Newspapers foretell health care's future. (Health Care Trends).

* Health Care Trends

* Consumers Push For Sensible Health Care System

* Physicians Rebel Against PPMCs and HMOs

* The Profit Imperative

* Preoccupation with Choice and Cost

This article is based on a two-month snapshot (November 1998 to January 1999) of newspaper articles addressing various health care issues. Newspaper contents reflect the changing market share of competing societal concerns. Health care issues, particularly cost and choice, now preoccupy the American people. Health care trends percolate bottom-up through the pages of newspapers, not top-down from Washington, D. C, policymakers, or health care executives. By reviewing these articles, the author provides a big picture view of the prevailing and emerging health care trends. From the new thrust of consumerism and the public backlash against managed care organizations to the demise of HMOs and PPMCs, these observations signify not only the concerns that are bubbling to the surface but also the direction that health care is headed. Consumers are in the driver's seat and physician executives need to provide them with evidence of the value they desire--and understand what they perceive as value.

"ALL I KNOW IS WHAT I read in the newspapers."

--Will Rodgers

"Why are we so confident that newspaper content is an effective way to monitor social change? Simply stated, because the news hole in a newspaper is a closed system. As anyone who has ever worked on a newspaper knows, the dominant consideration is get the newspaper out on time. There is a certain amount of choice over which stories will appear, but not much."

--John Naisbitt, Megatrends

"You can always trust the Americans. In the end they will do the right thing, after they have eliminated all the other possibilities."

--Sir Winston Churchill

In his 1982 book, Megatrends, John Naisbitt said newspaper contents accurately reflect underlying trends in America and precede actions articulated by health care policymakers or politicians. Naisbitt argued persuasively that for economic reasons, the space devoted to the news doesn't change. You can't add news unless you subtract news. It's the principle of forced-choice found in a closed system. (1) In a forced-choice situation, societies add new preoccupations and forget old ones. Newspaper contents reflect the changing market share of competing societal concerns. For example, perhaps you've noticed health care stories now routinely command front, editorial, and business page exposure in The New York Times and The Wall Street Journal. The reason? Health care issues, particularly cost and choice, now preoccupy the American people. Health care trends percolate bottom-up through the pages of newspapers, not top-down from Washington, DC, policymakers, or health care executives.

Using content analysis of newspapers as a tool, Naisbitt accurately predicted back in 1982 that:

* Health care would be transformed in that people would rely on multiple information sources rather than just professionally provided information.

* Consumers would demand both high tech/high touch care.

* Health care would be decentralized and provided increasingly outside of institutional walls.

* Consumers would turn to self-help and alternative help and away from traditional professional help.

* Patients would talk to each other and share ideas, information, and resources using new technologies and informal groups.

* People would seek multiple options for care rather than either/or options--for example, either you go to the doctor or you go to no one, either you take a prescription drug or take nothing. (1)

From November 11, 1998, to January 11, 1999, I collected and categorized health care contents of three leading national newspapers--The New York Times, The Wall Street Journal, and USA Today--and three regional newspapers--Hartford Courant, Miami Herald, and Providence Journal. Among the 202 entries, 66 involved major health care restructuring or business calamities (how to pay for health care when there is no longer enough money to go around), 53 were about consumer issues (diet, prevention, exercise, alternative medicine, internet websites), 39 related to HMO reform and the managed care backlash, 28 concerned prescription drug issues (18 involved excessive drug costs), 32 concentrated on physicians (their unhappiness, economic distress, or actions against HMOs). The numbers add up to more than 202 because of the overlap between issues, Here I interpret the main trends reflected by contents of these newspapers. These trends include:

* Rebellions by physicians across the country against two powerful corporation sectors--physician practice management companies (PPMCs) and large managed care organizations (mostly HMOs).

* A sudden recognition that profit is necessary for a functional health care economy that covers the healthy and cares for the sick.

* Multiple signs that consumers were becoming more independent and assertive.

* Tangible shifts towards a consumer-driven health system offering value and choice.

