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Health Care: The Quest For Quality

Social Issues: MANAGED CARE


The industry is readjusting after years of cost-cutting

St. Joseph's Hospital, a 350-bed Catholic institution in suburban Atlanta, was the sort of place managed health care could easily have obliterated. Too many expensive-to-treat chronic care patients, too much dependence on technology and inpatient care, too many indigents.

Simply slashing employees wasn't an option: With 15 surgeons doing 1,900 open-heart surgeries and 4,000 catheterizations a year, evidence of declining quality would begin stacking up in the morgue fairly quickly. So the hospital reengineered. It reduced nursing staff by 15% but found ways to have those remaining spend more time with patients. Computers were used to analyze how fast each surgeon worked so the operating rooms could be booked accordingly--slow cutters got more time.

Costs did drop, but there was more: Quality improved. Post-surgery inpatient stays were reduced, but patients wound up healthier and happier. For one thing, shorter stays cut average bills for heart bypass patients to $27,300, from $36,800. At the same time, quicker discharges helped reduce post-op pneumonia by two-thirds. Bottom line: Last year, St. Joseph's net income rose 67%, to $20 million.

TURNING POINT. So arrives the new revolution in health care. After half a decade spent shaving hospital stays, scrimping on specialist care, and standardizing on suture brands, the $1 trillion health-care industry is starting to figure out there's more to life than cutting costs. Hospitals, doctors, and insurers, attended by a growing coterie of consultants and information systems suppliers, are rediscovering quality.

What's driving this transformation? Once again, it's big employers such as Xerox, GTE, Marriott, and USAir, the same folks who led the charge for lower costs. That push paid off big: By 1995, corporations had pushed 71% of their workers into cheaper managed-care insurance plans. And after years of double-digit growth, U.S. businesses kept their health-benefits inflation to just 2.1%, following a 1.1% decline in 1994, according to consultants Foster Higgins & Co. (chart).

But the jihad on health-care costs went too far--at least, that's the perception helping to fuel the incipient counter-movement. While studies indicate that managed care keeps people at least as healthy as traditional insurance plans, many patients aren't satisfied. And employers worry that penny-pinching health plans may affect productivity. "When companies look at days lost due to sickness, they begin asking themselves if their HMOs are really maintaining the health of their employees," Dr. Paul C. Royce, medical director of benefits consultant Segal Co.

They also understand that, done right, quality medicine should actually reduce their expenses over the long haul. That's the strategy managed-care companies such as Oxford Health Plans Inc. are stressing (page 108). Investing up front in preventive programs for chronic ailments such as asthma and diabetes can dramatically reduce emergency-room visits and expensive complications. Annual influenza vaccines, which cost $10 apiece, reduce medical costs and sick days to the tune of $46.80 per patient, according to a 1995 study by Minnesota researchers published in The New England Journal of Medicine.

An enormous medical-consulting industry has sprung up to provide employers, insurers, and care providers with new strategic road maps. Benefits experts such as Segal and management consultants such as Deloitte & Touche, which advised St. Joseph's, are measuring "outcomes" of various treatments, monitoring continuous quality improvement in hospitals, and writing "practice guidelines" to standardize doctors' practices.

Information systems are hot, too. Stocks of health-care technology companies such as HBO, HCIA, and Imnet Systems have soared as insurers and providers alike demand more sophisticated tools to measure utilization and support programs designed to limit demand for expensive care. Says Richard L. Scott, CEO of the 311-hospital Columbia/HCA Healthcare Corp.: "The future belongs to whoever best measures quality of care and then markets it the best. Whoever does will absolutely control the market, and everyone who doesn't will disappear." Nearly half the American Hospital Assn.'s 5,000 members now track and market their quality and cost data, the AHA reported on Mar. 25.

Certainly, this revolution is still in its formative stage. Quality health care remains notoriously difficult to measure and analyze; outcomes analysis, the study of medical treatments' effectiveness, remains relatively primitive. Only half of America's largest employers make any effort to evaluate the quality of HMOs--generally through employee surveys. And only a fourth of large companies ask their HMOs for data on treatment of such common and costly ailments as hypertension, diabetes, and asthma, according to consultants Watson Wyatt.

TWO TIERS? Most companies, indeed, are still concerned more with simply maintaining their mastery, only recently achieved, over medical inflation. It could be that, ultimately, health care becomes a two-tier market--quality-oriented care for those willing to pay for it and bargain-basement medicine for the rest. Low-income workers may find themselves squeezed by insurance plans that cover fewer and fewer charges and treated by doctors forced to accept lower compensation without much incentive to sustain quality.

