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

Portability Assured But Not Price

From the Los Angeles Times August 21, 1996:

"When President Clinton signs health reform legislation today, he will trumpet the bill's guarantee that workers can take their health insurance from job to job, even if they have medical conditions requiring potentially expensive treatment. What he will probably not point out is that the bill is silent on how much insurance companies can charge."

"To be sure, the bill to be signed by Clinton provides workers with some important new protections. Insurers can no longer deny coverage to individuals with potentially expensive health problems when they switch jobs, or make them pay more than they charge other, healthier workers."

"The bill says insurers cannot refuse to sell policies to small companies (two to 50 workers). But it leaves to each state the harder job of figuring out how to make this promise of insurance affordable. Clinton and the Congress refused to take on the insurance industry by imposing any restrictions on rates."

"The same problem exists for individuals: Someone who leaves a job voluntarily or is laid off cannot be turned down for an individual policy. But nobody knows what the price will be. If sicker people were charged double the usual rate, only 100,000 additional Americans would buy coverage as individuals, the Health Insurance Association of America estimates."

"If states required insurers to charge the same rates to all individual policy-holders regardless of health status, as many as 1.5 million additional people with some health problems might buy coverage. But the current individual policy-holders' bills could rise 15 percent to 25 percent because of the added medical costs for the newcomers, the industry predicts."

Brief Truce In Congressional Bickering

From an editorial in Modern Healthcare, August 12th:

"While the years-in-the-making push to modestly move the insurance market is a step in the right direction, much more prodding is needed to truly reform the irrational healthcare financing system. Nothing, for instance, has been advanced in Washington to address the alarming growth in the ranks of the uninsured."

"Most worrisome is that more than half the 40 million uninsured Americans are members of a household that has at least one employed worker. This portends future social ills as the welfare program is revamped to steer more recipients into the labor force, where most will find low-paying jobs with minuscule health benefits."

"The sickeningly partisan war of words escalated over the issue of medical savings accounts, which Democrats branded a tax dodge for the wealthy that would cripple the health insurance market and Republicans defended as a symbol of liberty."

"In the end, reason won. Healthcare managers should be heartened that the mountain has moved in the right direction, even though much more needs to be accomplished by political leaders and the organizations that provide medical services. Providers have good reason to feel energized that something concrete, albeit modest, has managed to navigate the Washington labyrinth."

Non-Presidential Non-Debate

The following is from an article by Robert J. Samuelson in the July 28th edition of The Washington Post Weekly Edition:

"Its not simply that the elderly now represent the largest category of federal spending. In 1995, Social Security and Medicare alone accounted for 40 percent of non-interest outlays. The real problem is that, under present programs, these amounts will rise sharply in the next century. How much should the elderly be responsible for their retirements and how much should they rely on government? The answer will decisively shape government's future but in the '96 campaign, its a non-issue."

"Population pressures ordain a collision between rising beneficiaries and dwindling taxpayers. In 1990, there were five workers for each American over 65; by 2030, there will be about three. The longer changes are delayed, the harsher they will be."

"So all the rhetoric about 'big government' may sound meaningful, but it doesn't have much to do with government's future. For most Americans, the significant question about government's size and role involve how much is spent to help the elderly and how. A debate that pretends otherwise is phony."

Medicare Falling Brick Picking Up Speed

From The Washington Post, August 24 1996:

"The House Ways and Means Committee said yesterday that the Medicare hospital trust fund is running out of money at a faster pace than projected; sustaining a record $3.3 billion one-month loss in July."

"Last spring Medicare trustees projected that the trust fund would become insolvent by the year 2001 because spending on hospital care for the elderly and disabled would continue to exceed taxes and other income."

"Ways and Means Chairman Bill Archer (R-Tex.) said yesterday that the July loss, almost five times larger than the $683 million decline in July 1995, shows that the trust fund is running out of money at an accelerating pace. 'Medicare is like a falling brick that's picking up speed,' he said. 'We need to take action to save the program before it's too late by putting the American people first and politics last.' "

HMO Cost vs. Quality?

