Balancing costs and consumers

Uncertainty: Rate changes and a shifting market make the future murky for health-care providers.

Health care

January 23, 2000|By M. William Salganik | M. William Salganik,Sun Staff

The health industry is entering a year of increased uncertainty, with an unsettled marketplace and a major regulatory change in Maryland.

For the past few years, the industry knew the lay of the land, even if the terrain was rough.

Managed care plans dominated the insurance market, controlling costs by driving down provider reimbursements and establishing barriers to care considered unneeded or too expensive.

Impressed by the cost-trimming, governments began turning to HMOs to control Medicare and Medicaid budgets.

Health-care providers merged and acquired others in an effort to grow large enough to negotiate better terms with the HMOs -- creating not just hospital chains, nursing home chains and doctor-practice chains but "integrated delivery systems" owning hospitals, home health agencies, clinics, pharmacies and so on.

But now the direction is much less clear.

Increased flexibility

A backlash from consumers and doctors has led to insurers offering plans that promise more flexibility and less second-guessing of medical judgments.

Governments and HMOs had trouble agreeing on price, leading to HMO pullouts from the Medicare program and tussles over Medicaid reimbursements.

Merger fever in the industry was cured by a shock treatment of bankruptcies, falling stock prices and rapid shifts in assumptions about the shape of the market.

Integrated Health Services Inc., the Sparks-based operator of nursing homes and post-acute care centers, blames the Medicare cuts for pushing it to the brink of bankruptcy. Its stock price plunged to just pennies, leading to it being delisted by the New York Stock Exchange.

"Yesterday's conventional wisdom has changed a lot," said Calvin Pierson, president of the Maryland Hospital Association. "Hospitals and doctors have had a direction to head. Now it's not clear where they should try to go. It's difficult to have a strategic plan in health care."

Compounding the uncertainty for the year ahead in health care in Maryland is an effort to redesign the state's system of regulating hospital rates.

"The big question is," said T. Michael Preston, executive director of the state medical society, "will reinvention of the rate system leave the funding about the same, cut it down a little, or cut it down significantly?"

The answer to that question will affect the insurance premiums Marylanders pay and the financial health of the hospitals.

If costs in Maryland are not controlled enough, Medicare will pull out of Maryland's rate system and stop paying its share of treating the uninsured in the state.

If costs are controlled too much, the hospitals warn, they will not be able to maintain the staffing and technology for top-quality care, and more hospitals could close. (Three -- Liberty, Church and Children's, all in Baltimore -- closed last year.)

The rate-setting Health Services Cost Review Commission has a task force expected to recommend new rate formulas soon.

The redesign could also surface as the key legislative health issue for 2000. "There's a high probability there will be a major fight over the future of the payment system in Annapolis," Pierson said.

However the rate-setting reform develops, cost control efforts will be at center stage throughout the industry.

After remaining flat for several years, health costs have been increasing. Along with HMOs pushing to improve profit margins, that's led to premium increases approaching double digits.

While trying to control costs, the HMOs have a contrary goal -- adding flexibility to the system to counter consumer backlash.

"The whole market is oriented toward putting consumers in the driver's seat," says Karen Ignagni, president and chief executive officer of the American Association of Health Plans, the HMO trade group.

Fewer 'gatekeepers'

HMOs are offering more choices for members and more plans that allow direct access to some services without going through a "gatekeeper" physician.

And UnitedHealth Group, the nation's second largest insurer, announced in November that it would no longer require doctors to get approval from its HMOs before treatment, although it will still review doctors annually to make sure they are practicing efficiently.

"If you want to interpret it as managed care is going to roll over and play dead, it's definitely not that," said Paul B. Ginsburg, president of the Center for Studying Health System Change in Washington. "But it is a sea change in how managed care is done. It will play much better with the public -- people won't see individual decisions."

Besides the demand for more flexible insurance plans, another counterbalance to cost-consciousness is a concern for quality. In November, the Institute of Medicine reported that medical mistakes kill anywhere from 44,000 to 98,000 hospitalized Americans a year.

People in the industry see two places to turn as they attempt to control costs while offering flexibility and maintaining quality: administrative efficiency and using data to document best practices.

"The concerns are real about the extent to which money is leaking out of the system into the wrong buckets in huge amounts," said Preston of the medical society, formally known as the Medical and Chirurgical Faculty of Maryland.

Ignagni, of the HMO trade association, agrees: "We've gotten the message loud and clear: simplify the process, reduce the paperwork."

Also, she said, as plans collect more data on patient treatments and outcomes, they will be able to develop "disease management" plans, coordinate care and do research on outcomes, ideally leading to better treatment at lower cost.

"It could be a pipe dream, or it could be a story," said Preston. "Technology offers the greatest promise for health system reform."

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