Medical Mystery: Something Happened to U.S. Health Spending After 1980

The spending began soaring beyond that of other advanced nations, but without the same benefits in life expectancy.

The United States devotes a lot more of its economic resources to health care than any other nation, and yet its health care outcomes aren’t better for it. 

That hasn’t always been the case. America was in the realm of other countries in per-capita health spending through about 1980. Then it diverged.

It’s the same story with health spending as a fraction of gross domestic product. Likewise, life expectancy. In 1980, the U.S. was right in the middle of the pack of peer nations in life expectancy at birth. But by the mid-2000s, we were at the bottom of the pack.

Health spending and life expectancy are not necessarily closely related, so it’s helpful to consider them separately. 

“Medical care is one of the less important determinants of life expectancy,” said Joseph Newhouse, a health economist at Harvard. “Socioeconomic status and other social factors exert larger influences on longevity.”

For spending, many experts point to differences in public policy on health care financing. “Other countries have been able to put limits on health care prices and spending” with government policies, said Paul Starr, professor of sociology and public affairs at Princeton. The United States has relied more on market forces, which have been less effective. 

“Confronted with fiscal pressures, as the share of G.D.P. absorbed by health care spending began to get serious, other nations had mechanisms to hold down spending,” said Henry Aaron, a health economist with the Brookings Institution. “We didn’t.”

One result: Prices for health care goods and services are much higher in the United States. Gerard Anderson, a professor at Johns Hopkins and a lead author of a Health Affairs study on the subject, emphasized this point. “The differential between what the U.S. and other industrialized countries pay for prescriptions and for hospital and physician services continues to widen over time,” he said. Other studies also support this idea. However, by some measures, growth in the amount of health care consumed has also been a factor. 

The degree of competition, or lack thereof, in the American health system plays a role. A recent study by economists at the University of Miami found that periods of rapid growth in U.S. health care spending coincide with rapid growth in markups of health care prices. This is what one would expect in markets with low levels of competition.

Although American health care markets are highly consolidated, which contributes to higher prices, there are also enough players to impose administrative drag. Rising administrative costs — like billing and price negotiations across many insurers — may also explain part of the problem. 

The additional costs associated with many insurers, each requiring different billing documentation, adds inefficiency, according to the Harvard health economist David Cutler. According to a recent study, the United States has higher health care administrative costs than other wealthy countries.

“We have big pharma vs. big insurance vs. big hospital networks, and the patient and employers and also the government end up paying the bills,” said Janet Currie, a Princeton health economist. 

Though we have some large public health care programs, they are not able to keep a lid on prices. Medicare, for example, is forbidden to negotiate as a whole for drug prices, as Ms. Currie pointed out.

But none of this explains the timing of the spending divergence. Why did it start around 1980?

Mr. Starr suggests that the high inflation of the late 1970s contributed to growth in health care

spending, which other countries had more systems in place to control. Likewise, Mr. Cutler points to related economic events before 1980 as contributing factors. The oil price shocks of the 1970s hurt economic growth, straining countries’ ability to afford health care. “Thus, all across the world, one sees constraints on payment, technology, etc., in the 1970s and 1980s,” he said. The United States is not different in kind, only degree; our constraints were weaker. 

Later on, once those spending constraints eased, “suppliers of medical inputs marketed very costly technological innovations with gusto,” Mr. Aaron said. They “found ready customers in hospitals, medical practices and other entities eager to keep up with rivals in the medical arms race.”

The last third of the 20th century or so was a fertile time for expensive health care innovation. Sherry Glied, an economist and a dean at New York University, offered a few examples: “Coronary artery bypass grafting took off in the mid-to late 1970s. Later, we saw innovations like drug treatments for H.I.V. and premature babies.” 

These are all highly valuable, but they came at very high prices. This willingness to pay more has in turn made the United States an attractive market for innovation in health care.

