Q-Just how much is health-care costing us as a nation?
A- Are you ready for a bunch of statistics? Health care costs doubled between 1980 and 1990. Americans now (1991) pay $661 billion annually or almost twelve percent of the gross national product, GNP. Of the total spent on health care in 1989, 21 percent came from consumers, 37 percent was paid by private insurance and other private sources and 42 percent was picked up by government programs. Hospitals took 39 cents of every dollar, 19 cents went to physicians, 8 cents to nursing homes and 22 cents to dental, professional services, home health care, drugs and vision products, and 12 cents was used for administration, research and construction.
Q-How did the increases in health-care compare with increases in the GNP?
A- GNP rose only 6.7 percent from 1988 to 1989 but health care spending rose 11.1 percent.
Q-Do you know how much of the federal budget has been allocated to spending on health?
A- Unfortunately health care costs are growing at twice the rate of inflation and took 14.7 percent of the total federal budget of $1.1 trillion in 1990.
Q-Isn't there a trust fund set up to pay for some of the government programs?
A-Medicare has a trust fund which pays for a limited amount of hospital care for the elderly, with the surplus being invested in treasuries. Just like the social security trust fund, the hospital insurance trust fund is currently running a surplus which will be drawn down quickly over the next ten years or so. Like social security, promises for hospital care are being made that cannot possibly be kept without an unbearable increase (double!) in the taxes of workers. The medicare bomb is set to blow about ten years before the entire social security system destructs. The impending disaster was foreseen at least ten years ago and action was taken in 1983. As part of those reforms, medicare started reimbursing hospitals with set fees for a variety of services rather than paying based on costs, as it had done earlier.
Q-Isn't the rapid rise in health-care costs connected to the aging of the population?
A-Absolutely. Eighty percent of the health-care dollar is spent during the last six months of life and with the population aging, the pressure to expand coverage to incorporate long-term care is enormous. As a society we are reluctant to accept the inevitability of death. Instead we devote scarce resources and pile up emotional and other costs in search of dubious benefits.
Q-In the meantime policymakers assure us everything is under control.
Q-Watch out for political sleight-of hand in the next few years, already evidenced by the call to cut pay-roll taxes by Senator Moynihan, who was a member of the 1983 committee that raised those taxes knowing full well that was the only way to insure the integrity of the social security system. Former Social Security Commissioner, Robert Ball, a true master at concealing and twisting facts, has proposed leaving the payroll tax alone but transferring part of the social security surplus to the faltering medicare fund.
Q-I saw a survey in 1990 that found that seven of ten employees thought employers should provide health benefits for employee's families, but nine of ten employers said they planned to reduce or eliminate coverage. Is the government going to end up transferring to others the obligation it took on to provide health care, and can it make private employers provide health benefits?
A-Some levels of government have already transferred the responsibility. The New Jersey legislature started in 1987 with an eight percent surcharge on the hospital bills of all insured patients. That was to be raised to just under 25 percent in 1991. Since more than half of the one million uninsured in New Jersey are working, there is a proposal to transfer the burden of funding their health care from insured patients to employers via a payroll tax of $144 per employee. A $1,000 per employee penalty would be levied on employers who refuse to purchase health insurance.
Q-Is the federal government likely to follow New Jersey's lead?
A-That would seem to suit the Chairman of the President's task force on comprehensive health care, Senator Rockefeller IV of West Virginia, just fine. If Senator Rockefeller were to have his way, all employers would either provide benefits or pay a tax to fund a federal program for uninsured workers.
Q-Is the Bush Administration likely to follow the recommendations of the task force?
A-There are a variety of recommendations, some definitely favored by the administration. After all, Gail Wilensky, head of HCFA (Health Care Financing Administration) was vice chairman of the task force and she sees things a little differently than the chairman.
The two main issues considered by the task force were how to pay for nursing home care and what to do about the 30 million-plus Americans without health insurance. Wilensky would allow the self-employed and unincorporated businesses a 100 percent tax deduction for the purchase of insurance instead of the 25 percent presently permitted. She would also let those who are not quite poor enough to qualify for medicaid pay a small premium to join the system, and would have the government subsidize insurance for the one person in two hundred who cannot now get insurance because of existing health problems.
Q-Do you favor her recommendations?