The following is from "Health System Reform and Quality" by Robert Brook, MD, ScD; Caren Kamberg, MSPH; Elizabeth McGlynn, PhD in the August 14th issue of The Journal of the American Medical Association:

"The US health care delivery system is changing rapidly, dominated mainly by the shift from fee-for-service to managed care medicine. What are the implications for the practice of medicine as a result of the shift from patient-based to population-based medicine? As resources directed to health care are reduced, how will the trade-off between cost and quality be altered? Will quality even remain on the agenda as health system reform proceeds?"


1. "As the shift to managed care continues in response to cost pressures, will efforts focus solely on how to reduce expenditures, or will maintaining and even improving quality remain on the agenda?

2. "How will the delivery of care change as a result of the shift from patient-based to population-based medicine?"

3. "How will a potential reduction in contact time affect the quality of the physician-patient encounter?"

4. "Will cost containment be a clinically rational process?"

5. "Are we prepared as a society to take actions needed to improve the medical marketplace?"

6. "How much excess supply of health professionals is required to ensure that the level of quality of care is maintained?"

7. "What role does public information have in helping ensure that medical care provides the best value to all patients?"

8. "What will be the effect on society as the currently disadvantaged populations learn, through the public release of information, that they are receiving inferior care?"

Less Smoke But Lots Of Mirrors

"The new rules wipe out such staples of tobacco marketing as free samples, colorful billboards and cigarette brand advertising at sports events. They ban vending machines except in "adult" facilities where children are not allowed, and eliminate slick, color cigarette ads in magazines read by significant numbers of teenagers."

The Washington Post, August 24 1996

President Clinton has unveiled new Food and Drug Administration regulations that declare nicotine an addictive drug and classify cigarettes and smokeless tobacco as drug-delivery devices. From USA Today Editorial, August 23rd, 1966:

"... 'it's a politics driven war on tobacco growers and workers that will assault smokers' rights'... 'it'll finally curb smoking' fact, the impact will be far less...The restrictions are targeted at curbing smoking by children. They will have little or no impact on adult smokers. The real question might be, what took so long? Any other addictive substance that endangers health and picks up 90% of its users before age 18 would have been regulated years ago. Tobacco-state politicians, including members of the president's party, have fought doggedly for years to halt or slow the regulations... Now the industry promises to block the regulations before they go into effect and is pressing Congress to strip the FDA of jurisdiction over this drug of popular choice."

"All of which is too bad. Fifty million smokers won't be forced to quit even if the rules go into effect. But common sense requires trying to catch the next generation before it starts."

Feds Approve RWHC Antitrust Request

RWHC is going to receive its requested "business advisory letter" to negotiate as a cooperative with large payers from the U.S. Department of Justice. As previously noted by our attorney (Mike Weiden of Quarles & Brady) the strategic importance of the green light given cooperative negotiation is substantial:

"Unless rural providers are provided with opportunity to become a significant market factor, it is more likely than not that larger, more integrated entities will divide up the state geographically. There will be minimal competition on the borders of these divided areas."

"However, it will not be worth the investment of larger, integrated delivery systems to move beyond the border areas to compete in thinly populated markets. As a result, rural hospitals may, and probably will, find themselves at a tremendous disadvantage, negotiating with a single dominant integrated delivery system, unless they can act cooperatively. At the extreme are situations in which the integrated delivery system requests and receives ownership of the hospital."

The model developed by RWHC with the Department of Justice builds on the traditional "messenger approach" (individual providers employ a single "messenger" or agent to simplify communication with one or more payers but no group negotiation allowed.) To that model we add the idea of clustering non-competitors within the Cooperative; each cluster is allowed to negotiate price and other competitively sensitive issues. Specific aspects of the model are as follows (warning--some what eye glazing legal language but for some of you this is well worth plowing through):

National Antitrust Guidelines Delayed

From American Medical News, August 26th, 1996:

"The release of revised federal health care antitrust guidelines has been delayed while Justice Dept. and Federal Trade Commission officials fine-tune their clarity and tone. Although the enforcement policy will not include a new "safety zone" for physicians in fee-for-service networks, it will provide more detail on the criteria networks must meet to escape antitrust scrutiny."

