Monthly Commentary from the Executive Director - May 1st, 1996

Medicare HMO Fix Agreed, In Principle

Last month, Steve Gunderson said "we have won the intellectual and political debate." Further evidence of this position from Modern Healthcare, 4/15/96:

"The Clinton administration's latest plan to revamp Medicare's capitation payment system is nearly identical to a previously announced Republican plan. Both sides agree that the current formula, which pays HMOs a fixed monthly payment from county to county, is seriously flawed."

"In the White House's latest proposal, which was included in the details of the fiscal 1997 budget released recently, it is clear that the Clinton administration's framework is essentially the same as the GOP's. But even though the two plans are nearly identical, both sides said there is little chance the measure can be passed this year."

Basic Health Insurance Reform, Hopefully

From Judith Havemann, Washington Post 4/21/96

"After laboring for months on health care legislation, Sen. Nancy Landon Kassebaum (R-Kan.) advertised her bill to the Senate last week as 'not bold, limited and incremental.' Co-sponsor Sen. Edward M. Kennedy (D-Mass.), the longtime health reform champion, promoted it as 'modest, not comprehensive, reform.' Where incremental changes were once decried as the enemy of real health care reform, they are now regarded as its best, or only, hope."

"To some of the most ardent supporters of change, the Kassebaum-Kennedy bill is at least symbolic. 'It proves that Congress can legislate something with the word health in it,' said Princeton economist Uwe Reinhardt. But others see it as a first step toward fixing the worst problems of the system without remaking the health care industry in the image of the U.S. Postal Service, as Kassebaum once phrased it."

"The bill would make insurance portable from job to job and limit the ability of insurance companies to deny coverage for preexisting conditions. It would make insurance companies provide equal coverage to mental and physical diseases, allow the self-employed to deduct as much as 80 percent of their health insurance costs, and make long-term care insurance deductible."

"The House has passed similar legislation dressed up with tax-free medical savings accounts. A House-Senate conference will need to resolve the differences between the two bills."

" 'Millions of Americans,' Kennedy said, 'are afraid they will lose their health insurance. Others lose their health insurance because they become sick or lose their job even when they have faithfully paid their insurance premiums for many years. This legislation is not comprehensive health reform,' he said. 'It will not solve all the problems in the current system, but it is a constructive step forward, a step that will help millions.' "

As a health policy wonk, employer and an employee responsible for a family member with a chronic illness, I believe that I have seen this issue from all sides. The passage of this bill in the Senate, (100 for and none against), very modest in the face of 40 million uninsured, is none the less welcome. It is long overdue but it is a start.

Implications Of Medicare Budget Impasse

The following is from an interview with Gail Wilensky in the 2/96 Health Care Review published by Deloitte & Touche LLP "for its clients and others in the health care industry." She is the Republican appointed Chair of the Physician Payment Review Commission, the independent advisory committee to Congress on physician-related issues in Medicare and Medicaid.

"Wilensky warns that health care providers 'shouldn't be too dismissive' of what the budget stalemate portends for Medicare and Medicaid. The budget impasse may have provided 'a small breathing space' in the drive toward reducing government spending 'but I don't think hospitals and physicians should feel they ducked the speeding bullet for long.' "

In Wilensky's opinion, "one of the real tragedies in the apparent demise of the Republican bill is that all of Medicare's problems are still there. We still have a program growing at a rate of 10 percent per year, a trust fund that is likely to fail in 2002, and the incredible budget pressures when baby boomers begin to retire in 2010. None of that has changed. Postponing solutions at least for another year will likely stall options for seniors that could help reduce spending, slow the move toward managed care, and mean less time in which changes could be integrated.' "

Medicare Equity Issues For Next Congress

RWHC will meet shortly with Congressman Scott Klug who many hope will continue to increase his role as a leader on rural health issues in the next Congress. You will find no hidden picture of Waldo below or for that matter any new Medicare equity issues; the list of carry over issues is long enough as it stands:

"Charity Care Unaffordable Option of Past?"

Abstract from The New York Times, Sunday, 4/14/96:

"With managed care driving down revenue, many hospitals around the country say they can no longer afford to provide free care to the growing number of uninsured patients who come through their doors seeking treatment for everything from flu to heart disease."

"More than a dozen states have stepped in to reimburse hospitals for a portion of the hundreds of millions of dollars worth of free medical treatment they provide, mostly to the working poor. But some states have yet to address the situation, which health experts say has the potential to become a looming crisis."

