Implications

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					The implications of federal legislation of health care
services and of health maintenance organizations for planning
are presented and discussed. The elements of a plan to
anticipate coming changes are offered.



                                                       Implications of Recent Health
                                                                          Legislation
1. Recent Health Planning-The Health
   Maintenance Organization Concept                                                              Paul M. Ellwood, Jr., M.D.
           While it may not be easy to believe, some
 honest-to-goodness health planning took place in Washing-
 ton, D.C. in the spring of 1970. As is frequently the case,
 planning was provoked by crisis-the much-proclaimed
 crisis in health care-and the accompanying political de-        1. That happened because of the conviction of a grow-
 mand for tighter controls over the health industry and          ing number of people that external controls are inef-
 renewed demands for national health insurance. It was ob-       fective, and that continual expansion of public regulation
vious that a thoroughgoing appraisal of federal programs         can only result in coercive, bureaucratic control, and an
 and strategies was in order.                                    inflexible health industry. What's more, the feeling is that
           As this appraisal got underway, it became ap-         inflation of health care costs-that facet of the health care
 parent that federal planners could be broadly classified in     crisis that the "regulators" talk about most-is merely the
one of two groups, based on their approach to the prob-          most visible and easily measurable expression of the crisis,
lem. On the one hand, there were the "regulators"-those          and not the crisis itself. Since I was involved in the
who felt that the only way to deal with the health crisis        federal planning effort as a member of the "improve-the-
was through more centralized planning, and more                 health-delivery-system" group, let me describe this posi-
stringent regulation of the health system. There were           tion in greater detail by stating the ambitions and ex-
 other planners-the "reformers"-who favored an ap-              pectations we have for the health system.
proach that would bring about changes in the health                        Stated in simplest terms, this viewpoint holds
delivery system which they felt would reduce the need           that every American should be given a choice between
for external regulations. They favored reforms in the           traditional sources of health care and competing Health
health industry that would foster internal regulation           Maintenance Organizations (HMOs). An HMO is a health
through the creation of competition among providers, the        care organization that is capable of providing a full range
use of cost-effective incentives, and the promotion of          of medical care services to a defined, or enrolled, popula-
health services delivery by organizations which would be        tion in return for a fixed annual fee paid in advance. On
responsible for defined populations.                            such details as size, organizational structure and owner-
           The somewhat ambiguous product of this plan-         ship, the manner in which their physicians are paid, and
ning effort is found in H.R. 1-the proposed amend-              so on, HMOs can vary widely. In terms of the quality of
ments to the Social Security Act-a reading of which             care they deliver, however, HMOs would be expected to
makes it apparent that both viewpoints prevailed. It            produce uniformly excellent services, which they will
should hardly be surprising that the "regulators" made          guarantee to make available to their subscribers.
it, because they are dealing with the "here and now"-a                     The proposed social security amendments contain
health industry determined to control itself, but frus-         a number of provisions designed to create competition
trated at every turn in its efforts to do so by its own in-     and to protect the consumer. HMOs will not be permitted
adequacies. Most of the new regulatory policy contained         to serve only Medicare and Medicaid patients, nor will
H.R. 1, therefore, is aimed at controlling the costs of         they be given the exclusive right to serve a given geo-
care, and shifts from reliance on voluntary effort to com-      graphic area. The creation of a market-oriented health in-
pulsory requirements and restrictions. It includes such         dustry is fundamental to the HMO concept, with HMOs
p rovisions as tougher, more decisive, utilization pro-         competing with conventional providers and with other
cedures, price controls, giving planning agencies more con-     HMOs on the basis of price and benefits. In a competitive
trol over the construction of hospital beds, and establish-     market, the need for extemal price controls is minimized
ing an inspector general for health.                            by the effective constraints of market forces.
