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Is the Health-Care Cure Worse Than the Disease?
YNHH's Zaccagnino on the dangers and dynamism of an industrial revolution in health care
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Business New Haven
1/21/2002
By:
BNH
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Joseph A. Zaccagnino is president of the Yale-New Haven Health System, which includes Yale-New Haven Hospital as well as Bridgeport and Greenwich hospitals. In January 10 and January 11 interviews with BNH he outlined the opportunities and challenges faced by his system as well as major trends and issues in the state's and nation's health-care industry. First of two parts.
Much has changed in the health-care marketplace since we last spoke at length three years ago. What are the principal drivers?
At that point in the health-insurance market we were seeing a movement toward capitation [reimbursement based not on performed services, but on number of enrollees]; the marketplace was fragmented with many insurance companies; and providers were starting to enter the insurance market. Also, managed-care penetration [in Connecticut] was at about 27 percent [of the non-government-insured population]. Since then, capitation was never realized; it was replaced by discounted fee-for-service. Meanwhile, the insurance market consolidated from about 16 companies down to three [Anthem Blue Cross & Blue Shield, Physicians Health Services and Aetna], which today control 75 percent of the market. [As a result] provider-sponsored health plans were no longer sensible. Managed care, however, continued to grow and now represents 70 percent penetration of the [non-government-insured] population. The primary-care practice-management companies were interested in coming in and becoming gatekeepers to control specialty and hospital utilization, but also to become the contractor between providers and employers. That's why they were so threatening to providers, because these were basically publicly-traded companies that wanted to get this contracting control to extract profit. The providers were concerned that they were going to end up with insufficient funds to carry out their responsibilities.
So how did the providers respond?
In a couple of ways. They started to buy primary-care practices - but these practice-management companies ultimately failed - first, because capitation was never realized, so they had nothing to control in the contracting equation; and second, because providers did respond, the high-quality primary-care practitioners were not available to them, so they couldn't organize a network that was effective in controlling the contracting vehicle.
Did the integration of these systems actually accomplish anything, and is the Yale-New Haven Health System today doing what you had hoped it would do?
We found that systems that were formed by either weak relationships or among weak partners - organizations coming together just out of fear of being left alone but bringing as many problems as they brought assets - haven't been successful. But systems that were clearly organized with clear strategic imperatives that had strong stakeholder buy-in and gave control to one of the entities, have been successful.
Three years ago you said the state was 'over-bedded.' Where do we stand now?
Hospital beds per 1,000 population were at about 2.4 then; we are now at 2.0 beds per 1,000. So there's more of an alignment between capacity and need now, which is a good thing because, unfortunately, excess capacity in health care often means excess utilization.
Describe the principal market forces impacting health-care delivery today.
Essentially flat or declining revenues, particularly governmental revenues, escalating costs and increased consumer expectations. In the governmental payment area, obviously Medicare is a huge component of what health-care providers do; in our system 50 percent of revenues come from governmental payors. The balanced budget act of 1997 extracted $155 million in Medicare revenues from our three hospitals over a five-year period. In 2001, YNHH received $23 million less in Medicare revenue than it would otherwise have received had this act not been passed. And I can tell that the intensity of services required by Medicare patients has only gone up. So we have to do more with less.
What about the other major governmental payor, Medicaid?
Today, YNHH receives 55 cents on each dollar of cost spent to care for Medicaid patients. And our three hospitals provide 25 percent of all the Medicaid services in Connecticut, and therefore carrying one-quarter of the under-payment burden.
What about care for uninsured patients?
Because Connecticut has so many poor urban centers, and our systems operates in two of them (New Haven and Bridgeport), YNHH alone adds another $30 million in [annual] free care. So nearly $60 million a year has to be generated from other payors to cover the costs of caring for the uninsured and Medicaid-covered patients. So unless hospitals receive support from other charges to commercial carriers, they would obviously have insufficient funds to keep providing services. So in the current model, the costs are shifted to the commercial payor.
What about escalating costs - what is driving them?
Pharmacy has been an enormous driver here. The increase from 2000 to 2001 was 20 percent. There are a lot of reasons given for why these cost increases are occurring. One is that the pharmaceutical companies are introducing new and important drugs that have an impact on lifestyle - and maybe even on life.
They always have.
True. But one of the things that has changed is there has been direct advertising to consumers. In 1994 [pharmaceutical companies spent] $266 million on direct advertising; in 2001, that figure was $2.5 billion. What's been realized in the provider setting is that patients come in and demand the drug they want. They don't want to hear that generics or equivalents may be sufficient. And they will change providers if they don't get what they want.
Which leads us to your third market driver: increased consumer expectations.
Patients are much better informed [than ever before]. They want more information, they want it quick, they're much more likely to use the Internet - all that adds to the cost and time pressure on the physician. On the other hand, it's a good [trend] overall, because historically patients have been more passive in their patient-care interactions. But patients are different than they were, and their expectations are different.
Regarding more general health-care cost inflators, health-care inflation is expected to run at about 9.3 percent, which is three times greater than the Consumer Price Index. National health-care expenditures are projected to reach $1.4 trillion, an 8.6 percent increase over 2000. That's a funny number, though, because you have to recognize that, given the aging population, there may not be anything wrong with that much of our economy [spent on] health care.
To shift gears, where do matters stand today between the hospital administration and the union that wants to unionize the workers?
We're a service organization committed to delivery high-quality care to patients, and we recognize the connection between satisfied employees and our ability to perform our work. We fully respect our employees' right to consider and even choose union representation. But we feel strongly that they should have the opportunity to make an informed choice. We've always abided by the terms of the national Labor Relations Act and the practices of the National Labor Relations Board [NLRB], which [provide] for a secret ballot election to determine interest in union representation. We oppose the proposals that have been advanced by union organizers for so-called card-count neutrality; we view that as an attempt to circumvent the time-honored NLRB process of decided on unionization through a secret-ballot election. Card-signing does not represent a commitment to unionization. The secret-ballot process, which allows individuals to make their private decision without influence from either side, is one that's proven, it's the law, and it's the one we will abide by.
Part II of BNH's interview with Joseph A. Zaccagnino will appear in the next edition published February 4.
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