Report from New York State

Mark R. Chassin

The federal debate over health care reform must, at a minimum, define the goals of the reform. What do we want the health care system to do that it does not now do? What do we want it to be like after the reform plan has been implemented? At the state level, a great number and range of health care reform agendas are now being developed and put into place.

It is clear when looking across states that diversity necessitates an enormous degree of flexibility in approaches and implementation guidelines for any federally enacted reform. That is true when you look among states and even when you look within states. The diversity comes in many different flavors. There is, first of all, a diversity of health problems, health issues, and patterns of care. For example, less than 7 percent of the U.S. population resides in New York, yet 30 percent of U.S. women with AIDS are New Yorkers.

The average incidence of tuberculosis in the United States is about 10 new cases per 100,000 population per year. The state average in New York is two and a half times that. New York City's average is five times that. Within New York City itself, the diversity is even more astounding. Some communities see over 160 new cases of TB per year, more than 16 times the national average. In other communities the rate is under the U.S. average.



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Preparing for a Changing Healthcare Marketplace: Lessons from the Field Report from New York State Mark R. Chassin The federal debate over health care reform must, at a minimum, define the goals of the reform. What do we want the health care system to do that it does not now do? What do we want it to be like after the reform plan has been implemented? At the state level, a great number and range of health care reform agendas are now being developed and put into place. It is clear when looking across states that diversity necessitates an enormous degree of flexibility in approaches and implementation guidelines for any federally enacted reform. That is true when you look among states and even when you look within states. The diversity comes in many different flavors. There is, first of all, a diversity of health problems, health issues, and patterns of care. For example, less than 7 percent of the U.S. population resides in New York, yet 30 percent of U.S. women with AIDS are New Yorkers. The average incidence of tuberculosis in the United States is about 10 new cases per 100,000 population per year. The state average in New York is two and a half times that. New York City's average is five times that. Within New York City itself, the diversity is even more astounding. Some communities see over 160 new cases of TB per year, more than 16 times the national average. In other communities the rate is under the U.S. average.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field There is also incredible diversity in resources. Within New York state, for example, we have to plan for reform suitable to one of the world's largest and most complex cities, New York City, as well as for communities in the Adirondacks that are wilderness areas, with tiny towns that can be inaccessible for several months of the year. There is also enormous diversity within New York state when it comes to supply. Even though overall we have 360 physicians per 100,000 population—which is a third more than the national average—there are communities within the state where the physician to population ratio is 30 or 40 per 100,000. Even in our heavily regulated state, we have an excess of hospital beds. Whereas our tough certificate-of-need (CON) process has kept occupancy rates in New York hospitals at 85 percent or better in the last seven or eight years, that occupancy rate is starting to drift downward and it is now in the mid-70s. We figure we have an excess of about 20 percent in our inpatient acute hospital beds, about 11,000 to be specific. The problem is far different in California where occupancy has averaged about 50 percent over the years. In comparison, occupancy in New York used to be 85 percent, but now it is in the 40s and heading south. Traditions are also highly variable. As I mentioned, New York has a very strong tradition of regulation in the health care sector, and clearly we would choose a different route to health care reform, given our druthers, than a state that did not have such a tradition. From that perspective my remarks may not be generalizable, especially given the caveats just outlined. In fact, to give away a little bit of my bottom line, I will say that we will have to come up with a blend of regulation, collaboration, and competition in order to achieve health care reform, and the recipe for that blend is very likely to differ from one part of the country to another and perhaps even within individual states. A strong argument can be made for varying reform agendas to deal with the diversity within states. Now, to further give you my bias about this effort, I am going to assume that we more or less agree on the goals of health care reform and can start from that premise. There are three goals. Universal access to care is the first goal, and we should not be playing semantic games with the word universal. I mean something very specific by universal access. I do not mean access to insurance or the availability of insurance. I mean access to care with financial and nonfinancial barriers swept away. Every

