69
THE ADMINISTRATION PERSPECTIVE ON HOSPITAL COST CONTAINMENT* HELEN L. SMITS, M.D. Director, Health Standards and Quality Bureau Health Care Financing Administration Department of Health, Education, and Welfare Washington, D.C.
T is not easy to find anything new or sprightly to say about either health inflation or hospital-cost containment. In preparation for this talk I was handed a set of talking points prepared by staff at the Health Care Financing Administration. These were a series of grim and depressing statistics aimed at convincing one that, if something is not done soon, health-care costs will break the federal bank. I decided I could not give you that sort of a speech, first, because you probably knew most of it already and, second, because aggregate numbers do not mean much to an individual physician struggling to explain to Medicare patients why the copayment has risen again or to a hospital administrator hunting for just a little money to start a worthy and innovative program. "That's all very well about the GNP," you say to yourselves, "but what about the funds to start the hypertension clinic? It is not very expensive, after all; I am sure they could come up with those if they really tried." So, instead of horror stories I would like to review the problem as I see it and to present the merits of the solution which we at HEW support. The basic fact is simple and in a real sense more dreadful than any fancy illustrations: hospital expenditures-the total amount paid by all parties to hospitals-have increased in each of the past three years by an average of 17.3% or almost 21/2 times the increase in the overall consumer price index. Obviously, we cannot long afford such a rate of increase; you, as taxpayers, cannot afford it. At some point society will simply stop paying; our goal in the Health Care Financing Administration is to end runaway hospital inflation in as reasonable a manner as is possible. Many people equate the high quality of care found in many parts of the *Presented in a panel, Financing Hospital Care: Costs, Quality, and Utilization, as part of the 1978 Annual Health Conference of the New York Academy of Medicine, The Hospital Reconsidered: A New Perspective, held at the Academy May 1 and 2, 1978.
Vol. 55, No. 1, January 1979
70
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70H
United States with high costs and assume, as a result, that cost controls will mean rationing and that rationing will mean second-rate care for everyone. I think that such a view is vastly oversimplified and fails to address both the real causes and the disastrous effects of our runaway inflation. I do not believe that we must continue spending these astronomical sums on hospital care nor do I believe that we are getting everything we can for what we do spend. Inflationary pressures have caused us to increase coinsurance and deductibles for Medicare to the point where the aged now pay more out of pocket for care than they did in 1965. The overwhelming growth in health-care costs not only has delayed the dream of national health insurance, but also has prevented us from instituting less radical but badly needed reforms such as an increase in basic medical services for many on Medicaid. I have had the unusual experience, in the past few years, of moving from a staff position in a teaching hospital to a management position in the same institution to my current position in the Health Care Financing Administration. The effect resembles a balloon ride beginning in one's own backyard; local oddities become part of a pattern and the pattern eventually becomes part of a larger system. We waste a lot in hospitals in this country and I believe that we do it because there is absolutely no incentive to avoid waste. How many serum enzymes, for example, are now ordered how many times as part of the standard care of myocardial infarction patients? If the new tests are better, why don't we eliminate the old? Which patients need serum enzymes every two days and which every five? Why don't we stop once the diagnosis is certain? What is the smallest number of tests compatible with good care in these patients? The fact is that we rarely, if ever, ask these questions simply because there is no incentive to do so. The hospital is not any better off with fewer CPK's (creatinine phosphokinase); in most settings it is better off with more. Neither attending physician, resident, intern, nor the patient himself-no one benefits directly from economical testing, so we all turn our attention elsewhere. Or take a different kind of example-the outmoded but undying ritual of a chest roentgenogram of every patient admitted to the hospital. If we reflect on it, we know why we do them: there was a point in our past when national screening for tuberculosis by roentgenograms was the most hopeful solution to a serious epidemiologic problem. Screening has improved and tuberculosis, for a variety of reasons, has diminished. Outside of Bull. N. Y. Acad. Med.
