PNHP

On The ‘Efficiency’ Of Managed Care Plans

On The ‘Efficiency’ Of Managed Care Plans

Several decades’ experience has yielded scarce evidence supporting the efficiency of managed care, despite numerous claims that managed care has lowered health care costs.

By Kip Sullivan
Health Affairs, August, 2000

From the earliest days of the health maintenance organization (HMO) movement, many have asserted that HMOs or managed care plans save money and are more “efficient” than fee-for-service (FFS) plans. As a result, that notion has reached the status of folklore within a substantial portion of the health policy community.

This folklore is also widely accepted among politicians. President Bill Clinton announced during his 1998 State of the Union address that “managed care plans…save money.”1 Republican members of the National Bipartisan Commission on the Future of Medicare and other proponents of the premium-support approach to “modernizing” Medicare assert that managed care plans are more efficient than the FFS Medicare program.2 In this paper I argue that the evidence in support of the claim that managed care saves money is inconclusive. I begin with a description of two types of errors frequently made in descriptions of the empirical evidence. I then review what little evidence there is on the efficiency of managed care plans compared with FFS plans. I close by presenting a hypothesis that explains why health care inflation fell during the mid-1990s that does not rely on the as-yet undocumented assumption that managed care plans of any sort are more efficient than FFS plans.

Throughout the paper I use the word “efficient” in the narrow and misleading sense in which it is often used in the health policy literature— that is, to mean “lower priced” or “using fewer resources” as opposed to “providing higher value.” In other words, I ignore the question of whether managed care plans, if in fact they are priced lower, achieve that status by offering lower quality.

Two Common Errors

The claim that managed care plans are more efficien t than FFS plans typically rests on one or both of the following errors.

Error number one. The first error is this: Lower medical care costs in managed care plans necessarily means that managed care plans’ total costs are lower. Since at least 1970, when the campaign to pass the HMO Act of 1973 began, managed care advocates have cited evidence that managed care plans reduce plan-level medical costs, either by reducing use of medical services, especially hospital services, or by extracting discounts from providers, especially hospitals. The issue here is not whether HMOs reduce utilizatio n rates below FFS levels, nor whether HMOs and preferred provider organizations (PPOs) extract discounts from providers and drug companies that FFS plans cannot get. It is well established that HMOs reduce utilizatio n rates and that managed care plans can compel their sup pliers to offer large disco unts. The issue is, rather, whether medical costs equal total costs. They clearly do not. Total costs are the sum of medical costs plus administrative costs plus profit or surplus. As I show below, evidence indicates that managed care has driven up administrative costs. Throughout the remainder of this paper I use the phrase “expen ditures on medical services” to refer to expenditures that do not include plan-level administrative costs or plan profits, and the phrase “total expenditures” to refer to the sum of expenditures on medical services plus expenditures on plan-level administrative function s plus plan profits. Total and medical expenditures can be measured either at the plan level or at a systemwide level (at the level of the market, state , region, or nation).

Examples of this type of error are legion. Paul Ellwood and colleagues, for example, used this argument in their seminal 1971 article calling on the N ixon ad ministration to e ndorse HMOs.3 Th e y claimed that HMOs were more efficien t than FFS providers, based on studies (which they did not cite) showing that HMOs provide fewer services. Nearly three decades later Sheila Smith and colleagues committed the same error.4 They asserted that the “sustaine d plateau in health spending…since 1993 reflects changes in financin g and delivery” and a shift away from the “fee-for-service system [to] managed care.” Unlike Ellwood and colleagues, Sm ith and colleagues offered a reference (and only one) for their claim: a 1994 literature review by Robert Miller and Harold Luft. But, as I indicate in my discussion below, this review found only that HMOs (not “managed care”) reduce utilizatio n rates (not total expenditures).

Error number two. The secon d common error is this: Lower HMO premiums necessarily means that HMOs are more efficient. The claim that “managed care plans are more efficient” has often been “docum ented” with eviden ce that HMO premiums are often lowe r than FFS premiums. The problem with this claim is, of course, that factor s that have nothing to do with efficiency, such as HMO cherry-pick ing (selectin g lower-risk persons as members) and cost shifting, may explain why HMO premiums tend to be slightly lower than FFS premiums. No studies of total spending controlling for these variable s have been done, at least not in the past fifteen years.

An example of this type of error is Alain Enthoven ’s flattering description of HMOs in his 1978 Shattuck Lecture.5 Contrary to Enthoven’s claim, the literature review he cited did not report that HMO premiums were lower because HMOs were more efficient.

Review Of The Spending Literature As Of 1994

In their 1994 review of studie s comparing the performance of managed care plans with FFS plans, Miller and Luft found two dozen reliable studies indicatin g that HMOs (not PPOs, point-of-service plans, “managed care,” or “changes in financin g and delivery”) reduce use of medical services below levels provided by FFS plans.6 These were almost entirely services offered by or in hospitals. But Miller and Luft could find no reliable studies showing that managed care plans reduce total spending. They could find “no peer-review ed literature [that] determined differences among plans in premium levels,” adjuste d for differences in enrollee health and other factors that could have affected premium levels. They could find no “peerreviewed studies [that] estim ated the impact of managed care plans on national or regional area health care exp enditures.” They described a few studies that showed that California HMOs and PPOs reduced hospital expenditures for all patients (managed care and FFS patients), but, it should go without saying, hospital expenditures do not equal total medical spending, much less total plan-level sp ending.

It is worth noting that Miller and Luft could find very little reliable evidence on PPOs (now, according to some surveys, the dominant form of managed care).7 It also is worth noting that the sole PPO observation they did report “showed significantl y higher total [medical] expenditures for PPO enrollees compared with indemnity plan enrollees.”8

Miller and Luft did offer this speculation: If HMOs provide fewer expensive services and “more comprehensive coverage” than FFS plans, “the findings suggest that HMOs provide care at lower cost than do indemnity plans.”9 Even if this speculation about HMOs is accurate , it does not warrant the conclusion that the entire managed care industry deserves the same praise. But this hypothesis has two serious defects. First, it ignores the myriad methods HMOs have invented to shift costs from themselves to other payers, methods that are less availabl e or completely unavailabl e to traditional FFS plans. Second, this hypothesis assumes that increased adm inistrative costs, for both HMOs and the providers HMOs deal with, have not offset savings achieved in the medical expenditures portion of HMO bud
gets. I review each of these defects below.