A-I think they're definitely headed in the right direction, but I would like to see a further recommendation. I would like to see the present tax incentives for employers to provide health-care as a part of wages, removed, so that replacing health benefits with cash becomes a viable option.
Of course that would involve trusting grown ups with their own money and trusting their ability to make wise choices for themselves. On average, employers pay a little over $3,000 for health benefits for each and every employee. If the employee could pocket the difference between the costs that his personal prudent shopping for health-care coverage could produce and the $3,000 plus, then he would have an incentive to lower his consumption of unnecessary health services.
Q-Don't you think that business should foot more of the nation's health-care bill?
A-I think in some cases, it might be in the best interest of business to do so and I would encourage and applaud such a move as long as it were taken voluntarily.
No one listens to the small employers when they talk in terms of principle, when they say that it is not the employer's responsibility to be the first provider of health care. As for the larger companies, most of them have been providing health benefits as part of their compensation package for years and are convinced that rising medical costs reflect the expense of treating workers left uninsured by the smaller employers.
But once the principle is established that legislators can constitutionally and should morally make some people provide for others, there will be no end to the wish lists nor to the gripe lists. For instance, insurers would like to see more people participating but are worried about excessive regulation; advocates for the elderly want generous nursing-home benefits and coverage for medication but states are concerned about picking up the tab for the expanded medicaid coverage; advocates for children want funds for more prenatal and health care but can't figure out how to make people use the programs.
Q-If people stayed in the work force longer wouldn't that be helpful?
A-That would be desirable on many fronts. There are a variety of reasons retirees are returning to work and if the government is reluctant to provide incentives for them to do so it should at least remove the disincentives. Now the only ones who don't worry about losing part of their social security benefits are those above age 70. On January 4, 1991 Bob Stump of Arizona tried to change that by introducing a bill to repeal the restriction on how much people between 65 and 70 may earn without losing part of their social security benefits.
Q-Isn't it hard for older people to find or keep employment because employers have to provide them with health insurance?
A-Absolutely. You've discovered another government disincentive. Employers are forced to substitute for medicare and become the primary insurer for older workers. There is an increased statistical probability that older employees will increase claims and therefore their premium costs are sky-high.
The budget bill passed in December, 1990 will cost employers about $1 billion more in health care costs in 1991. Hidden in it was a provision making it easier for the government to enforce an eight year old requirement that employers provide health insurance to workers over age 65 under plans covering other workers. Before 1981 medicare picked up most of those costs.
Q-I heard something crazy awhile ago, about a private business lobbying government to make other businesses pay more for some kind of health-care. Does that ring a bell?
A-I'm not sure what you heard, but that makes me think of Ren, a Nashville Tennessee provider of kidney dialysis services, who wants Congress to force private insurers to pay more of the $2 billion annual bill for dialysis treatment now covered by medicare. Currently (1991) employers provide primary coverage for affected employees for twelve months--about $200 million a year. Ren's plan would extend employer coverage to two years which would free up $200 million which congress persons could claim as evidence of their attempt to reduce the deficit.
Q-I bet other employers just love Ren!
A-Naturally businesses are angry and claim Ren expects to profit from the cost-shifting because private insurers pay more for dialysis than medicare does. Worst of all, the extra $200 million burden on business may discourage smaller companies from buying coverage for workers.
Q-The California Medical Association has been trying to get the state to require employers to provide insurance for all workers as Hawaii has already done and as you say New Jersey is trying to do. They use New Jersey's argument, claiming that since four of the six million uninsured Californians are working, employers should pick up the $120 per month per capita average cost. You know the rest; the problem of the uninsured eventually hits everyone, driving up costs for health care services, insurance premiums and labor costs. Like you said, small businesses are opposed and large businesses support the concept because it would reduce the costs they already provide. The AMA estimates a need for about $2 billion in state subsidizes and figure the alcohol and or tobacco tax money would do the trick.
A-I told you Governor Wilson wasn't the only one with plans for that new revenue.
Q-What can employers do to get out from under these soaring health-care costs?
A-Employers have to be creative, and they're getting there. In 1989 employers paid approximately $45 billion to the workers' compensation insurance, almost double the figure paid in 1979. Some companies are moving away from the standard practice of setting a fixed charge for all employees and instead are instituting incentives and even sometimes penalties for good health practices by employees.