          Perhaps it is more surprising that the viewpoint                 Response to the Health Maintenance concept
of the delivery system "reformers" made it in H.R.              thus far has been most gratifying. However, the evidence
20   A.J.P.H. JANUARY, 1972
is not conclusive that the idea is prevailing. Potential         "no fault" system similar to proposals being advanced for
HMO sponsors appear to be teetering, and the ultimate            the auto insurance industry.
fate of the HMOs could go either way. Large potential                      Another trend that is likely to be challenged is
HMO sponsors-now in the process of weighing their                the move to require that hospitals be franchised. Fran-
decisions-could get "cold feet," and thus effectively            chising authority already exists or is seriously being con-
thwart the possibility that the HMO will become a                sidered, in New York, California, and several other states.
prevalent mode for health care delivery. On the other            There is no doubt that franchising laws will eventually be
hand, there is reason to believe that potential sponsors         contested by organizations that feel they have been un-
will take positive action, stimulating a rather extensive        justly treated, and by organizations which determine their
move to establish HMOs.                                          need for additional beds on the basis of enrolled popula-
                                                                 tions rather than demographic criteria.
II. Implications for Planning-"Planning                                    A familiar, but unresolved crisis involves the in-
    Like it Could Be"                                            flationary costs of health care. The peer review approach
                                                                 certainly deserves further testing. Some of the more ad-
          I shall now turn to the question of what can be        vanced peer review systems-especially those that are
done in view of these developments. What are the implica-        coupled with risk-sharing organizations-are probably ef-
tions of the HMO concept for planning, and for planners          fective. If peer review fails to work, demands for much
in the future?                                                   more absolute and arbitrary control of prices could de-
          In a word, your work is cut out for you because        velop in a hurry.
the health industry is entering a period of transition. The                Are you prepared to deal with crises such as
task of health planning, therefore, will involve the dual        these? If we who are professional health planners don't
responsibility of regulating the existing health system and,     have solutions for breakdowns in the regulatory system
at the same time, stimulating the formation of an im-            such as these, who will? In my judgment, health planning
proved delivery system.                                          must sharpen its ability to anticipate such breakdowns,
                                                                 and be prepared to deal rationally with new solutions.
Regulating the Health System                                               Consider also the importance of flexibility in
                                                                 regulating the health system. Every industry-whether in-
          The job of regulating the health industry will not     volved in the production of goods or services-has its in-
be an easy one. For one thing, the present regulatory            ternal weaknesses. Some are kept in check by the work-
system is almost certain to face serious crises in the not-      ings of the market. Others are amenable to expressions of
too-distant future that could result in a restructuring of       public opinion. Where natural forces prove ineffective, ex-
the mishmash of controls that exist now. In addition, as         ternal regulation is commonly imposed to safeguard the
HMOs emerge as a significant force in health delivery,           public interest.
they are likely to conflict to some extent with the                        In the health industry as it is currently struc-
present health system and the regulatory controls under          tured, there are two internal weaknesses that have fallen
which the system functions. It seems to me that the key          particularly into the laps of health planners to regulate:
words in planning a rational regulatory system for the
health industry are anticipation and flexibility.                    1.   The tendency to build too many hospital beds in the
                                                                          wrong places-the raison d'etre for hospital planning
          It is vital that planners anticipate problems in the            agencies; and
regulation of health delivery as they are developing, and            2.   The tendency to overutilize and overprescribe, and, in
not merely react in the presence of a full-blown crisis.                  short, to focus almost exclusively on the sick-the
For example, there are indications that the authority of                  reason behind peer review and price controls.
the Joint Commission on the Accreditation of Hospitals                    The vital importance of a flexible regulatory
(JCAH) may soon face a serious legal challenge. The              system can be appreciated when it is recognized that-in
challenger could be one or more of the nation's large ur-        contrast to the existing health system-HMOs might err in
ban public hospitals which have recently experienced dif-        dramatically opposite ways, for example:
ficulty in gaining accredited status. Faced with such con-           1.   A tendency to underbuild capital facilities, or at least
sequences as the loss of Medicare/Medicaid certification                  hospital beds; and
and the possible loss of crucial residency programs, public          2.   A tendency to select persons who are favorable health
hospitals which lose their accreditation may decide to                    risks, and to underutilize.
