Eye On Health

Monthly commentary from the Executive Director - January 20th, 1996

Medicare PPS Equity, Back To Year One

It seems fair to say that reasonable people would conclude that the growing Medicare differential has more to do with urban political power in lobbying and gaming favorable Medicare reimbursement policies than it relates to any one's managerial competencies.

In the first year following the implementation of Medicare's prospective payment system, urban hospitals enjoyed an average operating margin due to Medicare patients of fifteen percent, rural eight­p;a spread of seven percent. Over the following years Medicare margins fell and the difference between urban and rural hospitals substantially narrowed. In PPS Years 7, 8 and 9, both groups averaged negative operating margins (Medicare revenues less than costs).

Since PPS Year 9, the margin for urban hospitals has climbed markedly into positive numbers while that for rural hospitals remains negative. The urban-rural differential is now at seven percent, nearly the same as where we began. Some urban hospitals are quick to say that these numbers reflect superior management; however when you look at total margins that include Medicare and all other activities, rural hospitals are doing better.

Data Source: Prospective Payment Commission's (ProPAC) analysis of Medicare Cost Report data from the Health Care Financing Administration.

A National Referendum On Medicare?

Excerpt from an Associated Press, 1/12/96 report:

"President Clinton says an overall balanced budget deal with Republicans is within easy reach, but that major disagreements about Medicare and Medicaid may not be settled until this fall's national elections."

" 'We should agree on everything we can,' Clinton said Thursday of his talks with the GOP leadership, set to resume at the White House next Wednesday. 'I'm optimistic that we will balance the budget and I know we have come too far to let this opportunity slip away,' he said at his first full-dress news conference of the campaign year."

"The president coupled his optimistic prediction with a renewed charge that Republicans are 'insisting on cuts in Medicare, Medicaid, education and the environment that I believe are well beyond what is necessary to balance the budget, well beyond what is necessary to secure the solvency of those programs.' Clinton's comments drew a swift rebuttal from House Speaker Newt Gingrich, who said that 'no deal is better than a bad deal.' "

Republican Medicare Vision In Doubt?

I am assuming that the Democrats believe that the opinions reported in The Gallup Organization Newsletter, September 28, 1995 by David W. Moore still represent the mood of the American public about Medicare:

"Americans acknowledge that the Medicare program is facing tough times, but according to the latest Gallup poll they do not support Republican efforts to reform it. They do not believe the Republican plan will bring costs under control, nor that the plan will benefit themselves personally, the elderly, or the country as a whole."

"About eight in ten (81%) Americans say the Medicare program is either in a state of crisis (23%) or that it has serious problems (58%). But these results do not mean the public agrees with the rapid pace at which the Republicans in Congress are dealing with the issue. In the wake of Democratic complaints that the Republicans are trying to "railroad" Medicare changes through Congress, most Americans side with the Democrats: almost two-thirds (64%) say the Republicans are pushing changes too quickly, without giving enough time to consider all the consequences, while only 28% think the Republican timetable is appropriate."

"Republican leaders in Congress say that the major reason for changing the Medicare program is to bring costs under control. But on this crucial point, only a third (36%) of Americans believe current Republican reform efforts will in fact accomplish that goal, while 51% say they will not. Furthermore, by a margin of 46% to 22%, Americans believe they personally will be worse off with the Republican plan rather than better off. By similar margins they believe the elderly will be worse off (53% to 28%), and that the country as a whole will be worse off (46% to 34%). Thus, overall, only 32% say they support the Republican plan, while 51% oppose.

1996 Election Forecast: Unpredictable

Excerpted from the 1/7/96 New York Times:

"The dilemma for politicians is that voters appear to want it all: They want the budget balanced but they do not want cuts that unduly hurt poor people. They want universal health care, but not if it could limit their choice of doctors. They attack a politician for pandering, yet they want to know why that politician has not helped their pet cause."