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field American ought to be assured of a basic level of health care. Insurance coverage is part of the solution but it is not the whole solution. Affordable cost is the second goal. That has to mean affordable to all payers. What that means is that strategies employed in the past, such as individual payers shifting costs wherever they could to those less suspecting, or perhaps less vigilant, have got to come to an end. We cannot have a solution to the cost problem until cost-shifting stops. To do that, part of the national debate in Washington must indicate how serious we are as a society about cost containment. Neither at the state nor at the national level has that issue been squarely addressed. I do not think we have decided yet how serious we are about health care costs. A brief illustration of that point: I think the two most important cost problems are the overuse of common health care services and poorly evaluated new tests and treatments. By overuse, I mean the performance of a health care service when its risk exceeds its benefit. I am not talking about those circumstances in which physicians and families agonize over decisions because the evidence is not clear and there are valid opinions on both sides. I am talking about the use of health services in circumstances where the vast majority of physicians would agree that risks exceed benefits. Inappropriate use of these kinds of services have been found throughout American medicine. In fact, I would argue it is probably the most important quality problem in American medicine, but it also has clear cost implications. A review of the literature and my experience lead me to conclude that the rough order of magnitude of this problem is about 20 percent. That means we could safely eliminate about 20 percent of what we do in health care and quality would actually improve because patients would be spared the risk of inappropriate health care services. That is the first important cost problem. The second problem, poorly evaluated new tests and treatments, is a major contributor to the persistent and unacceptable rate of cost escalation in the health care sector. While everyone is concerned about the dollars we spend today on health care, an even more critical aspect of the cost problem is how rapidly costs rise. And that, if you look at the trend, is at least a 50-year phenomenon. Health care costs have been rising faster than costs in the rest of the economy for about 50 years. We started out in the 1940s spending about 4 percent of our gross domestic product; now we have passed 14 percent and who knows where we are headed.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field If you look at the components of that excess in rate of rise, you will see that the majority of the excess is due to one factor. It is not the increasing age of the population, although that plays a small role. It is not the perverse incentives in our insurance or malpractice systems. It is all the new stuff that we put into the system every year. And by that technical term—“stuff”—I mean not just the big machines, the lithotriptors and the MRI scanners and the like. I also mean the second-, third-, and now fourth-generation cephalosporin antibiotics, the new next-best tranquilizer, and simple diagnostic tests like the prostate specific antigen (PSA). If you take the American Cancer Society's recommendation that every man over 50 get a PSA every year, you will add $28 billion to the national health care bill. Yet there is not a shred of evidence that using PSA in that way to screen asymptomatic populations actually improves health. We are terrific at inventing new drugs and procedures, but we are terrible at evaluating them and figuring out when they work and when they don't, and we are even worse at limiting their use to those indications that have been proved effective. I would argue that addressing these two cost problems is critical to reducing costs safely and getting a handle on how fast costs rise. Yet, if you look at the current debate on costs, very little attention is paid to these problems. One of the reasons for this is that the companies that are responsible for inventing and for promulgating these new tests and treatments—the pharmaceutical, biotech, and genetic engineering sectors, as well as the medical equipment manufacturers—are generally regarded as some of the last bastions of American dominance in world economic markets. But their products have an adverse effect on health care costs. It appears to me that we are a little schizophrenic about health care costs. I think that the national debate has to decide how serious we are going to be about this issue and has to provide some parameters for how stringently costs will be controlled. A third goal, assuring quality, has been perhaps the least discussed. With the exception of some lip service to report cards and publishing data, it has been mostly ignored. I believe that quality improvement holds the key to our ability to achieve our cost-containment goals. The two most important cost problems, which I just mentioned, are also quality problems, because patients—individuals—are harmed when they receive services with no commensurate benefit. Everything we do in medicine carries risk, even the most simple diagnostic test, even

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field though it may not have any immediate risk of morbidity and mortality. As physicians, we never stop with one simple test, especially if it turns out positive. That leads to more tests. The further down the road we go, the more invasive the tests get, the more risky they get, and the more false positives the original test has. The most harm is conveyed when you work those false positives up with more invasive and more risky tests. To summarize the points I have just made: I believe our major health care cost problems are quality problems. States have the tools to address cost problems as quality problems. I want to address that a little later. States can attack these problems and can have a significant impact. I believe, however, that states have to decide, and the national debate has to help us decide, how serious we will be. Let me elaborate briefly on each one of these points. I will discuss how New York state has approached addressing them, and how we have considered the prospect of dealing with reform. Let us begin with access. If the goal is indeed universal access to care, federal legislation must do a few critical things. Primarily, the legislation must do what we cannot do as states. In terms of access, that means guaranteeing universal coverage and determining a financing mechanism. In New York state, we cannot afford to provide universal access to care to our 2.5 million uninsured on top of a Medicaid budget over $20 billion. So the federal legislation has to decide how care for the uninsured will be financed. Is it going to be an employer mandate or will it be based on income tax? There are many arguments on both sides. The basic choice, though, has to be made in federal legislation. Benefits have to be standardized, they have to be made universal and portable, and that has to be done by federal legislation. States cannot do that. The financing mechanism has to be adequate. We cannot, as states with very limited taxing authority, be left with the enormous burden of a mandate to provide and implement universal coverage without an adequate financing mechanism to provide the needed resources. New York state has taken several steps to prepare for health care reform. A few of these are important to note. In the past year we have implemented health insurance reform in the individual and small-group markets, reform that establishes community rating, open enrollment, and the elimination of preexisting conditions. It has been implemented very successfully without the kind of fallout that was predicted by some of the doom and gloom prophets. Insurance companies continue to operate in