Alliances Preferred To Mergers

The following is a summary analysis of the 1996 edition of Deloitte & Touche's annual survey, U.S. Hospitals and the Future of Health Care:, by the survey's director, Raymond Cisneros. The bottom line - "overall, scarcely any other field or industry is changing more rapidly."

"The survey shows that while hospitals continue to consolidate, they prefer joining networks that do not require giving up independence, freedom, and their own governance, or that they would like to join others on an equal basis, without ownership arrangement."

"Many acquisitions are taking place, and not just on the for-profit side. When a not-for-profit organization takes over debt and operating responsibilities... that's really an acquisition."

"Managed care is clearly on its way, but not as swiftly as predicted earlier, and in the area of capitation, it's moving very, very slowly."

"Hospitals and physicians are working together, but PHO (formal physician-hospital organizations) popularity has slipped, somewhat counter to expectations two years ago."

"Hospitals have gone beyond cutting the fat; they're really changing their operations; and even with the growth of managed care and greater constraints, patient satisfaction is higher."

"The failure of comprehensive health care reform is probably one of the best things that has happened to hospitals; they've are making necessary changes."

Quick Environmental Scan

As part of the National Rural Health Association's annual strategic planning process, the board of trustees identified upcoming challenges and opportunities for rural health providers. While an imprecise process, it does help all of us step back for a moment to think about the larger environment we are all likely to be facing. This diverse group of experts gave the highest ranking to the following:



You & NRHA Need Each Other

More than ever, rural providers and others interested in rural health need to share information with other and as well as ensuring a strong national advocacy group for rural health--the National Rural Health Association (NRHA); if you are not already an individual member or the representative of an institutional member, I'm asking you to become one.

The purpose of NRHA is to assist its members as they work to improve the health of rural Americans and to provide leadership on rural health issues through advocacy, communications, education and research.

As part of our Member-Recruit-A-Member campaign, it will be embarrassing as president-elect if I can't convince a few of you who read this newsletter (but are not currently a member) to join. Student dues are $25 a year, individual $110; organization dues are a function of your budget, ranging from a low of $300 to a high of $1,100. Please call or email the Cooperative and we would be glad to have a membership packet sent to you. Thanks.

When we are young, our
reputation is how we make it,
later it is what we make of it.


Rhetoric Back Home

From an editorial by Thomas Still in Corporate Report Wisconsin, August, 1996:

" 'It is a tale told by an idiot, full of sound and fury, signifying nothing'

-- from William Shakespeare's Macbeth."

"Drowned out by all the sound and fury over W-2, which would replace the existing welfare system with a jobs-and-benefits program, has been more serious discussion of the program's pros and cons."

"People who apply for financial assistance would be required to work in exchange for their benefits--private-sector work if its available, public sector if it's not... Wisconsin expects to spend about 13 percent more initially under W-2 than it now spends on welfare, with child-care spending alone increasing from $48 million to $158 million."

"While W-2 may not be perfect, it embodies a grand left-right compromise sought by reformers for decades. The left agrees that work is a lot better than a handout; the right agrees to cough up more money to child care, health care and public sector jobs."

"There may be problems with W-2, but they won't be resolved with intemperance, name-calling or attack-dog press releases... and for people on all sides of the debate to keep open minds. That may not eliminate the 'sound and the fury,' but at least the noise would signify something of substance."

Risk Adjustment Remains A Major Issue

The following is from the July News & Progress newsletter of the Robert Wood Johnson Foundation's Alpha Center's Health Care Financing & Organization Initiative:

"Attempting to avoid the sick and attract the healthy, some insurers have devised methods of risk selection or cherry picking... (The health insurance reforms noted earlier outlaw some these methods.) Ultimately, however, the solution is a new or altered incentive system--one that rewards a health plan for providing efficient, quality care, rather than for attracting the healthiest enrollees."

