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Health Care 2000: 'Confusion & Chaos'
Stress spawns search for new solutions to sickness in the system
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Business New Haven
10/18/1999
By: Susan Banfield
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What is the state of the health-care industry in Connecticut as the Millennium approaches?
The problems afflicting the industry are so deeply embedded and intertwined that it is difficult to delineate the various issues - let alone what kinds of resolutions to them may emerge in the near future.
Ken Warren, who owns 2001 Marketing, a health-care consulting and marketing firm in Orange, summed up the situation aptly when he remarked recently that "Confusion and chaos are the reigning factors now."
Although it is difficult to identify any one issue as most pressing, it would not be unfair to say that the hardships hospitals in the state are facing is at least one of the most urgent problems. According to Deborah Hoyt, vice president of public affairs and education for the Connecticut Hospital Association, all 31 of Connecticut's acute-care hospitals are "very concerned with their own stability." This year will even end up losing money, says Kenneth Schwartz, M.D., medical director of Griffin Hospital in Derby.
Some hospitals are even chronically in the red - a "significant proportion" of them, according to Tom Grimshaw, executive vice president of Mid-State Medical Center in Meriden. They are unable to pay staff and maintain their free services to the community (witness, for example, recent layoffs at New Haven's Hospital of Saint Raphael).
The root causes of the problems are complex, but chief among them is the slashing of Medicare benefits imposed by the federal Balanced Budget Act of 1997. The Medicare cuts are especially hard on the hospitals in the northern and western parts of the state, areas with larger elderly populations.
Overall, says Hoyt, the Balanced Budget Act cuts will reduce government payments to Connecticut hospitals by $1.1 billion over the five-year period that began in 1997.
The Medicare cuts are so difficult for the hospitals to absorb because they come at the same time that HMOs have also been cutting the rates at which they reimburse hospitals.
Grimshaw explains why these cuts have hit hospitals in Connecticut harder than elsewhere: Hospital rates in the state used to be regulated so that no hospital could make more than a one-percent annual profit. This meant that unless a hospital was very well endowed, it was never able to build up its bank, as it were. When managed-care reimbursement reductions and Medicare cuts came through, they very quickly used up whatever extra money there was.
William Merlin, M.D., CEO of the Yale-New Haven Center for Practice Management Services, notes that the government has also cut back its subsidies to teaching hospitals, of which Yale-New Haven Hospital (YNHH) is one. This has meant that these hospitals have had to replace the some of the services provided by relatively inexpensive residents with those of regular "full price" physicians.
And, despite cuts and difficulties, hospitals are still obligated by law to treat anyone who comes to their doors needing medical attention, Hoyt points out - whether or not they have insurance or other means of paying. With the number of uninsured individuals steadily rising (numbering some 44 million nationwide), this has also had a significant financial impact on hospitals.
"Now," explains Grimshaw, "hospitals are not financially strong enough to meet the bonding requirements for needed renovations."
The Balanced Budget Act has also had a serious impact on two other large branches of the health-care industry: convalescent homes and home health-care services, both of which serve a high proportion of patients on Medicare.
Andrew Eaves, director of communications and strategic development for Visiting Nurse Services of Connecticut, the state's third-largest home health-care agency, estimates that 65 percent of his agency's business is Medicare-based.
"They have phased the cuts in, so it gets worse [incrementally]," Eaves says. "There is another 15-percent cut due in October 2000." Eaves says that agencies such as his are looking to grants and donations to bridge the gap between what Medicare pays and the actual cost of services, but notes that even so, "There is definitely a need that exceeds resources." As a consequence, there has been what Warren terms "massive consolidation" in the industry, with between 20 and 30 Connecticut agencies relinquishing their licenses.
Ray Watt, administrator for Regency House, a convalescent home in Wallingford, says that a number of nursing homes around the state have gone under because of the financial difficulties created by the Medicare reductions. "Major companies have filed bankruptcies," he says, noting the irony of such a development at a time when the U.S. elderly population is growing faster than at any time in history.
Both Eaves and Watt also point out that another serious problem afflicting both of their industries is a shortage of nurses. "This past year nurses have been in great demand," notes Eaves. "Any place that uses nurses has been trying hard to find them."
Watt notes that especially in a period of low unemployment such as now, special incentives will be needed to get more people to enter the nursing profession - and particularly to get them to work unpopular shifts once they have jobs.
Another critical issue in health care today is the increasing dissatisfaction with their jobs experienced by many physicians, especially primary-care physicians. "This is the biggest issue," says Merlin. "It's extremely hard to be a primary-care physician today."
