Altman sees industry unwilling to control costs - interview with Stuart H. Altman of the Prospective Payment Assessment Commission - interview

Healthcare Financial Management, April, 1991 by Richard L. Clarke

CLARKE: Is there anything on the horizon that might provide better data or better abilities to analyze the effect of these factors on costs?

ALTMAN: Perhaps. I think we have a better sense of what we're talking about today than when we started. But I don't think we will ever have a precise estimate. The policy that we have adopted over the last couple of years is that productivity improvements should more or less pay for the new technology. We're neither going to penalize hospitals for . . . what we expect to be their productivity advances, nor are we going to give them extra funds for new technology.

CLARKE: ProPAC and the ProPAC staff do quite a bit of analysis of the massive Medicare cost report database. Have there been any surprises for the commissioners or for you based on staff analyses of this information?

ALTMAN: What has probably been the major positive aspect of ProPAC is the ability of our staff to generate a detailed understanding of hospital behavior in a way that is relevant to policy. [We recently] demonstrated that if you look at profit margins only for PPS, you develop one set of winner and loser hospitals. But if you look at total margins, it almost reverses itself. It was a major finding. You could develop a rationale on why it was the case, but we were quite surprised by the total turnaround.

CLARKE: Do you find the industry's concern about the deteriorating financial condition of hospitals to be valid, based on ProPAC staff analyses?

ALTMAN: I think it's fair to say that the data suggest that profit margins for hospitals have come down, both PPS margins and total margins. The issue is whether it is because of inadequate reimbursement or because of an inability or unwillingness of the hospital industry to gain control over its costs. [The greatest frustration] of PPS - if not the last eight years - is the fact that hospital costs just continue to go up almost as fast as before, on an inflation-adjusted per-admission or per-unit basis. The so-called discipline that we expected to come into the industry does not appear to have materialized.

What the hospital industry is asking the Medicare program, if not the American people, to do is to continue to essentially support it at rates of growth that were going on before PPS. And that's a tall order. Since Medicare has not been willing to provide such increases, many hospitals have gotten it, more or less, by pushing extra fees or prices onto those sectors of the system that have no leverage against hospitals. All you need to do is look at what's going on right now. We have an economy that is in very serious financial shape. Industry after industry is laying people off, cutting wages, cutting dividends . . . [but] the healthcare industry goes along almost oblivious to these economic problems.

CLARKE: Hospital executives might argue that many of the cost increases are not generally in their control. For example, the supply and demand of human resources, the cost of capital, the cost of technology, the demand for services, and the expedient demand and supply of those services are factors that people in the industry say are part of the reason why costs are running at a higher rate than perhaps they would expect or that they would like.