Cutting costs, not care; Rochester hospitals try cooperation instead of competition.

• Author: Gunn, Erik

CUTTING COSTS, NOT CARE

The ugly side of health care cost-control surfaced last year during a U.S. Senate committee hearing on Medicare's two-year-old system for providing the elderly with hospital care. The committee, chaired by Pennsylvania Republican John Heinz, uncovered the case of a 68-year-old man who had been hospitalized for vomiting caused by a hiatal hernia that had also worsened his chronic emphysema. The patient was discharged eight days later, before he fully recovered. The early discharge, the committee reported, was prompted by the doctor's fear that the patient would be responsible for paying the balance of his bill not covered by the Diagnostic Related Grouping (DRG)--the Medicare program that pays hospitals a flat fee based on a patient's diagnosis. When the patient said he had no money, he was sent home.

He died in his driveway.

Despite this and other horror stories, DRGs and other programs aimed at curbing health care costs through competition are increasingly popular. Corporations are signing up their employees in Preferred Provider Organizations-- doctor groups and hospitals that promise to hold down their bills in return for the right to care for a block of patients. Health Maintenance Organizations (HMO) are competing with traditional insurance plans by cutting costs through reduced hospital stays and by covering more out-patient treatment, including regular doctor's office visits not covered by traditional insurance. Where the financial incentives once led doctors and hospitals to give as much treatment as possible--whether it was needed or not--they're now rewarding the health care providers who do less. Perhaps the greatest spurs to competition have been the DRGs.

The rise of competition has begun to rein in health care costs. Hospital occupancy rates have dropped for the last two years and will probably continue to do so this year. Former Health, Education and Welfare Secretary Joseph Califano championed the accomplishments of the market-place in shaving the health care dollar in a recent New York Times article: "[T]he spirited air of competition is for the first time swirling through the health industry.' Business, government, and unions, he continued, are "changing the way doctors, hospitals, and other providers are used and paid, and reshaping financial incentives that have encouraged patients to seek unnecessary care. And a host of new health care providers is scrambling to get their business.'

There's no question that many of the changes in health care are long overdue. As Califano points out, for instance, simply requiring second opinions for virtually all major elective surgery helped Chrysler save $100 million over the last three years--and probably improved the health of patients spared unnecessary operations. A RAND Corporation study published two years ago in the New England Journal of Medicine showed that HMOs in Seattle successfully cut hospital use without hurting patients.

But as the Heinz committee found out, competition has created winners and losers. The winners have been the private hospitals, often operated by for-profit chains, that know how to weed out the difficult, expensive cases and the inconvenient, poor patients who aren't covered by insurance. The losers include teaching hospitals, whose medical students and residents increase costs both directly and indirectly--for instance, by ordering tests that, while not medically needed, could add to the trainees' knowledge of a certain illness. More important, the losers often include municipal hospitals supported by tax dollars that end up shouldering the burden of charity care. In Florida, patient dumping has become so bad that the state now taxes private hospitals to help offset the costs of treating the poor.

The Heinz committee concluded that in the scramble to make DRGs work for them financially, hospitals began pushing Medicare patients out as soon as they calculated a patient's treatment had reached the limit of Medicare's new fixed fees. Before switching to the flat-fee approach, Medicare had paid hospitals on the basis of how long a patient stayed. Some hospitals are now turning down patients whose illnesses they conclude would cost more to treat than the government intends to pay under the DRG system. The committee found a 40 percent increase in the number of patients who were sent to nursing homes...