It’s not clear how these fragmentary efforts will dovetail with the administration’s plan. State officials will bear the brunt of administering whatever system eventually emerges from the White House and Congress. But these officials say they have no time to waste. Clinton wasn’t the only politician to run for office last year promising reform. Many of his former colleagues, the nation’s governors, are under enormous pressure to overhaul the system. “The cost of Medicaid is breaking our back. We have the great unmet need of people who do not have coverage,” says Colorado Gov. Roy Romer, chairman of the National Governors’ Association. “We are at a crisis point.” Here’s a closer look at how three communities are holding the line on costs:
Clinton called the city a model for healthcare reform. Per capita insurance costs are one-third lower than the national average. Just 6 percent of the metropolitan area’s 1 million residents are uninsured–compared with about 15 percent nationwide.
Rochester’s system, which began to take shape in the 1930s, works in part because one major insurer, Blue Cross-Blue Shield, dominates the local market and keeps costs down. The city’s two leading corporate citizens-Eastman Kodak and Xerox-put their employees in community insurance pools. But the real secret to Rochester’s success maybe cooperation among its hospitals. Community planning boards tightly control capacity: no new beds have been added since the 1960s. As a result, the area’s seven nonprofit hospitals are more than 90 percent full (compared with the 67 percent national average). They’ve kept a lid on costs by avoiding duplication of expensive services. Only two institutions perform open-heart surgery; one handles all neonatal intensive care. State law requires rationing of high technology: only two Rochester hospitals have MRIs. The scarcity of resources forces hospitals to share patients with their would-be competitors.
The system isn’t working perfectly. Some doctors complain that HMOs aren’t giving patients enough access to necessary tests and specialty care. Capacity has become so tight that some hospitals have occasionally been forced to close emergency rooms. Most worrisome, though, is that all the belt-tightening hasn’t put a choke hold on costs. Blue Cross premiums have still increased an average of 11 percent a year over the last five years, not much lower than the 14 percent endured by the rest of the nation. Organ transplants, AIDS and expensive new drugs add to the tab. Planners blame the proliferation of outpatient treatment. Current laws regulate hospitals but not doctors’ offices. There are now seven additional MRIs in private practices. “It’s like a balloon,” says Tim McCormick, president of Park Ridge Hospital. “You push in on one side and it comes out on another.”
The Waikiki sunsets and pristine beaches are not all that make Hawaii a paradise. An estimated 98 percent of the state’s 1.1 million residents have access to some form of medical insurance. In 1974 the state required all employers to offer coverage to workers-even part-timers putting in as few as 20 hours a week. The Prepaid Health Care program mandates a generous set of benefits, from routine checkups to in vitro fertilization. The other natural wonder is that Hawaiian health care also costs less. Since nearly everyone is paying in, insurance rates are spread more evenly, lowering premiums. “Nobody’s out, everybody’s in,” says Dr. John Lewin, director of the state’s Health Department. “It’s absolutely crucial.” Total health-care spending last year, 14.4 percent of GDP nationally, was 8.1 percent in Hawaii.
How does Hawaii cover more with less? One reason for the success is that state legislators acted 20 years ago, when there were fewer legal barriers to reform. The same year Hawaii overhauled its system, Congress passed the Employee Retirement Income Security Act of 1974 (ERISA). The measure was designed to protect workers’ pensions, but it had the unintended effect of making state-level health reform more difficult. It opened the way for big companies to establish self-insured health plans, exempting them from state insurance regulations. About 65 percent of the nation’s employers are now self-insured.
As in Rochester, another major factor in Hawaii’s success is the dominance of two big insurers. With 623,000 patients, Hawaii Medical Service Association (HMSA, the local Blue Cross-Blue Shield) controls the field of private, fee-for-service medicine. Its negotiating clout helps keep physician income at 80 percent of the national average. Kaiser Permanente, an HMO with its own doctors, also exerts rigorous cost control. Most important, the twin giants set insurance premiums by lumping workers into “community rating” pools. The risk-sharing system protects small employers from ruinous cost increases.
Still, paradise isn’t perfect. New immigrants and some indigent Hawaiians fall through gaps in coverage. Medicaid costs have doubled in the past two years, and premiums at Kaiser and HMSA have increased an average of 12.6 percent annually since 1988. Even health director Lewin agrees: “We’re still part of the American health-care system,” which often serves up pricey care. It’s a lesson Lewin recently learned firsthand. His son needed a cyst removed-a simple procedure he used to perform for about $200. The bill was $2,000. “Even in Hawaii,” says Lewin, “we need national health care.”
In the mid-1980s Walt Disney Co., General Mills Restaurants and Orlando’s other major employers were struggling to contain mushrooming health-care expenses. Because most were self-insured, they had few middlemen to blame. So together they formed the Central Florida Health Care Coalition, a consumer cooperative. Its collective purchasing power (it now includes 120,000 employees) forced local hospitals to get serious about cutting costs. As coalition officials began studying financial data provided by hospitals, they were struck by how little insight the numbers offered into the actual quality of the medical service. There seemed to be no way to determine how patients fared at one institution versus another. Billing data showed a patient’s diagnosis, length of stay and the cost but little else. The coalition began searching for an information system to provide answers.
The winner was MediQual, a Worcester, Mass., firm founded by an enterprising internist and a lawyer. Its computer program, called Atlas Ledger, uses information culled from patients’ charts to assemble a detailed analysis of cost and quality. Its database, derived from 550 hospitals where the program is used, allows it to identify institutions that deliver services efficiently. For example, MediQual found that the cost of a coronary bypass varies from $21,160 to $80,000.
Officials of MediQual insist that cumbersome hospital routines-not greed or incompetence-are the main reasons prices go up and quality goes down. Senior vice president Kevin Blank uses the hypothetical example of a patient who arrives at an emergency room with pneumonia. The doctor orders a sputum test to determine whether the pneumonia is viral or bacterial. A nurse hands the patient a cup and asks for sputum. The patient, probably disoriented, doesn’t know or can’t remember the difference between spit and sputum, and provides spit. Because the lab test is not definitive, the physician prescribes a widespectrum antibiotic. But if the patient has, say, Legionnaire’s disease, which requires a specific antibiotic, the patient could get worse or even die. “Whose fault is that?” Blank asks. “The physician for ordering the test? The hospital board? Or the nurse? … Quality in any industry is a system problem, not an individual one.”
The Orlando coalition required hospitals to install MediQual as a condition of doing business. The results are startling. Orlando Regional Medical Center, the area’s biggest, saved $4 million last year and was able to reduce obstetrics costs by 10 percent. The coalition has joined forces with consumer cooperatives in Sarasota, Tampa and Miami to form a 780,000-member alliance that may drive costs down even more. The strength-in-numbers approach has also found its way into Florida’s new Health Care and Insurance Reform Act, signed by Gov. Lawton Chiles on April 29. It sets up 11 “community alliances” across the state to negotiate costs with healthcare providers. “We based it on what is happening in Orlando,” says Lisa Hutcheson of the newly formed Agency for Health Care Administration. “They were our proof that this really can work.”