HOSPITAL COST CONTAINMENT
71
hospitals, where resources are reasonably rationally allocated, roentgenographic screening has been replaced by skin testing, and health departments have put their money into resources other than new radiology equipment. Inside hospitals it is still a mark of excellence to have a chest film on everyone, no matter how young, how healthy, or how recently examined on the outside. I played the game as well as anyone-I ordered my films on time as an intern, harrassed my interns for films as a resident and attending physician, and even made major efforts to take admission roentgenograms promptly as a hospital administrator. And I am not sure that I would ever have stopped to think about the ritual genuflection to the radiology department had I not gone to work at the Department of Health, Education, and Welfare. The fact is that both those who render health care and those who manage the facilities in which it is delivered must begin to think more clearly and critically about the cost of what we do. We are rather like someone who, in the process of shopping for a winter coat, has decided to take the blue one and the brown one and the beige and probably the pink as well. We have allowed care to become more complex without asking whether that complexity benefits the patient in proportion to what it costs. We are still very careful, in my estimation, to be sure that a painful test or a dangerous one is ordered only when needed, but price, whether measured in dollar cost or personnel time, seems to have much less influence on us. And the fact is that in the process of appearing not to choose, we have actually chosen. That heart-attack patient who leaves the hospital with every detail of cell death and electrical change documented for posterity-how easily will he find it to get frequent visiting nurse care? Home-maker services? Some-I would say many-of the dollars we now spend in hospitals could well be spent elsewhere in the system. But first we need some way to begin budgeting them properly. And that simple concept of a limited, fixed budget is, in short, the essence of the administration's current proposal on cost containment. We are convinced that only by limiting the annual increases in hospital spending will meaningful pressure exist on hospital management and medical staffs to make cost-effective choices. Somewhere there is a needed service that could be funded if the radiology dollar saved by fewer chest films could be redirected. The broad outline of the current cost-containment proposal is as follows: 1) We favor a mandatory approach, although we believe the mandatory Vol. 55, No. 1, January 1979
72
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rules should be triggered by continued rises in costs, that is, the law would allow voluntary efforts a full opportunity to meet the objectives. 2) Under the mandatory trigger, each hospital would be limited to a cost rise approximately one and one half times the annual rate of inflation. 3) Each hospital will be dealt with individually so that those which can manage budgets within the guidelines will not be penalized. 4) In addition to overall cost controls, national expenditures for hospital capital will be limited to $2.5 billion a year. We recognize that such a law as this would have tremendous impact on those who work in hospitals, especially to those in areas where continued expansion has been an easy and comfortable way of life. We believe it can be done, and that the challenge to fund new programs out of savings rather than new dollars will and can be met in a variety of innovative ways which include among them markedly increased collaboration between and among hospitals. We also recognize that HEW has much to do, and I would like to outline some of the tasks we have set for ourselves. We are actively seeking new and better reimbursement mechanisms to encourage economical and innovative use of services rather than fostering high-priced institutional care. We are looking very carefully at the waste we cause because, having been there on the outside, we are painfully aware of how much hospitals spend to meet their regulatory mandates. One area of particular concern is the high cost of meeting the life-safety code requirements. We shall continue to approach the problem of excess use and excess capacity through continued support of the Professional Standards Review Organization's (PSRO) program and the healthplanning law through increased links between PSROs and Health Systems Agencies. We shall explore areas outside the hospital where economy and better care go hand in hand such as in the home care of the elderly and hospice care of the dying. The overall theme of our conference this year does not seem to me to be the limited and, in the literal sense, reactionary one of what hospitals should do in response to government. Instead, our topics imply that our real interest is the more visionary issue of what the hospital's role should be in 1978, what it can be in the next decade. I submit that the answer is, in some senses, as simple as a household budget-unless we control costs, we cannot do anything new this year. Your support of cost-containment efforts is needed for their success and to enable us to address the very real service issues which are still before us. Bull. N. Y. Acad. Med.
