Monthly Review & Commentary On Health Issues From A Rural Perspective - April 1st, 1997

Opposing Across-the-Board Medicare Cuts
The following are highlights from testimony given this month on behalf of the National Rural Health Association (NRHA) before the U.S. Senate Finance Committee on the Medicare budget; "also" testifying was the American Association for Retired Persons, American Hospital Association, American Society of Internal Medicine and American College of Surgeons. (Given the composition of the panel, NRHA was requested to just focus on inpatient issues.) The AHA, in response to questioning from Senator Rockefeller (West Virginia) went on record in support of the position that rural hospitals should have a higher update than urban hospitals:

NRHA and rural communities will strongly oppose an across-the-board Medicare freeze or reduction as long as:
(1) rural beneficiaries have lower utilization rates, same tax rates
(2) rural hospitals have lower reimbursement for the same work
(3) rural hospitals as a class have lower Medicare operating margins
(4) rural hospitals serve disproportionately more Medicare patients
Inequitable Payment For 12 Years
In the first year following the implementation of Medicare's Prospective Payment System (PPS), urban hospitals enjoyed an average operating margin of 14% due to Medicare PPS inpatients, while rural hospitals received 8%. Over the following years Medicare margins fell, and the difference between urban and rural hospitals substantially narrowed. In 1990 through 1992, both groups averaged negative operating margins (Medicare revenues less than Medicare costs).
Since 1992, the margins for both urban and rural hospitals have improved, but urban hospital margins much more so-preliminary figures for 1995 show urban hospitals are again 6% higher than the average for rural hospitals. (Alert readers will remember this graph from two month's ago but it seemed worth repeating.) Some are quick to say that these numbers reflect superior management; however, when you look at total margins that include inpatient Medicare and all other activities, rural hospitals are doing as well as urban hospitals. What we have here is more a problem of the effect of discriminatory Medicare reimbursement against the class of rural hospitals, not as some would argue, rural not managing as well as urban.
Rural Hospital Issues
As Medicare spending is considered, it is critical to understand how significantly disadvantaged rural hospitals already are by the current system. Across the board cuts that fail to recognize the Medicare payment inequities that discriminate against rural communities are destructive of rural health and the maintenance of local access to appropriate care.
Payment Rates For Rural Managed Care
Eliminating wide geographic variations that currently exist will encourage managed care participation in rural areas. While managed care is not a panacea, it is important to be on a level playing field so that those wishing to participate in these types of plans can have access to them. Rural communities are placed in an untenable steel vise when federal policy aims to move Medicare into managed care while at the same time federal policy has the effect of prohibiting the development of rural Medicare managed care.