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field New York state and they are entirely adequate to serve the needs of the people. We have seen an increase in the rates for young, healthy people as we expected, and we have seen a diminution in the rates for those who most need coverage, those who are ill, and who are older, many of whom were denied coverage previously. We did that without alliances, I might add. We now want to move ahead with that set of reforms. We have convened a task force, in part funded by the Robert Wood Johnson Foundation, to look at how one would extend those reforms to the large-group market and we are considering legislation this year that would take the first step in that direction, which is called an “all-markets ” proposal. It says to the insurance industry, “If you are going to market to our large groups in New York, you also must market to the small groups and individuals.” Insurance reform is part of the solution and we have certainly taken some major steps in that direction. But we also have to come to grips with the fact that universal insurance coverage is not a guarantee that care will be universally accessible. The lack of primary care delivery capacity is probably the most important obstacle to achieving universal access to care. This is true in New York and in many other places as well. The issue of primary care is really very complicated and will not be solved simply by enrolling everybody in health maintenance organizations. Membership in a health plan is no further guarantee of access than having an insurance card. We have been working very hard on this problem for a number of years and the most recent edition of our efforts was enacted last December. The bill also contained a reinvention of our hospital reimbursement methodology. Because we have an all-payer reimbursement system in New York, we have had the ability to use some of the funds that come through this mammoth hospital reimbursement system (some $13 billion in non-Medicare dollars) for other than inpatient acute care purposes. This last time around, the legislation designated about $120 million out of that pool per year for other purposes. It includes a major program to provide privately sponsored ambulatory health care insurance to children. We expect to reach about 105,000 out of the 288,000 uninsured children in New York through this program, by providing insurance coverage for the most difficult kind of care for children to receive.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field The state has developed a wide range of other programs as well. Undergraduate medical education, graduate medical education, and physician reimbursement reform are all part of the equation. We have a very large program to provide grants and access to capital for new providers of primary care, whether it is in a hospital-sponsored ambulatory care setting, a freestanding neighborhood or community health center, or indeed in a physician practice. For the first time, we will make grant funds available to physicians who wish to practice primary care in underserved areas and link that to the increased Medicaid reimbursement that will actually make those practices financially feasible. Rural health networks also are part of this program. I think this is a particularly interesting and promising venture that tries to bring virtually all of the providers of health care in a rural area under the same corporate roof in order to allow them to spend resources that are otherwise very rigidly restricted to one category (e.g., emergency medical services, home care, or hospital care). This is done in a way that is consistent with a community-developed plan for how health care resources will be spent to meet community needs. We have also invested very heavily in managed care for our Medicaid program. We have gone from about a 5 percent enrollment to just under 20 percent in the most recent round of data. That experience is quite an eye opener. It raises a lot of the issues that will arise in most major large states that have invested heavily in managed care as health care reform proceeds. Because we have not had universal access to care, those states that have invested heavily in providing health care services to the underserved have done so by creating a range of categorical programs and special providers. These may be family planning services, free immunizations at local county health departments, well-baby clinics, neighborhood and community-based health care centers, or school-based health clinics. Almost any permutation considered valuable to some part of the population has been tried in some program. Now we come along and say to all these providers and to the community in which they reside, “We are going to round up the Medicaid population and enroll them in HMOs and you have to live with them.” To somebody who has been struggling to get a neighborhood health center to the point of financial viability, that does not sound very appealing. It means that you are taking away patients who actually provide some reimbursement through the Medicaid program, yet are still

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field requiring the providers to see the uninsured and to dispense services to them. So a major issue becomes how managed care will coordinate with all the other providers that have been created because we did not have universal access. With respect to cost, as I indicated, New York is unique in having an all-payer, reimbursement system for hospitals based on diagnostic related groups. That methodology of controlling costs has been very successful. We were 50th in the last decade among states in the rate of rise in hospital costs. We started out pretty high and we are still pretty high, but the rate of rise has been controlled. We have also limited capacity very successfully with certificate-of-need, and I would guess that in New York, this approach will persist to some degree. We certainly recognize that there are major limitations to how well regulation can function, and we certainly believe that blending competition and collaboration is inevitable also. As I said, we have made a major commitment to expanding managed care in the Medicaid program. But we have to try to avoid some of the more adverse effects of competition. Managed competition by itself cannot, for example, be relied on to control costs. If you look at the per capita rate of rise in health care costs, it has been about the same in the HMO sector as in the fee-for-service sector. Per capita costs are less in HMO populations, but they rise at about the same rate. Relying solely on competition brings up other concerns. One of our concerns is to make sure that resources are deployed rationally. In the changing market structure, with diminished reliance on inpatient resources, we must make sure services are consolidated in a way that continues to provide adequate, optimal services to communities. One of the best examples of that is inpatient pediatrics. The need for this service is declining rapidly. Many inpatient pediatric units across New York state function at very low occupancy rates. If you think about what the incentives are for hospitals in a community to get together and consolidate inpatient pediatrics, you will realize that there are not many. If you add on top of that the fact that each of these hospitals has to compete for business with the local HMO, that further reduces the incentive to consolidate services. Another adverse effect of competition is that it reduces the incentive to share best practices. Let us say your hospital has figured out a way to reduce length of stay for laminectomy patients by four days. The incentive to share that new practice with your neighbor down the road and give up the competitive advantage is non