"Voters appreciate how politicians finally seem to be giving more than lip service to their rage at Washington and its spending habits.... Yet, with the consequences of that agenda largely unrealized, many voters fear that this legislative zeal might lead to a world where welfare mothers and their children sit helpless and hungry on the streets. While they agree that government is no panacea, voters still recoil from a declaration by Michael Huffington, a Republican who lost the race for Senate from California, that 'I want a government that does nothing.' "

"The central question for 1996 is whether this mellowed electorate will be able to resolve the conflict that is created by electing Mr. Clinton in 1992 and then sending Mr. Gingrich to the Speaker's chair in 1994."

A 19th Century Comeback?

From 1/15-21 Washington Post Weekly by Michael Barone:

"Today's post-industrial America in important respects more closely resembles the pre-industrial America Tocqueville described in "Democracy in America" than the industrial America in which most of us grew up. Industrial America was big-unit America: Big government, big business and big labor overcame the Depression, won World War II and built prosperous postwar America. This was a centralizing, hierarchical, conformist country."

"Today, we seem to be returning to a country more like the one that the young Frenchman so well described. our America is, as Tocqueville' was:

· Egalitarian, not in incomes, but in a fierce belief in the presumption of moral equality of every citizen.

· Individualistic, not in rejecting common enterprise, but in insisting on the right to make personal decisions without interference.

· Decentralized, as big government, big business, big labor have lost their hold on the economy and people's imagination.

· Religious, because the United States remains the one economically advanced country in which most people say they adhere to an organized faith or believe in a higher power.

· Property-loving, since ordinary people expect and accumulate significant wealth over their lifetimes, with the family home and pension rights replacing the freehold farms that fascinated the aristocratic Tocqueville.

· Lightly governed, because government leaves to voluntary associations of many kinds social functions that elsewhere and at other times have been performed by the state.

WI Still Seeks Single Payment Locality

The Rural Health Development Council continues to work for Wisconsin being designated as a Medicare single physician payment locality. The Council's ad-hoc Medicare work group obtained a copy of a consultants report recently completed for the Health Care Financing Administration, "Assessment and Redesign of Medicare Fee Schedule Areas." Part of our evaluation (drafted by Jane Thomas) is as follows:

"Our first reaction is disappointment that the report made no attempt to evaluate the appropriateness of the Geographic Adjustment Factor (GAF) as a basis for determining cost differences from area to area. In fact, it would appear that the report's primary task was to determine ways in which the number of Fee Service Areas could be reduced without offending urban interests."

"As you well know, we believe that the GAF is inherently flawed. The key components which make up the GAF are biased toward urban communities, and do not reflect the actual resources needed to provide rural beneficiaries more equitable medical care. Typical survey data reflect "what is there" which, in turn, is related to "what the region can support financially." If we seek greater equity in medical services along access and quality lines, then we should shift our focus to better match services to needs."

In addition, rural areas frequently experience higher costs in recruiting and retaining physicians and other medical personnel in light of the competition with urban centers and the greater difficulty in attracting urban trained professionals to more isolated communities. Travel costs for continuing education and servicing equipment is higher in rural areas. The building of clinic space and purchase of medical equipment is as expensive in rural as urban areas. Finally, rural clinics do not have the economies of scale of large urban clinics. Rural clinics have dealt with all of these factors by making do with less than is available in urban clinics. It is time that Medicare and other payers that follow Medicare's lead abolish this long standing but unfair distribution of resources.

HMOs, Physicians, Patients & Trust?

A good example of the growing public concern re possible HMO excesses can be seen in the following cover story from, TIME Magazine January 22, 1996, "The Soul Of An HMO". Of particular concern may be the twin themes of this article, tying together the corporatism of medicine with the allegation that a physicians' primary allegiance is being shifted away from his or her patient:

"Managed care is certainly bringing down America's medical costs, but it is also raising the question of whether patients, especially those with severe illnesses, can still trust their doctors."