Willis Goldbeck from the Washington Group on Health spoke at the Governor's Conference in February 1991, and while he encouraged the Governors to push for mandatory health plans with business footing the bill, he also spoke about the "Healthy Cities" plan which started five years ago in Europe with only thirty cities and now involves 215.
Q-I've never heard of it.
A- It was instituted by mayors in order to develop healthier policies with regards to transportation, recreation, development issues and so forth---the idea is to analyze everything from a "health perspective" and to exchange information and ideas. At least one city in Indiana is following suit as are several in California. Goldbeck thinks it is a good plan to emulate and suggests the idea be adopted for education, with governors, instead of mayors exchanging ideas and viewing all kinds of policies from an "education perspective".
Q-Are you in favor of the wellness programs that many government administrators are embracing as a means of reducing health care costs?
A-The programs are inexpensive and suppose to be effective. In the fall of 1990 the Council of State Governments created the National Association for State Employee Wellness. The 22 state program of NASEW consists of a newsletter, a health-risk screening program, education classes on stress management, parenting and the like which are usually provided by personnel of health or insurance departments.
Some states fund the programs via workers compensation insurance rebates, specific grants or through their regular budget. Local governments fund similar programs via car washes, bake sales or whatever it takes.
Even profits have joined the rank of the old stand-by non-profits, like the March of Dimes, in providing health education to the public. Corporations often use patient advocacy companies, as they are called, to keep their employees informed, healthy and in a healthy work environment. They are finding that a handful of workers account for the most expenditures. Bonuses are often paid if employees take a series of steps to get healthy or additional charges are levied on the health insurance for smokers or obese employees.
Q-So they're adding incentives and penalties instead of restricting benefits?
A-Not instead, in addition. The unrelenting growth in health care bills and the Financial Accounting Standards Board (FASB) changes requiring companies to set up huge reserves to fund retiree benefits are causing many businesses to cut back retirement benefits for employees. For example Vons Cos. once offered a generous health plan to its retirees, providing coverage with virtually no deductible or premiums, but in 1990 it switched to a system in which retiring non-union employees will receive a one-time allocation of credits based on length of service, credit to be used to pay annual premiums ranging from $1,400 to $4,000 for one of two insurance plans. The switch is intended to cut Vons anticipated expense under the FASB changes in half.
Ball Corp. in Muncie Indiana hopes to shift the burden of health-care coverage to employees in a plan that will allow them to put money away via payroll deductions for future medical needs. The company would invest these employee after-tax dollars and as long as the money is spent for health care after retirement, both principle and interest earned would be tax-free. In 1990, Ball's retiree obligation amounted to about $700,000 a year, or a little over a thousand dollars for each of its retirees and health care costs for active employees amounted to about $14 million. In 1990, about 4,100 of the company's 7,100 employees were eligible for health coverage upon retirement. This would give Ball a potential liability of about $60,000 per employee which, according to the FASB rules, would have to be accounted for on current balance sheets. What would you do?
Q-Well I wouldn't blame them.
A-Fortunately, the FASB regulations are on hold (early 1991) and are being reevaluated. Unfortunately too many of the obligations incurred by the government and business are backed by big promises, and as President Bush would say, "little wallet". The current state of the health-care system has been compared to the savings and loan industry which was also big on long-term promises.
Q-Some experts are suggesting that employees pay for basic health care and look to employers to insure them for catastrophic expenses.
A-Remember, I was suggesting this as a reform for medicare. People see the merit in the idea, but they also have a tendency to see a pitfall that really isn't there. They recall that the law expanding medicare to cover catastrophic expenses, had to be repealed. But this is not the same. In that case many retirees were forced to pay for extra coverage they neither desired or could use and were forced to subsidize coverage for other seniors.
I believe the present system should be completely turned around. Instead of paying the least expensive commonly incurred bills, like those for office visits, x-rays, eye-glasses and the like---things that most people can handle---medicare should pay the catastrophic expenses that can ruin a family financially. This fend-for-yourself- solution, as it has been called, relies on the market to bring the costs of health care into line. For the first time in a long time the person receiving the care will be shopping and paying for it.
Q-That would be a change alright.