Cost shifting. The evidence bearing on the cost-shifting methods available to HMOs and, to a lesser extent, PPOs varies in quality, and I do not attempt to evaluate that evidence here. I merely observe that these cost-shiftin g methods are numerous and lucrative. They include using financial incentives that encourage HMO doctors to shift costs to other payers, including workers’ compensation programs and unpaid family caregivers; indirectly inducing drug companies and hospitals to shift costs to weaker payers, including FFS plans, by extracting large discounts from them; avoidin g their share of research expenses, charity care, and graduate medical education (GME) expenses even while being subsidize d by Medicare for GME costs; provoking enrollees to pay for care outside of HMO networks; enrollin g populations that are healthier than average (excessi ve payments to Medicare HMOs because of favorable selection may equal 15–20 percent of total Medicare payments to HMOs); billing Medicare for billions of dollars (equal to approximately 5–10 percent of total Medicare payments to HMOs) in administrative costs that should have been billed to private payers; and failing to reimburse Veterans Affairs (VA) hosp itals for services rendered by these hospitals to Medicare HMO enrollees.10 Until these externalize d costs are measured and placed back in the expenditures column of the HMO ledger, it is unwise to assume that HMOs are more efficient than FFS plans are.

Rising administrative costs. Managed care plans’ ability to cut their own medical costs and the absence of conclusive evide nce that they reduce total plan costs seem paradoxical. However, a logical explanation is at hand: The cost-control tactics known collectively as “managed care” may require additional employees at both the plan and provider levels. Because the literature on administrative costs of managed care plans and providers is so sparse, it is fair to say that the issue has never been on the health policy research agenda. What eviden ce we have indicates that adm inistrative costs have soared as managed care methods have spread.
The State o f Minn esota re ported that Minnesota HMOs increased their administrative spending per member by 403 percent between 1980 and 1991, while their spending per member on medical care rose only 255 percent. This rapid increase in administrative costs occurred at a time when HMO enrollment more than doubled, from 415,105 to 1,193,800.1 1 In most industries a doubling of production leads to a fall, not a large rise, in per unit administrative costs.

A similar pattern prevailed at the national level. During the period 1987–1993, a period in which managed care enrollment soared , private health insurance adm inistrative expenditures per person covered rose by 236 percent, while FFS premiums rose 70 percent and HMO premiums rose 71 percent.12

Other evidence indicates that the arrival of managed care has driven up providers’ administrative costs as well.13 David Himmelstein and colleagues demonstrated that employment of administrators, in both the insurer and the provider sectors, rose from 18.1 percent of total employment in the U.S. health care system in 1968 to 27.1 percent in 1993. Administrative personnel grew by 288 percent during this period, while the number of physicians, the great engine of medical inflation according to managed care advocates, grew by just 77 percent.14

It is not clear to what extent the additional expenditures on administrators generated by managed care methods offset the savings HMOs and PPOs have extracted from providers and patients, but it is obvious that this has occurred to some degree. United-Health Group’s late 1999 announcement that it will abandon prospective utilizatio n review because this form of “cost control” was costing three times what it was saving and other reports of high utilization review costs suggest that this form of managed care generates costs that exceed savings.15

A Summary Of The Literature After 1994

No new, reliable studies have been published since 1994 that warrant altering Miller and Luft’s 1994 conclusion that existing “literature on managed care plan performance does not provide policy-makers with adequate bottom-line estimates of expe n di ture differences per enrollee compared with indemnity plans.” A few more studies suggesting that managed care’s expansion in a given market can lead to marketwide reduction s in expenditures on the medical care component of total spending have appeared.16 However, as I have noted already, it is not appropriate to conclude from such stud ies that managed care plans reduce total spending.

Two studies on HMOs’ impact on total spending, and one study on the impact of HMOs and PPOs, have appeared since 1994. One study found virtually no effect, while the other two reported modest HMO (not PPO) effects.17 None of these three studies attempted to measure the impact of HMO cost shifting.

An Alternative Explanation For The Recent Inflation Lull

Prior to 1995 health policy researchers refrained from claiming that managed care was affecting national health care spending . Enthoven, for example, published a paper in 1993 entitled, “Why Managed Care Has Failed to Contain Health Costs.”18 However, all of that changed around 1995, when it became clear that the lull in premium and national exp enditure inflation was real (not nominal). By 1997 Enthoven and his colleague Sara Singer were asserting, “Since the early 1990s cost pressures have moderated significantly , and there is no explanation except competitive markets and managed care.”19 It is my impression that the number of unqualified and poorly documented assertion s that managed care cut costs rose exponentially in the peer-reviewed and lay literature after 1995.

Is it possible that the rapid spread of managed care methods had little to do with the lull in health care inflation? I offer an alternative hypothesis: that the mid-1990s lull was caused primarily by the short-term reactions of the industry to the near-simultaneou s occurrence of four events: (1) a downturn in the three-years-up, threeyears-down health insurance pricing cycle; (2) the delayed effect of the 1990–1991 recession; (3) the endorseme nt of managed compe tition models of health reform by the White House and nume rous state and federal politicians; and (4) the merger fever triggered by these political endorsements. The latter three phenomena deepened and lengthened what otherwise would have been a shallowe r and shorter downturn in the usual insurance-pricing cycle.

Health care inflation was torrid during the late 1980s primarily because the nation’s insurers were making up for losses suffered during 1986–1988.20 Under the usual cycle, premium inflation should have begun to drop around 1992. This it did. In fact, aided by a historic 50 percent drop in the underlying (economywide) inflation rate that began in 1991, premium inflation plummeted, from 10.9 percent in 1992 to 0.5 percent in 1996.21 The drop in premium and systemwide inflation was deepened by the delayed effects of the recession of 1990–1991. Evidence indicates that for several decades changes in national income have been a powerful determinant of changes in national spending on health care three to five years later.22

The unusual depth and length of the inflatio n lull was caused primarily by the endorsement of the theory of managed competition, en masse, by a substantial swath of the nation’s political and economic elite just as the lull was beginning, and by the merger fever these endorsements triggered. Between October 1992 and May 1993 managed competition was endorsed by presidential candidate Bill Clinton, the legislatures of Washington and Minnesota, numerous other state and federal politicians, numerous large employers, and many newspapers.

It is possible that
these political events, especially President Clinton’s endorsement of “managed competition within a budget” and his threats of price controls on prescription drugs, had a direct impact on inflation . As Henry Aaron noted, the last time the nation enjoyed a similar respite from health care inflation was the late 1970s, which just happens to be the last time an American president, in this case Jimmy Carter, threatened to use price controls to contain health care spending.23 But the establishment’s embrace of managed competition worked its most significant effect on health care inflation by triggering conso lidation fever throughout the industry. The overnight transformation of managed competition from untried theory to de facto national policy set off, or at least contributed greatly to, a wild scramble by insurers and providers to position themselves as high on the future food chain as possible or, in the case of small fry, to remain within nibbling distance of the “reformed” food chain. This meant, in short, getting big quickly.

