Is the American health care delivery system ready for change?

In October 1992, a group of American physician executives who were interested in studying successful European health plans visited Germany and the Netherlands. These countries were chosen because American health policy experts generally have regarded them as two of the oldest and most effective in Western Europe. We had discussions with federal health officials, insurance executives, physicians, hospital officials, and medical school officials that may have given us a glimpse at our own future.

Both Germany and the Netherlands spend about 8 percent of their gross national products on universal health care; the United States spends more than 12 percent, and our coverage is neither universal nor uniform. Each European nation has most of the same problems as ours with physician organizations, politicians interested in health care, lobbying groups, economists, hospital administrators, and unions. Each country's government participates in the design of its system, its operation, and resolution of its management problems. However, the Dutch and German points of emphasis in management of system components and their styles in conflict resolution are different from ours.

The two European systems are based on the principle of "solidarity," which, for them, means that there is a social contract between the government and its people to provide and pay for medical care. The contract ensures that the government is obligated to collect the funds, physicians and hospitals are obligated to provide necessary care, and citizens are obligated to purchase insurance to pay for care. Insurance companies are numerous, mostly private, and competitive. Those employed but earning less than U.S.$30,000/year purchase coverage through a payroll tax of about 8 percent gross that is shared by their employers. Those earning more than U.S.$30,000 must purchase coverage privately from the same insurance companies but at similar and competitive rates. Those earning less than U.S.$5,000 or receiving public assistance or entitlement benefits are also required to purchase coverage from their pensions or other benefits. Thus, health care is both universal and absolutely accessible. Benefits are comprehensive; delivered primarily by family practitioners; and heavily weighted toward prevention, immunization, prenatal care, and long-term care of the elderly. Presumably, at least partly because of the solidarity concept, relationships between physicians and hospitals and insurers and government can genuinely be characterized as supportive rather than adversarial.

Whereas in America we have "health care funds" that pay mostly for sickness, the Europeans call theirs "Sickness Funds" but use a large percentage of their payments for preventive care. Billing and claims management costs for providers is minimal. Overhead management costs for insurance funds is only 4.5 percent; in the United States that cost is at least 33 percent. The difference (28.5 percent) is used indirectly for subsidies of the unemployed, for the elderly, and for preventive care. Because of increased longevity--the successful result of prevention, early intervention, and universal access--there are growing strains within the European systems. Some sickness funds are now considering modifications that we know as copayments, deductibles, and generic pharmaceutical formularies.

In the European systems, the spectrum of services is mandated at the federal level to be "sufficient" and must include prevention, family planning, free choice, rehabilitation, and household assistance for the aged. Ambulatory care is provided almost entirely by family practitioners. Specialists are mostly hospital-based (at only one hospital). Decisions on major capital expenditures, such as hospital construction, are made only at the federal level. This point of strain and resolution is different from ours. Because distribution of physicians in rural versus metropolitan areas is not income driven, underserved areas are far fewer than in the United States--another point of difference in emphasis.

In summary, on the supply side, European governments collect taxes from employees/employers and distribute revenues as premiums to sickness funds. These funds, managed by insurance companies, also collect premiums from those earning above the income ceiling through private purchases. They also receive premiums paid by government for anyone not otherwise covered. The federal fund amounts that are allocated to insurance companies are a negotiable item based on enrollment. Capitation is based on community rating.

On the payment side, Germany and the Netherlands differ somewhat from each other and each differs from the United States. Payments to physicians in Germany are based on a relative value scale that pays a fee for service on the basis of patient encounters. Because each sickness fund is finite, overutilization or fee kiting results in less distribution to all others within a physician association contracting with that fund. Thus, physician discipline within the association is physician-controlled. The government plays no part, nor does the insurance company. Because family practitioners control the distribution side, heavier weight is usually given within the relative value scales to "talking doctors" (family practitioners, internists, etc.) than to procedure-oriented "technical doctors" (surgeons). The scales are negotiated within each physician association.

On the payment side in the Netherlands, physician associations set a limit on maximum patient enrollments per physician per year. The sickness fund pays an annual capitation for each person enrolled. The person's physician is totally responsible all year for all ambulatory care for each enrolled patient.