Full text at RWHC www site &

Prevention in HMO's Economic Interest?
From an article by Elisabeth Rosenthal in The New York Times, 3/15/87:
" 'Prevention saves money' has become a refrain of managed care, repeated in ads and by HMO executives so often that it has taken on the aura of truth. This wisdom, the industry's version of 'a stitch in time saves nine,' is backed by a certain logic: if managed care plans detect illness early and offer good preventive care, patients will remain healthier and will be cheaper to care for in the long term."
"There is only one hitch: While studies have shown that preventive care is generally good for your health, they have also shown that it often does not save money. The central problem is that the early detection of many diseases, like high cholesterol and HIV infection, is often followed by a lifetime of costly treatments and drugs. So in many cases, total medical costs actually rise."
" 'An awful lot of preventive care has no payoff economically -- it actually costs money," said Uwe Reinhardt, a health economist at Princeton University. "If the plans are doing it, they're doing it because they think it gives them a good image. A lot of this stuff is overhyped.' "
"To their credit, HMOs cover more 'wellness care' than traditional insurance does -- and marketing departments know that even a small package of preventive services is a big draw. But health experts say consumers should not rest assured that the self-interest of the HMOs will lead them to provide top-notch early detection and prevention programs."
"What's more, even in situations where good preventive care might save money in the long run, HMOs often have little incentive to act, since patients tend to change health plans every few years. 'If I run a commercial HMO with Wall Street breathing down my neck and there is an intervention that costs me now but will save me money in 10 years, I won't do it,' Reinhardt said. 'Or I might do it if it wasn't too expensive and I could parlay it into a perception of quality.' "
Errata re "Part A" Deductible/Coinsurance
Last month, the article on Medicare out of pocket costs over simplified what a beneficiary can owe for Part A deductible and coinsurance; these amounts are calculated not as stated "per year" but "per benefit period."
Benefit Periods are explained by Medicare as follows: "Coverage for care in hospitals and skilled nursing facilities is measured in "benefit periods." In each benefit period you are limited as to the number of days Medicare will help pay for inpatient hospital and skilled nursing facility care. Exceed the limit and you are responsible for all charges for each additional day."
"A benefit period begins the day you are admitted to a hospital. It ends when you have been out of a hospital or skilled nursing facility for 60 straight days. It also ends if you are in a skilled nursing facility but have not received skilled care there for 60 straight days."
The Rural Zones of Collaboration Initiative
RWHC is submitting an application for a Federal Rural Health Network Development Grant that grew out of the work over the last year and a half of the Rural Zones of Collaboration Task Force. We believe that we are responding to the "next generation" challenge for rural health--promoting collaboration among competing HMOs/insurers working with the same rural providers. Thanks to all who have given their support. The Project Abstract is as follows:
Participants - This initiative grows out of the work of three existing networks (two incorporated and one ad hoc) serving the rural communities of southern, central Wisconsin; each of these networks includes multiple organizations: RWHC, on behalf of 28 hospitals and member systems; the Community Physicians Network (CPN) on behalf of its 400 physicians; and the Rural Zones of Collaboration Task Force with its eleven participating HMOs, insurers, regional corporations and state public health representatives.
Goals - Over a series of meetings starting in January 1996, the Task Force identified issues specific to promoting collaboration among competing HMOs/insurers working with the same rural providers. Five strategies were chosen for immediate action, perceived as the most amenable to immediate action:
Goal 1 - Increase the effectiveness and utilization of RWHC's regional credentialing service for multiple practitioners, hospitals, health plans and direct purchasers as well as more effectively coordination with neighboring regional services.
Goal 2 - Develop and implement a model for providers, plans and purchasers to collaborate on data collection, site visits and other administrative audits, required of practitioners in a rural network as mandated by regulatory/accrediting bodies.
Goal 3 - As a network, create a common clinical practice guideline review and adoption process and demonstrate rural practitioners ability to attain desired clinical practice outcomes.
Goal 4 - Identify clinical quality management projects in which multiple practitioners, hospitals, health plans and direct purchasers share a common interest at the local level and develop uniform performance objectives and outcome measures to improve the health status of the populations served by multiple health plans.
Goal 5 - As a rural network, centralize health plan customer satisfaction surveys to achieve a rural data base that will be large enough to provide meaningful information for improvement.
The Shift Away From Fee-For-Service Plans

From "National Health Expenditures," Health Care Financing Review, Fall, 1996:
"In recent years enrollment in employer sponsored private health plans has shifted dramatically away from conventional fee-for-service insurance into managed care plans. Such plans typically charge lower premiums than traditional indemnity plans by controlling provider costs and utilization of services."
Of the three managed care options, Health Maintenance Organizations (HMOs) are typically the most restrictive plans, frequently requiring prior approval before accessing specialty services. A Preferred Provider Organization (PPO) offers the participant using the preferred provider lower out-of-pocket costs. A Point of Service Plan (POS) combines an HMO model with the option at the point of service of using any provider but incurring a higher co-payment or deductible.

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"Does she contradict herself?

Very well then, she contradicts herself.

She is large, she contains multitudes."

paraphrased from Walt Whitman in

"Song of Myself"

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RWHC Snapshots
Two pictures worth 2,000 words--RWHC is trying to better understand the complex interrelationship that exists among health care providers, purchasers of care, local public health departments, businesses, schools and others who all together effect the health of our communities and the individuals who make them up.
Becoming more conversant with the basic data that describes our region is an important step in developing regional awareness and appropriate interventions.