Several tactics for getting bigger were available. One was low-balling one’s prices and premiums in order to seize market share rapidly or, in the case of smaller fry, to survive and remain attractive to the larger fry who were getting bigger not only by low-balling but by merging or otherwise consolidating. Everyone knew that low-balling could not go on forever, but everyone also knew that their first priority was to be alive and as integrated as possible into the food chain when the merger/low-balling panic was over. Recouping losses would have to wait until these first priorities were met. The losses, predictably enough, began to materialize in 1996 and became intolerable by 1997. The inflation lull was over.

Managed care has come to stand for a wide variety of cost containment tactics. But, to my knowledge, no one believes that “managed care” includes political endorsements of managed competition, merger sprees, and reactions to the underwriting cycle and to changes in national income. If that is the case, then it is fair to say that the jury has yet to return a verdict on whether “managed care” is more efficient than the old FFS system. And the jury will remain out until empirical evidence appears demonstrating that managed care plans have figured out how to reduce spending on medical services without cost shifting and without driving up administrative costs. Until such empirical evidence is published, analysts should not assert that managed care plans are more efficient than FFS plans, and they should refrain from attributing the 1990s inflation lull to the spread of managed care.

Kip Sullivan, an attorney, has been an organizer and researcher with consumer groups since 1976. When he wrote this paper, he was research director of Minnesota COACT (Citizens Organized Acting Together), an organization representing 14,000 Minnesotans. He is now a member of the steering commitee of the Health Care Campaign of Minnesota.

This paper was funded by grants from the Public Welfare Foundation and the Jay and Rose Phillips Family Foundation.

PNHP note: The orginal article, which appeared in Health Affairs in the July/August 2000 issue, is available here.