"Risk assessment can be defined as a means of predicting the deviations of each individuals expected cost from the average enrollee's cost, and risk adjustment would be the method used to compensate insurers according to the amount of risk they assume."

"Helping to reorient the incentive structure in the insurance market is the promise risk adjustment offers. Finding an accurate way to predict who is likely to need care and then determining the appropriate way to pay plans for taking on higher risk is the challenge policy makers and researchers face."

NPs & PAs Work Through Out State

I've been told with conviction that rural communities don't accept physician assistants or nurse practitioners. Is this true? To assist Wisconsin's development of a primary care work force, the Office of Health Care Information has republished part of its profiles on health care providers. Using this data, these maps show whether there are a higher or lower than average number of nurse practitioners (NPs) and physician assistants (PAs) practicing in each county, rural and metro.

While our neighbors in Minnesota may believe all are above average in Lake Woebegone, in Wisconsin only some counties will be above average. This birds eye view quickly shows that both rural and urban counties have a roughly equivalent share of counties with an "above average" rate for both physician assistants and nurse practitioners.

While we all have much work to do both in our communities and in our schools to meet our statewide need for primary care, there is good evidence that we are beginning to see, contrary to some conventional wisdom, that Wisconsin's rural communities are accepting and benefiting from the services of a more diverse array of primary care providers.

Financing Community Graduate Medical Education

From an editorial by Jerome P. Kassirer, M.D. in the New England Journal of Medicine, August 15, 1996

"The financial implications of moving more resident education into ambulatory settings are critical. Hospitals are reimbursed by Medicare for its share of the costs of resident training on the basis of the number of residents on duty in hospital settings (including the outpatient clinics) but not for those assigned to other ambulatory sites. Because physicians practicing in ambulatory settings will lose income if they take on more responsibility for teaching, they will want to be paid, and there is no source of funds for this. It will also be expensive to hire full-time physicians or other health care personnel to care for the sick inpatients now cared for by residents. Given the likelihood of decreases in income from faculty-practice plans, academic departments will be unable to subsidize ambulatory teaching with funds from this source. Although for-profit managed care has been urged to support education and training, as other industries do, it has resisted doing so."

"In my opinion, the most rational way to finance graduate medical education is through a government-mediated program supported by all payers, with specific provisions for dealing with the financing problems that will result from relocating training... Unfortunately, there is little hope that legislation of this kind will be enacted in the near future."

"Even without federal intervention, we can do a great deal. As resident and student education moves to ambulatory sites, federal funds should move with it. Hospitals should probably no longer control these funds; turning them over to departments that administer the training programs seems more rational. Training programs must also forge alliances with managed-care organizations, insisting that they sign on as partners and take real, not just token, responsibility for education. If they use the products of our programs, they must contribute to the funding of training."

Business Health Alliances Align

Wisconsin-based, employer-governed health care coalitions in Madison, Janesville, Milwaukee, West Bend and Fond du Lac have joined forces as the Wisconsin Business Coalition On Health (WBCH). Their stated mission is to "increase access to quality, cost-effective health care services for the benefit of employers and employees participating in Wisconsin-based employer-governed health care coalitions."

In particular WBCH will work to "elevate the profile of employer-governed health care coalitions and to retain the right of employer to continue to organize coalitions." Not stated but implicit, is the natural incentive for employers to increasingly aggregate their purchasing power as sellers of health care services or insurance do likewise. Some of have described this phenomena as comparable to the old east-west arm's race--escalation on one side leading to escalation on the other.

The interesting question is whether or not employers will be able to maintain and strengthen cooperative purchasing mechanisms in the face of cherry picking of their members by aggressive HMOs who can offer a short term advantage via direct contracting.