 

Yet being an engine for innovation doesn’t necessarily translate into better outcomes. Almost no matter how it’s measured, longevity in the United States has not kept pace with that of other nations. Again, the inflection point is around 1980. Why?

A study examining the period 1975 to 2005 by Ms. Glied and Peter Muennig, from Columbia, suggests that international differences in rates of smoking, obesity, traffic accidents and homicides cannot explain why Americans tend to die younger. 

Some have speculated that slower American life expectancy improvements are a result of a more diverse population. But Ms. Glied and Mr. Muennig found that life expectancy growth has been higher in minority groups in the United States. Another study, published in JAMA, found that even accounting for motor vehicle traffic crashes, firearm-related injuries and drug poisonings, the United States has higher mortality rates than comparably wealthy countries.

The lack of universal health coverage and less safety net support for low-income populations could have something to do with it, Ms. Glied speculated. “The most efficient way to improve population health is to focus on those at the bottom,” she said. “But we don’t do as much for them as other countries.” 

The effectiveness of focusing on low-income populations is evident from large expansions of public health insurance for pregnant women and children in the 1980s. There were large reductions in child mortality associated with these expansions. “Those reductions were much larger for poor children than for richer children,” Ms. Currie said.

A report by RAND shows that in 1980 the United States spent 11 percent of its G.D.P. on social programs, excluding health care, while members of the European Union spent an average of about 15 percent. In 2011 the gap had widened to 16 percent versus 22 percent.

Although this is a modest divergence over time, Mr. Anderson says it could be significant nonetheless. “Social underfunding probably has more long-term implications than underinvestment in medical care,” he said. For example, “if the underspending is on early childhood education — one of the key socioeconomic determinants of health — then there are long-term implications.”

Slow income growth could also play a role because poorer health is associated with lower incomes. “It’s notable that, apart from the richest of Americans, income growth stagnated starting in the late 1970s,” Mr. Cutler said.

Even if we can’t fully explain why the United States diverged in terms of health care spending and outcomes after 1980, one thing is clear: History demonstrates that it is possible for the U.S. health system to perform on par with other wealthy countries. That doesn’t mean it’s a simple matter to return to international parity. A lot has changed in 40 years. What began as small gaps in performance are now yawning chasms. And, to the extent greater American health spending has spurred development of valuable health care technologies, we may not want to trade away all of our additional spending.

Nevertheless, Ashish Jha, a physician with the Harvard T.H. Chan School of Public Health and the director of the Harvard Global Health Institute, is hopeful: “For starters, we could have a lot more competition in health care. And government programs should often pay less than they do.” He added that if savings could be reaped from these approaches, and others — and reinvested in improving the welfare of lower-income Americans — we might close both the spending and longevity gaps.

Austin Frakt is director of the Partnered Evidence-Based Policy Resource Center at the V.A. Boston Healthcare System; associate professor with Boston University’s School of Public Health; and adjunct associate professor with the Harvard T.H. Chan School of Public Health. He blogs at The Incidental Economist, and you can follow him on Twitter.@afrakt

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Congress just passed a massive budget deal — and it includes some huge changes for Americans' healthcare

• Congress early Friday morning passed a massive budget deal aimed to fix the US government's cycle of short-term funding bills after a brief shutdown.

• The plan includes funding for the National Institutes of Health, the opioid crisis, among other health initiatives, totaling almost $20 billion.

• It also extends the Children's Health Insurance Program for 10 years and closes the Medicare "donut hole" a year earlier than anticipated. 

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Congress passed a bipartisan plan on Friday to end a brief government shutdown. 

That plan introduced significant funding and changes for healthcare initiatives and agencies, including funding for the National Institutes of Health, the opioid crisis, among other health initiatives, totaling almost $20 billion.

The Senate and House voted on the deal late Thursday and early Friday morning. Many House members had expressed concerns about the plan, threatening its path forward.

"Ultimately, neither side got everything it wanted in this agreement, but we reached a bipartisan compromise that puts the safety and well-being of the American people first," House Speaker Paul Ryan said.
 