NOTES

1. The text of President Clinton’s 1998 address is available online at www.pub.whitehouse.gov/uri-res/I2R?urn:pdi://oma.eop.gov.us /1998/1/27/11.text.1 (27 January 1998).
2. See, for example, transcripts of meetings of the National Bipartisan Commission on the Future of Medicare during 1998 and 1999, available online at rs9.loc.gov/medicare/trans.html.
3. P.M. Ellwood et al., “Health Maintenance Strategy,” Medical Care 9, no. 3 (1971): 291–298. In this paper, devoid of footnotes, Ellwood and colleagues assert that
capitation “assures that [HMOs] deliver services more efficiently…than conventional providers” (p. 295). But the only evidence offered for this assertion is this sentence: “Rates of hospital utilizatio n and surgery are…lower for health maintenance organizations, and HMO subscribers require fewer physicians per capita and fewer hospital beds than is true for the United States as a whole” (p. 296). Since these claims are not documented by source citations, it is impossible to know whether the studies upon which these claims were based examined HMO and FFS patients with similar health status. In any case, Ellwood and colleagues do not argue, nor could they, that medical costs are an excellent proxy for total costs.
4. S. Smith et al., “The Next Decade of Health Spending: A New Outlook,” Health Affairs ( July/Aug 1999): 86–95.
5. A.C. Enthoven, “Cutting Cost without Cutting the Quality of Care,” New England Journal of Medicine (1 June 1978): 1229–1238. In this paper Enthoven states that Luft had conducted a review of “many comparison studies done since 1950” and that Luft had “concluded that [HMOs cut total expenditures ] on the order of 10 to 40 percent,” that these “savings…are mainly attributable to much lower hospitalization rates and greater economy and efficiency of [HMOs, not] out-of-plan utilization, differences in age and sex composition, previous health status, or government subsidies” (p. 1230). In fact, Luft’s review examined five studies, not “many”; all of these studies involved Kaiser Permanente; and in fact Luft concluded that factors other than HMO efficiency — including “self-selection” into, and “undertreat[ment]” by, HMOs—could have accounted for the HMOs’ lower premiums. H.S. Luft, “How Do Health-Maintenance Organizations Achieve Their ‘Savings’?” New England Journal of Medicin e (15 June 1978): 1336–1343. Enthoven repeated this mistake in his 1989 article with Richard Kronick. A. Enthoven and R. Kronick,
“A Consumer-Choice Health Plan for the 1990s: Universal Health Insurance in a System Designed to Promote Quality and Economy (First of Two Parts),” New England Journal of Medicine (5 January 1989): 29–37.
6. R. Miller and H. Luft, “Managed Care Performance since 1980: A Literature Analysis,” Journal of the American Medical Association (18 May 1994) : 1512–1519,1515.
7. S.H. Long and M.S. Marquis, “Comparing Employee Health Benefits in the Public and Private Sectors, 1997,” Health Affair s (Nov/Dec 1999): 183–193.
8. Miller and Luft, “Managed Care Performance since 1980,” 1515. The PPO study Miller and Luft were referring to was J. Zwanziger and R.R. Auerbach, “Evaluating PPO Performance Using Prior Expenditure Data,” Medical Care 29, no. 2 (1991): 142–151.
9. Miller and Luft, “Managed Care Performance since 1980,” 1517.
10. R.L. Van Horn, L.R. Burns, and D.R. Wholey, “The Impact of Physician Involvement in Managed Care on Efficient Use of Hospital Resources,” Medical Care 35, no. 9 (1997): 873–889; R.J. Butler, R.P. Hartwig, and H. Gardner, “HMOs, Moral Hazard, and Cost Shiftin g in Workers’ Compensation,” Journal of Health Economic s 16 (1997): 191–206; “Drug-Pricing Suit Settlement Gets Preliminary Approval,” New York Times, 9 May 1996, C8; Prescriptio n D rug Study: A Report to the Minnesot a Legislature on the Prescriptio n Drug Marke t (St. Paul: Minnesota Department of Health, April 1994); K. Hiduchenko , “Do Health Maintenance Organizations Control Costs or Shift Costs?” New England Journa l of Medicine (1 April 1993): 971; E. Moy et al., “Relationship between National Institutes of Health Research Awards to U.S. Medical Schools and Managed Care Market Penetration, ” Journal of the American Medical Associatio n (16 July 1997): 217–221; J.S. Weissman et al., “Market Forces and Unsponsored Research in Academic Health Centers,” Journa l of the American Medical Associatio n (24/31 March 1999): 1093–1098; P.J. Cunningham et al., “Managed Care and Physicians’ Provision of Charity Care,” Journa l of the
American Medical Associatio n (24/31 March 1999) : 1087–1092; K. Davis et al., “Choic e Matters: Enrollees’ Views of Their Health Plans,” Health Affair s (Summer 1995): 99–112; “How Good Is Your Health Plan?” Consumer Reports (August 1996): 28–41; F.J. Hellinger, “Selection Bias in HMOs and PPOs: A Review of the Evidence,” Inquiry (Summer 1995): 135–142; Physician Payment Revie w Commission, Annual Report to Congress (Washington: PPRC, 1996), 255–279; R.O. Morgan et al., “The Medicare-HMO Revolving Door—The Healthy Go In and the Sick Go Out,” Ne w England Journa l of Medicin e (17 July 1997): 169–175; R. Pear, “HMO Study Finds
U.S. Overpayment: Medicare Is Spendin g Billions on ‘Highly Inflated’ Fees,” New York Times, 11 August 1998, A1; and L.J. Passman et al., “Elderly Veterans Receiving Care at a Veterans Affairs Medical Center while Enrolled in Medicare-Financed HMOs: Is the Taxpayer Paying Twice?” Journal of General Internal Medicine (April 1997): 247–249.
The study by Davis and colleagues found that “17 percent of managed care enrollees reported using services outside of their plan in the past twelve months” and that the out-of-plan users “reported an average of four out-of plan visits within the past year for services not covered by their plan” (p. 106). Out-of-plan use was clearly related to dissatisfaction with the plan. The Consumer Report s survey found that 18 percent of enrollees in managed care plans sought medical services outside their plan networks.
11. B. McKasy and M.E. Marschall, Study of Health Care Management Companies (Minnesota Departments of Commerce and Health, March 1993). The percentages are based on the author’s calculations based on HMO expenditure s per member per month, as reported in this document.
12. The percentage increase was calculated by the author based on “health insurance administrative costs per person” figures presented in Henry J. Kaiser Family Foundation, Trends and Indicator s in the Changing Marketplace: Chartbook (Menlo Park, Calif.: Kaiser Family Foundation, August 1998) , Exhibit 6.8. The percentage increases in FFS and HMO premiums were calculated by the author from data on premiums presented in A.B. Krueger and H. Levy, Accounting for the Slowdown in Employer Health Care Cost s (Cambridge, Mass.: National Bureau of Economic Research, January 1997).
13. S. Woolhandler and D. Himmelstein, “The Deteriorating Administrative Efficiency of the U.S. Health Care System,” New England Journal of Medicine (2 May 1991): 1253–1258; S. Woolhandler, D. Himmelstein, and J. Lewontin, “Administrative Costs in U.S. Hospitals,” New England Journal of Medicine (5 August 1993) : 400–403; J. Alexander and C. Lemak, “The Effects of Managed Care on Administrative Burden in Outpatient Substance Abuse Treatment Facilities,” Medical Care 35, no. 10 (1997): 1060–1068; and Kaiser Family Foundation/Harvard University School of Public Health, Survey of Physicians and Nurses (Menlo Park, Calif.: Kaiser Family Foundation, July 1999).
14. D. Himmelstein, J. Lewontin, and S. Woolhandler, “Who Administers? Who Cares? Medical Administrative and Clinical Employment in the United States and Canada,” American Journal of Public Health (February 1996): 172–178. The percentage increase in the number of administrative workers was calculated by the author using these authors’ data on three categories of administrative workers.
15. T. Bonfield, “HMO Change May Set Trend Doctors Want,” Cincinnati Enquirer, 6 November 1999; and T. Burton, “Firms That Promise Lower Medical Bills May Increase Them: Cost Police Pile Paper Work on Physicians, Hospitals, Which Pass on Expense,” Wall Street Journal , 28 July 1992, A1.
16. These include G.A. Melnick and J. Zwanziger, “State Health Care Expenditures under Competition and Regulation, 1980 through 1991,” American Journal of Public Health (October 1995): 1391–1396; L.C. Baker and S.K. Wheeler, “Managed Care and Technology Diffusion: The Case of MRI,” Health Affair s (Sep/Oct 1998) : 195–207; L.C. Baker, “The Effect of HMOs on Fee-for-Service Health CARE Care Expenditures: Evidence from Medicare,” Journal of Health Economic s 16 (1997): 453–481; and L.C. Baker, “Association of Managed Care Market Share and Health Expenditure s for Fee-for-Service Medicare Patients,” Journal of the American Medical Association (3 February 1999): 432–437.
17. Krueger and Levy, Accounting for the Slowdown in Employer Health Care Costs; P.J. Feldstein and T.M. Wickizer, “Analysis of Private Health Insurance Premium Growth Rates: 1985–1992,” Medical Care 33, no. 10 (1995): 1035–1050; and S.C. Hill and B.L. Wolfe, “Testing the HMO Competitive Strategy: An Analysis of Its Impact on Medical Care Resources,” Journal of Health Economics 16 (1997): 261–286.
18. A.C. Enthoven, “Why Managed Care Has Failed to Contain Health Costs,” Health Affairs (Fall 1993): 27–43.
19. A.C. Enthoven and S.J. Singer, “Markets and Collective Action in Regulating Managed Care,” Health Affairs (Nov/Dec 1997): 26–32.
20. R. Cunningham III and R.M. Cunningham Jr., The Blues: A History of the Blue Cross and Blue Shield System (Dekalb, Ill.: Northern Illinois University Press, 1997),
226.
21. P.B. Ginsburg and J.R. Gabel, “Tracking Health Care Costs: What’s New in 1998?” Health Affairs (Sep/Oct 1998) : 141–146.
22. T.E. Getzen, “Macro Forecasting of National Health Expenditures,” Advances in Health Economic and Health Services Research 11 (1990): 27–48; and J.P. Cookson and P. Reilly, Mode ling and Forecasting Health Care Consumption (Radnor, Pa.: Milliman and Robertson, 19 May 1994).
23. H.J. Aaron, “Thinking Straight about Medical Costs,” Health Affairs (Winter 1994): 8–13.

Demonstration for Single-Payer Health Reform Draws Large Crowd outside Republican National Convention

Note from Dr. Walter Tsou, PNHP Board of Directors.

My impressions of the rally and march?

The turnout was amazing. You organize these things for a year and you never know how it would turn out. Even a week before, we weren’t sure how many would show up, but the word was that buses were coming in from as far away as . . .well Illinois! Turned out that we had probably between 2500-4000 people there.

The rally and march was timed out and to the great credit of Tim Lachman (PNHP), Larry Browne, MD, Travis Parchman (Labor Party) and probably 30 others, we raised close to $19,000 and actually pulled off the rally exactly on time and on budget. We stated that we would meet at 6th and Arch, walk along Chestnut Street and end up at a place outside City Hall for the rally about 12 blocks away. Close to 25 different speakers came up and spoke out for national health insurance and universal health care, including Ralph Nader (Green Party), Rosanna Pelizarri (Medical Reform Group of Canada), Steffie Woolhandler (PNHP), Nick Unger (UNITE), Henry Nicholas (National President of 1199C), Tony Mazzochi (Labor Party), Tim Lachman (local Ad Hoc Chair), Larry Browne (practicing internist), Paul Fink (Past President of the American Psychiatric Assoc), Pedro Rodriquez (Action Alliance of Senior Citizens), ACT-UP, Communist Party, West Virginia Council of Churches, Evonne Tisdale (Philadelphia Unemployment Project) and a few more. It was a stellar performance. And it all ended at 4 PM, just as we stated.