PPMC withdrawal and consolidation, physician rebellion

Two major and interrelated events among physicians occurred from November 11, 1998 to January 11, 1999.

1. MedPartners announced it was shedding 238 physician clinics and more than 10,000 affiliated physicians. (2,3) This announcement was the final nail in the coffin of the PPMC industry. Until then, investors viewed PPMCs as the key to bringing medical costs under control. But PPMCs failed to do what they promised for physicians, namely, increasing incomes, enhancing revenues, and streamlining operations. The code word explaining the PPMC implosion on Wall Street was that PPMCs failed to bring "value." Instead of gaining enhanced security and income, physicians saw revenues and incomes plunge and overheads skyrocket, and they chafed at working for outsiders with flawed premises and undeliverable promises. To save their financial skins, the two largest cancer PPMCs--American Oncology and Physician Reliance--consolidated a month after MedPartners' withdrawal. (4)

2. Aetna, Inc., announced it was acquiring Prudential's health care business. (5,6) If the merger is approved by the Justice Department's anti-trust division, the Aetna-Prudential combination will create a $26 billion colossus, the largest managed care corporation in America, far larger than United Healthcare with revenues of $18 billion. After announcing the acquisition, Aetna made no bones about its intent of being more aggressive, more "fierce," and more dominating in health care. This pronouncement came at a bad psychological time for physicians. In the previous six months, physician groups had withdrawn from Aetna HMO panels in Ohio, Georgia, Florida, and Texas, and Aetna had closed Medicare HMOs for 58,000 enrollees in Delaware, Maryland, Massachusetts, New Hampshire, Rhode Island, Virginia, the District of Columbia, and Connecticut.

Physicians were skeptical about Aetna's bottom line mentality after the Medicare HMO patient abandonment, and they already had bones to pick with Aetna over cost reductions, claims disputes, denial of out-of-network charges, arguments over language in its physician contracts, and Aetna's insistence that physicians accept all--or none--of patients from all of its various plans. Physicians reacted angrily and suspiciously to the Aetna-Prudential deal and gave It a "thumb's down." (8) Prodded by its members, the American Medical Association weighed in and sent a letter to the Justice Department challenging the Aetna deal, saying it gave Aetna too much market power. (9) The letter represented the first time the 270,000-member AMA had ever taken action over a proposed health care merger. (9) In New York City and its suburbs and New Jersey, many physicians, including 10 percent of those associated with New York Presbyterian Hospital, dropped HMO contracts. (10) Whether this rebellion against HMOs is a short-term bu rst of anger or a long-term war against HMOs remains to be seen. A managed care giant like Aetna, which has 20 to 30 percent of the managed care business in New York and New Jersey, has formidable weapons to use against physicians:

* It can recruit new physicians for its panels in metropolitan areas with a physician surplus, as it has done in Dallas;

* It can bring anti-trust suits against rebelling physicians, as It has also done in Dallas;

* It can use its marketing muscle to conduct campaigns to portray itself as a protector of premiums and patients' health, as it is currently doing nationally.

No margin, no mission

A tough-minded Catholic nun, the CEO of a major not-for-profit health system on the West Coast, captured the dilemma of our health system with this down-to-earth comment: "No margin, no mission." (11) This article and many others indicated that any organization, however noble its mission, must make a profit to survive as an institution and to serve Its constituents. Whether a business or a charitable organization runs the enterprise makes little difference, Both need to make profit to survive. No mission is more noble than caring for the sick. That's what medicine and hospitals are for. But to say openly that one must "make a profit" running a hospital, medical practice, or health insurance company or "compete for patients" is unseemly. For example, you may recoil at the thought of New York City hospitals' escalating competition for cancer patients to build cancer "market share." (12)

Negative attitude towards profitability

This negative attitude towards profitability is evident in a recent letter to the editor of The New York Times. (13) A New York City physician responds to a Time's article on Wall Street's trashing of health care stock. The article says for-profit enterprises have been unable to control costs and to make money taking care of the sick. (14)

To The Editor:

Regarding "For Managed Care, Free Market Shock," (Week in Review, January 3, 1999), I continue to be amazed that the concept of for-profit was ever considered a viable one. We have had the best medical care, training, and research opportunities in the world because we spent the requisite money on them. Now, people seem to think they can get the same thing for less, and it is not possible. Imagine the concept of our military system run as a business- for profit. It seems absurd. Obviously, one cannot put a limit on what our security is worth. As a physician and a cancer survivor, I think we must view our health care system in the same way.

