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HEALTHCARE COSTS INCREASE AT ALARMING RATE FOR 1991 AND BEYOND, REPORTS BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA

 HEALTHCARE COSTS INCREASE AT ALARMING RATE FOR 1991 AND BEYOND,
 REPORTS BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA
 DURHAM, N.C., Dec. 30 /PRNewswire/ -- Increases in health care costs in North Carolina are out of control in an era of moderate inflation in the overall economy. The end is not in sight, and the magnitude of the increases is frightening, puzzling and ominous. These are the results of a study on North Carolina health care trends released recently by the Health Economics Research Department at Blue Cross and Blue Shield of North Carolina.
 "Five years ago, Blue Cross and Blue Shield of North Carolina paid an average of $550 per covered subscriber. Preliminary data indicates we will experience a per capita payment of $1,162 in 1991," said Sandra Greene, Dr. P.H. "This represents a 111 percent increase for the five years. In the past, health care cost increases have peaked and then rapidly receded to more normal levels. This is not the current pattern. There is no indication of a rapid descent to a more manageable and affordable single-digit rate of increase. Dr. Greene is senior director of Health Economics Research at Blue Cross and Blue Shield of North Carolina.
 Greene reported that the matter is further complicated by the fact that the $1,162 per capita payment in 1991 is for coverage which is not as comprehensive as the coverage in 1986. As the cost of premiums rose over the past five years, employers cut benefits in order to decrease their per capita payments.
 Looking at where the payments went, Greene said that in 1990, when the per capita payment was $1,019 per person, the largest single amount went to hospitals for services provided on an inpatient basis. An average of $435 for each of the approximately 1.7 million North Carolinians covered was spent for this purpose two years ago. An additional $147 went to hospitals for outpatient services. At the same time, $126 was paid to physicians for inpatient care and another $216 per person went for outpatient services, mostly provided in an office setting. Seventy-six dollars was paid out per person for prescription drugs and $18 went to all other services.
 Greene noted that while the amount of money paid to hospitals continues to increase for inpatient and professional outpatient services, the days in hospitals have declined significantly in recent years. The Blue Cross and Blue Shield of North Carolina population used approximately 48 percent fewer days in 1991 than it did in 1981.
 "This trend represents a significant change in the way hospital services are used in North Carolina," Greene commented. "The drop is due to factors such as Managed Care programs and pre-admission review with emphasis on outpatient surgery, admission certification with length-of-stay review and benefit changes which include greater patient cost-sharing."
 Inpatient utilization continues to decline, she said, and the increase in hospital payments reflects higher prices and more services provided for each admission that occurs.
 Greene contended that the average charge per admission has continued to rise dramatically over the past decade from $1,895 in 1981 to an estimated $7,442 this year. With the exception of 1984, the increase has been double digit each year, a 293 percent increase for the decade. This compares with a 222 percent rise in physician charges over the same period. The physician charges associated with an average hospital admission rose from $704 in 1981 to an estimated $2,270 this year.
 There are multiple factors affecting the increase in hospital and associated physician costs in recent years, Greene said.
 "The average admission in 1991 is quite different from the average admission of even two or three years ago," she said. "As inpatient utilization declines, the admissions that occur are for patients who are sicker and require more services."
 "The physician population also is expanding. The number of physicians licensed in North Carolina grew 45 percent in the decade of the 1980s, while our general population grew only 13 percent," she said. "In a health care system driven by physician decisions, a large increase in the number of providers ordering services is likely to be related to increases in health care costs," she added.
 Cost Shifting
 Another factor affecting hospital costs is the cost shifting from patients who do not pay full charges -- Medicare, Medicaid and the uninsured. These patients account for approximately half of North Carolina hospital admissions. When hospitals are not able to recover fully the costs associated with providing care to these patients they have to raise charges to privately insured patients to cover the losses.
 "While this practice is commonly recognized, its impact may not be understood," Greene said.
 North Carolina hospitals have experienced large increases in revenue since 1987. Underlying the large revenue increases is a recent trend of huge increases in losses that must be shifted as government payers tighten reimbursement requirements. The impact, Greene noted, is significant.
 "In 1991, the average hospital charge is projected to be $7,442, of which $2,381 or 32 percent is the cost shift. In other words, 32 percent of the average paying patient's bill will be for care provided to other patients.
 "If the recent rate of increase in the cost shift continues, it will reach 50 percent by 1994. At that time the average hospital charge is projected to reach $11,318 and $5,659 of that amount will be costs shifted from other patients to the insured patient's bill," Greene said.