A-An effective change! Because most of the health-care was paid for by employers and government there was a tendency to over use the system. The providers didn't feel pangs about over-charging because the patient was not going to pay the bill anyway. All the incentives were wrong. If employees become active informed educated buyers and connoisseurs of quality care instead of passive sheep, health-care providers will have to increase their efficiency. Making people responsible for their own lives again, has got to be a step in the right direction.
Q-What about the proposal made by the advisory council on social security in 1990, which would shift basic medicare coverage to private insurance and have the government pick up the tab for lifetime care after a spending ceiling has been reached for each person?
A-The concept is on the right track, but the mistake is in mandating what is to be covered. The spending-ceiling idea is what I have been talking about, and I think, a good idea. The problem arises in deciding the level of services the government would provide. I suspect the program would be a disaster for anything but custodial long-term care. Judged by the controversy up in Oregon, I don't think many people want government determining who gets what expensive operation, organ transplant, hip replacement and so forth. Rationing in the marketplace is determined by income and is the way it is done in a capitalist society, which may be, as they say, the worst possible way to do things except for every other way.
Q-Let's talk nursing homes. I guess, thanks to the media blitz over the last couple of years, that everyone realizes that medicare doesn't cover long-term stays in nursing homes. I'm not sure people are certain who or what does and if medicare has some kind of role. Can you straighten us out?
A- Medicare provides hospital insurance, along with limited coverage of stays in skilled nursing facilities, for the elderly and disabled. It is entirely federally financed and provides uniform benefits but it is not available for long-term custodial care in nursing homes. Often elderly patients are forced to exhaust their resources to qualify for medicaid which pays the bills for 65 percent of the nation's nursing home residents.
Q-What about private insurance?
A-Unfortunately the premiums required by private insurance companies for nursing home policies providing good-quality coverage, will exceed the budgets of most older Americans. Although over a hundred insurance companies sell long-term care policies, yearly premiums average close to $1,500 for people who signs up at age 65 and almost doubles if they wait till age 75. Equally expensive policies are available that cover at- home health-care and provide things like nurses and day care.
Q-We hear a lot about nursing home care exhausting a couples savings. I just can't believe we would have a system that makes people pay down to nothing in order to get help.
A-There have been studies which show that 46 percent of those over 75 years of age who enter nursing homes are bankrupted in 13 weeks and 70 percent are bankrupted after a year.
Q-What happens to the stay-at-home spouse?
A-Nursing home residents with a living spouse, may protect a minimum of $12,000 or half their combined life savings up to a maximum of $60,000. In addition they may keep certain exempt assets, generally including the family residence if a spouse or dependent relative is living there, household goods and personal effects, a car, burial plots, and funeral expenses up to $1,500 each. Single individuals may protect only about $2,000 of their assets and have a more limited list of exempt assets than do married couples.
Q-What happens if a nursing home patient wishes to pass an inheritance on to his children?
A-It is possible, but there are pitfalls. Transfers for less than fair market value made within thirty months of a medicaid application can be invalid. A medicaid qualifying trust will allow an inheritance to be passed to children if structured properly. The trust must be irrevocable and the person transferring assets to the trust (trustor) must give up all control over those assets with only the right to the income produced by the assets which revert to named beneficiaries upon the trustor's death.
For example if assets worth $200,000 were put into such a trust and invested to yield a modest 8 percent annually ($16,000) and thirty months later the trustor were to enter a $30,000 a year nursing home, the $16,000 would pay the nursing home without depleting the assets in the trust and medicare would pick up the $14,000 shortfall. If the trustor regained his health, he would continue to get the $16,000 income for living expenses from the assets placed in the trust.
Without the trust he would have had to pay the entire $30,000 a year for his nursing home care and may have depleted his assets to the extent that his return home would have been to a life of poverty. Additionally, nothing of his life's work would be available to pass on to the next generation.
Q-But how many people know anything about medicaid trusts, for crying out loud?
A-My point exactly! That's why I'm so anxious to see government's role reduced in the lives of all American citizens. Those "in-the-know", or who can afford knowledgeable attorney and financial planners, come out just fine in a bureaucratic state. Experts start devising ways to skirt the rules and regulations even before the ink on new legislation is dry. That's what Leona Helmsley had in mind when she said those infamous words, "Only the poor pay taxes". Those with knowledge, see to it that their tax bill is minimized, or in this case, nursing home bill.