Laurie R. Goldstein, MD

Realism about profit

Doctor Goldstein's letter may be naive for four reasons:

1. For-profit status is not the fundamental problem: even not-for-profit organizations must have margins to remain viable--the turmoil at Kaiser Permanente secondary to its third quarter 1998 loss of S102 million and its expected total 1998 loss of $266 million is a case in point. (15) The actual loss was $270 million.

2. Like it or not, for-profit health organizations now form the mainstream health system's backbone; indeed, 75 percent of managed care enrollees belong to for-profit entities whose very existence depends on making a profit for investors. (16)

3. Even the federal government must be sensitive to the need for profit as it tries to shift Medicare recipients to HMOs--the recent withdrawal of HMO services for 440,000 recipients due to insufficient federal premium support illustrates the need for profit. (17) Perhaps the most poignant comment on the profit imperative came from Lee Newcomer, MD, Medical Director of United Healthcare:

"On January 1, I closed Medicare health plans in 86 counties across the nation because health care costs and administrative expenses exceeded the premiums paid by the government in those counties. Many of the seniors served by those plans lost coverage for prescription drugs upon returning to a fee-for-service plan." (18)

4. Following the Clinton plan collapse, the nation embraced profit-making managed care companies and the forces of the market as the solution for distributing health care resources more effectively and for keeping costs down; these companies now constitute a huge $200 billion industry and are not going away.

The HMO industry has grown rapidly in the last five years. But as enrollment has surged, profits have dried up. (19)

To counter this negative profit trend, many HMOs are shifting risk--giving lower rates for the healthy and those in groups, and higher rates for the sick and for individuals. Thus, firms with relatively sicker workers are charged higher premiums, and those with individual policies are given higher rates by being "age rated." (19)

These managed care tactics favor the healthy and price others out of the market. In technical language, this risk shifting from the healthy to the sick is known as moving from a "community rating" to an "experience rating." In essence, this means you move from charging everyone in the community the same to charging everyone differently on the basis of their "experience,' their past illnesses, and their age. (19)

Raising premiums to assure a profit

If HMOs or any other insurer can't control costs, even by cherry picking the healthy and excluding the old and the sick, insuring organizations must raise premiums. That, of course, is exactly what's going on. In 1999, many working Americans will pay 8 to 20 percent more for health premiums, with the average increase being 8.5 percent, according to a Mercer/Foster Higgins survey of 106 national employers. (20)

Not-for-Profit Kaiser Permanente, as the result of its heavy losses, has asked the California Public Employers Retirement fund for a 10.75 percent increase in premiums. (20) And United Healthcare, a for-profit HMO, the single biggest payer of Medigap insurance and the exclusive supplier of Medigap insurance for the American Association of Retired People, is raising its premiums by 9 percent. (21) These various premium increases are higher than the overall inflation rate of 1.5 percent by a factor of five or six. The health care inflation dragon is alive and roaring again.

Inflation and demographics

This inflation has little to do with outright greed. Much of it is rooted in demographic realities. Greater longevity s a fact of life, as is the cost of caring 'or the elderly. In 1997, Americans' life span rose to a record 76.5 years. (22) The average age of United Healthcare's Medigap candidate climbed to 77, up from 75 just a few years ago. (21) The number of Americans living beyond 80 s the fastest growing age bracket of our population, and the cost of caring for them is $15,000 per year. (21) Compare $15,000 to average HMO premiums of about $3,500 for employed Americans.

