August 27, 2004
Volume 48, Issue 33

• GAO Report Suggests No Simple Solution to Health Care Costs

• Doyle's Market-Based Approach Holds State Health Plan to 5 Percent Increase

• Needed: Better Health Care Consumers

• Guest Column: The GAO Report, The Healthcare Market, and Transparency

• One Comment About GAO’s Methodology …

• Federal Council on Physician Workforce to Close

• Grundstrom Nominated to WHA Board

• 15 Illnesses Behind 56% of Rise in Health Bills

GAO Report Suggests No Simple Solution to Health Care Costs
"Hospital Association embraces call for dialogue"

The U.S. General Accounting Office (GAO) on August 23 released some preliminary findings of a report on health care costs in Milwaukee. U.S. Rep. Paul Ryan (1st District) and Milwaukee Mayor Tom Barrett requested the report almost two years ago while Barrett was still in Congress. The findings indicate that health care costs in Milwaukee are higher than in other parts of the country. The findings further imply that a number of factors influence these higher costs.

"The Wisconsin Hospital Association (WHA) notes that the report suggests there are several cost ‘drivers’ influencing health care costs in southeast Wisconsin," said WHA President Steve Brenton. "Both the provision of health care and its financing are complex issues, and solving the problem of escalating costs requires multifaceted approaches that must involve all stakeholders."

Barrett also noted the need for everyone to pull in the same direction. "We need to work together and find ways to make health care more accessible for everyone," he said.

The GAO said health care spending and prices in Milwaukee are high relative to the averages for the other metropolitan statistical areas in the study. Specifically, GAO found that:

• Health care spending in Milwaukee, adjusted for cost and patient age and sex differences, was about 27 percent higher than the average across all of the MSAs in this analysis.
• Hospital inpatient prices, adjusted for cost, case mix and severity differences, were 63 percent higher.
• Physician prices, adjusted for cost and service mix differences, were 33 percent higher.

WHA believes that there are at least two major factors mentioned in the report that require more analysis and discussion:

• The study confirms that the southeast Wisconsin health care market trails other metropolitan markets that have embraced change in how health care is purchased. As Congressman Ryan said: "The purchasers of health care need to have this kind of data so they can make apple-to-apple comparisons on price and quality with respect to all providers in our health care marketplace so that we can have real transparency and real competition in our health care system."

Wisconsin hospitals and physicians have been proactive in helping to make that information available. With CheckPoint (www.wicheckpoint.org) and the Wisconsin Collaborative for Healthcare Quality (www.wiqualitycollaborative.org), information on quality and patient safety is readily available to consumers and payers.

• The report downplays the "hidden tax" on health insurance because of government program underpayment and growing levels of uncompensated care. The report did not even examine the significant and growing role that Medicaid underpayment has on Milwaukee providers. Wisconsin continues to be anchored at the bottom of national rankings comparing state payments. Recently available data reveals that Wisconsin hospitals receive less than 60 cents on the dollar for treating Medicaid patients.

"Policy makers at both the state and national levels need to recognize that when government doesn’t pay for its health care programs, the direct result is higher health care costs," WHA Senior Vice President Eric Borgerding noted.

"We are pleased that Mayor Barrett and Representative Ryan have called for honest dialogue about the best ways to lower costs and strengthen the hand of consumers," said WHA Senior Vice President George Quinn.

Susan Turney, CEO, Wisconsin Medical Society, said although it is "immensely difficult to identify and model all the variables affecting health care spending," they would work with other stakeholders to ensure that "high quality, affordable health care is available to all Wisconsin citizens."

return to top

Gov. Jim Doyle hailed the August 24 news from the Group Insurance Board that premiums for the state’s group health insurance plans will increase by only about 5 percent next year, after more than four years of double-digit increases.

"Year after year, we’ve seen state employee health insurance costs escalate by double-digit figures. Today’s news shows that we can do something about it," Gov. Doyle said. "The innovative changes that I introduced in my 2003-05 budget are controlling state health care costs and saving taxpayers money. Moreover, these changes are market-based, innovative business strategies that can work for other employers in Wisconsin."

The news comes on the heels, and in contrast to, a U.S. General Accounting Office (GAO) report that was critical of the Milwaukee health care market-place. "It is rather ironic that in many ways, the state is a leader in applying market forces to health care, and we are seeing the results," said WHA President Steve Brenton. "Frankly, they are way ahead of many of their private sector counterparts. The Governor and Department of Employee Trust Fund Secretary Eric Stanchfield should be commended."

