Health care suffers through trauma of escalating costs.

Health care suffers through trauma of escalating costs

Unfortunately for the health care industry, 1990 has brought no panaceas for its woes. The diagnosis for the industry continues to be critical as indigent care, hospital operating losses and health-plan bankruptcies continue to baffle the experts.

As 1990 draws to an end:

* Fifty-five percent of the Southland's hospitals are losing money, according to the Hospital Council of Southern California, a trade group of 232 local hospitals. Even for hospitals that are turning a profit, the profit margin is in the single digits, not the double digits of a decade ago.

* Twenty-five percent of adults under the age of 65 in Los Angeles County have no health insurance, according to a UCLA School of Public Health study.

* Twelve trauma centers (emergency rooms prepared to handle extreme, life-threatening injuries) and four emergency rooms have closed in Los Angeles County in the past five years. One trauma center closed in 1990.

* The Los Angeles County Board of Supervisors may have to cut health care benefits for the indigent as the State of California plans to cut its MISP, Medically Indigent Services Program.

* Blue Cross of California, the state's large traditional insurer, raised rates 19 percent this year, following hikes of 24 percent in 1989, 28 percent in 1988 and 25 percent in 1987.

* Los Angeles-based Maxicare Health Plans Inc., once the nation's largest health maintenance organization, reemerged from Chapter 11 bankruptcy in December, but now has just 239,000 enrollees in seven states, down from a high of 2.3 million enrollees in 28 states.

During 1990, Los Angeles' hospitals may have even "moved backwards in funding as the number of uninsured grew and state and federal funding for hospitals decreased," said Lori Aldrete, vice president for communications at Sacramento-based California Association of Hospitals and Health Systems.

Hospitals continue to be battered by lowered Medicare payments, private insurance cost-crimping and an increasing number of indigent patients.

One bright spot for hospitals in 1990 was Proposition 99, which went into effect in January 1989 and levies a 25-cents-a-pack tax on cigarettes to provide health care to the indigent. The tax has provided Los Angeles County hospitals with $42 million in 1990, and has kept many trauma centers in operation.

Although the cigarette tax is helpful in the short term, ultimately it may be self-defeating, in a sense, because the higher cost of smoking is decreasing cigarette consumption, said David Langness, spokesman for the Hospital Council. But he said that discouraging people from smoking will eventually drive health care costs down because over 40 percent of hospital admissions are smoking-related.

Commenting on the tax, Aldrete said, "Every little bit helps, but the tax has not solved all our problems."

Hospitals' problems include an ethical imperative to treat all patients - even Los Angeles' large uninsured population, the largest of any region in the United States, according to the UCLA School of Public Health.

The medically indigent cost millions of dollars when they arrive at hospitals needing care, but hospitals are not able to recoup the entire cost of treating these patients.

Aldrete explained that while it cost California hospitals on average $1,007 to treat each patient per day (1988 figures), Medicare reimburses only 93 percent of those costs for the senior citizen patients it covers and Medi-Cal only reimburses 60 percent of costs for poor patients.

Hospital administrators said that while Medi-Cal reimbursements covered only 60 percent of costs, Medi-Cal patients made up about one in five patients admitted to Los Angeles County hospitals this year.

Several urban medical centers continued to reel from the great expense of treating the indigent, including the County-USC Medical Center, whose staffing and labor strife attracted great media attention throughout the year.

What drew less attention is the large volume of indigent AIDS patients that the hospital treats each year without receiving adequate reimbursement from state and federal governments.

But even upscale hospitals such as 1,200-bed Cedars-Sinai Medical Center in Los Angeles reported spending $8 million on indigent patients.

But while hospitals' costs are on the rise, the federal government and private-sector insurers have also reduced payments to hospitals in the late 1980s.

In recent years, payments under Medicare - the federal health program for the aged - have only been increased 0.5 percent to 1 percent each year, far below inflation. These payments are crucial for area hospitals because Medicare patients made up 34 percent of hospital stays in Los Angeles County, according to a state survey.