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field existent if you have to compete with that institution for business. We have invested substantially in making sure that we have a community-based planning effort, and I think it will continue. Let me address some issues related to the third goal of reform: assured quality. Quality improvement really holds the key to our ability to afford universal access if we agree that overuse and poorly evaluated new tests and treatments are significant cost problems. It is evident that they must be tackled regardless of the superstructure of reform, regardless of whether it is a single-payer plan, managed competition, “play or pay,” or some blend. Research shows that we know how to control costs with administrative mechanisms, but these mechanisms often do harm by reducing access to effective and appropriate care. As an example, look at the experience of Medicare's end-stage renal dialysis program. With costs being held constant per dialysis session, the session length has declined from 10 to 12 hours per session to about 4 to 6 hours. Now, the mortality rate for our renal dialysis patients is among the highest in the world, and is probably related to that change in behavior. We have the tools to attack these quality problems. We have the tools to measure quality, to measure outcomes, to measure key processes of care. We have the tools to develop practice guidelines, to guide practice in more effective directions. Technology assessment must play a role. Implementation of all these is crucial. I would like to provide an example of what has functioned in New York as a blend of regulation, competition, and collaboration to address several important quality problems. The program relates to invasive cardiac procedures, particularly cardiac surgery. New York state's regulatory framework requires that every hospital that wants to have an invasive cardiac service, whether it be coronary angiography, angioplasty, or cardiac surgery, must apply through the certificate-of-need (CON) process, which starts with a local, community-based planning agency review, regionalized through eight regions across the state. The reason that we still have that process in New York is that we say no. Many other states have abandoned the CON process largely because it was ineffective. It was ineffective because these states did not say no. We have a regionalized system of cardiac surgery in New York, and as a result of that CON process only 31 hospitals in New York state do cardiac surgery. In California, by contrast, which has about 60 percent more people than we do, there are 300 percent more cardiac surgery programs. Furthermore, there is only one hospital in New York

