Providing Universal and Affordable Health Care (1989)

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Response to Robert E. Patricelli Karen Davis Mr. Patricelli has made an important contribution to the Rosenthal Lecture series on providing universal and affordable health care to the American people. He has provided us with the perspective of a business- man who has grappled with this thorny issue first hand, and who recognizes the difficulties and pitfalls that lie in the way of any single simple solution to improving the performance of the U.S. health care system. Simultaneous Consideration of Access, Cost, and Quality He makes the compelling argument that any successful strategy must simultaneously address the interrelated issues of access, cost, and qual- ity. This may seem like an obvious warning, but it is one that has been neglected for decades. In the 1950s and early 1960s, improving access to health care was the single guiding goal. Employers began to provide health insurance coverage for workers and dependents following World War II. Medicare and Medicaid were introduced in 1965 without any attempt to change the health care system or set effective limits on provider payments. Expansion of health insurance coverage without any attempt to limit what hospitals, physicians, and other health care 42

providers could charge led, not surprisingly, to a rapid acceleration in health care costs. In the late 1960s and early 1970s, the focus shifted to approaches that would simultaneously address cost and access. The argument was made that a universal, publicly financed and controlled, national health insurance plan was needed to get control of total health care spending. The Kennedy-Griffiths Health Security Act would have established area-wide budgets for health care, forcing health care providers to live within relatively tight limits on total spending. This was strongly and successfully opposed politically by the health care industry. In the late 1970s, the focus shifted to containing health care costs independent of any action to expand access to health care. The Carter administration hospital cost containment bill would have imposed limits on hospital revenues per patient for all patients, regardless of source of insurance coverage. This, too, was strongly and successfully opposed politically by the health care industry. In the 1980s, the focus, as Mr. Patricelli points out, was again a single-minded concern with cost rather than access or quality. How- ever, the emphasis was on competition in the health care market as a mechanism for containing costs. In addition, the focus was not total health spending but the cost to a particular payer. The federal govern- ment turned to being concerned solely with the cost of health care for Medicare and Medicaid beneficiaries, leaving employers to develop their own strategies for dealing with rising health care costs for workers and dependents. Each payer attempted independently to get a better price for the care of its beneficiaries, and to control utilization of services through a variety of utilization review mechanisms. This fragmented approach failed to slow the overall upward trend in real health care expenditures, although it may have had some marginal effects on the distribution of that expenditure among different payers. More troubling, there is some evidence that the effort to control costs by different payers has had an adverse impact on access to care for those who are most vulnerable—the poor and uninsured—or for whom payers have struck the toughest bargain—for example, Medicaid pa- tients. Many of the cost containment efforts of the 1980s took the form of attempting to limit utilization of services deemed to be inappropriate 43

or unnecessary. This effort proved to be both too crude and largely ineffectual. In response Mr. Patricelli and others have called for research and development of appropriateness guidelines or practice parameters to fine-tune utilization management methods. This would make it possible to address the issues of cost and quality simultaneously. Health services contributing to improved quality would be approved for payment, while those services found to be unnecessary or not contrib- uting to quality of care would be disallowed—thus both cutting costs to payers and improving quality of care to patients. The Patricelli Plan Mr. Patricelli, along with others, argues that cost and quality must first be addressed before it is financially feasible to move forward with addressing issues of access of the uninsured. His prescription therefore is as follows: • Improve the ability to identify appropriate and effective care through a 10-year research effort. • Give payers the ability to make appropriateness guidelines stick, by linking guidelines to malpractice protection. • Make insurance more affordable for small and high-risk employers through the establishment of insurance pools subsidized by surtaxes on employer health plans. • Encourage the development of a low-cost employer health plan on a voluntary basis "certified" by the federal government with the follow- ing characteristics: — Covers only minimally essential benefits; — Is exempted from state insurance benefit requirements; — Pays hospitals and physicians according to Medicare provider payment rates; — Follows appropriateness guidelines developed and approved by Medicare. • After these steps have been taken, examine steps to improve coverage of the uninsured outside the labor force, probably through a redefined Medicaid. 44

Unrealistic Expectations for Appropriateness Guidelines While as a researcher I support Mr. Patricelli's call for more research on appropriateness guidelines, my own expectation for the utility of this strategy is considerably more modest. I am not convinced that the fundamental cost problem arises because we are providing health care services that provide no benefit to patients. Rather, I think that the central cause is our failure to limit in any powerful way what we pay providers. Hospital administrators and physicians, as good business people, will simply adapt to any new system of rules to achieve a desired income stream. Until we are politically able and willing to force hos- pitals and physicians to live within a given expenditure ceiling or budget, we will fail to have any fundamental impact on total expendi- tures. Further, I think that the development and implementation of appropriateness guidelines could in the end deprive medicine of its attractiveness as a profession. Already, utilization review is increasing the frustration level of physicians. Do we want to replace medicine with a cookbook approach? In no other country have physicians been asked to yield their clinical autonomy to decide on a patient-by-patient basis what is best for their patients. Can any set of guidelines, no matter how rigorously developed, if rigidly followed ever match the performance of admittedly imperfect but well-trained physicians who are trying to do their best for the patient who has placed his or her trust in the physician? Will assembly-line medicine have the same appeal as a profession? What are the implications for such an approach in attracting and retaining qualified people in medicine? Do we as patients want to be treated according to the book or according to the best judgment of a physician we believe to be the best qualified? Do we want to be denied legal recourse if medicine according to the book fails in our case? Inadequate Emphasis on Access While there are elements of the Patricelli plan that are attractive, I disagree with many of its fundamental premises. The Patricelli plan can most accurately be characterized as emphasizing cost and quality, with access relegated to a secondary position. My own view is that guaran- 45