The program changes, which were approved by the group insurance board and implemented in the 2003-05 biennial budget, include a "three-tier" plan structure. The governor emphasized that the program changes provide a market-based incentive for participating health plans to hold down their costs and pass the savings on to the state.

"I know how important it is for state employees, like other citizens of Wisconsin, to have access to affordable health insurance coverage," Gov. Doyle said. "These program changes are not about simply shifting costs to employees or cutting benefits. The changes we implemented have put pressure on the health insurance plans to keep their costs down, while maintaining high-quality care for our employees."

Under the state’s group health insurance three-tier program, the most cost-effective participating plans (mostly HMOs) are categorized as Tier 1 plans. Tier 1 plans are available to state employees at the lowest monthly contribution levels. Less efficient plans are categorized as Tier 2 or Tier 3, and employees who choose those plans pay correspondingly higher monthly premium contributions.

Another key factor in holding down the health insurance premium rates for 2005 was the new pharmacy benefit manager (PBM), which was also implemented through the Governor’s budget. The PBM consolidates the state’s prescription drug purchases, enhancing the state’s ability to negotiate better prices from pharmaceutical companies. As a result, the total cost of prescription drugs for state employees actually decreased over the two quarters of 2004, even in the face of projected double-digit increases.

As of July, other Wisconsin employers can join BadgerRx to take advantage of the prices negotiated through the state’s PBM. Employers may contract directly with Navitus, a Wisconsin-based company that administers the state’s PBM, to participate in BadgerRx. Navitus Health Solutions is a joint venture of Madison and northeast Wisconsin health care providers including Dean Health System, SSM of Wisconsin, ThedaCare, Bellin Health and nearly 200 northeast Wisconsin independent physicians.

"Through programs like BadgerRx and other public - private partnerships, we can tackle the escalating health insurance costs that are crippling our state businesses and in many cases leaving our citizens without adequate health insurance coverage," according to the Governor.

return to top

A new federal report that found Milwaukee health care costs dramatically higher than the national average demonstrates the need to get patients more involved in health care decisions, Wisconsin Manufacturers & Commerce (WMC) said in a news release issued August 23.

The report, released August 23 by the U.S. General Accounting Office (GAO) confirms the need to reform health care by reengaging consumers in health care purchasing decisions and promoting healthier lifestyle choices, allowing benefit flexibility, and minimizing cost shifting.

"Employers and employees must take the initiative to aggressively manage their costs by becoming more active, engaged consumers of health care," said James S. Haney, president of Wisconsin Manufacturers & Commerce.

"Consumers, business purchasers, and insurance companies should be encouraged to direct resources to providers that demonstrate a commitment to patient safety, improving quality, and reducing unnecessary or inappropriate treatment. That’s the best way to lower overall costs."

The Wisconsin Collaborative for Healthcare Quality and the Wisconsin Hospital Association’s Checkpoint^SM initiative have both taken steps to improve the collection and analysis of health care outcome data to educate consumers.

"Informed consumers, given adequate cost, safety and quality information, and a financial stake in their purchasing decisions, will prove to be an effective driver of quality improvement and cost containment in our health care system."

WMC also cited the need to expand benefit plan flexibility to allow more options of insurance plans and to create a state tax deduction for health savings accounts. Haney said Wisconsin must limit government insurance mandates that lead to higher health insurance costs and jeopardize access to affordable health care.

Wisconsin’s high health care costs are also attributed to government underfunding and growing levels of uncompensated care. Wisconsin’s Medicaid program pays far less than what it costs to provide care, and as a result, artificially inflates prices businesses pay for health care.

"When the government does not pay its bills, the costs are shifted to businesses and consumers," Haney said. "Cost shifting is a hidden tax that affects businesses and consumers."

return to top

This week’s U.S. General Accounting Office (GAO) report found that health care costs are higher in Milwaukee than in other parts of the country. It concludes that the reason behind this disparity is "provider leverage relative to insurers." In other words, the GAO thinks that the dynamics of the Milwaukee health care marketplace are "out of kilter" and need to be brought back into balance. I think there is general agreement on that point, but permit me to pose a somewhat different perspective on the reasons behind the imbalance.

Taking a page from any Econ 101 textbook, there are at least three essential elements in order to have a well-functioning, competitive marketplace: consumer choice, economic consequences for those choices, and meaningful information for consumers. For two of these three criteria, the Milwaukee health care market (and many other health care markets) falls far short of the ideal.

There is a good deal of consumer choice in Milwaukee. Patients have the choice of at least five high-quality health delivery systems. That criterion is met in a big way.