The most exciting part though was really marching down Chestnut Street. As the first demonstration of the Republican National Convention we had swarms of reporters, TV cameras, and radio people there. Helicopters were overhead watching and filming the march. From the front to the back of the group, we probably covered 4-5 city blocks. We couldn’t really tell because it seemed to go on and on.

The march was lead by a hand stitched cloth banner saying Health Care for All held by doctors and nurses in white coats. (The design can be found at www.phillyhealth.org). It included drill teams, senior citizens, children, all kinds of activists, people on stilts, megaphones shouting, “what do we want?” “Health care”, “When do we want it?” “Now”. Hundreds of signs with Universal, Single Payer Health Care; Patients, not Profits; and End racism in Health Care. There was a mock 10 foot Statue of Liberty behind me which was on the front page of the Inquirer. We went by one of the major hospitals, Jefferson and we noted that some of the workers jumped into the parade. Police lined the parade route and police sirens and cars blocked car traffic for us! In short it was very motivating and energizing!!

I caught coverage of the event on three of the local TV stations and the CBS news (15 seconds). We probably were covered on others. Were heard from some that it was picked up by the BBC and was seen in far away places like Jakarta and South Africa.

In short it was a great rally and march and very inspiring.

DATA UPDATES EXCERPTS (September 1998)

New England Journal of Medicine Editor Calls for Single Payer

The New England Journal of Medicine
June 1, 2000 — Vol. 342, No. 22
Patients’ Rights Bills and Other Futile Gestures

Health care reform is once more at the top of the political agenda, after some six years of neglect in the wake of the failure of the Clinton plan. During those six years, the issue was generally considered one of the third rails of American politics — not to be touched. What is causing the turnabout? There are three reasons. First, after a period of stagnation during the mid-1990s, inflation in health care costs is again sharply on the increase. Second, the number of Americans without any health care insurance at all, or with inadequate coverage, continues to rise. And third — and most important politically — middle-class voters are getting fed up with the abuses of managed care. They are frustrated by shorter hospital stays, restricted choices of doctors, arbitrary denials of coverage, increasing deductibles and copayments, and all the other methods by which the industry resists actually providing services to sick people.

Since the demise of the Clinton plan in 1994, it has been generally agreed that reform of the health care system cannot be full-scale. Conventional wisdom holds that the Clinton attempt failed in large part because it was too sweeping. According to this view, reform needs to be incremental to succeed. Thus, what few reforms we have seen since 1994 have merely nibbled at the edges of the access problem. For example, the Kennedy-Kassebaum statute, which permits employees who leave their jobs to continue their health insurance (if they can afford to pay for it), and the expansion of insurance coverage for children are quite modest in their scope and effects. Similarly, attempts to deal with the abuses of managed care have been piecemeal — for example, legislation to require 24-hour hospital stays after childbirth.

It is in this spirit that a number of “patients’ rights” bills are being offered, both in the U.S. Congress and in state legislatures. The proposals differ from one another in some respects, most notably in the population to which they would apply and the extent to which patients would be permitted to sue their managed-care companies. However, all have in common efforts to restore to patients and their doctors control over medical decisions — control that has increasingly been assumed by third-party payers and managed-care plans. For example, the bills provide for appeals mechanisms when services are denied, for treatment in hospital emergency departments when patients plausibly believe it is warranted, and for decisions about referrals to be made by doctors and patients, not by health plans and employers.

I very much agree with the aims of patients’ rights bills. But I also believe these bills will not achieve their ends. Rather, I am afraid they will have effects opposite from those intended. Patients’ rights bills will simply swell the ranks of the uninsured. Why such a perverse effect? The reason is that employers are not required by law to offer any health care benefits at all, and they will not do so if they believe the disadvantages to them outweigh the advantages. Patients’ rights bills will tend to tip that balance. Insofar as they have teeth, they will inevitably increase the costs of managed-care companies, which will simply pass their increased costs along to employers. Employers may then decide to drop health care coverage altogether, or to limit it sharply through stratagems such as “defined contributions,” rather than pay the higher premiums for standard benefits. Workers, for their part, may elect not to accept health care insurance, because of the growing direct costs to them. Thus, patients’ rights legislation will very probably increase the number of uninsured and underinsured people. The tougher the regulations, the more likely this outcome. The fundamental problem is that it is impossible to regulate health care in an employment-based system if employers can opt out.

The threat that patients’ rights legislation will increase the number of the uninsured and underinsured may not be fully realized in our present economy, when we have nearly full employment and many employers have a strong incentive to offer good benefits to attract workers. However, we need to remember that even in this booming economy, the ranks of the uninsured and underinsured are steadily increasing. Most of the newcomers to these ranks are employed. With a downturn in the job market, bargaining power would probably begin to shift from employees to employers. In that case, a very large number of employers might be quite willing to drop or reduce health care benefits, especially if premiums were rapidly increasing.

That is exactly what the managed-care industry and many of its allies in Congress argue in opposition to patients’ rights bills. I believe they are correct about the probable effects of such bills on the number of the uninsured and underinsured, but they are wrong in concluding that the present managed-care insurance system is essentially sound. (The only change the industry advocates from time to time is an expansion of coverage by managed care, but with premiums, of course, set by the private market and subsidized by government.) What we should instead conclude is that the private managed-care market has been a miserable failure at delivering health care. It has creamed off ever larger percentages of health care premiums in bloated administrative and marketing costs and profits, it has rewarded health plans that cherry-pick the healthy and avoid the sick, and it has resisted at every turn providing adequate services to those unfortunate enough to need them.

There is no question that patients’ rights — and doctors’ rights — are essential in any decent health care system. But they cannot be legislated in isolation in a system whose every incentive works against these rights and where the provision of health care insurance is purely voluntary. What needs to be changed is the system itself. Contrary to conventional wisdom, incremental changes, such as patients’ rights legislation, will not work. In a competitive private market, they simply provoke reactions that nullify the social objectives of the legislation.

This is not the place to present in detail a plan to overhaul our health care system. But there are three major changes that would address the difficulties in ensuring patients’ rights that I have discussed here.

First, employers should get out of the health care business altogether. There is no reason to believe they are good proxies for their workers when it comes to health care decisions. Indeed, they have a clear conflict of interest, since they have a strong incentive to keep premiums as low as possible.