teeing access should be a central part of any reform. There are three reasons for this. First, access to health care is a serious and growing problem in the United States. It is too urgent to be postponed for a 10-year research effort on appropriateness, and an even longer period of testing the as yet unproven theory that this strategy holds the long-sought answer to effective cost containment. Second, the experience of other industrialized nations indicates that it is possible to have effective cost control while at the same time assuring universal health insurance coverage. The Organization for Economic Cooperation and Development (OECD) countries spend an average 7 percent of gross domestic product (GDP) on health care. More important, the share of GDP spent by OECD nations on health has not increased in the 1980s, while ours has increased over 2 per- centage points. OECD countries do not have armies of health services researchers developing appropriateness guidelines, nor a whole industry of firms conducting utilization management. What they have that we do not is quite simple. They have a single unified system of setting or negotiating payments to hospitals and physicians that applies to the care of all patients. Rather than universal access being an obstacle to cost control, it may be part of the solution to effective control. Third, trying to clamp down on health care costs without estab- lishing a basic floor of coverage runs the risk of squeezing the poor and uninsured out of the health care system. Those hospitals and physicians willing to provide care to the disadvantaged run the risk of financial insolvency in a world where cross-subsidies are eliminated and profit margins curtailed. Closing the Gaps in Insurance Coverage I am also concerned by the limited measures Mr. Patricelli advances for closing the gaps in insurance coverage in the long-term. He proposes leaving coverage of workers to voluntary actions by their employers. He would try to make coverage more affordable to employers—by replacing state requirements for coverage of various benefits with a genuinely minimal federal benefit package (on the assumption that federal legis- lators would be less susceptible to lobbying for benefit expansions than state legislators) and by establishing insurance pools to make coverage 46

available to smaller and high-risk employers at rates comparable to that of larger, average-risk employers. While I generally support these measures, I do not think that they will be adequate to induce many employers who do not currently cover their workers to do so—any more than I believe that all employers can be expected to pay workers a non- poverty wage without minimum wage legislation or provide for a safe working environment without occupational health and safety laws. Mr. Patricelli opposes mandating that employers provide minimum health benefits to their workers in part because he believes that such mandates have the potential for negative employment and job creation effects. Of course, the same could be said about any requirements that employers provide decent jobs to workers. Do we really want an economy with jobs at substandard wages, substandard working condi- tions, and no health benefits? Or do we want to work toward full- employment at a decent wage, decent health benefits, and decent working conditions? In the case of health benefits the argument that mandating benefits will have negative employment effects is in fact wrong. Unlike a minimum wage increase, expanded health benefits generate new jobs in the health sector to provide additional health services. My own estimates indicate that these new jobs created more than offset any loss of jobs in the small business sector. Such a measure is expansionary for the economy, not contractionary. Anyone who genuinely believes that employer-mandated health benefits lead to massive business failure and unemployment would do well to examine the experience of the Republic of Korea that instituted such a system on a phased-in basis beginning in 1977—only to be coincident with major economic growth and business prosperity. We should be embarrassed to argue that the United States is incapable of doing as well by its workers. Linking Private Insurance Provider Payment with Medicare One feature of the Patricelli plan that I find most intriguing is his proposal that federally approved employer plans be required to follow Medicare provider payment methods and rates. This strikes me as having tremendous potential for combining the purchasing clout of the federal government with the private sector. In many ways this estab- 47

lishes a "Preferred Provider Option" for workers and their families that provides restricted selection among participating physicians and hospi- tals in exchange for a lower premium that these lower payment rates generate. Recommended Amendments In summary I would recommend the following amendments to the Patricelli plan: • Mandating all employers to provide a minimum health benefit plan for their workers and dependents, with subsidies for low-wage firms that might find even a minimum package excessive; • Expanding Medicaid to cover all uninsured poor and making Medicaid available on a buy-in basis to cover other uninsured, with the near-poor receiving a sliding scale premium subsidy; • Reforming Medicare and Medicaid physician payment methods to establish a fee schedule with resource-based relative values with mandatory assignment and linking increases in fees to an expenditure target; • Providing a choice between health maintenance organizations (HMOs) and fee-for-service care for all Medicare, Medicaid, and em- ployer health plan beneficiaries; • Requiring all employers to make a preferred provider organization (PPO) option available to workers and dependents that pays Medicare provider payment rates and requires mandatory assignment for all participating physicians and hospitals; and • Subjecting all HMOs, PPOs, and employer minimum benefit plans to federal qualification to ensure quality standards and financial soundness. With Medicare, Medicaid, and employer PPO plans all present- ing hospitals and physicians with a uniform price applying to over half of the population, the United States could begin to exercise its legiti- mate economic power over health care providers. In exchange, my own preference would be to retain physicians' clinical autonomy to decide what care to provide to their patients. Research on the appropriateness and effectiveness of care could then be used genuinely as guidelines for 48

physicians, rather than as tools for utilization managers to deny pay- ment. Such a plan would incorporate a concern with access, cost, and quality and move the nation forward simultaneously to address each of these issues. Unlike the current employer minimum health benefit proposals, it would incorporate provisions for system reform, cost con- trol, and quality of care into employer health plans. It would deal equally with access for the working and non-working uninsured. It would provide the combined purchasing clout of the public and private sectors to set hospital and physician payment rates. It would add the United States to the club of industrialized nations that both guarantees access to health care for all its citizens while using its purchasing power to limit the claims on that purse by health care providers. And it would do so while retaining the diversity and choice inherent in a mixed public-private financing and delivery system. For such a system to come into being, however, it will require the active involvement and political support of broad sectors of American society including the business community. 49