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field that operates chronically at low volume, less than 200 cases a year, a practice that has been shown to relate negatively to outcome. In California about half the hospitals operate at low volume. As a further result, New York's per capita rate of bypass surgery is about three-quarters of California's and there is very little overuse. A study that was published about a year ago showed that we have very low rates of inappropriate care (4 percent or less) in each of the three major invasive cardiac procedures, the lowest numbers that have ever been found in this kind of a study.* The other studies have shown 14, 17, and 20 percent rates of inappropriate care. Now, alongside that regulatory framework, we operate a collaborative, voluntary approach to try to have an impact on the outcome of coronary bypass surgery. It starts with collecting data prospectively from every hospital that does cardiac surgery on every patient, entirely voluntarily, totally outside of the regulatory system. The data are collected by the state department of health with the help of a statewide advisory committee that has been in existence for many years. We do an analysis of the data, produce a risk adjustment of the operative mortality rate for bypass surgery, feed those data back to hospitals and cardiac surgery programs, and help them undertake very specific quality improvement activities to improve their outcomes. As a last step in that process, we publish the data annually. We publish data on volume and risk-adjusted operative mortality rates of coronary artery bypass surgery for each hospital and each surgeon who has performed at least 200 cases in the most recent three years. That is where competition comes in. Physicians and hospitals pay attention to these data, because of the peer pressure they generate, not because large numbers of patients have moved from one hospital or surgeon to another. The results have really been quite striking in the first four years of this program. Volume has increased over this time period by 30 percent. The risk-adjusted operative mortality statewide has declined 41 percent. In addition, we have seen a narrowing of the distribution. In 1989, there were five hospitals that had statistically elevated mortality. In 1990 and 1991, there were three. In 1992, there was only one. * Hannan, E.L., et al. 1994. Improving the Outcomes of Coronary Artery Bypass Surgery in New York State. Journal of the American Medical Association 271(10):761-766.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field I will be the first to say that there are many other factors that I am sure came into play in producing this result. However, by looking at all the other data that we have (and there are not a lot of strictly comparable data) we see that these are the best results in the nation. We are expanding this program to look at other outcomes, other procedures, and other conditions (medical as well as surgical). I think this represents a model, a blend of regulation, collaboration, and competition, that can have a beneficial impact. Ironically, this is one area in which federal investment in developing methods and tools of application could make a substantial difference and one in which, at least from my perspective, the federal investment has been pretty minimal. We need the federal legislation to do things that the states cannot do: choose a financing mechanism, make it adequate, and make the benefits universal, standardized, and portable. I think states can take this kind of package and run with it to achieve the goals of health reform, and certainly in New York we may be better positioned than some to do so. As we progress with the current debate on health care reform we will see how close the national reform effort comes to achieving the goals I believe most important from the state perspective. If the federal reform effort is successful, we will certainly be ready in New York to implement it.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field to move ahead and make some of these tough decisions is going to be small and others will have a harder time following. While those are some of our weaknesses, I do think state political processes have some real strengths as well. I certainly don't want to suggest that the states should not be involved. They are obviously closer to the people. They are much closer to the various groups that are going to have to make this work. They are naturally skeptical, which in the area of health care reform is a big plus, and they also represent much smaller areas that have much clearer interests and therefore have a much closer tie to people and their needs. So, what is the answer? I wish I had one for you. I think the point to be made is that we will be asking states to grapple with political questions in health care reform that may be harder than any that they have grappled with before, even if no plan passes in Washington. Given some of the limitations around regulatory resources, technical resources, and financing, it will be difficult for them. Let me turn to the last area of capacity I want to discuss. It is really the most obscure and, in my mind, the most important. It is what I call community capacity. Rather than talking about all the abstract issues around universal coverage, such as how we ought to pay for health care and what is the definition of access, we must realize that in the community we will have to grapple with very practical but necessary questions. I thought of three. I am sure you all can think of more. The first question is this: When a health plan has limited resources (which it will under reform) how does it say no? To whom does it say no? Will the political and legal systems within which the plan operates allow it to say no? Right now it is often our political and legal systems that prevent plans from saying no. Will communities be able to set those kinds of priorities? Let me ask a second question. How do you define alliance boundaries? We are talking about something called community rating. This name is not accidental. When you define community rating, you are literally defining your community. Right now, I share risk with other young men who are single and relatively healthy. Can you convince me that I ought to share risk with all the other people in my community who don't share my characteristics? If you cannot, then community rating may go the way of Medicare catastrophic coverage, an allusion that I am most reluctant to make.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field Let me ask a third question. When this reformed health delivery system begins to drive out some of the inefficiencies, we are going to find some hospitals and doctors without a lot of business. Are we going to, as a community, allow them to go out of business? Are we going to prop them up? Are we going to pass anti-managed care legislation? Are we going to subsidize facilities that can't make it? I am not suggesting there is a right answer here, but those are going to have to be community decisions. The point I want to make to you is that the tough policy decisions about carrying out health care reform (not defining health care reform) will have to be made at the community level. There are some examples out there of well-functioning community processes. People sometimes look at the process that Oregon went through. I don't know if that is a perfect model, but there are many instances in which communities have tried to come together and ask questions. Certainly the certificate-of-need process in New York that begins at the community level has traveled in a good direction. But I have to say that even after 32 public hearings around the state of Colorado we did not have consensus in any of the communities that we went to, and all the processes that we have are indeed limited in their ability to define what a community wants and what a community needs. I am not here today to answer the question of how communities can build capacity. I wish I knew the answer. I don't think there is only one answer. But I think the message that I want to leave you with today is that communities will have to be strong in having conversations with each other and willing to take on tough issues in order for any reform system to work. Just to bring this conversation full circle, let me go back to the first capacity question, the question of fiscal capacity. Until our communities feel themselves to be communities, until people feel that it is in their interest to actually take care of their neighbor, we will not have the fiscal capacity. So we have a circle of capacity; we cannot start in any one place and we cannot end in any other place. All of the pieces are tied together. Ultimately, my answer to whether or not there is state capacity for health care reform and how we build it is this: without an appropriate sense of community within our states, we will never have the capacity we need. If we can build that community capacity, then all of the other kinds of capacity will follow.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field DISCUSSION JEROME GROSSMAN: We would now like to engage the audience in some questions and answers. KENNETH SHINE: I would like to ask Mark to ruminate a little bit on the difference between using financing and payment methods in order to control the diffusion of technology and using the quality methods. One could argue that creating an elaborate mechanism to try to figure out which things work and which do not work, to develop data, to decide about reimbursement, and so forth, while useful, is an enormous enterprise compared to the question of capitating care, for example, with the risk of underutilization but with the notion that physicians who don't have the incentive to do more for a variety of reasons try to reach a rational conclusions with patients. It seems to me that those are two very different ways of coming at the issue of control of costs. I wonder if you would compare them. MARK CHASSIN: I think that there are a couple of responses to that. I think we have spent very little time trying to devise a reimbursement system that actually rewards excellence and is linked to rewarding good quality. We have basically two major competing choices—fee for service, which encourages overuse and does it very well, and capitation or some other kind of per capita payment, which I think has not yet resulted in much underuse, largely because it has not gotten a huge share of the market. It competes largely with fee-for-service plans. That is pretty easy to do because there is a lot of fat in fee-for-service plans; so one can offer a premium that is less than fee for service without getting into ranges of expenditure that would threaten underuse. However, I think that the power of financial incentives is enormous and I worry that if we switch over to more and more capitation the threat of underuse will become a reality. Whereas it is relatively easy to look for overuse and to decide whether a particular episode represents good or bad quality, it is very difficult to monitor for underuse, to find it and to know that it is occurring. One is essentially trying to look for events that should have happened but did not, and even in our craziness about documentation, we do not document those events very well. It requires identifying some kind of population at risk and then monitoring them, and that is very difficult to do. Our methodology for detecting underuse is very poorly developed.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field So I think we should spend more time on that, on designing reimbursement systems that do, in fact, provide incentives toward good quality. Controlling utilization, I think, can be done a number of different ways. I think our certificate-of-need process has had that effect in the invasive cardiac services almost as a side effect. That program has not tied specific guidelines or rules of reimbursement to indications for procedures. I think in some instances, with some kind of services, it can be done through a regionalization or limitation on capacity in the system. I think it also can be done with respect to reimbursement for new tests and treatments. One of the best ideas that was put forward in this regard was the American College of Physicians' proposal a year and a half ago. Basically, their proposal for coverage was as follows: anything that works should be covered and new and unproved services and procedures are covered, but only if they are used in the beginning in a way in which information about their usefulness will result. This does not necessarily require a randomized trial, but certainly some kind of organized research effort. I think if we fail to take these kinds of steps, we will never get an adequate handle on the cost problem. Another part of the equation, which I did not really talk about, is the societal public education that we will have to undertake. We have to convince the American people that more health care is not always better health care, that in fact provision of inappropriate, unnecessary services conveys harm, and that doing nothing is very often the best course and provides the best outcome. That is a message that is very difficult to get across. Labor-management issues and a whole bunch of other issues get in the way, but I think we must alter the culture a little bit. QUESTION: My name is Dallas Salisbury. I have a question for both of you. I am not sure whether to describe your presentations as a depressant or a stimulate, but either way one of the underlying assumptions of the analysis that got so much publicity recently from the Congressional Budget Office was the, shall we say, simplifying assumption that everything in the president's package would work perfectly on time and without difficulty. Neither of you tend in your presentations to convince me that that is an appropriate assumption. From your perspectives, what is a realistic time frame for implementation? I ask this particularly of you, Alan, as you are putting it in the context of states that really have not gotten very far yet, even