Payment side for hospitals in both countries is mostly capitated on the basis of total beds rather than on occupancy. Hospital physicians are salaried. State-of-the-art diagnosis and treatment is generally of the same high technical quality as in the United States.

So, did we really get a glimpse of our own future? I think that, by taking the best of each European system and the best of our own, we could perhaps design the best system in the Western world. This possibility seems more achievable now than ever before in light of our new President's promise to try to do it without destroying or replacing the best parts of the existing system and continuing to provide for the insurance and medical communities to be competitive and innovative.

What are some of the significant changes here? The most fertile area for the growth of new ideas in American health care is within the medical community itself. From the post-World War 11 era until the mid-1970s, a new phenomenon called "group practice" appeared. Most groups were originally partnerships, predominantly rural. Those established in major metropolitan areas usually thrived and grew only if they owned or dominated a local hospital. But, by the late 1970s, the majority of groups had converted from partnerships to professional corporations. The corporate form of practice became increasingly involved in such traditional corporate activities as mergers, acquisitions, networking, and joint venturing. They had the blessing and encouragement of the Federal Trade Commission, which espoused the cause of more competition among medical providers with the hope of resultant lower costs.

During this tumultuous period, organized medicine mostly ignored this new phenomenon. In fact, organized medicine scarcely recognized group practice as a legitimate activity. It has only been in the past 10 years that organized medicine has grudgingly acknowledged group practice and has included it in the medical family establishment. The original group practices, which were characterized by process rather than by structure, have mostly passed from the scene. They were a noble but failed experiment, but they were the most significant event in the evolution of corporate practice, an increasing percentage of which is now involved in managed care.

Because corporate practice is the fastest growing segment of medicine, it is now welcomed into the establishment as an active player in forming American health policy. Even the increasingly rare physician who still clings to the goal of independent, private, fee-for-service practice finds it necessary to be more and more involved with managed care patients, either by capitation or by personal service contract.

One of the good aspects of these evolutionary changes in American medicine has been the development of successful management systems, such as DRGs, Medicare fee schedules, preadmission certification, and mandatory second opinions, to name a few. Acceptance of utilization control, shorter hospital stays, outpatient surgery, quality assurance programs, and home health care programs as part of corporate medical care puts American physicians in a posture to adapt some of the previously mentioned best parts of European systems, particularly in the provision of universal coverage and in finance.

It should be emphasized that the European models are not cheap. Their present 8 percent of GNP is undoubtedly going to increase, but costs could probably be reduced by European adoption of some of the beneficial aspects of the American system. Conversely, because most of the American system will soon be of the corporate model, it is poised to adopt a new philosophy--funding by government, financial management of funds by competitive insurance companies, and delivery of services by contracted managed care corporations. Internal cost shifting toward prevention, total access, community rating, early intervention, and appropriate use of more physician extenders would greatly reduce total costs, especially as the American population ages. Existing government programs, such as Medicare, Medicaid, and Workers' Compensation, would simply become part of the total system, negating any need for means tests, age qualifications, or establishment of work relatedness.

Finally, one often-stated reason for rising costs in our country is the need to practice defensive medicine because of fear of malpractice allegations and excessive jury awards. In Germany and Holland, these fears are mitigated by the concept of social solidarity. The few complaints are heard by a special medical court. The presiding judge rules without a jury, and awards are few and relatively small. Care is truly equal for all citizens, thus keeping motivation low for patients and lawyers to sue. Because physicians must belong to associations in order to be paid by sickness funds, peer pressure to maintain high standards works favorably for all.

Germany and the Netherlands are just beginning to promote greater competition in marketing sickness fund insurance. This has motivated the funds to educate patients in the value of good health habits, shorter hospital stays, the true cost of services, and the financial hazards of overutilization.

Plainly, there are sufficient good parts in each European system for the development by America of a much more effective, acceptable, and equitable model. By adopting the best parts of the German and Dutch models into our already existing corporate managed care systems, we can serve all Americans for the existing 12 percent of our GNP or less.