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How Trends Will Interact: The Perspective of the Hospital JOHN H. MOXLEY III ANI) PENELOPE C. ROEDER When the 62-year old patient entered [the medical center] last spring, he never expected to walk out of the . . . hospital the next day. After two unsuccessful attempts at surgical removal of the fat deposits clogging an artery in his left leg, some doctors concluded that an amputation was the only way to stop the severe pain. But a team of surgeons . . . decided to make one last try with a risky and highly experimental technique that had never been used on a human. The team snaked an optical fiber into the clogged blood vessel and then shot laser light through it, vaporizing the blockage. Less than 24 hours later, the patient went home. His only medication: aspirin. This story is not science fiction or creative speculation; it is an item reported in the October 17, 1983, issue of Business Week. The fact is, most of us have become somewhat jaded because the things that we think of as advanced technology are already so pervasive in the medicine of the late 1980s. As a result, we often do not know whether to count our blessings or bemoan our fate as we consider the obstacles to the further progress of technologies. Neither the complexities of, nor the questions surrounding, devel- opment of medical technologies are new areas of concern. In 1968 members of the President's Science Advisory Committee (PSAC) considered many of these issues in regard to funding of the National Institutes of Health (NIH). In The Youngest Science, Lewis Thomas describes PSAC's findings: We recognized three levels of medical technology: (1) genuine high tech- nology, exemplified by Salk and Sabin poliomyelitis vaccines, which simply eliminated a major disease at very low cost by providing protection against 127

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128 HOW TRENDS WILL INTERACT the three strains of virus known to exist; (2) "halfway" technology, applied to the management of disease when the underlying mechanism is not understood and when medicine is obliged to do whatever it can to shore up and postpone incapacitation and death, at whatever cost, usually very high cost indeed, illustrated by open-heart surgery, coronary artery by-pass, and the replacement of damaged organs by transplanting new ones (at extremely high cost); and (3) nontechnology, the kind of things doctors do when there is nothing at all to be done, as in the care of patients with advanced cancer and senile dementia. We suggested that the rising cost of health care was resulting from efforts to treat diseases of the hallway or nontechnology class, and recommended that more basic research on these ailments be sponsored by NIH (emphasis added) (Thomas, 1983, pp. 264 265~. There is, however, a significant question that was not addressed by the PSAC not the question of whether new technologies can or should be used, but whether they will be used. This question was of little interest in 1968, when it was assumed that all technology would be used. Nearly 20 years later, in an environment of constrained resources, the question of what will actually happen at the level of the provider/ patient interface has become a critical issue. We examine this critical issue primarily from the perspective of hospitals where administrators make decisions daily that may affect the availability and use of new technologies. We also examine briefly the participation of payers through appropriateness review, as well as some of the societal issues that affect providers, payers, and patients. Before discussing the specific issues, it is important to set the stage by looking briefly at the practice of medicine and its relation to hospitals and technology development. Since World War II there have been at least four significant changes in the health care environment. These include increased funding for biomedical research, dramatic growth in the availability of health insurance, rapid rises in the numbers and types of medical specialists and subspecialists, and expanding use of medical technologies. The relationship between the financing changes and the changes in medical practice patterns can be briefly summarized in a single sentence: With few limits on the availability of funds, medical practices were often based on the belief that more care was better care. The relationship between the rise of specialty medicine and the spread of technology is no less important. As new technologies have become available, new groups of physicians have become specialized in their use. For example, cardiology now encompasses invasive and noninvasive cardiologists. Lithotripsy has given birth to a whole new group of urologists, as in vitro fertilization has to obstetricians/ gynecologists. With recent developments in magnetic resonance im-