"Until the last few years, most hospitals were able to pass on much of the cost of treating uninsured patients to paying patients. Now, many hospitals say that without more public financing they will be forced to turn uninsured patients away for all but emergency care they must provide under Federal law."

"Glenn Wilson, a professor of social medicine at the Cecil G. Sheps Center for Health Services Research at the University of North Carolina, said it was unrealistic to expect market forces to provide for the poor because a free market economy does not redistribute money. 'The market may make hospitals and health care efficient but it will not provide for the poor. At some point, we will do without care or we will raise the money. The hospitals can't give it away.' "

"He added: 'Whether the hospital is public or private, someone is going to have to pay for the people who have no money. Until we quit fantasizing that this is not true, we are not going to make any progress.' "

Antitrust & Rural Health

This is part of a paper prepared for the May Health Policy Board of the National Rural Health Association. The full eight page text can be found on the RWHC web site or a copy can be obtained by calling our office.

"What balance, if any, do we need to achieve in health care between competition and collaboration? An advocate for pure competitive models might remind us that 'good fences make good neighbors.' But there is more to Robert Frost's poem 'Mending Wall': 'I let my neighbor know beyond the hill, and on a day we meet to walk the line and set the wall between us once again...' Even this American icon to self-sufficiency is expressed within the cultural context of selective cooperation. Competition and cooperation are not mutually exclusive; both have deep roots in our culture."

"The formation of appropriate public policy on the question of applying antitrust laws to health care is particularly tough because on this topic many of us firmly hold contradictory values that lead us to develop contradictory goals. With health care, we want to avoid wasting scarce public resources (and we typically define duplicative services as wasteful), but we seek consumer choice and competitive markets that by definition require alternative, duplicative services. Such is the duality that antitrust and health care faces us to address."

We must think through the
solution for a problem that is
only now beginning to be experienced.

"On one hand, the benefits of strong antitrust enforcement are likely to be seen as a benefit, as rural providers and networks have become increasingly concerned about potential "predatory" practices of large health care and insurance systems. On the other hand and probably more obvious, antitrust laws are seen as a possible limitation to the development of local rural health systems."

"From the perspective of a natural chronology of policy development, it is still early days. The competitive pressures in rural markets are still relatively new. On one hand, we may not yet have seen the most egregious attempts to colonize vulnerable rural markets; on the other, most rural providers have just begun to seriously address the need for greater collaboration in order to operate in increasingly competitive markets. We must think through the solution for a problem that is only now beginning to be experienced.. "

"The primary issue for rural advocates today is not so much whether we've had antitrust problems in the past but how we can assure antitrust protection for local care givers and communities in the future while at the same time we move more rapidly towards the greater use of collaborative models that unavoidably bring with them the need to address traditional antitrust restraints. Those who benefit from rural providers remaining fragmented and vulnerable to "take-over" are the first to attempt to deflect the discussion by claiming there has been little evidence of need. It is our job to describe and solve that need as it is now unfurling."

"How should long standing antitrust principles apply to rural communities? The dominant paradigm that health care is reinventing itself into mutually exclusive vertically integrated competing systems does not describe well much of rural health. Local networks of rural providers are organizing themselves "horizontally" so as to contract with multiple, vertically integrated competing systems. In other (more "remote") rural areas a non-competitive model based on a single system is seen by some as more appropriate. Does antitrust enforcement need to be modified to encourage competitive models in rural areas? Should antitrust enforcement be limited in areas where the success of competitive models is determined to be very unlikely?"

The Effect Of Un-Managed Managed Care?

Wisconsin Representative Luther Olsen has requested a Legislative Council Study committee to address "the financial impact of managed care on current governmental programs and the health care system." A public review and discussion on the implications, both good and not so good, of our growing reliance on competitive health care markets is very timely.

The Cooperative has long been supportive of managed care; however, we have been and continue concerned about the potential for various unintended negative effects of "unmanaged" managed care markets across Wisconsin.

In 1991 the National Governor's Association stated in A Healthy America: The Challenge for States: "In essence, there are two polar positions regarding health care resource allocation - a market-oriented approach or a public allocation approach." They understood that state governments do have a role to play in assuring the success of a market oriented approach. In Wisconsin, the Office of the Commissioner of Insurance is a primary example of the State's traditional role in protecting the public's interest while not unnecessarily interfering with the market place.