But there is little to no economic consequence for the choice of providers, because insurers and employers include essentially every provider in their networks, and employees and patients are largely shielded from economic consequences associated with their choice of providers. According to the GAO study, this limits insurers’ leverage to negotiate lower prices. Providers have no incentives to compete for business if they are not guaranteed additional volume or if they don’t face the potential of losing business. It should be no surprise that prices are higher in this situation. That’s how markets work!

Clearly, the employer community needs to begin to restructure their health benefits so that economic consequences are part of the equation. But in order for the market to become well-functioning, the final element – meaningful health information for decision-making – needs to be readily available as well.

Congressman Paul Ryan, who along with Milwaukee Mayor Tom Barrett requested the GAO study, said it best at the press conference: "The purchasers of health care need to have this kind of data so they can make apple-to-apple comparisons on price and quality with respect to all providers in our health care marketplace so that we can have real transparency and real competition in our health care system."

Wisconsin hospitals and physicians have been proactive in helping make that information available. With CheckPoint (www.wicheckpoint.org) and the Wisconsin Collaborative for Healthcare Quality (www.wiqualitycollaborative.org), information on quality and patient safety is readily available to consumers and payers. In addition, the WHA Information Center is taking the lead in making cost and pricing information available.

The evolution of these programs will provide consumers and purchasers with information necessary to revitalize the health care marketplace and achieve cost savings through improving quality and efficiency.

As we said in our press release: "Hospitals are eager to be part of the solution in wrestling with this important and difficult challenge."

return to top

In their report, the GAO examined four factors that stakeholders identified as contributing to high health care costs. One of them was whether low government program payments in Milwaukee are part of the problem. They focused entirely on Medicare payments.

For hospitals, they identified median payments to Milwaukee hospitals for ONE DRG: heart failure and shock. The GAO then concluded that since payments for this single DRG to Milwaukee hospitals ranged from 2 percent to 43 percent higher than the average, Milwaukee hospitals are in fact paid more than other parts of the country. Since there are over 500 DRGs, using one DRG to conclude Medicare pays in excess of the national means is flawed logic.

Perhaps even more important, adequacy of Medicaid payment, relative to other parts of the nation, was not addressed at all! We have shown that Medicaid payments to hospitals in Wisconsin are at the bottom compared to the rest of the country. This problem is exaggerated for Milwaukee. Omitting this important element of government program payments makes their conclusion highly questionable. One could state that, while perhaps Medicare payments are around the national average, Medicaid payments in Milwaukee are close to the bottom of all of the MSAs that were part of the study. This would lead to a significantly different conclusion.

return to top

The Council on Graduate Medical Education (COGME), created in 1988 to track physician workforce trends, has lost federal funding and will cease to exist September 30.

Officials said the elimination of the government advisory council would deal a blow to national efforts to objectively assess how many and what kinds of doctors are needed to cope with long-term health care needs.

COGME, part of HHS’ Bureau of Health Professions, is the only neutral organization dealing with the overall physician workforce issue, said Carl Getto, council chairman and senior vice president of medical staff affairs at the University of Wisconsin Hospital & Clinics, Madison.

"I think the kinds of discussions that we had on workforce issues will no longer happen," Getto said. "I think the government and the public will be hurt by that." Getto said he does not expect last minute funding from Congress.

Getto served on the WHA Future Physician Workforce Task Force that released a Wisconsin-specific report on physician supply in March of this year. While the group charged with tracking the physician workforce nationally was disbanded, in Wisconsin, the WHA and WMS Boards have both approved the creation of and funding for the Wisconsin Medical Education Advisory Council, a group that will serve as an advisory panel to the state’s two medical schools. This advisory council would monitor, predict, and recommend activities designed to maintain an adequate supply of physicians in Wisconsin. Among other responsibilities, it would also create a process to collect and maintain data about the physician workforce.

return to top

David Grundstrom, chief administrative officer at Flambeau Hospital in Park Falls, has been nominated to the WHA Board of Directors. He served on the Medical & Professional Affairs Council 2003-2004, Governance Council 1992-1997, and as North Central Region President 2003-2004.

return to top

As insurers, employers and average Americans grapple with skyrocketing health care bills, a new study has found that a small number of illnesses — many of them preventable — account for most of the spending increase over the past two decades. In the first comprehensive examination of which illnesses are driving an unprecedented rise in medical expenditures, Emory University health economist Kenneth Thorpe tracked 370 conditions and found that 15 accounted for 56 percent of the $200 billion rise in health spending between 1987 and 2000. Five conditions accounted for one-third of the increase, with heart disease topping the list, followed by pulmonary conditions, mental disorders, cancer and hypertension. Thorpe’s study was published as a Web exclusive by the journal Health Affairs.

return to top