"...And so for the DeMeurerses began a three-year encounter with 'managed health care' and the powerful forces that are fast reshaping the culture and practice of medicine in America--not just cutting costs but changing in a fundamental way how doctors view patients, and perhaps how patients should now view doctors. In a three-month investigation, TIME chronicled Christy deMeurers' journey, but also the parallel, interlocking story of Health Net, one very prosperous company in the Southern California market, a hotbed of managed care that offers a living demonstration of what's likely to occur everywhere else as the new medicine continues its rapid advance. Taken together, the two stories provide a look deep inside the psyche of a managed-care company that is typical of the hundreds blooming and merging throughout the nation. These organizations have jettisoned the old Marcus Welby-style medicine for something entirely new, in which doctors become "gatekeepers," patients become 'covered lives' and remote managers decide who gets treatment and who doesn't."

" 'It's a paradigm shift,' says William Popik, Health Net's chief medical officer. 'It's a shift that has taken place a lot more quickly than patients are ready for--that's absolutely true. What's shifting is, patients can't drive it anymore; patients can't decide, 'My ear hurts, so I'm going to go to the doctor today.' "

"Prodded by large companies fed up with rising medical costs, the new medicine's entrepreneurs have turned health care into a corporate battlefield increasingly governed by the promise of stock market wealth, incentives that reward minimal care and a brand of aggressive competition alien to front-line doctors for whom dressing for success still means wearing khakis and a lab coat."

"No one disputes that managed care has at last put the brakes on medical spending, or that it has proved an effective vehicle for rationing health care, a profoundly sensitive subject in a culture raised on the notion that even the most expensive and esoteric treatments should be available to all. At issue, rather, are the costs of the process itself­p;the effort and delay inherent in acquiring care and the extent to which considerations other than mere health are brought to bear by corporate managers who must approve even such minor procedures as blood tests and mammograms."

"Yet the most fundamental question raised by the new medicine is one largely missing from public debate: Can you still trust your doctor?"

Competing HMOs Can Collaborate

The following was reported in the November, 1995 Journal of the Joint Commission on Accreditation of Healthcare Organizations by two competing HMOs in the Minneapolis and St. Paul area, Blue Plus and Health Partners:

"In an environment in which patient populations are increasingly divided among competing vertically integrated health plans but overlapping providers, it is very refreshing and rewarding to care providers to be able to devise actions that will be applied to their entire clinic populations."

"Lessons Learned:

Immunizing Cooperative Agreements

A technical assistance monograph, State Action Immunity: Immunizing Health Care Cooperative Agreements, has been prepared by the Alpha Center (202-296-1818) with funding from the Robert Wood Johnson Foundation. "To promote beneficial health care networking in the face of potential antitrust liability, 18 states currently have laws in force to immunize from antitrust liability cooperative arrangements among formerly competing providers while also protecting the interests of consumers."

"Both policy makers and health care providers must be cautious about placing too great a reliance on this type of antitrust protection. First, until definitive court rulings address the effectiveness of a particular piece of legislation and the level of State supervision, no one can say definitively that any cooperative agreement is immune from liability. Second, providers must weigh the burden of potential antitrust liability with the burden of added State regulation and oversight. State officials should be aware of these concerns when drafting and implementing this type of legislation in order to achieve the appropriate balance between permitting cooperative agreements and protecting consumers from inappropriate conduct."

United Nations Explores Health Co-ops

A new study on health and social care cooperatives has been prepared by the United Nations in collaboration with the International Cooperative Alliance, Cooperative Enterprise In The Health And Social Care Sectors: A Global Review And Proposals For Policy Coordination. The review of recent material on the activities of cooperative enterprises within the health and associated social care sectors on which this paper is based suggests that there is very considerable scope for their expansion.