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THE PERSPECTIVE OF THE HOSPITAL 129 aging (MRI), it would not be surprising to see the growth of MRI subspecialists in a host of current specialists. From a hospital's perspective, each of these technological developments has given rise to a special interest group that can dramatically affect not only the institution's governance but also its capital and operating decisions. After more than a generation of medical practice dominated by nearly open-ended financing and growth in medical specialties and widely disseminated, complex technologies, we still find ourselves in a world in which most of our medical resources are devoted to the kind of acute-care medicine Dr. Thomas (1983) and his colleagues labeled "halfway technologies." Although we may be closer to discovering the "high technologies," there has not yet been quite enough time. We still need more research to transform our recent progress in genetic engineering into actual cures of Alzheimer's disease or multiple sclerosis; we still need more research to develop the neural prostheses that can change the lives of trauma victims and that can enable the blind to see and the deaf to hear. THE PERSPECTIVE OF HEALTH CARE PAYERS Today we have entered a new world a world in which the costs of health care are increasingly monitored by payers from both the public and private sectors. Although we can argue that high technologies would reduce society's total health care bill over the long term, today's payers have found that they can save far more by looking first at the simple issues of how care is delivered for some very common occur- rences such as back pain, normal obstetrical deliveries, and children's sore throats. While these payers clearly hope to reduce the costs of treating all illness including the more complex cases of cancer and heart disease they hope to do so by effecting fundamental changes in the current medical care system. Let us look at the changes sought by payers and think about the impact they will have on the adoption of new medical technologies. The most obvious fact about the new health care environment is the alphabet soup of new delivery networks. Whether these groups are called health maintenance organizations (HMOs), preferred provider organizations (PPOs), or anything else, they tend to have a number of features which can have an impact on the technology adoption process. Perhaps most important, most have a single agent an insurance company, the employer group itself, or some other intermediary that administers payment for all services delivered to plan members. This is not a simple check-writing function; it is a true oversight function.

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130 HOW TRENDS WILL INTERACT While reviewers may check invoices submitted by providers for billing errors and price levels, their primary function is to review the appro- priateness of the care delivered. However, many of these reviewers base their assessments of appropriateness more on financial averages than on clinical considerations. There is, therefore, an increasing tendency to review claims on the basis of costs per case rather than on the needs of a particular patient. THE PERSPECTIVE OF THE HOSPITAL Whether it is based on clinical expertise or not, this kind of appropriateness review has become part of the clinical decision-making process. It has also put the hospital in the middle of the clinical decision-making process by forcing it to act as the payer's local policeman. If the hospital does not accept this role, it is often forced to forgo payment for services and to withstand some financial loss. Appropriateness review has also forced some dramatic shifts in the ways in which hospitals adopt new technologies. A brief review of those shifts will help illuminate their possible long-term impact on the development and use of new medical technologies. All providers be they not-for-profit or investor-owned institutions, solo physicians, or members of group practices are able to continue delivering medical care only if they can meet the costs of doing business. That is, all of them must generate an economic profit, whatever name they choose to apply to it. In the cost-based payment environment that existed until a few years ago, virtually all services delivered were profitable. That is no longer the case. In 1983 the federal government introduced prospective pricing by diagnostic-related groups (DRGs). Increasingly, private payers are also adopting the prospective pricing principle. When prices are set prospectively, profit is earned only when the costs of producing a product are less than the prices paid for the product. If this point seems trivial, that is only because it reflects the basic economics under which most American industries have operated for decades. For the health care world steeped in cost-based reimburse- ment, it is, however, an unfamiliar perspective. Prospective pricing has forced providers to revise the way they think about such things as capital investments, operating expenses, and market share. Despite the fact that hospitals' expenses have not been included under DRGs, there was a decrease in those expenses in 1984 and 1985. In 1986 capital expenditures rose in what many believe was the anticipation that they would soon be integrated into the DRG system. There are now clear indications that many hospitals are considering

