, including audits of medical records, second opinions for surgical procedures, and examination of pathology specimens after surgery. 91 Such research has determined that common procedures such as angioplasty, coronary artery bypass surgery, cardiac pacemaker implantation, and Caesarean section deliveries, are often used without producing any medical benefit for the patient.92 For example, 32 percent of carotid endarterectomies, 17 percent of coronary angiographies, and 17 percent of upper gastrointestinal endoscopies have been found to be inappropriate.93 A review of the appropriateness literature by the GAO found that the inappropriate use of surgical procedures ranged from 14 percent to 32 percent, and inappropriate hospital admissions ranged from 7 percent to 19 percent. 94 Unnecessary and inappropriate services not only waste the health care system's limited resources and deprive others of needed care but also pose risks to patients. An unnecessary Caesarean section, for example, can lead to infections, a prolonged hospital stay, |