More at All Ages Overweight
From a federal Department of Health and Human Services Press Release, 3/6/97:
"A growing proportion of U.S. children, adolescents, and adults are overweight, according to an article published in today's Morbidity and Mortality Weekly Report by HHS' Centers for Disease Control and Prevention (CDC). The latest analysis shows that approximately 14 percent of children ages 6-11, 12 percent of adolescents ages 12-17, and 35 percent of adults ages 20 and over are overweight. This represents significant increases in all age groups."
"Diet and physical activity are the two primary behavioral factors believed to be associated with overweight. The study shows that calorie intakes have increased in adults and that recreational activity is low for many Americans."
" 'This report tells us again that Americans need to do better in choosing a healthy diet and a sensible plan of physical activity,' said HHS Secretary Donna E. Shalala. Last July, HHS issued the first-ever Surgeon General's Report on Physical Activity and Health, recommending 30 minutes of moderate physical activity per day. Regular moderate physical activity can substantially reduce the risk of heart disease, diabetes, colon cancer and high blood pressure, the report found."
The Morbidity and Mortality Weekly Report can be obtained by mail: CDC at 1600 Clifton Road, Atlanta, Ga. 30333 or by Internet at
Rural Hospitals Serve More Elderly, Uninsured
From Reuters Limited, 3/5/97:
"Rural hospitals serve high numbers of elderly and the uninsured and depend on federal dollars to survive, while metropolitan hospitals are challenged by emerging networks, managed care and changing practice patterns, according to reports recently published by the American Hospital Association (AHA)."
"Medicare is the single largest payer to rural hospitals, accounting for 42% of net patient revenue in 1995."
"According to the reports, as of 1995, approximately half of rural hospitals were not-for-profit, almost 43% were government owned, and only 8.4% were investor owned. The number of for-profit metropolitan hospitals increased by 26 from 1994 to 1995. Skilled nursing, hospice and home healthcare increased dramatically during the survey years, as well as outpatient visits to both rural and metropolitan hospitals."

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"Reality: A Collective Hunch"