THE ADMINISTRATION PERSPECTIVE ON HOSPITAL COST CONTAINMENT* HELEN L. SMITS, M.D. Director, Health Standards and Quality Bureau Health Care Financing Administration Department of Health, Education, and Welfare Washington, D.C.
T is not easy to find anything new or sprightly to say about either health inflation or hospital-cost containment. In preparation for this talk I was handed a set of talking points prepared by staff at the Health Care Financing Administration. These were a series of grim and depressing statistics aimed at convincing one that, if something is not done soon, health-care costs will break the federal bank. I decided I could not give you that sort of a speech, first, because you probably knew most of it already and, second, because aggregate numbers do not mean much to an individual physician struggling to explain to Medicare patients why the copayment has risen again or to a hospital administrator hunting for just a little money to start a worthy and innovative program. "That's all very well about the GNP," you say to yourselves, "but what about the funds to start the hypertension clinic? It is not very expensive, after all; I am sure they could come up with those if they really tried." So, instead of horror stories I would like to review the problem as I see it and to present the merits of the solution which we at HEW support. The basic fact is simple and in a real sense more dreadful than any fancy illustrations: hospital expenditures-the total amount paid by all parties to hospitals-have increased in each of the past three years by an average of 17.3% or almost 21/2 times the increase in the overall consumer price index. Obviously, we cannot long afford such a rate of increase; you, as taxpayers, cannot afford it. At some point society will simply stop paying; our goal in the Health Care Financing Administration is to end runaway hospital inflation in as reasonable a manner as is possible. Many people equate the high quality of care found in many parts of the *Presented in a panel, Financing Hospital Care: Costs, Quality, and Utilization, as part of the 1978 Annual Health Conference of the New York Academy of Medicine, The Hospital Reconsidered: A New Perspective, held at the Academy May 1 and 2, 1978.
Vol. 55, No. 1, January 1979
70
H. L.. SMITS MT
70H
United States with high costs and assume, as a result, that cost controls will mean rationing and that rationing will mean second-rate care for everyone. I think that such a view is vastly oversimplified and fails to address both the real causes and the disastrous effects of our runaway inflation. I do not believe that we must continue spending these astronomical sums on hospital care nor do I believe that we are getting everything we can for what we do spend. Inflationary pressures have caused us to increase coinsurance and deductibles for Medicare to the point where the aged now pay more out of pocket for care than they did in 1965. The overwhelming growth in health-care costs not only has delayed the dream of national health insurance, but also has prevented us from instituting less radical but badly needed reforms such as an increase in basic medical services for many on Medicaid. I have had the unusual experience, in the past few years, of moving from a staff position in a teaching hospital to a management position in the same institution to my current position in the Health Care Financing Administration. The effect resembles a balloon ride beginning in one's own backyard; local oddities become part of a pattern and the pattern eventually becomes part of a larger system. We waste a lot in hospitals in this country and I believe that we do it because there is absolutely no incentive to avoid waste. How many serum enzymes, for example, are now ordered how many times as part of the standard care of myocardial infarction patients? If the new tests are better, why don't we eliminate the old? Which patients need serum enzymes every two days and which every five? Why don't we stop once the diagnosis is certain? What is the smallest number of tests compatible with good care in these patients? The fact is that we rarely, if ever, ask these questions simply because there is no incentive to do so. The hospital is not any better off with fewer CPK's (creatinine phosphokinase); in most settings it is better off with more. Neither attending physician, resident, intern, nor the patient himself-no one benefits directly from economical testing, so we all turn our attention elsewhere. Or take a different kind of example-the outmoded but undying ritual of a chest roentgenogram of every patient admitted to the hospital. If we reflect on it, we know why we do them: there was a point in our past when national screening for tuberculosis by roentgenograms was the most hopeful solution to a serious epidemiologic problem. Screening has improved and tuberculosis, for a variety of reasons, has diminished. Outside of Bull. N. Y. Acad. Med.
