The Coming Health-Care Crash

April 12, 1995|By DAVID EWING DUNCAN

The word is that health reform died last year because private industry is reforming itself.

If only it were true.

What's really happening is far more alarming as several trends in health care track across a grid like roaring locomotives on a collision course. Even Speaker Newt Gingrich admitted as much in a speech to the National Hospital Association. Insisting ''we need to rethink our health system,'' Mr. Gingrich warned that current cost trends will result in a ''financial crash.''

Yet Republicans continue to behave -- in the words of Bob Dole last spring -- as if ''there is no health-care crisis.'' Even their fulminations about cutting Medicare and Medicaid have more to do with wanting to pay for tax cuts than with any sense of urgency about still spiraling health costs, an issue barely mentioned in the ''Contract with America.''

Here are the trends:

* According to the U.S. Health Care Financing Administration's latest figures, health-care costs rose 7.8 percent in 1993 -- three times the rate of inflation. Last year, economists put the increase at between 5 and 6 percent, still more than double the inflation rate. That amounts to a two-year increase in spending of some $115 billion -- more than the gross national products of Argentina or Finland. And this was when private insurers were supposed to be dramatically reducing costs.

* Last month, a survey by the respected Foster-Higgins consulting group reported that companies providing employee benefits saw premiums drop 1.1 percent in 1994, the first decrease in a decade. This seems like good news. But as Foster-Higgins cautioned in a press release, this ''is a one-time savings due to moving employees from a higher-cost plan to a lower-cost plan.'' This number also fails to take into account that most employees with benefits are comparatively young and healthy, and are among the least likely to require the sort of expensive health care that drives up costs.

* As hospitals and physicians scramble for managed-care business, they continue to build hospitals, clinics and MRIs -- which defies logic, until one realizes that in the wayward economics of health care, hospitals and other providers frequently find themselves caught up in a medical arms race to keep modernizing, or get beaten out by competitors for managed-care contracts.

Indeed, the Health Care Financing Association reports construction of health-care facilities increased by a near-record 11 percent in 1993, after a staggering 12 percent increase in 1992. Yes, many hospitals are in financial straits; collectively, however, they continue to try to build their way into the black, even as waste continues to mount in a system where one-third of the nations' hospital beds are never filled, and expensive MRIs and other high-tech equipment remain in gross over-supply.

* On the other hand, hospitals and other providers are under intense pressure from managed-care companies to charge less, or lose big corporate contracts. But rather than substantially downsize, many providers have merely charged manged-care patients less than cost, while charging everyone else more to cover the difference -- a cost-shifting hat trick that will not go on forever, as fewer and fewer patients pay the inflated prices.

* And finally, in an act tantamount to health-care suicide, the private health-care market seems to have little use for our great academic teaching hospitals, whose triple mission of research, teaching and, increasingly, of treating the uninsured is pushing them into the red as they try to compete with slick, modern, non-teaching hospitals in the suburbs.

Clearly, academic centers in recent years have been wasteful and produced too much specialty care. But to allow them to fail, or to force them to radically restructure away from their core missions, not only squanders tens of billions of dollars invested over the years in these facilities, but also threatens to undermine the very system that created modern medicine in the first place.

Drawing these trends together suggests that the slowdown in health spending will not last as long as this industry continues to defy gravity by spending tens of billions of dollars on new facilities that are often redundant in a given community, and will not be used to capacity, even as providers continue to shift costs instead of truly -- massively -- downsizing.

But even if the slowdown lasts, real long-term damage is being done to the health-care system as research and teaching face a bleak future, the numbers of uninsured continues to rise and affordable health care becomes available only for a shrinking group of Americans who are healthy and covered at work, or can pay out of pocket.

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