Q-That really upsets me!
A-It should. The majority of Americans go through life in a straight forward manner. If a bill is presented, they rarely contest it or think about possible deductions, credits, waivers, trusts and so forth. They pay full price. We have in America today, not a rich vs poor issue, as so many would have you believe, but rather a knowledge vs ignorance issue. The rich may be able to purchase knowledge, but in this country the poor have access to the same knowledge, they just have to be encouraged to go after it.
I remember in Berkeley during the seventies, many flower-children didn't want to hassle with money and the educated ones didn't need to because they had learned how to milk the system. They knew just how long they could stay rent-free in an apartment before the landlord could legally evict them. They became experts on landlord-tenant law, workman's comp and knew their way around the medicaid regulations controlling their food stamps better than most social workers.
As far as I'm concerned, the "average non-informed citizen" has a duty, not to government or even to society, but to him or herself, to become informed.
Q-Well I'm glad you realize most people aren't about to use medicaid trusts. So for the average non-informed citizen just how bad is the nursing home problem?
A-Terrible, if it affects you or someone you know, but the problem is not as widespread as some would have us believe. Consider that those over sixty-five make up roughly 12 percent of the population and number around 30 million. If you realize that 1.4 million of these citizens are in nursing home care, that's roughly three percent of twelve percent, or less than half of one percent of the general population. The problem will occur over the next forty years as the number of elderly double and the over age 85 group reaches 5.3 million.
Q-There are people under age 65 that need nursing home care also.
A-That's true, and in some ways their plight is even more tragic. The under 65 disabled have a waiting period before any benefits are available and entry to the medicaid system is exasperating and exhausting.
Q-How in the world can they pay for interim care?
A-It's a real problem. Congresswoman Barbara Kennelly of Connecticut recently introduced a bill which would allow a person who has been certified as likely to die within a year, to receive, tax-free, the proceeds of any life insurance policy. That would allow a younger family to keep its assets in tact in case they are faced with the need for custodial care for a family member with a terminal illness.
Q-Why is it so hard to get medicaid assistance for nursing home care?
A-Remember, while medicare is a wholly federal program, medicaid is a shared burden. States pay over 40 percent of medicaid's total cost and that's why they struggle so hard to keep people out of nursing homes. In October 1990 they began paying even more to cover the costs of new federally mandated nursing home standards. In California alone that is estimated to add at least another $400 million to the state's $6.9 billion annual medicaid bill. By limiting access to nursing-home beds, states are able to push the cost of elderly care onto medicare and the hospitals. One praise worthy exception is Delaware. It's medicaid program has established a super-skilled-care category that pays nursing homes up to $500 a day for certain heavy-care patients.
Remember, I said earlier that medicare used to reimburse hospitals for the care provided, whatever the cost, but in 1983, it started paying set amounts for each illness or medical procedure. This makes it costly for hospitals with long-stay patients.
Q-I've heard long-stay patients referred to as "border elderly". What does that mean?
A-Border-elderly refers to those older patients who have no place to go. Actually, about 25 percent of the nation's hospitals struggle under the burden of "border elderly". The problem is far more pervasive than that of the more publicized "boarder babies" abandoned by drug-using mothers.
Q-Didn't the Supreme Court recently rule that hospitals and nursing homes may sue in federal court to compel state officials to set "reasonable and adequate reimbursement rates"?
A-Yes, in 1990. You've got to realize that government has not been stingy. $137 billion in federal funds alone was spent on the 55 million elderly and poor Americans covered by medicare and medicaid last year. The health-care industry has to become more efficient and cost-effective.
Q-What do you think about substituting home-care for institutionalized care?
A-There are pros and cons. Oregon's system of home-care is one of the best and different versions are being used, to a lesser extent, in other states. The trick is to get insurers to go along. A 24-hour hospital stay can cost a patient $800, whereas the same services provided at home might cost less than half. Insurers may go along as sophisticated home-care providers proliferate and the demand for high quality cost-effective care accelerates.