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field though they are being told, ye shall do it. Your description of the policy staffing situation in the state of Colorado can be applied to many other states. What is a realistic time frame, even if you were to presume that the package was adopted with all its outlines? Is it 1998? Is it 2004? Is it 2014? ALAN WEIL: We had a team of seven governors' staffs who were asked that question by the administration and the answer they used was our answer, and that may surprise you given all the gloom and doom I talked about. I think the real answer to your question depends on a couple of things. One is, what is the default? There is nothing like a deadline to force a decision, and if the default is something like loss of Medicaid funds, you will probably get a decision fairly quickly. That then raises the second question, which is, how many choices do you have? The governors talk a lot about the importance of flexibility in their program administration at the state level, and I think that is important given the variation in health systems around the country, but the fact is that the president's plan is really quite prescriptive in overall structure. Again, the number of laws that we would have to pass in Colorado to put it into place is not overwhelming. The budgets are by and large self-enforcing. Now, of course, the better the job you do organizing your own market so that your prices come down through market forces rather than through enforcement mechanisms, probably the happier everyone is going to be, but that does not mean you cannot make budgets work. Of course you can. So I think maybe the answer to the question is not really when, because I really do think states could do it within the timelines of the president's plan. The question is: politically, will the answers that legislatures come up with be ones that people are happy with? Will legislators be grumbling the whole way and trying to require a repeal? This happened with a delay in Massachusetts, where I was fortunate enough to work on implementation and now there is nothing to implement. So I guess from a technical perspective, the answer is yes, we could do it. From a political perspective, I can't answer that. I can answer it for Colorado. I think we could do it within the president's timeline without any problem at all, but I can't really answer for any other state.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field CHASSIN: I will answer just briefly. I think we can do it in New York within the time frame. We have now, I think, a 12-year tradition of having a legislative debate over health care reform every 3 years. The debate has taken place in the context of the hospital reimbursement legislation, but there have always been other issues that have come along, such as the primary care agenda, tort reform, medical education, and graduate medical education. So, we have a mechanism for having that debate. We will have one more round of transition debate, but we will have a piece of legislation before our legislature next session, 1995, to put the last transition piece into place that will cover us from 1996 through 1997, until the deadline for beginning the federal plan is set. I think we can meet that deadline as well. QUESTION: My name is Susan Foote and I work for Senator Durenberger, so I am very interested in this issue and I am really grateful to the Institute of Medicine and to the speakers for beginning a debate on the serious interface between federal and state relations, which up until now really has not been part of the national debate. You were absolutely right, Dr. Grossman, when you used the term “balance,” in asking how to balance the interests. As I listened to Mark describe New York, even though I know that New York and Minnesota are very different, I was looking for what roles you thought the federal government should play, and it turned out to be two, financing (supplying the cash) and dealing with and standardizing the benefit package. Then, as I listened to Alan talk about capacity, I started smiling because I had visions of legions of chiropractors coming to Washington on the benefit package issue. I am not sure that the political will at the federal level is a lot greater than the state will on those issues. But I was more concerned with the perception that the role for the feds is primarily a financing one. It is also an issue of capacity and will. If you hang around here as the balanced budget amendment debate starts and the president's budget is debated, you will see that the ability, the political will, to raise large sums of money is just as hard here as it is in the state of Colorado or any other state. The feds have the ability to tax, but the desire to go around taxing is pretty limited, so if that is the role of the feds, I am concerned. I really think we must start focusing on the hard issues of what states can do and what the feds can do, recognizing that we need some national uniformity despite our diversity.