 A fourth factor driving up hospital costs is the dilemma of empty hospital beds. North Carolina has 24,000 licensed beds, of which 21,000 are staffed and only 13,000 are in use on an average day. While there is uncertainty about how much empty hospital beds cost, studies have shown that there is some expense associated with empty, unstaffed beds, Green commented.
 Technology
 Technology also affects costs significantly. We have seen an explosion in the diffusion and use of medical technology in the past few years. A new medical technology emerges, the cost of which is usually higher than the existing method of diagnosis or treatment. More cases are found that are appropriate for this new technology. The result is that more is spent for the diagnosis or treatment of an illness than ever before.
 Greene said it may be more than coincidence that the latest round of health care cost inflation began about the same time that Certificate of Need (CON) legislation was changed in 1987. The legislative change enables hospitals wanting to develop a new service that requires capital expenditure of less than $2 million to do so without a review process.
 "Heart disease," Greene said, "is one category which reflects the impact of CON changes and problems associated with paying for new technology. It is both 'high tech' and 'high cost'."
 Heart disease is the single most significant category in explaining the increase in claim payments at Blue Cross and Blue Shield of North Carolina, where 12 percent of all claim charges is for treatment of some form of heart disease. Three procedures account for most heart disease claims: cardiac


catherization, coronary artery bypass and angioplasty.
 Greene said the increase in the number of cardiac admissions in recent years correlates with the increasing number of facilities available to provide cardiac services.
 "In 1983 there were 13 hospitals providing cardiac catherizations and 7 performing open heart surgery. By last year, these numbers had grown to 41 for cardiac catherizations and 16 for bypass surgery. The number performing angioplasties grew from 7 in 1986 to 16 last year."
 Air Ambulance
 The impact of air ambulance services is also significant in relation to the treatment of heart disease. There are now six in North Carolina, all initiated in recent years. Air ambulance was justified originally in terms of accident victims and premature infants. Currently, about half the patients who are air transported are heart disease patients who ultimately have a major cardiac surgical procedure. The cost of air transport for the average patients is $1,600, compared with approximately $150 for ground transport the same distance.
 Cardiac Care
 The cost of cardiac procedures is high. A cardiac catherization costs $9,660. Angioplasties cost $20,351, and bypass procedures cost $44,804. Heart procedures are often performed in combination. For example, there is medical uncertainty about when an angioplasty is appropriate. When one fails, often a second is tried within a few days. If that fails, a bypass procedure usually follows. Also, both angioplasty and bypass require cardiac catherization before the procedure.
 "The financial impact is significant when multiple procedures are necessary for a single patient," Greene said.
 "When increased utilization and rising costs are combined, the impact is striking," continued Greene. "In 1983, the amount paid per capita for heart disease services was $36 at Blue Cross and Blue Shield of North Carolina. Last year the per capita cost for treating the same disease had risen 197 percent to $107."
 More High-Tech, High Cost Procedures
 A second category of "high-tech, high cost" procedures affecting the cost of health insurance is transplants. Advances in medical technology, improved tissue typing, drug therapy, new immunosuppressants are combining to improve the survival rates of these patients, Greene said. As more and more of these life-saving procedures are performed, the impact on health insurance costs can only rise.
 The 28 heart transplants paid for by Blue Cross and Blue Shield of North Carolina averaged $114,287 for the cost of the hospital admission during which the actual procedure occurred and follow-up care for up to 12 months. Liver transplants are more costly, averaging $271,363 and includes one recent one which cost more than $500,000. A third category of transplants is bone marrow. Blue Cross and Blue Shield of North Carolina has paid for 38 at an average charge of $130,650.
 Another factor Greene points to in the area of high cost care is perinatal care. This is care for infants with problems which occur within four weeks of birth. These problems usually are associated with prematurity and low birth weight and result in the infant being placed in a neonatal intensive care unit. While the technology is truly life saving, it is expensive. Charges of $100,000 per child are common.
 Another innovative "high-tech, high cost" treatment is lithotripsy, an advancement in medical technology which replaces surgical removal of kidney stones.
 "When lithotripters were first introduced, proponents made two claims: lithotripsy would be less traumatic and painful and result in speedier recovery than conventional surgery and it would be less expensive. Only one of these claims was proven true," Greene said.