One of the reasons, just as in the case of hospitals and facilities and agencies that care for the elderly, is the Balanced Budget Act. Another is the increasingly contentious, and even litigious, relationship between doctors and HMOs (see story, page 1). Not only have HMOs cut back on reimbursements to physicians, leaving them "severely undercompensated," according to Merlin, but they have also established structures and procedures that have in effect placed them in the position of telling doctors how to treat their patients.
The Connecticut State Medical Society recently took out full-page ads in daily newspapers statewide criticizing Aetna's U.S. Healthcare subsidiary. "They are tired of being told what to do and how to do it, of HMOs running patient care," Warren says.
Yet another manifestation of the deteriorating physician-HMO relationship is the administrative nightmare physicians say it imposes on them. "The phone calls and paperwork have increased exponentially," says Merlin. There is also the nightmare of trying to figure out the complexities of billing, what with co-pays, deductibles, etc.
"We can't afford the overhead of these crazy-quilt billing systems," says Grimshaw.
As a result of all the stress in the system, new ways of organizing physicians have been experimented with recently in the state. For example, many hospitals scrambled to buy up physician practices. But these have for the most part not worked out as hoped for.
One of the most prominent of these, CHC Physicians, which was purchased by Yale-New Haven Health Services, will no longer exist after the end of this year, due to continuing financial difficulties. "Hospital interest in owning physicians is off," notes Warren.
Physicians now also are confronted with patients who are far less docile than in years past - and in fact are likely to strike an adversarial relationship with their doctor. Hoyt points out that more and more patients are educating themselves on their health problems via the Internet, and as a consequence are often questioning their doctors or asking for second opinions.
Merlin notes that more patients are demanding evening and weekend hours. And increasing numbers of them are taking to suing their doctors when they are dissatisfied with the care they have received.
In a recent editorial in the New Haven Register, local cardiologist Steven Wolfson observed that growing numbers of primary-care physicians have become so disenchanted with their chosen profession that they are electing early retirement or are taking jobs in other aspects of the health-care industry.
"My internist and pediatrician colleagues are fatigued, frustrated, and while most are determined to fight on, some are clearly disaffected from their daily work," he wrote.
While hospitals, nursing homes and doctors are all struggling financially, health care costs, ironically, continue to rise. That is yet another of the most pressing issues in the industry as the Millennium draws to a close.
For Robert Natt, former president of Physicians Health Services and now head of his own health-care consulting practice, R.L. Natt Associates, the biggest single issue in the industry is "the incredible cost of health care in this state."
Natt points out that for many employers, health care is the second-largest item in their budgets, after the cost of labor. He says that having among the highest health-insurance costs in the nation will seriously affect Connecticut's competitive advantage in attracting new business.
"It hasn't impacted us yet," Natt notes. "But wait until the next recession."
Another extremely critical consequence of the mounting cost of health insurance is that the ranks of the uninsured are steadily increasing. "I think the most pressing issue is access to care for the uninsured, especially children, and most especially children with behavioral health issues," says Tom Grimshaw.
Joseph Coffey, executive director of the New Haven County Medical Association, concurs. "The number of uninsured people continues to grow, and the forecast is for more premium increases. The trend won't go away, what with new drugs and new technology in the pipelines." Grimshaw points out that this issue is not currently being addressed in the state legislature.
So how will the current morass sort itself out over the course of the next Millennium? The question is a particularly vexing one even for the experts.
"Clearly it will be a major debate in this election," says Coffey, but what kinds of changes such debate might give rise to remains murky.
Some in the industry are willing to predict at least rough outlines of new directions. Many, for example, agree that health care will become increasingly consumer-driven as more and more patients, armed with the powerful tool of the Internet, take an active role in their own health care.
There is also broad agreement that the emphasis on preventive care will grow, as preventive medicine is far less costly than the treatment of patients who become ill. For example, Hoyt points out that more and more hospitals are investing in programs to help people stop smoking, lose weight and deal with stress.
Merlin is one of the few who feels confident in predicting specific changes in how the industry will organize itself in months to come. "I think the next step will be a vertically integrated model," he says. By this he means a system in which primary-care doctors, specialists and hospitals work together as a unified group to provide care and negotiate as one with employers. Merlin points out that there are several successful practices organized in this fashion in a number of markets in the western U.S.
And at least one person in the industry is willing to put a positive spin on all the confusion that seems to reign in health care right now. "It's spawning a lot of entrepreneurial activities, a lot of creativity, new synergies," says Andrew Eaves of VNS. "It's a very dynamic industry right now."
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