take the JCAH to court.                                                   Faced with the dual task of shoring up a falter-
          A crisis that is far more evident involves the area    ing regulatory system, on the one hand, and of stimulat-
of malpractice. The negative ramifications of the existing       ing the formation of an improved health delivery system,
system of liability are becoming more and more apparent;         on the other hand, health planners will need to resolve
the real loser is the consumer of health services. While         these differences through a flexible approach to regula-
safeguards to assure quality care are essential, it is im-       tion. In my judgment, this will necessitate:
portant that our present laws and compensation systems               1.   Separate standards for hospital bed construction for the
be revamped to eliminate these deleterious effects, and to                two systems-a standard based on hospital beds/popula-
permit the wider use of physicians' assistants and other                  tion ratios for conventional providers, and a standard
paraprofessional personnel. One promising approach is a                   based on enrollment for HMOs.

                                                                                 HEALTH LEGISLATION IMPLICATIONS               21
     2.   Separate utilization review procedures for the two sys-    especially when they are linked to hospitals, either in a
          tems, including a review procedure for HMOs focusing       physically proximate way, or by formal organizational
          on adverse selection and underutilization.
                                                                     contracts.
          A flexible approach to regulation should not be                     3. Medical Society Foundations-Health planners
 regarded as a double standard. On the contrary, it simply           should encourage the formation of medical society
 recognizes the obvious-that the internal weaknesses of              foundations that are based on risk-sharing. By risk-sharing,
 the two delivery systems are different. That being the              foundations, I mean those that go beyond mere claims, or
 case, it is altogether appropriate to apply separate                peer review, and assume functions similar to those per-
 standards which are relevant to each system.                        formed by insurance companies, including the acceptance
                                                                     of lump sum payments for comprehensive health care ser-
                                                                     vices.
 Stimulating a Better Health System                                           Other characteristics of the better risk-sharing
                                                                     medical society foundations are that they:
            In the light of recent developments in federal
 health planning, your second job-and the one I regard as                 *   offer both medical and hospital services;
 most important-involves fostering the development of                     *   can organize to serve underserved groups like migrant
 HMOs and other constructive changes in the health de-                        workers;
 livery system.                                                           *   incorporate peer review and an adequate package of
           If political, economic, and consumer pressures                     benefits;
                                                                          *   guarantee that consumers will have services available
 have any influence on the nation's health system, it can                     when they are needed;
 be safely said that the system will change. Moreover, it                 *   can develop advanced medical information systems; and
 will change in the direction of the HMO concept. This                    *   have flexible arrangements for reimbursing their
judgment is based, for one thing, on the commitment of                        participating physicians and hospitals.
 the current administration to the health maintenance ap-
 proach. In the recent Senate confrontation over national                      4. Licensure-Health planners should be "stingy"
 health insurance, for example, administration spokesmen             about proposals for the licensure of new health profes-
 expressed reservations about publicly-financed universal            sions such as physicians' assistants. Instead they should
 health insurance, but were unequivocal on the need for              favor a broadening of existing licensure laws which will
 changing the delivery system. Or, if your political inclina-        permit people with diverse training to practice under a
 tions lean the other way, it should be noted that every             physician or a group of physicians, and they should favor
 serious national health insurance proposal (with the ex-            moving licensure in the direction of licensing organizations
 ception of the AMA's Medicredit plan and the Aetna                  like HMOs as well as individuals. Planners should also seek
 plan) advocates the formation of HMO-like delivery units,           to eliminate other legal barriers that hinder new forms
 although with varying degrees of leverage for change and            of medical practice.