Second, just as employers are not good proxies for their workers, so investor-owned managed-care companies are not good proxies for doctors. They, too, have a conflict of interest. They have obligations to their investors as well as to their enrollees. That the former often take precedence is evident from all the ways in which the industry limits medical services even while maintaining high profits and executive salaries. In my view, there is no place for these businesses in a good health care system.

Finally, health care insurance should not be optional, as it is in our employment-based system. Just as everyone over the age of 65 is covered by Medicare, so should everyone under that age be covered. In a 1993 editorial in these pages, I called for a universal, single-payer system and suggested that we could attain that goal by extending Medicare to all Americans. The need is even greater now. Those who worry that such a reform would increase taxes should remember that we all pay for health care anyway — through our paychecks, deductibles and copayments, and the prices of goods and services — and that Medicare is far more efficient than the market-based part of our health care system.

Election year 2000 is the time to look again at our health care system in its entirety, not just in bits and pieces. The insurance industry will once again mount a campaign to prevent that from happening. Harry and Louise will be back, perhaps with aliases. But can they convince the American public once again that government is the bogeyman and that the private sector will take care of their health care needs? I doubt it. We’ve had six years of hard experience, and we know better.

Marcia Angell, M.D.

Immigrants Boost Economy's Health But Lack Access To Health Care Half Of Non-Citizens Working Full-Time Lack Health Insurance

New York City — While immigrants are credited with helping to fuel the nation’s long economic expansion, they aren’t sharing in all the benefits, particularly health benefits.

Among full-time workers who are non-citizens, fully half (51%) lack health insurance, according to a study in today’s American Journal of Public Health. Over 1/3 (34.3%) of the 26.2 million immigrants (citizens and non-citizens) residing in the U.S. are uninsured — 9 million people — including one million children, compared with 14.2% of U.S. born residents who are uninsured.

“The crisis in the U.S. health system — with 44.3 million people uninsured — is affecting everyone. However, that 10% of our population that is foreign-born has been particularly hard hit ” says study co-author Dr. Olveen Carasquillo, an internist at Columbia University.

“Almost half (43%) of all immigrants who are not citizens are uninsured, ” noted Carasquillo. “They are much less likely to receive health benefits at work and are also less likely to receive safety-net government-sponsored insurance programs such as Medicaid and the Children’s Health Insurance Program.”

Major findings of the study include:

* Immigrants have low-rates of employer-sponsored health coverage. Half (51%) of all non-citizen immigrants who work full-time are uninsured – 3.34 million people.

* Immigrants make up a small percentage (less than 5%) of people with government-sponsored health insurance.
43.3% of non-citizen immigrant children are uninsured – one million children. In addition, under current federal laws if these children entered the country after 1996 they are not eligible for Medicaid or the Children’s Health Insurance Program (CHIP).

* Country of origin makes a big difference. Immigrants are more like to be insured if they are from countries like Russia or Cuba (hence eligible for citizenship) or Europe or Canada. Immigrants from Central America, Haiti, Vietnam, and Korea are most likely to lack coverage. In fact, over 50% of all immigrants from Mexico and Central America did not have health insurance.

* Immigrants who are not citizens (62.9% of all immigrants) and their children are more likely to be uninsured. 43.6% of non-citizen immigrants are uninsured, compared with 18.5% of immigrants who have become US citizens. (The study used data from the 1998 Current Population Survey conducted by the Census Bureau. The CPS does not ask respondents if they are legal immigrants).

“The billions of dollars that the federal government is spending to eliminate racial and ethnic disparities in health care will only succeed when every person in this country, including all immigrants, has equal access to our health care system,” said Dr. Elena Rios, President of the National Hispanic Medical Association.

“Expecting people to work productively when they have no access to care for themselves or their children is not just inhumane, it’s bad economics,” said Dr. Quentin Young, National Coordinator of PNHP. “We need a not-for-profit, national health system that covers all residents, regardless of age, immigration status, employment, race, and ethnicity.

Copies of “Health Insurance Coverage of Immigrants Living in the United States: Differences by Citizenship Status and Country of Origin,” O. Carasquillo, A. Carasquillo and Steven Shea, American Journal of Public Health, June, 2000 are available from PNHP at (312) 554-0382.

Immigrants Boost Economy’s Health But Lack Access To Health Care Half Of Non-Citizens Working Full-Time Lack Health Insurance

New York City — While immigrants are credited with helping to fuel the nation’s long economic expansion, they aren’t sharing in all the benefits, particularly health benefits.

Among full-time workers who are non-citizens, fully half (51%) lack health insurance, according to a study in today’s American Journal of Public Health. Over 1/3 (34.3%) of the 26.2 million immigrants (citizens and non-citizens) residing in the U.S. are uninsured — 9 million people — including one million children, compared with 14.2% of U.S. born residents who are uninsured.

“The crisis in the U.S. health system — with 44.3 million people uninsured — is affecting everyone. However, that 10% of our population that is foreign-born has been particularly hard hit ” says study co-author Dr. Olveen Carasquillo, an internist at Columbia University.

“Almost half (43%) of all immigrants who are not citizens are uninsured, ” noted Carasquillo. “They are much less likely to receive health benefits at work and are also less likely to receive safety-net government-sponsored insurance programs such as Medicaid and the Children’s Health Insurance Program.”

Major findings of the study include:

* Immigrants have low-rates of employer-sponsored health coverage. Half (51%) of all non-citizen immigrants who work full-time are uninsured – 3.34 million people.

* Immigrants make up a small percentage (less than 5%) of people with government-sponsored health insurance.
43.3% of non-citizen immigrant children are uninsured – one million children. In addition, under current federal laws if these children entered the country after 1996 they are not eligible for Medicaid or the Children’s Health Insurance Program (CHIP).

* Country of origin makes a big difference. Immigrants are more like to be insured if they are from countries like Russia or Cuba (hence eligible for citizenship) or Europe or Canada. Immigrants from Central America, Haiti, Vietnam, and Korea are most likely to lack coverage. In fact, over 50% of all immigrants from Mexico and Central America did not have health insurance.

* Immigrants who are not citizens (62.9% of all immigrants) and their children are more likely to be uninsured. 43.6% of non-citizen immigrants are uninsured, compared with 18.5% of immigrants who have become US citizens. (The study used data from the 1998 Current Population Survey conducted by the Census Bureau. The CPS does not ask respondents if they are legal immigrants).

“The billions of dollars that the federal government is spending to eliminate racial and ethnic disparities in health care will only succeed when every person in this country, including all immigrants, has equal access to our health care system,” said Dr. Elena Rios, President of the National Hispanic Medical Association.

“Expecting people to work productively when they have no access to care for themselves or their children is not just inhumane, it’s bad economics,” said Dr. Quentin Young, National Coordinator of PNHP. “We need a not-for-profit, national health system that covers all residents, regardless of age, immigration status, employment, race, and ethnicity.

