American corporations, confronted with gigantic health care expenditures, are taking radical cost-control measures that--together with government actions--may transform the nation's health care delivery system into a competitive market.
This year alone, U.S. companies will pay $77 billion in health insurance premiums--more than those companies will pay out in dividends, former secretary of Health, Education and Welfare Joseph A. Califano Jr. said in a recent speech.
Health-insurance premium increases as high as 30 percent to 40 percent have been particularly striking, coming at the same time recession was choking profits. Increasing at three times the rate of inflation last year, health care has become the fastest rising cost of doing business.
Chrysler Corp. has estimated that its health care costs add more than $600 to the price of each car the company sells. An average Chrysler autoworker must work four months to produce the $6,000 in revenues that it takes to cover thethe company's cost for the employe's health care --more than four times as long as it took to produce the $825 that the same costs amounted to in 1972.
Suddenly forced to grapple with the health care cost issue, corporations have adopted several different approaches that combine consumer education, employe fitness programs, making employes pay for more of their health care and encouraging competitive shopping, both by the employe and by the corporation.
Owens-Illinois Corp. encourages second opinions for some types of surgery and provides nurse-coordinators for hospitalized workers to help reduce the number of days of hospitalization. United Technologies Corp. has tied donations to a Connecticut hospital to the achievement of cost-efficient goals.
Deere & Co. relies on peer review as a check on unnecessary hospitalization, and, like many other employers, actively promotes participation in health maintenance organizations (HMOs) by workers to reduce health care costs.
In addition, companies are increasingly establishing their own insurance programs for employes rather than buying insurance, a practice that allows the company to profit from investment of premiums. In contrast to 10 years ago when only about 5 percent of all firms were self-insured, close to 50 percent are now, according to Millard Gamble of the Brougher Agency, a correspondent to Lloyds of London. Gamble advises companies on setting up such arrangements.
Adding to the pressure on business to cut costs is the concern that government's increasing effort to cut its health care spending will mean higher costs for the private sector.
"In order simply to stay in place, they've got to take some action, because there's no question that the pressure on the hospital industry, in terms of the easy way out, is to shift more costs to the private sector as government programs begin to screw down," said Richard Cotton, an attorney who works with Califano on health care measures.
"It's possible for the corporations and private payers to not only reduce the tendency to shift costs but also to achieve some absolute cost reduction by negotiating as volume purchasers with volume sellers to create competitive pressures that simply have not existed before," he said.
Despite growing corporate self-interest in cutting the nation's and, therefore, their own health care costs, there are those who question whether the private sector can provide the fundamental reform needed and whether one result may be less health care, not equivalent health care at a lower cost.
"I think gradually the notion is beginning to sink in that it is a systemic problem," said Melvin Glasser of the Committee for National Health Insurance. "Now that we have increasing numbers of corporations getting into the cost containment business, they're finding that with the best intentions, with the cooperation of the unions and the insurance companies, that the amount of saving they can make is relatively small compared to the amount of the increases."
"They're also finding that their influence on the system is relatively small," he said. "It has to be when public expenditures account for 42 percent of all expenditures."
Corporate health care directors are optimistic about the savings they expect to achieve, but most of the programs are still in early stages and difficult to judge in terms of results.
* Owens-Illinois Corp. encourages second opinions for 13 types of surgical procedures, including bunionectomies, hysterectomies, gall bladder surgery, nose surgery, varicose vein surgery and tonsil and adenoid removal. If a worker obtains a second opinion, 100 percent of the cost of a procedure is reimbursed--no matter what the second opinion is or whether it is heeded. If not, only 80 percent of the costs are reimbursed.
The program, which began this year for salaried workers, will be extended to the company's hourly employes by agreement with their union representatives beginning Jan. 1, 1984.
So far, the program has resulted in 293 second opinions, resulting in decisions not to go forward with surgery in 23 cases, according to Richard Hanley, vice president of health care policy and programs for Owens-Illinois. However, Hanley added that in some cases the surgery may just be deferred, not avoided all together.
In addition, the company has created a staff of nurse-coordinators, who counsel patients about how to get a second opinion and who call or visit if the employe (or the employe's relative) is hospitalized.
Among other things, the nurse-coordinator helps with discharge planning. "If the employe could go home in a couple of days because we can provide home health care, we're happy to do that to get them out of that very expensive hospital setting," said Hanley.
Once the employe is home, the nurse-coordinators also make home visits.