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field I am just going to raise one issue that has come up and that I would like you to address. If you talk to employers and if you talk to health plans, you will discover that very often the state boundary is almost irrelevant to how they operate. Either they operate in 50 different states or in 25 different states as employers, and they are trying to manage being wise purchasers (which is a challenge) and are very concerned about a great deal of diversity in the system design among states. A more compelling argument perhaps—particularly for this audience—is that if you had a conversation with the Mayo Clinic, you would find that they have a health plan that delivers services in three states—Minnesota, Wisconsin, and Iowa. Fifty percent of their patients are non-Minnesotans. Twenty-seven percent of all the health services provided in the state of Minnesota are to non-Minnesotans. It is not a state marketplace. There are local markets that cross state boundaries, and a great concern as we look toward efficiency and a rational delivery system is what the states might do with all the good will, with diversity and limited capacity and limited fiscal resources. How do we deal with those issues? How do we keep flexibility without creating a nightmare of management for both health care providers and health care purchasers? CHASSIN: I think there are several ways in which the federal plan could avoid some of the most difficult parts of having 50 separate jurisdictions. I think I indicated a couple of them in my remarks. Standardizing the benefit package, making it universal and entirely portable is one of the most important aspects of what the federal legislation has to do, precisely for one of the reasons that you cited. That is the principal benefit at least as far as I can tell from the ERISA legislation, and it is the one that large corporations, certainly multistate corporations, would like to see continued. However, I would also point out that, while there certainly are in every state a few centers and in some states more than a few that attract a national or indeed even an international clientele, I think that health care reform has a more important obligation. This obligation is to finally, for the first time in our history, provide access to care to all Americans and most especially to those that have not had access to care for the last 100 years or certainly the last 50 years, when medical care made a difference. As I indicated, I think the principal challenge there is a financing mechanism and I am sure it will be phased in and we will have lots of disagreement about time frames. I hope we can come to an