The managed-care industry swears that won't happen. Too many horror stories of care denied, postponed, or not compensated have made it intensely sensitive to the question of perceived quality. That's one reason a group of insurers, spurred by big employers, founded the National Committee for Quality Assurance in 1990. The NCQA, a Washington-based nonprofit, evaluates health plans on 50 measures. Are an HMO's physicians board-certified? Do women routinely get Pap smears? Do administrative functions such as medical records operate effectively?

It's a rudimentary assessment, focused more on preventive procedures and organizational capability than on actual medical results. Still, more and more big corporations are requiring NCQA accreditation from HMOs that seek contracts. A third of the plans examined so far have received full accreditation, and 14%--among them, Humana Medical Plan of Jacksonville, Fla., and CaliforniaCare--have flunked outright; the remainder were given conditional approval for a year. This June, the NCQA will begin rating each plan for quality improvement, members' rights, and technology.

Another nonprofit group, the Portland (Ore.)-based Foundation for Accountability (FACT), will publish in May new criteria for measuring quality for specific treatments. Take one expensive and increasingly prevalent disease--breast cancer. Says FACT President David Lansky: "We want to know, what's the quality of life patients experience during treatment? How long did it take to diagnose? What's the five-year, disease-free survival rate? The rate of radical mastectomy vs. breast-saving surgery?" FACT will attempt to compare results across a range of HMOs.

That FACT's relatively modest initiative has attracted considerable interest points to both the dearth of sophisticated health-care data and growing employer demands for something better. "If major corporations had asked doctors 10 years ago what kind of outcomes they were having, they would have been accused of interfering in the practice of medicine," says William H. Mercer Inc. consultant Lewis Devendorf. Now, PepsiCo Inc., advised by Mercer, requires HMOs to provide details on treatment. It insists that participating doctors write diabetic employees once a year to invite them to have vision checkups. And it wants children with asthma to be trained on the use of inhalers--most kids hold them too close to their mouths and thus can reduce the medication's effectiveness, landing them more often in emergency rooms.

"THIS IS HARDBALL." Xerox Corp., one of the nation's most innovative health-care purchasers, led the drive five years ago to standardize medical reporting so it could compare the performance of the 216 HMOs it contracts with nationwide. Eventually, Xerox hopes to provide diabetic workers with detailed descriptions of how all the HMOs deal with the disease, or provide HMOs a profile of the company's asthma victims and ask for treatment proposals. "We want our employees to be empowered to decide, and we're willing to buy a very efficient and high-quality health care for them," says Helen Darling, manager of health-care strategy and programs. Xerox literally pays workers to choose the best insurance, awarding bonuses to those who select NCQA-accredited plans.

GTE Corp., meanwhile, is among the most aggressive employers in assessing insurers' quality. Five full-time experts visit each of the company's 125 managed-care contractors in 29 states, examining medical records and quizzing participating doctors. The monitoring effort costs $2 million a year but yields two important benefits. GTE's 100,000 U.S. employees and 50,000 retirees get an elaborate report card comparing all HMOs available. And GTE knows exactly who isn't performing. In Texas and Florida, where it wasn't satisfied with HMO quality, GTE set up its own health clinics to deliver primary care. "This is hardball," says J. Randal MacDonald, senior vice-president for human resources and administration. "And if I get my employees happy with their benefits, then I have employees who are more productive."

Managed-care insurers are raising their own game in response. "HMOs are hungry for business and anxious to improve themselves and do well," says Steve Weidenmuller, USAir Group Inc.'s senior director of compensation and benefits. Utilization review systems, once used primarily to spot overuse of hospital and laboratory services, now are more often employed to identify opportunities to improve care. Blue Cross & Blue Shield of Minnesota sorted through claims data and medical charts to examine delivery procedures at clinics across the state in 1994, then worked with doctors to bring down the rate of cesarean births to 18% from 21% in 18 months. Fewer C-sections mean fewer complications; moms are healthier and costs lower.

BETTER CARE. So-called disease management, too, has become "a phrase that falls easily off the lips of nearly every HMO medical director in the country," says Philip Hawley, president of consultants Pace Healthcare Management. Such HMOs as Oxford, Harvard Pilgrim Health Care, and Group Health of Puget Sound are sinking money into programs that aim to curb treatment of chronic diseases by educating patients on preventive measures and coordinating care of primary-care doctors and specialists.

The potential of such strategies is compelling. Americans with company-sponsored benefits are headed toward a day, not so far away, when the medical care they get will be considerably better than it was in the days of traditional indemnity insurance. And better medicine will be cheaper. That's a powerful promise to companies that recognize that medical disinflation won't last forever. Over the next few years, as excess capacity is wrung out of the industry, the potential for higher costs will return. Says Darling of Xerox: "The medical-inflation dragon isn't dead." Long-term productivity gains--and cost reductions--likely will come from quality programs. And patients might actually like it.

For related story please turn to page 108.By Paul Magnusson in Atlanta, with Keith H. Hammonds in New YorkReturn to top

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