Health Club Application Gone, Issue Remains

Waukesha Memorial hospital has withdrawn its application to fund its health and fitness center with tax-exempt bonds issued by the Wisconsin Health & Education Facilities Authority (WHEFA). Given heated opposition, the hospital has now decided to use taxable bonds to build the facility as part of a reconciliation process with their community.

However, the question of what is proper or improper use of tax-exempt financing is left on the table. According to August 10th issue of The Business Journal, Wisconsin Senator Margaret Farrow "plans to develop an ad hoc committee of business people, associations, legislators and others to look at WHEFA and 'how some of the other things done by government and the public sector are affecting the private-sector economy.' "

Representative Gregg Underheim, the chairman of the Assembly Health Committee opposes some more extreme calls to eliminate WHEFA. " 'Many other states have these agencies. If you eliminate WHEFA in Wisconsin, you have an unfair playing field.' Without returning to the days of intense regulation and needs assessments, it should be possible to refocus WHEFA on strictly medical endeavors."

"WHEFA board chairwoman Joy Moy concedes there's a need to change the agency's charter so for-profit subsidiaries of nonprofit corporations aren't eligible for loans. As the agency is now set up, she said, it has no authority to make that distinction. 'We need to change the legislation that put us into effect so that we have more room to move.' The board will meet in September to discuss how the agency's charter could be rewritten."

RWHC/CPN Healthcare-Informatics Initiative

RWHC and the Community Physicians' Network (an independent physicians' association with a service area largely coterminous with that of RWHC) have just received a $50,000 from Wisconsin Advanced Telecommunications Foundation, a public-private foundation to support advanced telecommunications projects and efforts to educate telecommunications users about advanced services. We were the one health related application funded out of 179 received for their June grant funding cycle. (Prospective applicants for the November cycle can call 608-266-7878 for a set of guidelines.)

Our joint goal is to work collaboratively to overcome the barriers that inhibit implementation and utilization of telecommunications and telemedicine technology in rural communities. Thanks are due to Cathy Connelly at CPN for the push to get involved, to Pat Ruff at RWHC for the grant writing and to WATF for establishing the needed statewide initiative.

Very few hospitals, physicians and clinics have developed a strategic plan for telemedicine at the local level let alone at a regional level. Currently rural providers lack time, resources and knowledge to respond to the rapidly changing telecommunication environment. The many legal, regulatory and reimbursement issues that have not been fully addressed also pose barriers.

There is a growing concern that there will be an aggressive and a fragmented approach by various specialists to implement their telemedicine services without regard to commonality of equipment and interface with other telemedicine services and with little or no control at the community level. This may result in a lost opportunity for a collaborative effort to implement telemedicine in rural communities in a manner that:

1. retains the local providers control and choice for telemedicine options,

2. allows for a planned and coordinated effort to implement services that would enhance commonality of equipment acquisition,

3. strengthens negotiation for price and service options and

4. provides a basis for working together to address the legal, regulatory and reimbursement issues.

This project proposes to use funding to hire an information technology specialist to work with the hospitals and clinics to provide education, develop site specific strategic plans for telemedicine, develop a regional plan for telemedicine and through the RWHC Information Technology Roundtable advocate for stronger collaboration among rural providers to achieve commonality of equipment, improved access to lines and to address the legal, regulatory and reimbursement issues that remain unresolved regarding telemedicine.

Project objectives include:

1. Providers will be educated regarding telemedicine options, equipment and utilization.

2. Formal strategic plans will be developed, for individual participant locations and regionally, which will serve as the basis to enable or enhance:

- Collaboration to increase commonality of equipment and develop a standards-based, flexible system readily adaptable to improvements in technology as well as reductions in cost.

- Collaboration to achieve an aggregated demand for better telecommunications services (solidify infrastructure development, etc.).

- Improved availability and access for providing specialized care in rural communities.

3. Providers will collaborate to define and prioritize the legal, regulatory and reimbursement issues related to telemedicine for rural providers. Following prioritization, rural relevant policy/position statements will be developed.

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