In its early stages, the patient services program appears to have significantly reduced days of hospitalization per 1,000 employes. The number declined from 835 days in the first quarter of 1982, to 688 in the first quarter this year, a drop of nearly 18 percent.
"That's a rather significant decline," Hanley said. The patient services program is strictly voluntary, he said. "We offer and, if the patient tells us to go away, we will. But most people want assistance."
The company has also increased deductibles and imposed penalties for inappropriate use of emergency rooms and for hospitalization when surgery should have been performed on an outpatient basis.
* United Technologies Corp. tied its charitable donations to Manchester Memorial Hospital in Manchester, Conn., to the achievement of goals aimed at making the hospital more cost efficient. "We've been very successful with one hospital. We've been able to affect the way they practice medicine," said Dr. Sidney Curtis, corporate medical director for United Technologies.
The corporation has offered a five-year, $300,000 gift to the hospital, most of whose patients are employes or dependents of employes at United Technologies' nearby Pratt & Whitney aircraft plant.
Half of each annual increment is tied to meeting a goal. The first goal was to increase the percentage of surgery done on an outpatient basis. When the program began, about 20 percent of the hospital's surgery was done on an out-patient basis. The hospital has surpassed its goal of increasing that percentage to 25 percent by three percentage points, according to executive director Edward Kenney.
This year's goal is to reduce the average hospital stay by psychiatric patients from 23 to 21 days. So far, the hospital has been able to reduce the number to 19 days, Kenney said. Meeting the goals has required some substantial changes, he noted. In the case of psychiatric patients, the hospital created a new day treatment program for some of its patients who did not need hospitalization but for whom that option was not previously available.
Kenney said the hospital has been able to improve its cost efficiency in both areas without any sacrifice in the quality of patient care.
* Deere & Co. began reviewing its health care costs back in 1977, when health care expenditures were only rising at double the rate of inflation. The company has helped establish two HMOs serving its employes by providing seed money and was also involved in the development of a third HMO, said Richard Van Bell, director of the company's health care department.
The company has also contracted with the Iowa Foundation for Medical Care, which provides reviews by health professionals of employe hospitalization to make sure it is warranted. In cooperating hospitals, a nurse reviews hospitalization records. If the nurse questions a hospitalization, or some aspect of it, the records are passed on to a reviewing physician.
The physician rules on whether treatment was appropriate, which the company or insurer can use as a basis to decide whether to reimburse for the hospitalization.
"Whether or not the insurance company pays is probably not what has an impact" on lowering costs, said Rick McMasters, vice president of the foundation. "The impact is on the physician's behavior," he said.
Deere has participated with the foundation since 1980, and in that time the number of hospital days per 1,000 employes has been reduced more than 20 percent, from 748 to 592, McMasters said. So far this year, the company's hospital utilization rate is 11.3 percent below last year's.
The foundation has contracts with about 85 percent of the businesses in Iowa, McMaster said. "We can reduce the days of care while, at the same time, ensuring that it doesn't affect the quality of care" because the reviews are performed by physicians, he said.
Corporations are not acting alone. Both federal and state governments are moving toward cost control. Many unions have also promoted health cost control measures. The insurance industry has also increasingly emphasized the need for cost control and worked with firms they insure toward that end.
"I think there's a lot of evidence of a rapidly increasing level of interest and recognition of the fact that something has to be done," said Bryan Dearborn, director of marketing for the northeast region for Blue Cross-Blue Shield.
"We know that we're talking to a great many employers about these types of things, far more than in recent times," he said. "Probably within the last three years there's been a sufficiently marked increase in the activity that it has become recognizable and common," said Dearborn.
Some of the activity is still at a very basic level, such as collecting information on how a company's health coverage is being used.
The medical profession has also recognized the movement toward competition, away from the "yes, doctor-thank you, doctor-anything you say, doctor" mystique and toward the marketplace. In some respects, the marketplace appears the lesser of two evils (the other being more government regulation) to at least some in the profession.
"The private sector's resistance to more cost increases is real and will produce more price competition," Michael D. Bromberg, executive director of the Federation of American Hospitals, said in a speech earlier this year.
The other alternative is more government regulation, he said. "These two alternatives are miles apart, and the hospital industry needs to unite strongly and vocally in support of the marketplace philosophy," Bromberg said.
"Our customer has changed," Bromberg told the Southeastern Hospital Conference. "Physicians remain the key but no longer the only client of hospitals. Business, labor and insurers will be new customers, interested in the best price for quality care and new arrangements for allocating scarcer dollars for hospitals and substitutes for high-cost services."