New products for the home-care market are coming out every day. A company in California has produced three videos to help chronically ill patients care for themselves at home. They address self-care, mental coping and family support. Another offering to make home-care more feasible is a hospital-style bed for people unable to sit up or get to a bathroom without assistance. At the touch of a button, a conveyor roller, directly under the patient and on top of the mattress, maneuvers the patient to the foot of the bed and into a detachable wheelchair at the end of the bed. The bottom half of the bed then raises the patient to a sitting position in the wheelchair, or to a standing position. The reverse puts the patient back to bed. It rents for $60 a day, or for long term care, it can be purchased.
But there are pitfalls here also. For example, the cost of comparable home intravenous programs for nutritional and antibiotic care can vary as much as 700 percent. The General Accounting Office can point to instances where home medical-equipment supplies have overcharged medicare (taxpayers) by $240 million a year.
Q-Speaking of cost-effective, do you happen to know how much the average business is currently paying for employee health plans?
A-There are so many surveys and studies that the answer depends on whose statistics you use. Nevertheless, the trend towards accelerating health costs is unmistakable in all studies. For example, in a September 1990 survey of approximately 2,000 firms whose health plans covered over eleven million employees, it was found that costs rose from $2,748 per employee in 1989 to $3,217 per employee in 1990--more than a seventeen percent rise in one year. Rates of increase varied from industry to industry with an increase of slightly over eight percent for wholesale retail employers on the low end, to a hike of nearly thirty-eight percent for the construction and mining workers.
A-How does that relate to total expenses?
Q- Health costs accounted for a whooping twenty-six percent of corporate earnings in 1990. You can see why more and more large businesses are getting behind the drive for national health care---it's self-preservation! As AFL-CIO head, Lane Kirkland, said, "the bottom line is overtaking ideology."
Q-What kind of increase are we talking about, say over a decade?
A-Well, I can tell you with certainty that costs have more than doubled in just the last five years, and if current trends continue, according to the annual Foster Higgins survey, firms will be paying $22,000 for medical benefits for employees by the year 2000!
Q-That's outrageous! There must be all kinds of speculations on the cause.
A-Right you are, with the most recent target for blame being the recession. It seems that people, worried about losing their jobs, decide to take care of all the elective health stuff while they still have medical benefits.
Q- There may be some truth to that, but that kind of increase is sporadic and temporary. What about the long term permanent acceleration that comes out of all the studies?
A-That can be laid unequivocally at the feet of congress and its spineless attempts at balancing the budget. Instead of making the hard choices and asking individuals to share more of their health care costs, policymakers, through medicare and medicaid, have been short-changing the health-care providers who in turn pass the shortfall on to the private sector. It's a large burden that now business is unfairly and shortsightedly being asked to shoulder.
Q-Isn't a lot of the cost in the bureaucracy itself?
A-Needless to say, a bureaucracy generates paperwork and administration and those costs are spiraling. At one hospital in 1983 a cataract operation required three days of hospitalization, produced 12 pages of paperwork with seven signatures whereas in 1990 the same operation took a three-hour stay, produced 38 pages of paperwork requiring 30 signatures.
At his 430-bed Redwood City, California hospital, an official set the price tag for dealing with all the regulatory bodies and government mandated paper work at $7.8 million annually. In an article written for the Wall Street Journal and published in June, 1990, he claimed his hospital had the same average number of inpatients as it did 25 years ago but the staff had increased 75 percent. Some of the increase could be justified; for instance, the rise in nursing staff from 374 to 533. It corresponded to a rise in outpatient service and the higher number of patients needing intense care today, due to government regulations which restrict the point when hospital admission is permitted. But the largest increase came in accounting and administration which tripled in size. The federal government, in a misguided and futile attempt to curb health care costs, insists that medical procedures be thoroughly audited often by three or four entities, and constantly checked for quality and appropriateness.
So you're right, the billions of dollars spent in regulatory costs nationwide are a major factor in the high cost of health care in this country---a cost which does nothing for the people's medical well being. The answer we've been getting from members of congress is greater and greater government involvement. It's idiotic to call on government to deal with the problems government itself created!
Q-Did you hear that there may be some crackdowns by the IRS on hospitals who fail to provide enough charitable care to justify their federal, state or local tax-exempt status?
A-I heard that one Texas hospital was sued for not providing enough indigent care. The hospital's president had an interesting definition of charity which he used to answer the IRS charge. He claimed that as a teaching and research center, activities which are beneficial to society, the hospital fulfilled its charitable functions and did not intend to extend care to the poor specifically.