In health care, the absence of regulation does not create competitive markets with their economic and service advantages. One of the country's foremost experts on health care competition, Alain Enthovan of Stanford University, cites several reasons for the failure of competition in health care markets: risk selection, market segmentation and product differentiation, information cost, discontinuity of coverage, "free riders", a "live and let live" attitude among providers and entry barriers into the market. We have yet to thoughtfully consider the effect of these barriers on our pro-competitive state policy.

Due to these problems, competitive markets in health care just don't happen. Currently private practice physicians and hospitals who serve an above average number of Medicare beneficiaries or Medicaid enrollees or individuals with little to no health insurance are at a marked competitive disadvantage. They enter an increasingly price sensitive market place with an additional cost burden due to their greater provision of subsidized or free services. In a like manner, educational institutions, public health agencies and federally qualified community health clinics are disadvantaged as they attempt to fulfill their unique public purposes with declining patient related revenues.

The role for government in regulating health care markets is complex, if not more complex, than that in the recently past era of direct regulation of individual participants. It is now time to begin the public debate over what is the proper role of government during an era of market driven resource allocation. The proposed study seems to be a very sensible starting point.

Feds Requiring Disclosure Of HMO Incentives

The Department of Health and Human Services announced on March 26th a regulation designed to protect beneficiaries enrolled in Medicare and Medicaid managed care plans by placing certain limitations on physician incentive arrangements that could influence physicians' care decisions.

Many managed care organizations use financial incentives to deter inappropriate and unnecessary care, including unnecessary referrals of plan members to specialists or for expensive procedures. The final rule requires plans to disclose physician incentive plans to HHS' Health Care Financing Administration or to the state Medicaid agency, and to provide a summary of the plan to enrollees, if requested.

In addition, the regulation outlines the requirements for managed care plans with physician incentive plans that put physicians at substantial financial risk for referral services. Such managed care plans will be required to put limits on financial losses for their physicians, as well as to conduct annual beneficiary surveys.

HMOs & Conflict Of Interest

The UW-Madison Medical School and UW Business school initiated on April 11th a five-part series "Ethical Issues in Managed Care." By starting at 5:00 pm and using Grainger Hall with its underground parking garage, the UW has taken a major step forward in improving off-campus participation.

Allen Buchanan from the Business School took the position that both traditional fee-for-service medicine and managed care each has a potential substantive conflict of interest for the physician; the former through incentives for over-utilization and the latter for under-utilization. To minimize these conflicts he encouraged a three part strategy based on professional ethics, regulation and restructured incentives.

He stressed the need for professional ethics to include what he called the "Ethics of Exit, Voice & Loyalty." Physicians need to be active in their advocacy for their patients in the face of growing corporate power. Patients need them to be conscientious in their consideration of alternatives to company directives,, i.e. to be prepared to compromise, to speak up, to refuse to act or to exit the corporate relationship.

Tom Hefty, Blue Cross/Blue Shield United of Wisconsin, agreed with Professor Buchanan but emphasized that more sunshine would be the best solution­p;that the disclosure requirements for HMOs should be comparable to the now higher standards met by traditional health insurers.

William Rock, Dean Medical Center, noted that things weren't always that good in the good old days when he began to practice Medicine. In particular he reiterated that fee-for-service medicine brought with it a major incentive for over-treatment that was not in the patients best interest: "if you could pay, you got things you." His bottom line was that the physician is totally responsible for the good of his or her patient; he suggested the following as an outline of a "Code of Ethics for Physicians in Managed Care:"

Blue's UWSI Has "Disappointing Results"

This might be a good time to note that quoted materials in this newsletter is intended to inform or to provoke and is not necessarily the writer's opinion. The following is selected text and data from the United Wisconsin Services, Inc. 1995 Annual Report (can be requested by writing UWSI, 401 W. Michigan Street, Milwaukee, WI 53203 or directly from their web site:

"For the first time since going public, United Wisconsin Services, Inc. (UWSI) reported disappointing results with earnings of $6.4 million in 1995. The demise of national health care reform brought the unwelcome return of medical inflation and increased utilization to the small group insurance business. American Medical Security Group (AMS), our joint venture in the small group market, was no exception as health insurers that serve the small group market felt the impact of higher medical claim costs."

