Health care costs: cooling the fever

Nation's Business, Jan, 1986 by Harry Bacas

Health Care Costs: Cooling The Fever

Cost control, driven by continuing market pressures and tightened government benefits, will dominate the health care industry again in 1986.

"We are in a period of review and change in America's traditional health care systems,' says Sheldon S. King, executive vice president of Stanford University Medical Center.

James H. Sammons, executive vice president of the American Medical Association, sees a "continuing evolution' in medical care "from a national emphasis on maximum care to a national concentration on minimum cost.'

Sammons says doctors will press legislatures and Congress to help solve the professional liability crisis that is affecting both the cost and quality of medical care. He says doctors will also increasingly switch to new forms of practice such as participation in health maintenance organizations and freestanding care centers.

An oversupply of hospital beds, caused by a decade of overbuilding and aggravated by lower admission rates and shorter patient stays, will lead to a shakeout in the hospital business in the next few years, observers say.

Investor-owned hospitals continue to gain market share from nonprofit hospitals, although some chains reported slowed earnings last year. They will have an estimated 30 percent of the market--up from 13.6 percent in 1984-- by 1990, according to a study by Forst & Sullivan, New York researchers. The strongest growth is in multihospital systems and in specialty hospitals.

In addition to their own hospitals, management companies now operate 330 nonprofit hospitals under contract.

Michael D. Bromberg, executive director of the Federation of American Hospitals, says the health care revolution is forcing hospitals to reposition themselves as "health-care systems.' To their standard acute care they are adding "outpatient and ambulatory surgery, home health care, long-term care like nursing homes and specialty practices like psychiatric care, women's care and sports medicine.'

Private health insurance, which provides more than $100 billion in benefits annually--four times what it did a decade ago--is starting to get involved in more than just paying the bills. An increasing number of insurance companies have formed alliances with hospitals, doctors and other providers to offer "managed health care.'

Metropolitan Life has a program called Met-Elect in six major cities. Participating doctors and hospitals agree to accept reduced rates and covered employees get smaller deductibles or copayments if they use them. An Aetna national network, called Partners, collaborates with Voluntary Hospitals of America, an association of nonprofit hospitals, to offer discounted services and a guarantee that employer premiums will not increase more than a fixed annual amount.

Great-West Life, CNA, Crown, Western Life and MONY Financial Services have set up another network, called Private Healthcare Systems, to manage health care delivery and review patients' treatment.

"In the face of growing competition from new entrants in the health insurance market, 1986 should see our industry continue in the black,' says James L. Moorefield, president of the Health Insurance Association. "At the same time, our customers can look forward to more innovative coverage aimed at helping them continue to lower the cost of their health insurance.'

In addition to health care management, Moorefield says, insurers will be emphasizing programs to help keep people healthy and restore the sick and disabled to productive lives.

Frank E. Samuel, Jr., president of the Health Industry Manufacturers Association, says manufacturers will emphasize technology that helps hospitals cut costs by reducing staff needs and length of patient stay.

But, he says, "they will become increasingly wary of developing technologies that raise costs, even if they dramatically increase quality. The hard question, then, is how well major medical breakthroughs will weather cost control in 1986.'