Something remarkable happened in the American health care system recently. A lot of people didn't go to the hospital. After losing millions of dollars in 1980 and 1981, the nation's Blue Cross plans raised their rates, only to see hospitalization drop as much as 18 percent. Many Blue Cross plans have given rebates in the past year.
Experts attribute the drop in hospitalization to a host of factors, including growing competitive pressures from those who pay for care, those who provide it and patients themselves.
"What's happened is something fundamental and profound and, I think, quite permanent," says Bernard Tresnowski, president of the Blue Cross and Blue Shield Associations, which pay health claims for nearly 100 million Americans.
The "something," he says, includes mandatory second opinions for surgery, use of outpatient surgery for minor operations and a "fundamental change in the attitude of the American consumer away from looking to the institution as the center for technology and the place to go for all cures."
That is among the changes outlined by health experts at a conference on health care costs last week, sponsored by the Washington Journalism Center. If they agreed on one point, it was that the way Americans get and pay for health care is changing at an accelerating pace.
The American health care system, experts agree, is less a system than a hodge-podge. It is riddled with waste, conflicting incentives, overlapping programs, anomalies and gaps.
Its technology is the envy of the industrial world, but excessive use of expensive technology is a major cause of the current crisis in health care costs.
The system is what health economist Jack Meyer of the American Enterprise Institute calls "a bizarre mixture of generosity and stinginess." He compares it to a person who is "very well dressed but barefoot."
An estimated 35 million Americans have no health insurance at all. Medicare, the government's health plan for the disabled and those 65 and older, covers less than half of the health care costs of the elderly, and doesn't pay for nursing home care. Only about half of the poor people in the United States are covered by Medicaid, the government's health plan for the poor, which dropped more than 400,000 families -- mainly the working poor -- from coverage during the first Reagan administration.
Traditional health insurance in the United States tends to cover care in the hospital -- the most expensive place to be treated -- more fully than care in outpatient centers, doctors' offices or the home. It covers emergency and acute-illness care better than long-term care for the elderly and the chronically ill. It covers medical and surgical treatment for most illnesses, but not the measures that might have prevented the illness in the first place.
"We are being penny-wise and pound-foolish," Meyer says.
Most American industries would be thrilled with the the kind of growth that has fueled the health care system in the past two decades. The nation's health care bill, outpacing even the double-digit inflation of the 1970s, has rocketed to nearly a billion dollars a day.
But growth that other industries can only dream about has led to consternation in health care and provoked a revolt among those who pay the bill.
Fed-up bill payers include individual patients whose care is covered incompletely or not at all. They include large employers, who paid out more than $100 billion in employe health care benefits last year. And they include the federal government, which as the underwriter of Medicare and Medicaid is now the nation's largest buyer of health care.
"The most dramatic thing happening in the health care system today," Meyer says, "is a buyer revolt against the payment system. It's not driven by ideology, it's driven by fiscal necessity.
"The purchaser side is saying, 'No you don't.' "
The federal government stood the old system on its head last year, by changing the method of payment for hospital care of Medicare patients. Instead of reimbursing hospitals for the number of days a patient is hospitalized, Medicare now pays hospitals a set fee for each type of treatment, regardless of how long the patient stays in the hospital.
Hospital care is classified into 467 diagnosis-related groups, or DRGs, each with a set fee. A broken ankle, for example, comes under DRG 346. If the hospital's costs exceed Medicare's DRG payment, the hospital must pay the difference. If the cost is kept below the DRG rate, the hospital pockets the savings.
Proponents of the DRG system say it has for the first time given hospitals an incentive to shorten a patient's stay in the hospital and reduce the costs of care.
"What we've been trying to do is to change the way we think about health care . . . from the open-ended, open-payment, open-checkbook phenomenon we had in Medicare," says Carolyne Davis, administrator of the Health Care Financing Administration.
"We had a blank-check gravy train payment system," says economist Meyer.
The new DRG system applies only to the hospital portion of Medicare patients' bills, but the government is considering extending it to other payments, including doctors' fees.
Growth of health maintenance organizations, or HMOs, is another factor in the shift away from open-ended reimbursement for expensive hospital care. HMOs, which now have about 10 million members nationwide, provide comprehensive health coverage at a set, prepaid fee.
Studies have shown that HMOs reduce health care costs by up to 25 percent, mainly by dramatic reductions in use of hospitals.
As an alternative to the traditional fee-for-service payment system that has dominated American medicine for a generation, HMOs benefit by the inherent inefficiency of that system. But by their very existence, they are forcing change.
Many experts cite the contract negotiated by General Motors and the United Auto Workers last fall as a key signal of that change.
Under the contract, GM workers can choose from several health plans, including an HMO. Blue Cross was so confident that the new competition would help to lower health costs that it guaranteed GM a 10 percent reduction in premiums. If it fails to achieve that, Blue Cross must make up the difference.
"For the first time, they've put Blue Cross at risk," says Karen Ignagni, assistant director of the AFL-CIO's department of occupational safety, health and social security. "If the cost is high, they Blue Cross will eat it.
"In other words, we've stopped the notion of the blank check."
Both Ignagni and Blue Cross-Blue Shield's Tresnowski predict that the GM contract will become a model for other large employers around the country.
"My guess is that the option plan will be generally what the American public has in front of it over the next five or 10 years," Tresnowski says.
No one is completely satisfied with DRGs, HMOs and other "alphabet-soup" changes in the incentives driving the health care system. But most say they are an improvement over the old way, and a harbinger of further change.
"The point is," says economist Meyer, "there's no going back."