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THE PERSPECTIVE OF THE HOSPITAL 131 or have implemented reductions in capital expenditures. In December 1986, for example, Thomas Frist, the chief executive officer of Hospital Corporation of America, announced that capital spending had been cut from $1.4 billion in 1985 to about $700 million in 1986 (McGraw- Hill's Health Business, 19871. Certainly, some of the industry-wide reduction in capital expenditures has been in response to a generally tighter economic environment. However, in some hospitals it also reflects a completely new approach to capital budgeting. Rigorous economic analysis has not always been part of most hospitals' decision-making process. Indeed, most hospital analysts have concentrated on developing their reimbursement savvy, and few have had the traditional capital budgeting skills found in other indus- tries. It used to be that hospitals made purchasing decisions based entirely on physician demand, and that physicians demanded whatever tools or procedures they were comfortable withoften without regard to the cost. Hospital boards or managements might have decided against a project, but that was more often for reasons of timing or overall desirability than it was for economic reasons. The results of decision making based on physician demand are now apparent throughout the country. For example, it is not uncommon to see cardiac catheterization laboratories in small rural or semirural hospitals with a single cardiologist and one trained technician. It is difficult to believe that the incremental patient load brought to most rural hospitals by such a service is likely to justify the cost of a trained technician and the capital investment required to run the lab. In fact, administrators of some of these hospitals use their small patient loads as justification for cardiac catheterization prices that are higher than those at the large medical center 2 hours away. Certainly, such an investment would be made on the basis of clinical factors: There is ample evidence that the risk factors for patients in this kind of situation are high (Shortell and LoGerfo, 1981; Showstack et al., 19871. Instead, such investment decisions have been based on the assumption that any additional services and any additional pa- tients would be profitable under the payment systems that were in place. In the current environment, however, even rigorous economic analyses are only marginally useful for hospital managers attempting to malice rational capital investment decisions. This point is easily illustrated by a number of examples. The first involves the coverage of a new technology under the DRG system. DRG no. 108 prescribes the reimbursement rate for cardi- othoracic procedures, except valve and coronary bypass, with pump;

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132 HOW TRENDS WILL INTERACT it has a weight of 4.7810. When DRGs were originally introduced, this DRG included angioplasty. With that basis of payment, any hospital that handled a reasonable number of patients with obstructed coronary arteries (procedure code 36.0) was likely to invest in angioplasty: It was much less costly to deliver than the alternative procedures covered by the DRG. Within a short period of time, however, a new procedure code was introduced for angioplasty and the procedure was moved to another DRG (no. 112; vascular procedures except major reconstruction, without pump) with a weighting of 2.2239. At an average blended DRG rate of $3,000, this change reduced payment for each angioplasty by more than $7,600. At the very least, the projected return from the investment in angioplasty was considerably diminished. A second example involves another new technology this time a very expensive piece of equipment: the lithotriptor, which provides noninvasive treatment of the common kidney stone. From a clinical perspective, a lithotriptor appears to be a desirable investment. Prom an economic perspective, it would also appear to be reasonable at first glance, since noninvasive procedures generally reduce hospitalization timeand costsfor patients. However, that rationale does not take into account the realities of reimbursement: When the Health Care Financing Administration decided to reimburse lithotripsy, they de- cided to cover it as a medical, not a surgical, procedure. DRG no. 323, medical treatment of a kidney stone, pays only half as much as DRG no. 308, which applies to the surgical treatment of kidney stones. In effect, this means that many hospitals that could serve a sizable patient base with a lithotriptor simply cannot justify the investment . . On an economic casts. We emphasize that we are not commenting on the logic or the justness of these reimbursement decisions. Rather, we would argue that such decisions particularly if made abruptly make reasonable analysis of capital investments very difficult for the hospital. Faced with such uncertainty, hospitals are apt to adopt progressively more conservative capital investment postures which may well slow the rate of introduction of new and "higher" technology into the health care system. It is arguable that the current reimbursement policy will force a centralization of lithotriptors in regional referral centers, and that may be a good thing. Nevertheless, it is certainly a different pattern than the one followed by the diffusion of computerized axial tomography (CT scanning). The example of CT scanning is, of course, a telling one: At its introduction in the mid-1970s, the CT scanner was one of