Factor in exploding prescription drug costs, which rose 16.6 percent in 1998, more than four times the overall increase in health care spending. (23) America's voracious appetite for Viagra. Claritin, and other pricey drugs apparently knows no bounds, and nobody seems to know what to do about it. The struggle to contain costs and maintain profit in the U.S. health system is not a good versus evil battle. (24) It's not a war that will be solved by squabbling over the merits of managed care, by debating the place of for-profit versus not-for-profit organizations. by arguing the role of the government versus the market. The market will sort itself out by getting smarter, more efficient, and better able to explain itself. The government, too, will begin to respond logically. The hysteria over not caring for the sick and the old will subside.

Putting consumers in the driver's seat

The cold reality is gradually dawning that the long-term escape from the present mess lies in putting consumers m the driver's seat. Give them the ability to choose what they want, based on their perception of value and on objective information on what plan offers the most value, and costs will fail.

There's already a model out there that indicates consumer choice works. The Federal Employee Health Benefit Program (FEHEP) offers clear evidence that consumers can control costs given a large number of health options, sufficient information to evaluate them, and financial incentives to pick the most cost-effective ones.

FEHBP gives each of 9 million federal employees and retirees, including members of Congress, a defined benefit (a set amount of money) to choose among 400 insurance plans. The government pays a maximum amount for each plan and up to 75 percent of the cost of a plan. If the employee wants an expensive plan, they pay for it. FEHBP premiums have risen 40 percent less than plans offered by medium and large employees. (25) A variation of FEHBP are Medical Savings Accounts (MSAs), which have yet to catch on in the marketplace.

Philosophy of consumer-choice approaches

Both FEHBP and MSAs have the same philosophy for consumers:

1. Pick your own poison--a good or bad plan, or a mediocre one if you wish;

2. Use some kind of tax-protected savings for minor expenses and deductibles;

3. Tell your employer or yourself. if you're self-employed, whether you want an HMO, PPO, an alternative practitioner, or a faith healer for that matter;

4. Take care of yourself to minimize your expenses;

5. Depend on the system to bail you out and protect you should you have a catastrophic illness or expensive chronic disease.

Winston Churchill may have been right. Americans may finally be doing the right thing--coming up with a sensible health system that allows consumers to pick among a variety of health plans--to find one that suits their own individual needs, values, health status, and age.

Employers buy into employee choice

According to the December 3 Wall Street Journal brief, many employers now specify how much they will contribute to a worker's retirement plan, but leave the picking and choosing of investments to workers. (26) Booz-Allen & Hamilton say the same model applies to health benefits. Down the road, It says, employees with defined benefit plans will shop among many health plans, deal directly with plan administrators, and opt to pay more pre-tax dollars for expanded benefits.

Meanwhile, health experts at Cornell University say in the next decade more employers will offer Medical Savings Accounts instead of traditional health insurance. (26) These accounts will reward consumers for economizing, since unspent dollars can be applied to other uses, like retirement accounts.

And in Congress, a federal advisory commission has proposed radical changes in Medicare, recommending that the government, instead of paying separately for each medical service, offer a fixed amount of money to each beneficiary to buy private health insurance. (27) The commission wants to redesign Medicare in the image of FEHBP, which covers 9 million people. Under the proposal, people on Medicare could--like federal employees, retirees, and their dependents--choose from a wide range of traditional health plans and HMOs, and they could switch plans once a year, They would still have the option of traditional Medicare coverage. Traditional Medicare beneficiaries would receive the same subsidy as private plans and would be under the same pressure to keep down costs.