Private insurers continued to follow the public sector's lead and trimmed payments. Because private insurers are paying discounted rates these days, hospitals are finding it harder to shift the costs of treating the poor onto the private-paying patient.

As the "PPO," or preferred provider organization format, grew in popularity in 1990, it continued to force doctors and hospitals to lower prices to get patients from insurers.

A PPO works in this fashion: Insurers select doctors and hospitals, partly on the basis of price, they will take into their PPO. Then the insurers tell employers that if they use only the selected doctors and hospitals, a lower price is available. Not surprisingly, employers go for the idea of lowered rates.

Employee enrollment in PPOs grew from 230,000 to 9 million statewide during the 1980s, according to a survey conducted by the Sacramento-based California Association of Hospitals and Health Systems.

And the number of doctors and hospitals that have contracted with the 72 state PPOs has also increased dramatically. In 1988, there were 339,063 doctors with PPO contracts - a 93 percent increase over 1983, when there was 21,674. Hospital contracts grew by 4,497 in the same period to 4,957.

But many questioned PPOs' ability to cut overall health care costs. Dr. Charles McElwee, former president of the Los Angeles County Medical Association, said last June that employers and patients don't achieve great savings with PPOs.

McElwee charged that the money gained by discounting health coverage just stays in the system and is kept by the PPO management or utilization review companies. When doctors join PPOs, they must call a utilization review company to get an approval to send a patient to surgery or to an specialist.

But even with these measures, a survey of 1,900 U.S. employers released earlier this year by New York-based A. Foster Higgens & Co., an employee benefits consulting firm, found that HMOs, PPOs and other utilization review programs have not succeeded in lowering costs.

Overall, managed health care programs has not stop the escalation of employer plan costs, the survey claimed. It found the average cost per employee for HMO coverage age rose from $1,991 in 1988 to $2,319 in 1989, or an increase of 16.5 percent, far higher than the inflation rate.

The Foster Higgens study found that twice as many U.S. employers had contracted with PPOs, but 45 percent of employers offering PPOs said they could not notice an effect on medical costs.

Because of these great problems with health care coverage in California, the state Assembly this year began investigating the problems with medical insurance by holding hearings on the subject.

Assemblyman Burt Margolin (D-Los Angeles) is drafting a universal coverage bill. Health Access and other consumer groups and physicians are studying initiatives for the 1992 ballot.

There was some good news this year for many small companies (less than 50 employees) which were finally able to obtain insurance coverage.

The Business Journal reported on efforts by Woodland Hills-based Blue Cross of California to enroll companies with as few as three employees in its new "Small Group Access" plan. As of Oct. 8, the insurance firm had enrolled 20,000 workers in about 2,000 small businesses.

Health maintenance organizations such as HealthNet, Kaiser Permanente and Maxicare, decided to loosen restrictions on small groups this year, after refusing to cover companies with less than 50 employees in 1989.

Under the Blue Cross plan, small employers with a high-risk profile will be accepted, although they will have to pay 30 percent more than other small groups for their coverage. Even with higher rates, about 2 percent of small groups are still too risky to insure and will be turned away at the door, said Mark Weinberg, executive vice president of consumer services at Blue Cross.

Blue Cross, however, is setting a quota on the risky small groups they do accept, and insurance agents have to sign up four people in average-risk groups for every person in risky small groups they do accept.

Weinberg said last October that the overall cost of insurance for small companies can be kept at $75 to $100 per month per employee, if expensive-to-cover high-risk groups were spread around to different health plans. He said insurance premiums skyrocket when all the high-risk groups are lumped together.

In July, industry giant Kaiser Permanente, which covers 2.2 million in Southern California, began accepting groups as small as 10, charging $104.94 a person regardless of the claims history of the group.

HealthNet, the 750,000-enrollee Woodland Hills-based HMO, also announced a "Small Group Plan" for employers with as few as five workers.

PHOTO : Trauma: Hospital operating losses continue and health plans falter