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THE PERSPECTIVE OF THE HOSPITAL 133 the leading drivers of health planning. Many argued that its dissemi- nation would contribute significantly to the rapid escalation of health care costs. In retrospect, we now know that the capabilities of CT scanning and the improved ability to do noninvasive diagnostic work have in fact reduced the net cost of treating some diseases most notably, neurological disease (Altman and Blendon, 19791. This example illustrates an important point: To the extent that dissemination of technology becomes dependent on prospective finan- cial analyses, we may miss opportunities to reduce the net costs of health care. Among other things, we will remove the opportunity for many creative physicians to develop new and effective applications of these technologies and therapies. On the other hand, if we allow new technologies to be disseminated as before, without careful attention to their cost-effective uses, increases in health care costs may indeed outweigh the benefits of these technologies. If society is to continue to benefit from the development of new technologies that require significant capital investments, we must have more information than has traditionally been provided by clinical trials. In addition to data about clinical effectiveness, we must know the specific advantages of the new technologyhow it will improve the delivery of care and what its rational relationships with other tech- nologies may be. Only if the cost-effective use of new equipment can be demonstrated to both providers and payers will providers be able to count on reimbursement and make the necessary investments to adopt the new technology in this economically driven environment. While these expanded clinical trials will be more expensive, the logical source of payment is the payers that will benefit significantly from the expanded data base and reduced costs of care. Tests of cost-effectiveness also will be applied to routine clinical activities in hospitals. Consider, for example, intravenous therapy. The protocols for starting intravenous therapy are highly variable throughout the United States. Even within a single system of hospitals, differences in the amount of tape, the kinds and amount of packing, and the types of needles and catheters used can result in variations of 250 percent per insertion in the cost of materials for this simple procedure. Add to this the variability of hospital rules about the frequency of reinserting the intravenous line, and there exists an opportunity for significant unnecessary expenditures (R. M. Schlosser, personal communication). This example, like those that preceded it, is not raised for the value of its particulars. Instead, all of them are provided as illustrations of a new approach to acquiring and using biotechnical materials. Increas-

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134 HOW TRENDS WILL INTERACT ingly, providers will undertake careful analyses of all purchases to ensure that they provide cost-effective care and, hence, are likely to be reimbursed. However, these examples leave out the important issue of market share and its effect on the adoption of new technologies. Historically, one of the major reasons for hospitals to invest in new technologies was to expand services. In theory, such expansion would attract more patients, thereby increasing the hospital's market share. In the economically driven environment, growth in market share will continue to provide a strong motivation to adopt new technologies and devices. However, the hospitals' pursuit of market share will focus on technologies that will increase profits. Under cost-plus reimbursement, virtually any technology that physicians used increased profits, even if only a few patients were served. In the current environment of price constraints, however, new technologies must serve enough patients to more than cover the costs of equipment and specially trained personnel. Even with better understanding of the clinical advantages of new technologies, economic forces are likely to encourage centralization of expensive equipment. This centralization is likely to reduce patients' access to some kinds of health care. Payers' increased participation in individual beneficiaries' care, as well as increases in patients' copayments and deductibles, will accentuate that trend. To the degree that we believe that society is suffering from the overuse of health services, these changes may be beneficial. Some observers of the health care scene are quite explicit in their beliefs that curbing the development and diffusion of clinically useful technologies may be the only way to achieve long-term control of health care costs. They argue that even low-risk new technologies with low unit costs add to net health care costs because they are used on many more patients. Thus, they argue, we ought to limit the development and use of new technology (Schwartz, 19871. However, in its extreme, this approach seems to be little different than the traditional rationing approachexcept, perhaps, in the sense that we allow ourselves to claim that we have not made prior decisions about which class of patients will be ineligible for which set of benefits. We would argue that there are more productive ways to make policy than by using what might be called "simple default by economics." Indeed, there may be better ways to develop even more cost-effective strategies. Interestingly, even the most adamant proponents of rationing are beginning to recognize that there may be more productive ways to

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THE PERSPECTIVE OF TlIE HOSPITAL 135 allocate medical resources than by price manipulations and other simple marketplace strategies. They are beginning to advocate that we learn where sound clinical management can contribute to economic savings. The need to improve clinical management is being advocated not only by clinicians but also by both public and private sector payers. As reductions in resources available to pay for health care have raised fears of inadequate medical care among health care consumers, some payers have begun to develop more sophisticated ways to monitor the delivery of care (Roeder and Moxley, 19861. The availability of large computers that can house massive data bases, coupled with the need to balance costs and quality of medical care, has encouraged increasing analysis of clinical records. Many payers, who have records for and are responsible for meeting com- mitments to patients in a variety of treatment settings, are beginning longitudinal studies. The data in these tracking systems are being analyzed to determine where strong correlations between treatments and outcomes exist. Where negative correlations are found, even low- cost treatments will be proscnbed; where there are positive outcomes, higher-cost treatments are likely to become the treatment of choice. Few payers have yet developed this level of sophistication in their analysis; most are still trying to determine when outpatient treatment is more cost-effective than hospitalization. However, interest in the area has given impetus to the work of C. N. Wennberg at Dartmouth and R. H. Brook and his colleagues at the Rand Corporation. On the basis of his work, Brook advocates careful study of the risks and benefits of technologies in a variety of settings ranging from academic medical centers with specially trained staff to community hospitals with their medical staffs as well as the use of formal decision analysis by physicians. Such informed choice, Brook argues, can reduce the growth of health care expenditures sufficiently to permit the continued development and appropriate diffusion of new technologies (Brook and Lohr, 19861. Until the level of sophistication aimed at by Brook and his colleagues is more widely available, we are likely to see the delivery of some shortsighted, low-cost, but ultimately ineffective, medical care. In such situations, convicts between cost-conscious payers and clinically oriented providers are inevitable. One of the primary responsibilities of the scientific community in this transitional period will be to help providers develop the data necessary to measure the effectiveness of care and to make the case for continuing use of appropriate new technologies. Only if we are

