After visiting her doctor recently, a Rockville woman received a $1,500 bill for a surgical procedure that had not been performed.
The woman questioned the error, had it removed from the bill and won a $500 "bounty" from her employer, Bell Atlantic Management Services Inc., of Arlington, one of many local firms that is pumping extra energy into holding down health care costs.
"The message to health care providers is that these bills are not going to be blindly paid anymore," said David M. Gillis, assistant vice president of Bell Atlantic, which has seen its medical expenses per employe increase 380 percent over the last 10 years.
Local businesses acting independently and in connection with other groups are launching a variety of health care cost-containment measures that are beginning to restructure the local health care industry.
Bell Atlantic's "bounty" program encourages employes to question hospital bills, while other firms have redesigned their health care benefits to encourage employes to stay out of the hospital. Rather than automatically providing insurance that pays for whatever services are rendered, many local companies are offering employes the option of enrolling in health maintenance organizations, where one membership fee covers almost all expenses.
Local hospitals, competing for a shrinking market share, have agreed to participate in a study aimed at discovering which health care providers deliver the most cost-effective, quality care. Conducted by a coalition of local health care purchasers and providers, the study should be completed by the end of this year. The results could determine which hospitals survive a possible shakeout in a local industry with excess capacity.
"The way medicine is practiced now, in terms of price and delivery, is not what you'll see in 10 years," said Dindy Weinstein, executive director of the National Capital Area Health Care Coalition, an organization of local businesses, insurers, unions and hospitals working to cut costs. "Employers of all types realize the enormous cost of doing business is related to the cost of providing health care to employes."
The cost of providing employes with health care benefits is higher and is rising faster in the Washington area than it is nationally, according to a survey of local businesses conducted by the coalition last year. Local employers paid an average $1,255 per employe in 1983, 8 percent above the national average. Washington businesses' health care costs rose 21 percent in 1983, compared with a national rate of 14 percent.
Health costs are higher here for several reasons, including excess medical resources, a well-insured work force, a large amount of uncompensated care for indigents and a cost of living that is generally higher than the national average, experts say.
Coalition members agree that rising health costs are a problem, that the existing system of medical care and payment is changing and that all groups have an interest in influencing that change.
"We're not pointing the finger at anyone," Weinstein said, attributing the problem to a combination of hospitals, insurers, employers and doctors. "We're all in this together."
But some in the coalition worry about the effects of competitive pressures on the local health care industry, with its high concentration of teaching hospitals and indigent patients. "There are going to be some losers," said Stephen Lipson, president of the District of Columbia Hospital Association and a member of the coalition's board of directors.
Local hospitals already are losing business in the face of such stiff competition. Occupancy rates at the 44 non-federal hospitals in the metropolitan Washington area dropped to an average of 75 percent in the first 10 months of 1984 from 80 percent in the same period of 1983.
Private industry has begun taking a variety of steps to reduce hospital use further, according to the coalition's survey. More than 50 percent of the companies in the survey have redesigned their health benefit plans to encourage employes to use outpatient surgery services. Others encourage employes to get a second opinion before surgery and to use home-health and hospice care rather than hospitals.
Employers also are trying to hold down their own costs by shifting more of the burden to employes through higher deductibles or other forms of employe co-payment of medical bills. The survey found that 62 percent of employers had raised deductibles, making it the most popular form of control for employer health costs locally.
One of the most significant findings of the coalition's survey was businesses' lack of data on health program usage and costs -- a situation the coalition hopes to change.
Fewer than 11 percent of the firms in the survey could provide all the requested financial information. "We have no idea what's going on," Weinstein said. "No other vendors or businesses ask customers to buy goods without knowing what they're getting and what they're paying."
In response, the coalition has begun a study of how 32 local providers treat 20 of the most common medical conditions. The study will look at factors such as the average length of a hospital stay, the average number of X-rays and tests and average costs associated with cases such as a normal delivery, hernia operation or appendectomy.
The results will be adjusted to reflect differences in population and cost structure between suburban hospitals, which tend to have healthier patients and lower costs, and urban hospitals, which have more indigent patients and higher costs.
"We want cost-effective providers delivering quality care," Weinstein said. "Once businesses know who are the efficient providers, they can structure incentives in their insurance plans to direct employes to the most efficient providers. . . . We hope it will lead to a more competitive environment."
Generally, hospitals across the country have been "fairly reluctant" to release information because they fear the effects on their market share and profits, said Karen Ignagni, an AFL-CIO representative on the coalition's board. Local hospitals represented on the coalition's board voted to conduct the study, Weinstein said. The hospitals will cooperate "to hold onto business. . . . It's important for them to see where they stand in the marketplace, in an environment that's rapidly changing."
The D.C Hospital Association supported formation of the coalition because it wanted "a seat at the table," Lipson said. More than 100 similar coalitions have been formed nationwide, and many do not include health care providers. Lipson said local providers know the coalition "would have been formed without us" and that hospitals have an "interest in explaining our problems and explaining the community's problems."
For example, D.C. hospitals have higher labor costs than suburban institutions because of the difficulty of attracting employes from the suburbs and the higher cost of worker's compensation coverage. City hospitals treat more low-income patients, who require more care because they generally are less healthy, wait longer before seeking help, have poorer nutrition and have more substance-abuse problems than most suburban patients, Lipson said.
In addition, the federal government's new Medicaid and Medicare reimbursement plan penalizes urban hospitals by basing prospective payment on average costs throughout the metropolitan area, he said. Urban hospitals tend to exceed the local average while suburban hospitals fall under it, so the city hospitals are not reimbursed for their total costs, Lipson said.
D.C. hospitals also provide an additional $100 million a year in care to indigent patients who cannot pay the bills. The cost of that uncompensated care is spread among paying patients, he said.
Washington also is home to three academic teaching hospitals, which have inherently higher costs. Hospitals at Georgetown, George Washington and Howard universities pay residents and interns; maintain large staffs to treat a wider variety of ailments, and are less efficient because of the teaching process, said Dr. Martin G. Dillard, a coalition board member representing the Coalition of Academic Health Science Centers.
Some coalition members are concerned about the effect of a more competitive environment on the more costly hospitals that fill a social need. "Sure, I fear a shakeout," Lipson said. "My fear is that the hospitals that work harder to take care of the needy will have trouble attracting enough paying patients."
Washington Hospital Center provides $10 million a year in uncompensated care, said Isabel C. Pryce, secretary of the board of trustees and a member of the coalition's board. "We want to contain health care costs because we don't want to go under. We don't turn anyone away from our doors. We want to keep our cash flow so we can take care of these people."
Other coalition members express concern that the quality of health care not suffer in the quest to contain costs, but admit that measuring "quality" is often difficult.
Business is aware of the dilemmas arising from the question of who will bear certain social costs at a time when all parties are watching their bottom line.
The community -- including the federal and local governments -- is deciding "how to allocate social resources," said Barry Wilson, a vice president of Blue Cross and Blue Shield of the National Capital Area. "The quality of care available to some now may not be the same tomorrow."
"We're part of the community," said David Forman, corporate vice president of People's Drug Stores Inc. and a member of the coalition's board. "The community needs physicians, and physicians must be trained. We need to support that."
"We want as good quality care as we can afford to pay for as a community," said Robert Petersen, vice chairman of the coalition and president of the Columbia Typographical Union, AFL-CIO. "But the American system cannot accept further increases in health care costs. We cannot survive with the existing medical system."