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The speed by which we attempt to direct change is another concern. We, and this certainly includes the government, have spent many decades building the current health system. Now, quite correctly, we recognize that this system needs new direction and some major alterations. But, these are technically complex and socially replete with value changes for which no clear mandate exists. In our search for better cost controls, we must be open to the possibility that some of the answer may not be found in regulation. The evidence cited by the recently released InterStudy paper on HMOs in Minneapolis-St. Paul gives added weight to the argument that each area must be treated individually and market forces may actually have a chance if the provider system can be made competitive with legitimate options. The fact that Honeywell achieved an HMO enrollment rate of nearly 1/3 of all eligibles, the first time the HMO option was offered, is further evidence that time taken to build public awareness of new options is essential to those options' success.

System changes like HMO, PSRO, and health planning take time and have growing pains. So do changes in reimbursement policy in public and private programs. Time spent on these developments is not a symbol of defeat and must be granted if the original premise for each of these efforts is to be given fair evaluation.

In effect, I'm suggesting that cost containment is far more than squeezing hospitals.

Cost Containment: For yesterday's problem or tomorrow's system?

I am concerned that many of the assumptions upon which current cost control proposals are based do not realistically assess where this country is headed. We need a broad vision, a process of health not medical policy development, and a shifting of our economic incentives so that a redesigned health system can combine quality, access, and cost containment in responsible proportions.

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an era of unparalleled technological opportunity which will challenge
our deepest values and ethics...and our capacity to pay

an increasingly health-conscious and educated population ever less
willing to acquiesce to the whims of providers

major purchasers of care who are no longer going to sign "blank" pre-
míum checks and who are rapidly becoming the most informed and power-
ful of health consumers

increasing use of incentives and innovative programs to alter personal behavior

increased use by employers of their purchasing power to gain control
over local delivery systems

recognition that investments in health promotion and illness prevention will pay off in productivity gains... something the Congress must recognize as an even greater goal than cost containment

what business can do about cost containment?

Some have castigated industry for the benefit plans it provides...and others for its unwillingness to support strict governmental controls over the providers.

I would like to start from the position that no sector of our society should shoulder the blame for our current cost problems...and none can escape their share of that blame either.

We need to understand that employee benefit plans are a reflection of what the

employees, the public, and the unions want. This is equally true of the Federal Employees Health Benefits Program, Medicaid, Medicare, etc. They have all been designed in the most anti-cost containment ways imaginable because they reflect the priorities and expectations of earlier times and the mixture of public will and special interest pressures which lie at the heart of both our public and private policy development processes.

Industry does recognize the need to change its own programs as well as to support other forms of cost containment. Just a few weeks ago we strongly supported Senate action to extend certificate-of-need over the purchase of expensive equipment in physicians' offices and other non-hospital settings. That is not an action taken by a Group shirking its broad responsibility to cost containment. Further, we supported the concept of a limitation to revenues available for new capital investment in new facilities (Title 2 of H.R. 6575 & s. 1391).

Basically, industry's cost containment efforts fall into two categories: those which the company can do in-house and those which involve new relationships with the external medical and health care systems.

I would stress that all of these actions, a list of which is attached (Appendix B) are predicated on the assumption that there is considerable waste in the current system. Dollars saved not go out of the health system but can be better expended on truly needed and demonstrably cost-effective services.

We view cost containment efforts by industry at two levels:

Those things which can have immediate or relatively short-term impact.


Those more difficult, long-term, efforts which are essential if the problem is ever to be resolved.

Ultimately, it will be the convergengence of a multiplicity of short-term efforts with the long-term development of a true health system based upon an evolving health policy that will produce, on the national scale, adequate health care for all, at a publicly understood and acceptable cost.


During the past two years, we have been collecting the cost containment efforts and results from a variety of comapnies. The result has been an outpouring of data, experiences and opinion. Separately, this information reflects rather stall gains by individual employers. Collectively, the information reflects a series of very healthy trends of considerable significance.

Employer involvement and commitment is increasing rapidly and is doing so in terms of:

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3. 4. 5.

leadership by Chief Executive Officers
dollars invested for health care system improvements
respect from the health industry and government


Broad scale experimentation has become acceptable.


Knowledge of and concern for health care, rather than just medical care, is increasing.


It is now believed possible to reduce waste, lessen utilization, save money, and in so doing provide better health benefits for the employee.