Copies of “Health Insurance Coverage of Immigrants Living in the United States: Differences by Citizenship Status and Country of Origin,” O. Carasquillo, A. Carasquillo and Steven Shea, American Journal of Public Health, June, 2000 are available from PNHP at (312) 554-0382.

Insurers Are Major Investors in Big Tobacco Popular Mutual Funds Also Have Billions Invested in Tobacco

PHYSICIANS URGE INSURERS TO “KICK THE HABIT”

Despite calls to divest, insurers continue to be major shareholders in tobacco firms. Prudential has actually increased its stock holdings in tobacco nearly 400% — to $892 million — in the last 4 years, according to findings published in today’s Journal of the American Medical Association. “Insurance Firms’ and Mutual Funds’ Tobacco Habit,” by three researchers at Harvard, also finds that the popular mutual fund Fidelity has major stock holdings in tobacco, including over $6.6 billion of Philip Morris stock — 8% of the entire company.

“A health insurer that buys tobacco stocks cares more about profits than the health of its patients,” said lead author Dr. Wesley Boyd. “Teachers, physicians, and those who invest their savings in mutual funds are unwitting accomplices in causing 400,000 tobacco deaths a year.”

Insurers’ tobacco holdings include:

Cigna, the giant HMO firm, owns over $38 million in Philip Morris stocks and $4 million in Loews stocks.

MetLife’s stockholdings total $55 million in Philip Morris and almost $7 million in Loews.

Prudential Insurance owns $435 million of Philip Morris, nearly $320 million of Loews stock, and $137 million of RJ Reynolds.

Mutual funds’ tobacco holdings include:

Fidelity owns $6.6 billion of Philip Morris stock and $23 million of RJ Reynolds.
Vanguard owns stock in all 4 major tobacco companies, including over $1.1 billion in Philip Morris and over $100 million in Loews.

TIAA-CREF also owns stock in all 4 companies, holding $732 million worth of Philip Morris stock and over $37 million worth of Loews stock.

Sanford Bernstein stockholdings amounted to $912 million of Philip Morris and over $137.3 million of RJ Reynolds.
“It’s time to push insurers and mutual funds to kick their deadly habit,” said Dr. Quentin Young, National Coordinator of Physicians for a National Health Program. “Stronger physician and public protest and yes, government action against tobacco in the form of higher taxes and bans on marketing and exports, is needed.”

Medical Errors Higher at For-Profit than Not-for-Profit Hospitals, Harvard Study Finds

March, 2000

Journal of General Internal Medicine Editorial Cites Cuts in Nursing, Focus on Profits

According to a study and editorial released today, patients at for-profit hospitals are two to four times more likely than patients at not-for-profit hospitals to suffer adverse events such as complications following surgery or delays in diagnosing and treating an ailment.

“This study is another warning for those who would trust hospital care to the marketplace,” said Dr. Gordon Schiff, author of the editorial (“Fatal Distraction” JGIM, April, 2000).

Previous research has found death rates 25 percent higher at for-profit hospitals than at teaching hospitals and 6 to 7 percent higher than at non-profit, non-teaching hospitals. In addition, for-profit hospitals employ fewer nurses, charge higher prices (costing Medicare an additional $5.2 billion annually) and spend a higher percentage of their budgets on overhead.

A study published last year in the Journal of the American Medical Association also found that for-profit HMOs are lower quality than not-for-profit HMOs on 14 quality measures.

Dr. Schiff cited a remarkable study on blood donation by Dr. Richard Titmuss (“The Gift Relationship”), published three decades ago which found that for-profit blood centers were less efficient, more costly, and more dangerous to patients than voluntary, non-profit centers.

“Hospital managers and even medical staffs are preoccupied with survival in the marketplace,” said Dr. Schiff. “This preoccupation represents a “fatal distraction” from the real business of health care — caring for patients and improving quality.”

“We’re very concerned that non-profit hospitals will be forced to adopt the same cost- and quality-cutting measures of the for-profits,” continued Dr. Schiff. “It’s much easier to measure money than quality of care.”

Public non-teaching hospitals also had higher rates of adverse events than not-for-profit hospitals and teaching institutions, which the study suggests may be due to insufficient funding during the study period. The study examined 15,000 patients hospitalized in Utah and Colorado in 1992, and many small public Colorado hospitals experienced financial losses that year.

“The competitive free market described in textbooks doesn’t and can’t exist in health care,” says Dr. Claudia Fegan, an internist in Chicago and former medical director of Michael Reese hospital in Chicago. “Seriously ill patients can’t comparison shop or accurately judge quality. We need a not-for-profit national health system to increase access for the millions of uninsured, to strengthen our nation’s health care safety net, and to improve quality for all.”

Claim That HMO's Save Money Is Little More Than "Folklore," Health Affairs Study Finds

March, 2000 Lull in health inflation in mid-1990’s explained by other factors Washington, D.C. — While millions of Americans have been shunted into HMO’s over the past decade, there’s no evidence that managed care saves money, according to a study in today’s Health Affairs, the nation’s largest health policy journal. “HMO premiums are up nearly 20% in the past two years, but a lull in health inflation in the mid-1990’s is so often attributed to HMO’s as to have become ‘folklore,'” noted study author Kip Sullivan, who reviewed three decades of research for the study. “The claim that HMO’s are more ‘efficient’ than the fee-for-service (FFS) plans they replaced is typically based on one of two research errors,” said Sullivan. “Either the study didn’t take into account higher HMO administrative costs, and only looked at cuts in hospital or doctor care, or it didn’t take into account factors like cherry-picking healthier patients or cost-shifting to other payers as an explanation for lower premiums.” The study also notes that factors other than the spread of HMO’s explain the mid-1990’s lull in health inflation. These include the threat of price-controls and health reform in 1993, the well-documented insurance underwriting cycle (three years of high premiums followed by three years of low premiums), a low inflation rate in the rest of the economy, and HMO’s lowering premiums (short-term) to gain market share. “As managed care enrollment has soared so have administrative expenses,” said Dr. Steffie Woolhandler, Associate Professor of Medicine at Harvard. “The percentage of workers in the health system dealing with paperwork has increased from 18% to nearly 30%, belying the myth of HMO efficiency.” “The verdict is in on corporate control of health care. It has failed,” said Dr. Quentin Young, National Coordinator of Physicians for a National Health Program. “The US spends more on health care than any other country in the world yet leaves 45 million uninsured and ranks 37th in performance according to a recent study by the World Health Organization. It’s time for not-for-profit (single-payer) national health insurance.”