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136 HOW TRENDS WILL INTERACT able to work together in this effort will we be able to avoid the error of applying simple solutions to complex problems by relying solely on market forces to curb the development of technology. CONCLUSION In this paper we have examined some of the recent changes in health care financing and the ways that they are affecting the adoption of new technologies. The relevant changes include increasingly restricted financial resources for health care, payers' attempts to effect funda- mental changes in medical care, payers' increasing involvement in clinical decision making through the claims review process and con- sequent pressure on health care institutions to administer financial controls or incur costs themselves, and health care institutions' early efforts to respond to changed conditions by adopting new rules for economic investment decisions. We have also discussed briefly how those new rules could lead to a form of economic rationing of health care services. We do not believe that this outcome is inevitable. The work of Brook, Wennberg, and the many others who are beginning to respond to Earnest Codman's 1913 call for research on medical outcomes should provide much encouragement to all of us. However, the biomedical community must remain vigilant and expend the time and energy required to be constructive participants in the policymaking process if we as a society are to avoid the adoption of the deceptively simple solution of economic rationing. This is a significant responsibility for the scientific community to accept. However, its participation is essential to the successful reso- lution of these important issues. To quote again from Lewis Thomas: "It is a gamble to bet on science for moving ahead, but it is, in my view, the only game in town" (Thomas, 19841. If we are to continue to benefit from the single most important characteristic of twentieth century U.S. medicineits capacity for scientific improvement and technological adaptationwe must ensure that the public and private sectors understand the importance of, and work together to support, advances in science and technology. REFERENCES Altman, S. H., and R. J. Blendon, eds. 1979. Medical Technology: The Culprit Behind Health Care Costs? Publication No. (PHS) 79-3216. Washington, D.C.: U.S. De- partment of Health, Education, and Welfare. Brook, R. H., and K. N. Lohr. 1986. Will we need to ration effective health care? Issues in Science and Technology 3(1):68-77.

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THE PERSPECTIVE OF THE HOSPITAL 137 BusinessWeek. 1983. How laser surgery is moving medicine light years ahead. October 17, 1983. McGraw-Hill's Health Business. 1987. HCA: Plenty of rigging for the long haul, but smooth sailing- A receding memory. McGraw Hill's Health Business 2(16):1T. Roeder, P. C., and J. H. Moxley III. 1986. How does the profit motive affect the quality of care? The For-Profit Hospital, Richard F. Southby and Warren Greenberg, eds. Columbus: Battelle Press. Schwartz, W. B. 1987. The inevitable failure of current cost-containment strategies. Journal of the American Medical Association 257(2):22~224. Shortell, S. M., and J. P. LoGerfo. 1981. Hospital medical staff organization and quality of care: Results for myocardial infarction and appendectomy. Medical Care l9(October): 1041-1056. Showstack, A., K. E. Rosenfeld, D. W. Garnick, H. S. Luft, R. W. Schaffarzick, and J. Fowles. 1987. Association of volume with outcome of coronary artery bypass graft surgery. Journal of the American Medical Association (February) 257~6):785-789. Thomas, L. 1983. The Youngest Science: Notes of a Medicine-Watcher. New York: Viking. Thomas, L. 1984. Making science work. Pp. 18-28 in Late Night Thoughts on Listening to Mahler's Ninth Symphony. New York: Bantam Books.