 competition.                                                                 5. Profit vs. Non-Profit HMOs-Planners should
           It is this breadth of support for the HMO idea,           recognize that HMOs sponsored by profit-making corpora-
 in fact, that convinces me that we stand on the threshold           tions are not necessarily bad, although for-profit organiza-
of significant change in the health industry. Furthermore,           tions whose primary objective is to maximize profits
with backing from such diverse organizations as the Na-              could pose problems. The HMO concept intrinsically
tional Association of Manufacturers and the leaders of               aligns the incentives of the HMO with those of the con-
organized labor, health planners should have no qualms               sumer. In addition, for-profit HMOs ideally should be
about supporting the development of HMOs. It is time for            sponsored by corporations with a reputation to uphold,
positive actions that have as their common goal the im-             that have demonstrated locally that they are responsible
provement of the nation's health care system.                       organizations, and that have the capacity to invest sub-
          I now wish to offer some examples of specific             stantial capital with the prospect that they will have to
questions on which health planners can take a positive              wait for a return on their investment. (Our studies in-
position consistent with the HMO concept. Each of these             dicate that a minimum initial investment of $1 million is
suggestions will concern a relatively small facet of the            necessary. This increases to about $20 million if the HMO
total problem, but taken together they provide a climate            owns its own hospital. Five years and 20,000 enrollees are
that is conducive to the growth of HMOs.                            typical "break even" points). Existing non-profit health
          1. Hospital bed construction-Health planners              organizations with good management and planning should
should oppose the construction- of new hospital beds if             experience lower "start-up" costs. In fact, existing hos-
there are more than 3 acute beds per thousand population            pitals and group practices are in a much more favorable
in their community. Priority should be given to HMOs                position to form an HMO, since they can build on their
which propose hospital beds, particularly in underserved            present clientele.
areas, with the HMO's enrollment (not the community                           The action in health planning is rapidly accelerat-
population) as the criterion for determining the size of            ing, and the name of the game is change. Health planners
the hospital.                                                       would do well to prepare a careful "game plan" in
          2. Ambulatory care facilities-Health planners             anticipation of these changes in the health delivery sys-
should favor construction of ambulatory care facilities,            tem. It seems to me that the elements of an adequate
22   A.J.P.H. JANUARY, 1972
game plan include: (1) anticipating the crises that lie           for the existing system and the system as it will be; and
ahead, and being ready to meet them with solutions that           (3) formulating a planning strategy based on the objective
are compatible with the changed system that is coming;            of fostering change in the health delivery system, so that
(2) adopting a flexible approach toward regulation of the         each stand that you take is definitive and moves in the
health system that permits separate regulatory methods            direction of that objective.


                        Dr. Ellwood is Executive Director, American Rehabilitation Foundation, 123 E.
                        Groset St., Minneapolis, Minn. 55403. This paper was presented before the
                        Community Health Planning Section of the American Public Health Association at
                        the Ninety-Eighth Annual Meeting in Houston, Tex., October 25, 1970.




                               Honorary Membership Awarded to Sen. Lister Hill
                     Former Sen. Lister Hill (D-Ala.) was recently awarded an honorary certificate of membership in
       the American Public Health Association, in tribute to his long career as a health statesman and advocate for
       health legislation. The presentation, in Birmingham, was made by Ira L. Meyers, M.D., state health officer
       of Alabama and former president of APHA's Southern Branch. "The former Senator continues to show an
       interest in public health," Meyers said, "which characterized his service to the people of this country for his
       many years in Congress. He continues to express interest in new legislation coming out of Congress
       concerning public health, and expressed his deep appreciation for this action on behalf of the American
       Public Health Association."
                     During his 46 years in Congress, Sen. Hill was a leader of the nation's effort to provide better
       health care for all its citizens. He was co-author of the Hill-Burton Act which initiated the concept of
       local-state-federal cost sharings of hospital facilities. He also championed much legislation relating to
       libraries, which ultimately led to the creation of the National Library of Medicine, and to programs for
       construction and support of health sciences libraries. In addition, Sen. Hill authored or co-authored
       numerous bills which have provided funds for health facilities, medical research, health education, mental
       illness, retardation, preventive medicine, and aid to the handicapped.




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