The study is intended as an exploration of the conditions relevant to promoting and supporting a significant expansion in health and social care cooperatives. Suggestions are made for a strategy for the development of health and social care cooperatives in the context of a comprehensive intervention by the cooperative sector in health. Prior to outlining such suggestions, a typology is proposed; the dynamics of the development and current status of comprehensive systems of cooperative enterprise activity are examined; trends in the development of relevant support institutions are reviewed; the benefits and costs to users are evaluated; and favorable and unfavorable factors identified. The draft study is being circulated for comments and is available from the United Nations. Contact:

Mr. Michael Stubbs, Senior Social Affairs Officer
Department for Policy Coordination
and Sustainable Development, DC2-1348
United Nations, New York, NY 10017
E-mail: stubbs@un.org

Most MD Income Down But F.P.'s Up

"Average physician net income dropped 3.6% in 1994 (to $182,400), the American Medical Association said in its latest report on doctor's compensation. ... the average net income of general or family practitioners rose 3.8% to $121,200 according to the AMA." Salaries of federal physicians (even if paid) and residents (even if earned by others) weren't included in the calculations. Modern Healthcare, January 1, 1996.

RWHC Accounting Manager

Darrell Statz

Darrell is one of our newest members of the office staff, now starting his third year.

Key interests are golf, basketball and any outdoor activities.

These activities may be crimped with the arrival of his first born at the end of May.

NPs & PAs In Demand By Rural Hospitals

The following is from The Employment and Use of Nurse Practitioners and Physician Assistants by Rural Hospitals, Working Paper Series, #11, December 1995, University of Minnesota Rural Health Research Center:

"Rural hospitals are increasingly important employers of nurse practitioners and physician assistants, although there is a greater demand for than supply of both types of practitioners. PAs tend to be employed in small, low volume facilities that have small medical staffs and a small service population, while NPs are primarily found in high volume hospitals in more populated areas."

"Increased federal and state support for NP and PA educational programs would allow expanded enrollment and an increase in the number of graduates available for both urban and rural areas. Targeted financial support toward programs with documented efforts for placing graduates in underserved and rural areas would be an effective way of ensuring an increase in their supply for these areas."

Lafayette County Hospital In Top 100

Memorial Hospital of Lafayette County, a long-standing RWHC member, was acclaimed last month in Modern Healthcare as "one of the top 100 hospitals in the nation." "To qualify, hospitals had to rank above their peers on eight measures which indicate high value to customers through effective use of resources, efficient provision of care and high quality outcomes."

WI DHFS Strategic Plan Available

An Executive Summary of Grant Thorton's Strategic Plan and Reorganization Plan for Wisconsin's new Department of Health and Family Services is available on the internet at:


A hard copy of the full report can be purchased for $15 by calling Bonnie Niemann at 608-266-3816.

No Comment Needed

The following is from How Buildings Learn, What happens after they're built by Stewart Brand.

"The anthropologist/philosopher Gregory Bateson used to tell a story:"

"New College, Oxford, is of rather late foundation, hence the name. It was founded around the late 14th century. It has, like other colleges, a great dinning hall with oak beams across the top. These might be two feet square, forty-five feet long."

"A century ago, so I am told, some busy entomologist went up into the roof of the dining hall with a penknife and poked at the beams and found that they were full of beetles. This was reported to the College Council, who met in some dismay, because where would they get beams of that caliber nowadays?"

"One of the Junior Fellows stuck his neck out and suggested that there might be on College lands some oak. These colleges are endowed with pieces of land scattered across the country. So they called in the College Forester, who of course had not been near the college itself for some years, and asked him about oaks."

"And he pulled his forelock and said, 'Well sirs, we was wonderin' when you'd be askin'.' "

"Upon further inquiry it was discovered that when the College was founded, a grove of oaks had been planted to replace the beams in the dining hall when they became beetly, because oak beams always become beetly in the end. This plan had been passed down from one Forester to the next for five hundred years. 'You don't cut them oaks. Them's for the College Hall.' "

"A nice story. That's the way to run a culture."

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