Doubts about consumer choice

Whether these new plans would simultaneously serve the sick and keep down costs remains to be seen. Marilyn Moon, a public trustee of the Medicare trust fund, says that one-third of the 39 million Medicare beneficiaries will be unable to make choices between competitive systems because of major disease, mental illness, or senility. Senator Jay Rockefeller thinks the sick in poor states like West Virginia would have to pay more because of desertion by healthy seniors to commercial plans. (28) There is widespread doubt that holders of individual health policies, particularly those who are sick, could afford to participate in a competitive market. (28) And, as Earl Washburn, MD, pointed out in the January/February issue of The Physician Executive, no single system is likely to address the entire population's health care needs. (29)

Still the proven success over the last decade of the Federal Employee Health Benefit Program (FEHBP), which after all covers many older retirees, offers a solid basis of hope for the idea that consumers know how to do the "right thing" for themselves and the system. FEHBP has shown consumers can make cost-effective choices.

Assertive consumers

Other evidence exists of assertive consumers placing themselves in the driver's seat of the health care system. Indeed, almost three out of ten respondents in a recent Time survey say they would consider switching doctors if they did not get a prescription drug they requested, and another three out of 10 said they had talked to their physician about a drug they had seen advertised. (30) And a study published in the November 11, 1998 Journal of the American Medical Association widely reported in the popular press indicated that Americans in 1997 saw alternative practitioners twice as often as they saw their primary care physicians. (31) There is growing impatience among stressed Baby Boomers undergoing time bankruptcy about wasting their valuable time waiting for doctors. (32)

And finally there is a pervasive lack of trust by the public in managed care. This has led to a widespread managed care backlash. It has forced HMOs to address patients' gripes. (33) And it will likely result in the passage of patients' rights legislation by Congress in 1999. The California Association of Health Plans has hired one of its most zealous regulators, Walter A. Zellman, to defend itself against HMO reform. (34) Harvey Rosenfield, president of the California-based Foundation for Taxpayer and Consumer Rights, which favors tighter regulation of HMOs, says of Zellman; I would rather be a dog catcher than represent the HMOs. He's got the thankless task of trying to protect an industry that is doomed." (34) The death of HMOs has been exaggerated, but there is little doubt that after reform they will never quite be the same and that in a consumer-dominated system, HMOs will be just one of a mix of health plan choices.

Conclusion

From these various newspaper accounts, It appears a multiple-choice system is evolving that satisfies consumers, keeps providers solvent, serves the sick and the old, combines business and government, and cuts costs. Choice may not be as great in Medicaid and Medicare plans, but there are moves to widen the choice of plans even in federal programs.

Newspapers reflect the reality that consumers are beginning to occupy the driver's seat. Consumers are pushing the health care industry and the government towards a market-driven system offering choice between HMOs, PPOs, indemnity plans, doctors, hospitals, and alternative practitioners. Consumers will choose what is of value to them, not what is of value to employers or the health professions. Can consumers be trusted to do what is right" for Americas health system, in sickness and in health? Look for clues to the answers in the newspapers.

FIGURE 1

MEDIAN HMO PROFIT MARGINS


'90  +2.1%
'98  -1.2%

Interstudy and KPMG Peat Marwick

Note: Table made from line graph

FIGURE 2

RISE IN THE HMO USE OF "EXPERIENCE" RATING

'93  33%
'98  52%

InterStudy and KPMG Peat Marwick

Note: Table made from line graph

References

(1.) Naisbitt, John, Megatrends: Ten New Directions Transforming our Lives, New York, New York: Warner Books, 1982.

(2.) Sharpe, Anita, Med Partners is Abandoning Physician-Management Business. The Wall Street Journal, November 11, 1998

(3.) Freudenheim, Milt. MedPartners Plans to Divest Itself of the Business of Physician Practice Management, The New York Times, November 12, 1998.

(4.) Sherer, Paul M. American Oncology, Physician Reliance Agree to Merge in $652.8 million Accord, Wall Street Journal, December 14, 1998.

(5.) Winslow, Ron. Aetna to Acquire Prudential Health Unit. The Wall Street Journal, December 11, 1998.

(6.) Freudenheim, Milton. Aetna to Buy Prudential's Health Care Business for $1 Billion, The New York Times, December 11, 1998.