"Our pattern for success is repeating itself with our 1994 acquisition of HMO of Wisconsin Insurance Corporation and U-Care HMO, Inc., now renamed Unity Health Plans Insurance Corporation (Unity). The University of Wisconsin-Madison Medical Center is our partner in extending the reach of high quality health care into the rural communities of southern and central Wisconsin. In only one year, our expertise has reduced Unity's administrative expense ratio from 12.4 percent to 8.7 percent, enhancing the value of this already profitable venture... We continue to look for additional opportunities to replicate our successful regional HMO model in the 'WAL-MART' communities of the Midwest."

"As America ages, we are developing Medicare risk products to move the growing senior population into more efficient, less costly HMOs. United Wisconsin Services is putting its managed care experience and resources into the development of a Medicare HMO. Capitalizing on our affiliation with Blue Cross & Blue Shield United of Wisconsin, our Medicare risk product will have the added value of the Blue Cross name­p;a name research shows is widely trusted by seniors."

"UWSI has a strong and diverse product base on which to build. Shareholders' equity in the Company continues to rise on the strength of our investment portfolio. UWSI is well capitalized at $257.3 million to support our strategic plan: to maximize the value of our AMS interest; to focus on specialty managed care services that provide consistently higher margins; and to expand our HMO presence in the Midwest through acquisitions and strategic partnerships."

HMOs Do More Than Lower Costs

As the above stories indicate, we are seeing an upsurge in questions about HMOs; not whether they are going to stay an important influence but how. While this is good and proper given their growing significance, it is critical as always to not risk "throwing out the baby with the bath water." Consider the following research from the federal Agency for Health Care Policy and Research (Source: Research in Action, 6/5/95):

On the other hand:

Rural Reps Elected To Unity Health Plans

Unity Health Plans Insurance Corporation is a joint venture between United Wisconsin Services, the University of Wisconsin and Community Health Systems, a limited liability corporation (LLC) representing the interests of rural providers.

The following Managers were elected at the LLC annual meeting: Harold Brown, Tony DeGiovanni, M.D., George Johnson (Chairman), Dan Manders, Jeff Menn, M.D., Keith Ness, M.D., Peter Pruessing, Tim Size (as Manager for Administrative Services) and Don Vangor, M.D..

Harold Brown, Tony DeGiovanni, George Johnson and Keith Ness were also elected to represent the LLC on the Board of Unity Health Plans.

Merger Mania Misses Mark, More Evidence

The following conclusion, well worth considering, is from the article "Vertical Integration and Organizational Networks in Health Care" by James Robinson and Lawrence Casalino. It was just published in the Spring issue of the prestigious policy research journal, Health Affairs:

"There are multiple possible paths to the coordination of clinical services under managed care. At every interface firms confront a trade-off between the advantages of coordinated adaptation through vertical integration and the advantages of autonomous adaptation through contractual networks. The current turbulence makes it difficult to predict eventual outcomes."

"At a minimum, however, there will be considerably less vertical integration than predicted by some advocates of hospital centered delivery systems. On the other hand, there will be considerably more cross-ownership, through both minority and majority shares, than would be predicted by those with blind faith in atomistic competition. Market forces are creating both vertically integrated firms and virtually integrated networks. In turn, the new forms of organization and contracts are transforming markets and the nature of competition in healthcare."

No New Wisconsin Property Tax Exemptions

Mark Bugher, Secretary of the Wisconsin Department of Revenue, in a recent presentation to health care leaders made it clear that the Thompson Administration supports continuation of traditional tax-exempt bodies. On the other hand, he emphasized that they will work very hard to prevent the proliferation of new ones. They believe that current statutes need to be strictly construed in order to maintain the tax base of local municipalities that are increasingly under financial stress.

This is becoming both a legal and political issue as traditionally tax exempt hospitals join forces with traditionally taxable physician practices.

Internet Voter Registration

If you are on the web and haven't registered to vote, you just ran out of excuses. MCI and Rock The Vote both offer the first online voter registration effort:

You fill in a form online; they send it to you for signature and you send it to your state election official.

AHEC Project On Line Walking The Talk

Under the leadership of Barbara Nichols, the Area Health Education Center System
is developing a statewide partnership of academic institutions and providers to increase the number of graduating nurse practitioners, certified nurse midwives and physician assistants who come from and return to practice in underserved areas. As part of preparing a grant application preparing for the Robert Wood Johnson Foundation, we thought it was time to start experiencing ourselves the new compressed digital video (CDV) technology which we hope students will use.