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field agreement on the goal of universal access to care, but the choice of the financing mechanism is more important simply because it has to be uniform. We could not, by the nature of our size, impose an employer mandate or increase state income taxes and have Rhode Island do something different with the sales tax and have Colorado do something different. That decision has to be federal, because of the need for uniformity, in part because of employer issues but even more importantly because of social issues. I would like to see that be the centerpiece of the reform effort and let the states implement according to the reform goals that are decided on a national basis. We need a societal consensus about how serious we are about cost containment, how important access is, how wedded we are to maintaining quality. Once we decide on those goals, I think the states ought to have maximum flexibility, obviously within bounds of reporting and accountability. WEIL: Let me focus on two of the issues that you raise. The issue of state boundaries is a good one. I think the only answer I can give is this: the same balance that you alluded to at the beginning is the balance between efficiency and accountability. Markets are local, but there is no local accountability that crosses state lines. Rarely, I should say, is there such accountability. We are talking about a system that is going to touch people very directly and which is going to fail if we do not have a sense that we can hold someone accountable for making it work. So, although we might want to accept the much more local conception of markets or the national conception of businesses, the fact is that the best way to have some real accountability beyond the federal structure is to place it with the states. It goes to a question that Governor Dean of Vermont asks every time he begins speaking to a group of doctors. He says, payment rates aside (which is a big if), would you rather deal with Medicare or Medicaid? The answer is always Medicaid. The answer is always Medicaid because it is state administered, because doctors have access to their state Medicaid programs that they don't have to HCFA. People who are not physicians are surprised when he tells this story, but physicians are never surprised at the answer. So there is an advantage to bringing it down from the federal level, even though states may not be perfect lines. The only other issue you raise that I want to address is the sense that all we are asking for is that the feds come up with the cash. I think

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field Mark is right. There are real limitations on what we can do, not just because of political will. Minnesota is certainly familiar with the ERISA barriers, but it is not just ERISA. It really is a competitiveness, a political question: Can you do what your neighbors are not doing? That issue is very big in Colorado. But there are many other roles, I think, that we see for the federal government. For instance, in outcomes research we could not be making anything like the progress we are making without federal direction. There are issues around education and in many other areas, but if you believe that most health care is delivered locally, I think you have to ask how much of this system really should be run in Washington. I think there are some structures that should be put into place, but I think we should try to err on the side of making those decisions better fit the variation around the country. QUESTION: This really is an interesting discussion. My name is Jan Heinrich, and I have served as a public health nurse both in Harlem and on the western slope of Colorado from Telluride to Grand Junction, so I know about the independence of some of our communities. What do you project will happen with the public systems, both the public hospitals and the state health agencies? We are not very clear about those linkages. CHASSIN: What will happen to the public health system I think is a major concern for us in New York. Certainly we also have concerns about the public hospital system, since we have the largest one, I think, in the country. There are a couple of different scenarios with respect to public health care institutions, public hospitals. One is that if consumers all of a sudden have access to reimbursement, they may choose to go elsewhere than to the institutions that they had previously been going to. That possibility certainly has fueled a fair amount of activity in New York, both on an ambulatory care basis and also on an inpatient basis, to try to make those institutions more competitive, more desirable for people when they have complete freedom to choose. Now, of course, under any scenario, no one expects that the underserved communities will have complete freedom of choice. Transportation and other kinds of access problems create barriers that are independent of financial access. But certainly that is one scenario. The other scenario, of course, is that under every plan that I have seen, undocumented immigrants are excluded from coverage. We have

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field about 500,000 in New York state that will continue to need care. Inevitably, I am sure, just as today, the burden of care for that group will fall principally on public institutions. So we will still continue to need support for those institutions to play that role. The public health infrastructure I think deserves special attention. I am particularly concerned about the weakness of the president's plan in continuing to support public health services. The theory is that, if you take a look at public health funding, then personal health services delivered by public health departments and their programs will no longer be necessary. Why should the county health department have an immunization clinic when everybody is covered and can get immunization in the nonpublic sector? I think that there are many of us, particularly those who have worked with Medicaid-managed care, who know it is not that simple. Particularly when you fold in various components of the population—the undocumented immigrants being the most numerous, at least in New York—who will not be covered, there will still be a need for personal health service provided by a safety net of public health providers. The other part of the problem is that the president's plan envisions that funding for core public health functions, such as environmental health, communicable disease control, and the like, will be continued and, in fact, given rhetorical prominence. But when one looks for the fiscal support, it turns out those services will have to compete in the budget along with all the other services that are competing for a very, very small fund of dollars that are completely outside the health care delivery system. The idea that the health care delivery system ought to fund public health activities is one that was raised early on in the reform debate and should be renewed. We are very concerned that there will be inadequate support for public health functions, but the need will continue and under some scenarios even increase. WEIL: Two quick footnotes. First, this issue is a good example of the variation around the country. The degree to which public health systems provide personal health care services varies tremendously and so it is difficult to give one answer. Second, at least where I am, we already see a good deal of dynamics in this area. We are going out with a Medicaid mental health capitation contract and all of the community mental health centers in the state have come together so that they can submit a single bid. Just yesterday Denver Health and Hospitals announced that it had entered into a contractual agreement with a local

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Preparing for a Changing Healthcare Marketplace: Lessons from the Field managed care system to provide all of the trauma care, which is, of course, their area of expertise. So things are already happening. Public systems are learning ways to fit within managed care systems and private pay systems. GROSSMAN: Thank you both.