Q-I don't think that's going to wash with those inside the beltway.
A-Right you are. Congressman Edward Roybal, chairman of the House Select Committee on Aging, was quick to propose a bill to reinstate charity-care as a fundamental basis for tax exemption. It would require a hospital to provide indigent care worth at least half the amount of its exemption, in addition to providing evidence of other community benefits equal in cost to 35 percent of its tax exemption.
Nobody wants to turn indigents away, and they are usually treated, with the cost either borne by taxpayers or shifted to the private sector via the insurance system or padded bills. And it is not always the indigents that have to be subsidized. Healthy people often under-insure. It's hard to turn one's back on suffering, even if it could have been prevented.
Q-There was some scandal awhile back, about hospitals using government funds for art work or some luxury-type purchases. Do you recall that incident?
A-I'm not sure what you're talking about, but medicare has reimbursed hospitals for capital expenditures in the past, paying 85 percent of what is spent on new plant, equipment and technology, multiplied by the portion of hospital days spent treating medicare beneficiaries. In FY1991 medicare's capital expenditures amounted to almost six and a half billion dollars. A recent scandal that revealed funds spent on lavish swimming pools and foyers probably furthered the federal government's decision to limit and scrutinize capital reimbursements in the future. Under the change proposed in 1991, hospitals would be paid a fixed amount according to the number of medicare patients they serve. Of course hospitals are fighting the proposed change.
Q- All hospitals have been having trouble with Washington attempting to cut the medicaid program at the expense of health care providers.
A-Especially public hospitals. In 1988 emergency visits at public hospitals were almost five times more numerous than at general hospitals, and occupancy rates were far higher. Thirty percent of in-patients and fifty-two percent of out-patients were uninsured, and forty-two percent of fees weren't paid.
Q-Are there any patients that pay their own hospital expenses directly without third-party payers?
A-Hardly any. Medicare and private insurers pick up the tab for 90 percent of hospital revenue and have their own reimbursement formulas. Since only ten percent of the revenue comes from consumer-patients, hospitals have little reason to keep track of line-item prices. Of course some line-item prices are used in the more complicated cost-reimbursement formulas, but this only gives hospitals an incentive to artificially raise or lower prices to manipulate the reimbursement from third-party payers. Again, let me stress that the problem here is that these artificial prices are not determined by supply and demand.
Another problem is that those least capable of coping with high hospital costs are the ones that are having to pay out-of-pocket. Primary payers need to shop and compare prices in order to make prudent buying decisions. This means having total package prices submitted by hospitals before admission.
The government is responsible for taking health care out of the market system and they should help reestablish it, perhaps by requiring hospitals to quote pre-admission prices to all patients the way auto-mechanics, contractors and other service providers are required to do. That is the only way patients will know in advance what their total bill will be and the only way to control spiraling health-care costs in this country.
Q-"Requiring"?
A-I was hoping you wouldn't notice.
Q-What about the American Hospital Association's claim of a shortfall in medicaid payments of four and a half billion dollars in 1989?
A-$4.3 billion. And in the FY1992 budget doctors and hospitals are again being asked to take an even bigger hit.
Q-What about utilization-review programs where cost-cutters in the health field look over the doctors' recommendations and try to find less expensive methods to achieve desired results? I heard they save money but threaten the quality of care and may even result in some patients being turned out of hospitals too early.
A-Those programs started out with flying colors, saving as much as twenty percent a year for employers who used them. Unfortunately half of the companies that now use them find that they have no effect on cost-control effects what so ever. Part of the problem is the expense of employing the reviewers.
Q-Isn't it true that it's not so much that substituting treatments, cutting back on surgery and shorter hospital stays, threatens the health of patients, as that these proposals threaten the wealth of doctors?
A-It's true that a 1989 Institute of Medicine study found absolutely no evidence that review programs jeopardized the health and safety of patients.
Q-Why is it so expensive to employ reviewers? Aren't there are over 300 companies selling review services?
A-Liability insurance---what else? According to a recent California court decision, utilization review firms may be liable if a patient is injured due to early release from a hospital for instance, and the liability could even extend to employers if they can be shown to have negligently chosen the utilization review firm. Doctors don't do extra procedures just to pad their incomes, they need to protect against malpractice suits.