HOSPITAL COST CONTAINMENT
71
hospitals, where resources are reasonably rationally allocated, roentgenographic screening has been replaced by skin testing, and health departments have put their money into resources other than new radiology equipment. Inside hospitals it is still a mark of excellence to have a chest film on everyone, no matter how young, how healthy, or how recently examined on the outside. I played the game as well as anyone-I ordered my films on time as an intern, harrassed my interns for films as a resident and attending physician, and even made major efforts to take admission roentgenograms promptly as a hospital administrator. And I am not sure that I would ever have stopped to think about the ritual genuflection to the radiology department had I not gone to work at the Department of Health, Education, and Welfare. The fact is that both those who render health care and those who manage the facilities in which it is delivered must begin to think more clearly and critically about the cost of what we do. We are rather like someone who, in the process of shopping for a winter coat, has decided to take the blue one and the brown one and the beige and probably the pink as well. We have allowed care to become more complex without asking whether that complexity benefits the patient in proportion to what it costs. We are still very careful, in my estimation, to be sure that a painful test or a dangerous one is ordered only when needed, but price, whether measured in dollar cost or personnel time, seems to have much less influence on us. And the fact is that in the process of appearing not to choose, we have actually chosen. That heart-attack patient who leaves the hospital with every detail of cell death and electrical change documented for posterity-how easily will he find it to get frequent visiting nurse care? Home-maker services? Some-I would say many-of the dollars we now spend in hospitals could well be spent elsewhere in the system. But first we need some way to begin budgeting them properly. And that simple concept of a limited, fixed budget is, in short, the essence of the administration's current proposal on cost containment. We are convinced that only by limiting the annual increases in hospital spending will meaningful pressure exist on hospital management and medical staffs to make cost-effective choices. Somewhere there is a needed service that could be funded if the radiology dollar saved by fewer chest films could be redirected. The broad outline of the current cost-containment proposal is as follows: 1) We favor a mandatory approach, although we believe the mandatory Vol. 55, No. 1, January 1979
72
72
H. L. SMITS
rules should be triggered by continued rises in costs, that is, the law would allow voluntary efforts a full opportunity to meet the objectives. 2) Under the mandatory trigger, each hospital would be limited to a cost rise approximately one and one half times the annual rate of inflation. 3) Each hospital will be dealt with individually so that those which can manage budgets within the guidelines will not be penalized. 4) In addition to overall cost controls, national expenditures for hospital capital will be limited to $2.5 billion a year. We recognize that such a law as this would have tremendous impact on those who work in hospitals, especially to those in areas where continued expansion has been an easy and comfortable way of life. We believe it can be done, and that the challenge to fund new programs out of savings rather than new dollars will and can be met in a variety of innovative ways which include among them markedly increased collaboration between and among hospitals. We also recognize that HEW has much to do, and I would like to outline some of the tasks we have set for ourselves. We are actively seeking new and better reimbursement mechanisms to encourage economical and innovative use of services rather than fostering high-priced institutional care. We are looking very carefully at the waste we cause because, having been there on the outside, we are painfully aware of how much hospitals spend to meet their regulatory mandates. One area of particular concern is the high cost of meeting the life-safety code requirements. We shall continue to approach the problem of excess use and excess capacity through continued support of the Professional Standards Review Organization's (PSRO) program and the healthplanning law through increased links between PSROs and Health Systems Agencies. We shall explore areas outside the hospital where economy and better care go hand in hand such as in the home care of the elderly and hospice care of the dying. The overall theme of our conference this year does not seem to me to be the limited and, in the literal sense, reactionary one of what hospitals should do in response to government. Instead, our topics imply that our real interest is the more visionary issue of what the hospital's role should be in 1978, what it can be in the next decade. I submit that the answer is, in some senses, as simple as a household budget-unless we control costs, we cannot do anything new this year. Your support of cost-containment efforts is needed for their success and to enable us to address the very real service issues which are still before us. Bull. N. Y. Acad. Med.