attributed to Lili Tomlin

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PSOs - The Position For
From a story by Jonathan Gardner in Modern Healthcare, 3/3/97:
"The first skirmish of the 1997 lobbying war over provider-sponsored organizations (PSOs) took place not in the halls of Congress but in a small but influential congressional advisory panel."
"Provider groups last month conducted an unusually intense lobbying campaign in an attempt to change the Physician Payment Review Commission's draft recommendation to Congress, which had said federal licensing of PSOs may not be necessary."
"Hospital groups argue that federal licensing is necessary because state regulators favor traditional insurers. The drive for the change in the PPRC's annual report to Congress demonstrates how high the stakes are for the nine hospital groups that want to enable their members to market managed-care plans to Medicare beneficiaries."
"The provider groups said their chief concern is PSOs' ability to attract enrollees to Medicare-only plans. The federal government is the proper regulator of managed-care plans that enroll the beneficiaries of a federal program, the hospital groups said."
"Furthermore, they added that in order for PSOs to enroll Medicare beneficiaries, Medicare rules now require that 50% of their enrollees be under 65. Many providers want to form PSOs to attract Medicare beneficiaries, but don't want to try to compete for the under-65 population in markets where HMO enrollment is not growing. That rule also would force providers to compete against their customers."
PSOs - The Position Against
The following is from a recent presentation before the Wisconsin Rural Partners by Josephine Musser, Wisconsin Insurance Commissioner and current President of the National Association of Insurance Commissioners:
"One of the key issues left on the table (from last year) was the desire by providers to do their own direct contracting and assumption of risk through so-called provider service organizations. Why do I say "so-called"? I do so because the term PSO, not unlike the term managed care, means very different things to different interest groups and in different markets and states."
"First and foremost, what is a PSO? It is a "provider sponsored organization" which would be permitted to take on insurance risk without capital requirements and reserves; anti-trust worries; consumer protection and due process; reporting of data; or even state licensure. In Wisconsin, 18 of the 26 health maintenance organizations -- or HMOs -- that have been organized, were sponsored by provider groups. Providers have the ability now in Wisconsin to organize and accept risk."
1. "While they (PSO advocates) claim that it would greatly save administrative costs by cutting out the middleman -- the insurer, any careful analysis will show that even a PSO will not be able to avoid administrative costs. And, indeed, I would argue the administrative costs will be higher for small volume, regional PSOs. Policyholders will just walk in the door, so no marketing costs will be needed, and COB claims will be paid magically, and processing costs money. No, they will need to contract out those essential services to a TPA/ASO 'middle man' And what you have in the end is very similar to the HMOs we have in Wisconsin."
2. "The next argument the providers made was that the capital requirements for licensure were too high in many states and that the process took too long. Providers are seeking decreased capital requirements (reserves for claims payment) in the early stages of the PSO -- say, the first 2 years. I ask you: 'When is any organization most financially at risk...most tenuous.' You guess it: 'It's in the first few years.' Solvency protections in the form of minimal capital requirements for insurers are put in place for a reason, because they are necessary to protect policyholders and the organization (...and sometimes from itself)."
3. "Next on this list of regulatory barriers was the time it takes to license HMOs and insurers in the states. Providers share horror stories of how it took six months to a year to get licensed in many states. A survey of the states revealed that only one state took more than 100 days on average. We should throw out state regulation because of one state? Just as an aside: Do you really think HCFA can or will license faster than the states? -- especially when if this were put into place, it would be overwhelmed with many hundreds of applications immediately."
4. "Addressing the anti-trust problems for providers is a non-issue. If they were to organize as insurers, as they have in Wisconsin, they would be provided the level of anti-trust protection necessary to conduct business."
"Two other usually unspoken arguments used for PSOs: 1) avoid state health reforms and 2) avoid state mandated benefits. My reaction as a state insurance regulator may seem predictable, and maybe you remain skeptical and unconvinced. But we have addressed many of the issues that concern providers in Wisconsin, and this is a model for other states. Markets evolve. Our regulatory philosophy has evolved with the market, resulting in what I believe is an enlightened regulatory framework."
Administrative Costs Higher At For-Profits
From an article by Robert Pear in The New York Times, 3/13/97:
"Investor-owned hospitals have significantly higher administrative costs than nonprofit hospitals, in part because they are less efficient, two health care researchers said Wednesday. Published in The New England Journal of Medicine, Dr. Steffie Woolhandler and Dr. David U. Himmelstein said they had analyzed government data and found 'higher administrative costs at for-profit hospitals.' Specifically, they said, 'we found that for-profit hospitals spend 23 percent more on administration than do comparable private not-for-profit hospitals and 34 percent more than public institutions.' "
"The American Hospital Association and the Federation of American Health Systems, which represents investor-owned hospitals, rejected the findings. They said that the authors had for years been strident critics of America's health care industry and had favored a government-financed system of universal health insurance like Canada's."
"Himmelstein said that for-profit hospitals tended to spend more on marketing, lobbying and executive compensation. Some investor-owned hospital chains 'pay enormous salaries, bonuses and stock options to their executives,' he said."
"Dr. Woolhandler said that a typical for-profit hospital had administrative costs averaging $2,289 for each hospital stay in 1994, compared with administrative costs of $1,861 for a comparable private nonprofit hospital and $1,708 for a public hospital of the same size."
"The authors, who are associate professors at Harvard Medical School, said their research belied the conventional wisdom that for-profit hospitals were more efficient. These hospitals 'save money by laying off nurses, then hire consultants and bureaucrats to figure out how to maximize revenues and avoid unprofitable patients,' Dr. Woolhandler asserted."