 "Health planners estimated we need no more than two lithotripters in North Carolina. We now have 12 and several more are in the planning stages. The result is that we are treating more kidney stone patients than ever before. And, rather than just treating patients who are having acute flare-ups of kidney stones, we also are treating patients with 'silent stones' -- stones
that are not causing problems. This is evidenced by prior scheduling of cases in lithotripsy centers, often several weeks in advance," Greene noted.
 Inpatient lithotripsy costs $10,305, and the outpatient procedure averages $7,287. By comparison, surgical removal at $6,963 is less expensive even than outpatient lithotripsy.
 "As a result of treating more cases at a higher price per case, we are obviously spending more on the treatment of kidney stones than ever before," Greene said.
 Cesarean Section
 Cesarean section is another procedure affecting an increase in our insurance rates. The proportion of deliveries performed by cesarean increased steadily from 16 percent in 1978 to a high of 30 percent in 1988. Over the past three years, the rate has eased somewhat to 27 percent. The high rate of cesarean is partly related to new technology, with more frequent testing and monitoring during pregnancy. But the predominant reason for today's cesarean is related to the mother's having had a prior cesarean. Multiple studies have shown this is not a valid medical reason for a cesarean section, but it is the practice pattern in North Carolina.
 Cost comparisons illustrate graphically how an increase in cesarean sections causes health insurance premiums to go up. Each cesarean section costs $3,634 more than a normal delivery. The delivery of a baby is the most common reason for hospital admissions, so the cost differential is substantial.
 Mental Health Services
 The inpatient treatment for mental disorders, including substance abuse, is not high tech, but it certainly can be high cost. There is substantial regional variation in the use and cost, suggesting that treatment in North Carolina is related to availability of facilities and physician practice patterns. The total per capita payments for mental disorders increased sharply in 1987 and 1988, then stabilized as employers made changes in their insurance policies to control costs.
 On a regional basis, per capita payments vary substantially. Four regions, Hickory, Charlotte, Wilmington and Greenville, have per capita payments ranging from $30 to $35. Winston-Salem and Raleigh have levels of $46 and $67 respectively, reflecting a greater availability of treatment facilities, psychiatrists and psychologists.
 "Despite the fact that hospital admissions and days of care have been declining for a number of years, payments to physicians for inpatient services increased 11 percent during the past year," said Greene.
 "This increase is not due to higher prices for each physician service, but rather to an increasing number of physician services being provided to each patient. Physicians provide multiple services to patients while they are hospitalized, including admitting physicals, daily visits and surgical procedures," she added.
 Part of the reason for the increased number of physician services required is due to the fact that outpatient surgery and managed care programs move many cases into outpatient settings while patients admitted to the hospital are generally sicker and require more services.
 Payments for physician services provided primarily in physician's offices increased 18 percent from 1989 to 1990, according to Greene's report.
 "The increase in expenditures for this category of medical care is a factor explaining the escalation in the cost of our coverage," she said. "The majority of this increase in professional payments resulted not from increased charges but from an increase in utilization. In the six years ending in 1990, the average number of visits increased from 2.3 to 4.1 per person per year, a 78 percent increase. Physicians are seeing their patients more frequently."
 Greene added that part of the reason for the increase in physician office visits is a direct result of the decline in hospital admissions. As admissions are avoided, there is an increase in outpatient care, and additional outpatient demand is generated by emerging technology which allows new tests and procedures to be done in a physician's office.
 Greene further stipulated that while the number of outpatient visits is increasing, the average charge per visit has increased at only a moderate rate over the past several years, due in part to the CostWise program implemented by Blue Cross and Blue Shield of North Carolina in 1986. CostWise stabilizes the annual rate of increase in physician charges for individual services.
 In summarizing her report, Greene said that it is "unrealistic to expect a dramatic slowdown, much less a reversal in the recent cost escalation. There are no obvious counter forces on the scene. It is extremely unlikely that any of the hospitals currently performing heart surgery, for example, will eliminate that service. To the contrary, a good many more are moving in the direction of adding such services. The way our health care system is structured, there are incentives for providers to do more, not less.
 "For that reason," Greene concluded, "it is likely that increases in health care costs in North Carolina will continue to remain out of control."
 -0- 12/30/91
 /CONTACT: Kathy Higgins, Blue Cross and Blue Shield of North Carolina, 919-490-4104/ CO: Blue Cross and Blue Shield of North Carolina ST: North Carolina IN: HEA INS SU:


CM-JM -- CH001 -- 5619 12/30/91 11:15 EST
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