CDV transmits live, real time video and audio simultaneously over special telephone lines. You can see, hear, and converse among participants at multiple sites. Our CDV meeting had 6 participants: 3 from Madison and one each from Eau Claire, Milwaukee and Oshkosh. Even with this small group, about two work days of unnecessary travel by senior faculty and staff was avoided; the meeting itself seemed no less productive.

With current technology, there is still about a two second time delay in audio and video switching from one site to another and sometimes the screen shots came up blurry but it is definitely the next best thing to being all in one room, and considering travel time saved, much preferred.

WI Division of Health Leadership Changes

Best wishes to several experienced Wisconsin health leaders who have taken on new responsibilities:

Within Madison, Wisconsin:
Kevin Piper, Division of Health Administrator
Peggy Bartels , Health Care Financing Bureau Director
Margaret Kristan, Primary Care Section Chief

To Denver, Colorado:
Tom Adams, State Medical Society of Wisconsin
Executive Vice President to Medical Group Management Association CEO

The Hidden Competitive Weapon
Book Review by Pat Ruff, RWHC Deputy Director

Robert Lynch's BUSINESS ALLIANCE GUIDE - The Hidden Competitive Weapon should be required reading for those involved in developing a new alliance; however, experienced alliance participants and leaders will appreciate the new ideas and validation this book provides particularly regarding alliance challenges. The author dedicates this book to those who have "Dared traverse uncharted waters with no compass to guide them and never strayed from their fundamental ethic of building value."

Cooperative partnerships are predicted to become the dominant form of business in future decades and yet, little emphasis is given to alliances in business schools. Robert Lynch writes about the unique alliance management methods, which, all too often are poorly conceptualized, seldom shared, and almost never taught; managers usually learn by trial and error.

Drawing on experiences and lessons learned from successful ventures, this book offers guidelines for alliance success. Myths and fears surrounding alliances are discussed, as well as practical techniques and tips that create powerful linkages and secure strategic goals.

Lynch offers suggestions on how to gain critical top-level support for an alliance, find partners whose goals, strengths and weaknesses complement your own, develop the right "chemistry" with alliance partners, build flexibility into the structure to allow for change, manage conflict with partners, and discusses how to structure different alliances to attain different objectives.

According to Lynch, "Alliances are part of the "extended" corporation, neither internal nor external, but intimately connected. As such, cooperative ventures need to be treated from a new perspective.

Lynch suggests differentiating between "opportunity driven" and "problem driven" forces and suggests that organizations are relatively more invigorated by external threats from competitors than by customer needs or internal improvements. This book illustrates how alliances enable participants to maintain - not lose - control; encourage - not inhibit - innovation; act as a new competitive tool - not as a drag on competition and signals a new corporate dynamism and not retreat.

"Chemistry" is strongly emphasized as the "glue" that holds the partners together. Lynch defines chemistry "as trust in the other partner(s), faith that the partners will do the right things, knowing that the other party will live up to the unwritten terms of the agreement, unfailing commitment to a win/win arrangement, respecting integrity, doing what you say you will, predictability under pressure and creativity in the face of adversity. Build on old-fashioned values.

Consistent with written works of Senge, Drucker and other strategic thinkers, this book predicts that the future leader/CEO will be more visionary, spiritual, and adaptive, able to capture opportunity rapidly, respond to changing markets, and inspire a team through dynamic common vision and shared values rather than through commands and orders. Lynch believes the "rugged individualist" image of the successful entrepreneur or corporate CEO may become the dinosaur of this century.

Why Men Don't Ask Directions?

OK, not the world's most penetrating question, but interesting none the less. From Men's Health, 5/96:

"In terms of getting from one place to another, women use visual cues, finding their way based on landmarks...Men are different. We make our way using vectors, navigating based on how far we move in one direction before we feel it's right to move in another...we find our way through a process of trial and error, so it naturally takes us longer to acknowledge that we're off course. 'Refusing to ask for directions is not proof of infantile machoism,' says gender specialist Jayne Tear. It simply means you don't feel that you're lost yet; why should you ask for directions if you don't feel lost?' "

Seeking A Liberal Rush?

From Sunny Shubert, Wisconsin State Journal, 4/11/96

"...liberal humor is an oxymoron. It can't be done. The reason is liberals care, which drastically reduces their capacity for finding things amusing. The only people liberals can make fun of without offending their constituency are conservatives and red-necks. But conservatives, because they don't care about offending anyone, can make fun of everybody, including themselves."

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