Less Than Half of Americans Have Health Insurance Paid for by Private Employers

September, 1999

New England Journal Study Finds Role of Private Employers Has Been Exaggerated: Government and Individuals Pay for Most Care

Cambridge, MA — While 61% of Americans get their health insurance on the job, private employers aren’t picking up that much of the tab, according to a study published in today’s New England Journal of Medicine. Excluding workers with insurance paid for by the government or by employees themselves, fewer than half of Americans (43%) have health insurance paid for by a private employer. Moreover, private employers pay for an even smaller share of total health spending, just over one-fifth (21.2%).
“On one hand, there’s a nearly universal misconception that private employers are paying for most Americans’ health care,” commented Dr. Steffie Woolhandler, Associate Professor of Medicine at Harvard and a co-founder of Physicians for a National Health Program. “On the other hand, it’s a well-kept secret how much health care taxes and individuals fund.”

The study found that 34% of Americans are covered by government-paid insurance, including 22 million government workers and 69 million persons with Medicare, Medicaid, Veteran’s Administration, or other government-paid insurance. In six states, more residents had government-funded insurance than had private employer-paid coverage (Alaska, D.C., Montana, New Mexico, Oklahoma, and Tennessee). Also, in only six states did more than half of the population receive coverage from a private employer (Connecticut, Illinois, Massachusetts, New Hampshire, Ohio, Wisconsin).

The percentage of residents with insurance paid for by a private employer ranged from a low of 25.6% in New Mexico to 53.8% in Wisconsin. The proportion of residents with government-paid insurance ranged from a high of 51.7% in Alaska to 28.0% in Iowa. The study analyzed data from the Census Bureau’s 1997 survey of about 50,000 households.

Seven percent of Americans buy their own insurance, including 9.1 million workers who get insurance through work but pay the entire premiums themselves. 16% of Americans are uninsured. Including insurance premiums and out-of-pocket costs for care, individuals fund over one-quarter of total health costs (26%) previous studies show. Government pays for nearly half, (47%).

“Private employers’ influence over health care is way out-of-proportion to how much coverage they pay for,” said Dr. Olveen Carrasquillo, one of the study’s authors and an internist at New York’s Columbia Presbyterian Hospital. “We need a more democratic health policy debate.”

“Most developed countries make health insurance a right, not a job benefit,” said Dr. David Himmelstein, a co-author of the study and Associate Professor of Medicine at Harvard. “We should too.”

New England Journal of Medicine Editorial Says Evidence Against For-Profit Hospitals Now Conclusive

August, 1999

For-Profit Hospitals Deliver Inferior Care at Inflated Prices and Cost Medicare an Extra $5.2 Billion Annually

An editorial and study in today’s New England Journal of Medicine (NEJM) concludes that for-profit hospitals are more expensive than not-for-profit facilities. For-profit hospitals cost Medicare an additional $732 per enrollee, or an extra $5.2 billion, in 1995 alone (“The Association Between For-Profit Hospital Ownership and Increased Medicare Spending,” NEJM, August 5, 1999). The editorial also notes that substantial prior research confirms that for-profit hospitals are 3 to 11 percent more expensive and spend more on overhead and administration while hiring fewer nurses, providing less charity care, and providing patients with fewer hospital days than not-for-profit facilities.

The editorial also concludes that for-profit hospitals are lower in quality than not for- profit facilities, based on a review of nearly two decades of peer-reviewed literature (“When Money is the Mission -The High Costs of Investor-Owned Care,” NEJM, August 5, 1999). For example, two recent studies have found death rates 6 to 7 percent lower at private non-profit hospitals and 25 percent lower at teaching hospitals than at for-profit facilities. Other studies have found more post-operative complications and preventable adverse events at
for-profit facilities.

The editorial is authored by Harvard Medical School Associate Professors Steffie Woolhandler, MD and David U. Himmelstein, MD, co-authors of a July 14 study in the Journal of the American Medical Association showing that investor-owned HMOs are lower-quality than not-for-profits on every single one of 14 quality measures (Quality of Care in Investor-owned vs. Not-for-Profit HMOs). Dr. Himmelstein and Woolhandler are also co-founders of Physicians for a National Health Program.

The study on hospitals, performed by Dartmouth Medical School researchers Elaine Silverman, MD, MPH, Elliott Fisher, MD, MPH, and Jonathan Skinner, PhD finds substantially higher Medicare costs and more rapid price increases in communities dominated by for-profit hospitals. The authors may be reached at (802) 295-9363 x5545 (ES), (603) 550-1822 (EF), and (603) 646-2535 (JS).

According to an editorial in today’s New England Journal of Medicine, for-profit hospitals provide lower quality care while charging higher prices than not-for profit facilities. The editorial, which accompanies a study on the impact of investor-ownership on Medicare costs, comes just three weeks after the publication of research showing that investor-owned HMOs scored lower on every single one of 14 quality measures and spent 48 percent more on overhead and profits than not-for-profit HMOs.

Like their cousins in the HMO industry , “investor-owned hospitals are profit maximizers, not cost minimizers. Strategies that bolster profitability, like Columbia HCA’ s glitzy advertising, can worsen efficiency. The competitive free market described in textbooks doesn’t and can’t exist in health care,” says Drs. Steffie Woolhander . “Seriously ill patients can’t comparison shop or accurately judge quality, especially when for-profit HMOs and hospitals try to mislead consumers.

Co-author Dr. David Himmelstein notes that “for-profit medicine turns doctors and nurses into tools of Wall Street and patients into commodities . . . Our society recognizes that some things are too intimate or corruptible to trust to the market. We prohibit selling children and buying juries. Investors should not profit from suffering. For-profit hospitals and HMOs should be banned.”

“The editorial and study conclusively demonstrate -if there was any doubt left — that marketplace medicine is a failed experiment,” says Dr. Quentin Young, National Coordinator, Physicians for a National Health Program and an internist in Chicago. “We have 45 million people without any insurance and 125,000 additional people losing their insurance every month. Every day there’s more bad news about how rotten our health system is -prices rising, quality falling, and, just this month, an additional 250,000 seniors being dumped from Medicare HMOs.”

“The so-called “Patient Bill of Rights” defeated last month was so threadbare it didn’t even include the right to health care” continues Dr. Young. “The good news is, there’s an obvious solution to this chaos, and one we must study hard a single payer not-for-profit national health program like they have in Canada (our much poorer neighbor to the north) or Scandinavia {where doctors still make house calls). The American people rate “insuring everyone” their top health care priority (CBS poll, July, 1999). In the 2000 Presidential elections, let’s ensure that at least one candidate will have the courage to insist that health care be a human right and refuse to accept any campaign funding from for-profit HMOs, hospitals, physicians’ groups, nursing homes and drug companies. If that candidate emerges, he or she will be our next President.”