(7.) Freudenheim, Milton. Fiercer Aetna Sets Its Sights on Dominating Health Care. The New York Times, December 14, 1998.

(8.) Steinhauer, Jennifer. Mixed Reviews. With Doctors Giving Thumbs Down, The New York Times, December 11, 1998.

(9.) Jeffrey, Nancy Ann. AMA Asks Justice Agency to Challenge Aetna Purchase of Prudential Business, The Wall Street Journal, December 21, 1998.

(10.) Steinhauer, Jennifer. Rebellion in White: Doctors Pulling Out of HMO Systems. The New York Times, January 10, 1999.

(11.) Foundation News, The Wall Street Journal, April 1998.

(12.) Steinhauer, Jennifer. Hospitals in New York Escalate Competition for Cancer Patients, The New York Times, January 4, 1999.

(13.) Letter to the Editor, Let Doctors Control Health Care. The New York Times, January 5, 1999.

(14.) Abelson. Reed. For Managed Care, Free-Market Shock. The New York Times, January 3, 1999.

(15.) Rundle, Rhonda L. Kaiser Permanente Reports a Net Loss of $102 million, The Wall Street Journal, November 2, 1998.

(16.) Srintvasan, Srija, Larry Levitt, and Jandey Lundy, Trends: Wall Street's Love Affair with Health Care, Health Affairs, June/July 1998, pages 126-132.

(17.) Levick, Diane. Medicare HMOs: Pay More, Get Less. Insurers Cite Losses in Millions, Premiums to Rise as Benefits Shrink. Hartford Courant, November 22, 1998.

(18.) Lee Newcomer, Paperwork is Bad for Your Health. The Wall Street Journal, January 11, 1999.

(19.) Editorial, Our View, Elderly, Sick Suffer as HMOs Adopt Tactics They Once Deplored, USA Today, December 30, 1998.

(20.) Preudenheim, Milt. Employees Facing Steep Increases in Health Costs, The New York Times, November 25, 1998.

(21.) Rosenblatt, Robert A. Seniors Pace Big Medigap Increase, Miami Herald, January 6, 1999.

(22.) Reuters, Americans' Life Span Rises to Record High, The New York Times, December 8, 1998.

(23.) Tanouye, Elyse, U.S. Has Developed An Expensive Habit: Now. How to Pay for It, The Wall Street Journal, November 16, 1998.

(24.) Cohen. Laurence D. Health Care: Not A Good-Vs-Evil Battle, Hartford Courant, November 29. 1998.

(25.) Herzlinger, Regina. Market Driven Health Care, Reading, MA: Addison-Wesley Publishing Company, 1997.

(26.) Business Bulletin. A Special Background Report on Trends in Industry and Finance, The Wall Street Journal, December 3, 1998.

(27.) Pear, Robert. Commission Urges Overhaul of Medicare Payment System, The New York Times, January 8, 1999.

(28.) Kilborn, Peter T. Rising Premiums Strike the Ailing: As the Healthy Quit Their Policies. Cost Shifts to the Sickest. The New York Times, December 5, 1998.

(29.) Washburn. Earl R. The Coming Medical Apocalypse. The Physician Executive, January/February 1999, pages 34-39.

(30.) Preudenheim, Milt. Influencing Doctors Orders: Ads Help Sales of Prescription Drugs, but at What Cost? The New York Times, November 16, 1998.

(31.) McDonald, John M. Study Shows Patients Breaking with Tradition: Alternative Medicine Now Quite Common, Hartford Courant, November 11, 1998.

(32.) Freyer, Felice J. So Tired, Tired of Waiting, Providence Sunday Times, December 27, 1998.

(33.) Rundle, Rhonda L. Under Attack, HMOs Address Patients Gripes, The Wall Street Journal, November 25, 1998.

(34.) Freudenheim, Milt. Playing a New Health Care Tune, The New York Times, December 27, 1998.

Richard L. Reece, MD, is Editor-in-Chief of Physician Practice Options. He can be reached by calling 888/457-8800 or via email at [e-mail].