"About 15 percent of the nation's 5,200 community hospitals are for-profit entities. Some nonprofit hospitals behave in similar ways and try to earn a surplus each year. Hundreds of nonprofit hospitals have become profit-making enterprises in the last 15 years. Deborah J. Chollet, associate director of the Alpha Center, a health policy research institute here, said that most of the ownership status changes had occurred in California, Florida, Georgia and Texas."
"Dr. Donald A. Young, executive director of the Prospective Payment Assessment Commission, which advises Congress on Medicare payments to hospitals, said 'I don't find anything inherently wrong with administrative costs if an organization is efficient. Some of the best corporations in America also have high administrative costs. That, in part, is why they are good businesses. You need good administrators to manage a large, complex organization.'
"In an editorial in The New England Journal, Stuart H. Altman, a professor of national health policy at Brandeis University, said that 'better administration may have increased hospitals' efficiency.' "
"Richard H. Wade, a spokesman for the American Hospital Association, conceded that the health care system was 'laden with wasteful administrative costs,' in part because there were hundreds of different health insurance companies and health plans. But he said that many administrative costs were for medical records, auditing and other activities that increased the quality of care for consumers. Hospital mergers and acquisitions generate "enormous costs up front," Wade said, but in the long run, investors hope that such transactions will increase the efficiency of the health care system."
A Physician & American Politics
Before President Clinton appointed Dr. Joycelyn Elders Surgeon General, I had the privilege to be a last minute replacement to co-present with her at a health policy seminar for midwestern Lutheran clergy and lay leaders. Consequently I both "understood" and regretted the forced resignation of this very dedicated and outspoken health advocate about two years later.
I just finished reading her biography, Joycelyn Elders, M.D., which tells of her journey from a sharecropper's daughter to pediatric endocrinologist and medical scientist to Surgeon General; all but her most unforgiving critics will find this a fascinating and enlightening story. As you can see, she still doesn't pull her punches:
"I don't think I'm expected to neglect a child because I disapprove of his or her behavior. Many young people are at risk because they are engaging in premature, unprotected sexual activity. I believe it is my responsibility as a Christian to set aside my personal judgment about when sex should begin, in order to promote programs and policies that protect the health of all children. I sometimes thought we should have just given the condom issue over to the Defense Department. They buy weapons all the time,, not to start wars, but to defend the nation. I didn't give out condoms to precipitate sex, but to protect the country's most valuable resource, our young people, from AIDS, STDs (sexually transmitted diseases), and unwanted pregnancy."
"One of my points of contention with the religious right is that they are massively engaged on the abortion issue, yet you never see them out there fighting to provide adequate housing or to fund early-childhood education or to improve medical coverage for poor families. I challenge the Christian Coalition to put resources into finding ways to care for children in need. If it did that, it would at least have the standing to argue about abortion."
"There are those in the antiabortion movement whose stand is part of a philosophy that includes opposition to the death penalty and a commitment to the poor. Those groups deserve respect, no matter how deeply I disagree with them about a woman's right to choose."
Those Darn Blue Dogs
From an article by David S. Broder in The Washington Post, 3/5/97:
"Enter the Blue Dogs, a group of 22 moderate and conservative House Democrats riding to the rescue like the cavalry of old. Their spending plan, unveiled without much fanfare provides a benchmark for testing the credibility of both GOP and Clinton administration proposals."
"They adjust the inflation index for both tax rates and retirement benefits by a bit less than one percent to extend the life of the Social Security and Medicare trust funds and reduce the deficit. A blue-ribbon commission recently reported that the current index overstates the cost of living by 1.1 percent."
"The Blue Dogs have some other smart ideas to offer. Currently, for example, the cost-of-living adjustment (COLA) for Social Security benefits helps the relatively affluent more than it does those who are most in need. The 1997 COLA of 2.9 percent gave $17 more a month to the typical low-wage retiree of 65, but $39 a month more to a retiree of the same age with higher lifetime earnings. The Blue Dogs would make the COLA a flat $20 a month for everyone, helping the needy retiree but subsidizing the better-off retiree less."
"In a similar move for equity, the Blue Dogs would require more affluent retirees to pay for more of their Part B Medicare benefits, the services provided by doctors. The current subsidy would begin to phase out for individuals with incomes of $50,000 or couples with $75,000 and disappear for those with incomes of $100,000 or couples with $150,000. That is sensible social policy."
Sunset Casts Shadow on Rural Health
The following is from a letter sent to each member of the Wisconsin Legislature's Joint Finance Committee. If you also oppose losing the Rural Health Development Council, your assistance in making your own views known would be greatly appreciated by the Cooperative, if you have not done so already. Contrary to the wording of the recommendation, the work of this Council is not done:
"The Rural Wisconsin Health Cooperative absolutely opposes the proposed sunsetting of the Rural Health Development Council and we request that members of the Joint Committee on Finance strongly oppose this unfortunate suggestion."
"There are honorific boutique boards and councils that have long out lived their usefulness; this is not one of them. An annual State expense of $14,000 is more than repaid by the prominent role the Rural Health Development Council has taken in highlighting opportunities for state government to better address the health and development needs of rural communities across the state."
"The Department of Commerce's evaluation of the productivity of the Council is excellent and we believe part of the full report that you have already received. The loss of this Council would represent a major step backward, returning to an era with no formal State recognition or voice re the unique challenges of rural health and rural community development."

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Note: The reference to "hairball" in the cartoon below is intended as an appropriate metaphor for and reminder of the complex, multi-directional, non-linear, "messy" relationships characteristic of rural networks; Tom Ricketts, Director of the University of North Carolina's Rural Health Research Center is credited with first making this observation.

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