Government program initiatives such as health planning, HMOS & PSRO are
really just starting and are receiving considerable employer support.
In fact, where these programs appear successful, employer support has
frequently been an essential factor.

Just as many supporters of Proposition 13 have learned that cutting taxes also means cutting services they may want continued, so too, sweeping cost containment regulations come with no guarantee that only the waste - or even the waste - will be what is cut.

The National Health Insurance Advisory Committee, during its 1977 fact-finding travels, was consistently impressed with the importance of localizing health care resource allocation decisions to the greatest degree possible.

Principles of cost containment

There are many technical approaches which can be taken as we move haltingly toward a more cost conscious medical care delivery system. Since any cost containment will have its opponents and will cause some sacrifice, we believe its potential should be measured against several basic principles or criteria... many of which are included in the Nelson Amendments.


Cost containment: must treat all payors equally in order to avoid cost shifting which would diminish if not totally void the proported savings.


Cost containment: must change the economic incentives which help
determine provider behavior rather than just limiting resources for
specific units of service.


Cost containment: must assist in reordering our priorities toward prevention and healthy lifestyle promotion rather than further locking into place the current over-emphasis upon acute care.


Cost containment: must openly acknowledge its impact upon other segments of the economy such as employment, minority, and women's upward mobility, urban infrastructure and welfare.


Cost containment: must recognize that no "quick-fix" or "cheap" effort will have a lasting positive impact.

6. Cost containment: must address all revenue centers, not just in

patient care. 7. Cost containment: must provide encouragement for the states to de

velope their own containment programs consistent with federally
articulated objectives... and not bound by any mandatory wage pass-


In the absence of any spokespersons from the provider organizations, I feel compelled to speak briefly about the Voluntary Effort (VE). As indicated earlier, I agree that this was a direct reaction to the threat of government intervention. And I would be the last one to suggest that all the recent down-turn in the rate of cost inflation can be atributed to Ve. However, in several individual areas, the VE does seem to be having a very positive result and is setting in place a coalition for long-term action which did not previously exist. The question is not, has VE already been successful but rather whether or not those who are philosophically opposed will ever give it a chance to succeed or fail on its own.

I find it disturbing when Members of Congress attack the VE for the alliance it represents yet do not even question the attempts by some labor unions to organize a boycott of the VE.

Our values again are challenged. If all the Ve efforts are ruled out due to their anti-trust implications, then we are deciding that anti-trust is a higher value than cost containment. We can't have it both ways. No major industry could simultaneously cut waste, increase efficiency, lessen the rate of its cost escalation, meet increasing public demands and increased utilization, honor increased government regulation and not have a cooperative effort among that industry's principal participants. We cannot expect the hospital industry to do what no other industry could do. This kind of anti-trust exemption must be viewed as in the public's interest - and therefore in the government's interest – rather than providing an unfair edge to any specific company.

Rather than creating a self-fulfilling prophesy of failure, it would be our position that the VE be given every possible chance to succeed. If it does not, we are quite sure Congress has sufficient authority to take whatever steps are necessary.


The impact of health care costs upon business, just like the increased involverent of industry in the health care system cannot be separated from certain

trends that, more than any regulatory effort, will dictate the future of cost containment.


the combination of medical technology and increasing prevalence of major medical insurance will be strong pressures for more escalating costs. (According to HIAA, in 1972 less than 1% of employees with group insurance had major medical coverage of $100,000 or more. In 1977, 91% had coverage at that level).


countervailing forces include the growing awareness of lifestyle
modification; the increasing evidence that well-designed mental
health programs can reduce hospital-surgical-medical utilization;
the hospice movement to bring dignity to dying; health planning
to order future facilities development; technology assessment; and
the increasing interest in the success of HMOS.


states will increasingly be the focus of health policy and regulatory efforts.

I would add before closing that, should the Senate adopt an approach to cost containment which involves only Medicare and Medicaid, you will doom the Voluntary Effort due to the kind of cost-shifting that would result.

We are watching an industry in convulsions. As one of the forces most recently and strongly intervening in the reshaping of our health system, employers must mix their pleasure at the changes in progress with the caution that we not move so far or so fast as to destroy the best parts of the world's truly premier medical system.

Where the new health system and the old medical system clash, the benefit of the doubt should go to health. However, in the long-run, it will be how well we move forward together that will measure our success.

Thank you and I'll be pleased to respond to any questions.

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