Some of its healthcare-related initiatives include:

• An additional $2 billion for the National Institutes of Health. 

• $6 billion over the next two years to combat the opioid crisis, a big increase from the funding set aside by naming the crisis a "public health emergency." 

• $4 billion for VA hospital and clinic improvements.  

• A two-year reauthorization of community health centers, with $7 billion in total funding. That would help reinstate the funding the centers — which serve more than 25 million Americans — lost when a key fund expired in September 2017.  

• $495 million for National Health Service Corps, an organization within the Department of Health and Human Service that helps medical professionals pay for their medical education. 

• $363 million for teaching health centers.

The plan also includes a few changes to the healthcare system. 

• It closes the donut hole in Medicare, an aspect of Medicare's prescription drug coverage that left seniors on the hook for a certain amount of prescription drug costs before hitting a yearly limit. The plan closes that hole a year earlier than anticipated, much to the dismay of pharma companies that are now have to bear more of the cost, Axios reports.  

• It would extend the Children's Health Insurance Program for 10 years. The latest stopgap bill only extended the program for 6 years. 

• It would repeal of the Independent Payment Advisory Board for Medicare. While the board was set up in 2010 as part of the Affordable Care Act, it has not been used. The idea was to help slow down Medicare spending. 

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Experts Say Texas Needs Healthcare Reform

HOUSTON -- Many of the state’s elected officials – including Gov. Rick Perry and a number of state legislators – refuse to expand Medicaid under the Affordable Care Act (ACA), despite Texas having the largest proportion of uninsured citizens in the nation.

According to experts who spoke during an ethnic media roundtable discussion in Houston, fully implementing the ACA is the right thing to do. The  roundtable was organized by New America Media.
“Expanding Medicaid will save lives,” said Charhonda Cox, executive director for Texans Together. “Everybody pays less when more people have insurance. Costs go down and quality of care goes up.”

The expansion, which is one component of the larger ACA, is set to take effect in January 2014 and would guarantee coverage for families earning at or below 133 percent of the federal poverty level.
Currently, there are about a quarter of Texans (6.2 million people) are uninsured. With the expansion in place that number is projected to drop down to just under 12 percent.

In addition to more healthcare coverage for adults and children, the expansion would also bring in billions of dollars in federal funds to the state.

For the first three years, the federal government would cover 100 percent of the costs. By the fourth year, states that choose to keep the expansion would pay a percentage of it out of their own budgets.
“This is a great financial deal,” said Laura Guerra-Cardua, Texas associate director for the Children’s Defense Fund. “Over the next 10 years, we would have to put in $15 billion to get $90 billion back. This is money infused back into our communities, creates tens of thousands of jobs and could really benefit everyone.”

Still, there are opponents who argue that expanding coverage would cost the state too much, especially long term.

Eva DeLuna Castro, senior budget analyst for the Center for Public Policy Priorities in Austin, said many legislators fear that Texas would get stuck paying for the program well after the initial free years.

“It doesn’t make sense to refuse to do a good thing now because 10 years down the road it might present a challenge,” she said. “At least for 10 years we had something good happening for our children and our adults.”

Moreover, Guerra-Cardua said taxpayers would end up paying for Medicaid costs regardless of whether Texas accepts the expansion.

“People who are uninsured still get sick,” she said. “But the difference is, they usually wait to go to the doctor and when they show up, they are much more sick…and they go to the emergency room, which is far more expensive than a doctor’s visit.

“When costs are not covered by these families, they are passed on to local taxes,” she said. “And we pay for them without the opportunity to get federal tax dollars back to help pay for that care.”
Cox said with the legislative session ending in May, there is not much time left to change the minds of legislators who refuse to accept the expansion.

“We want to make sure the folks we put in office have pressure to vote yes,” she said. “The only way they’ll do that is if they know that the people who can vote for them again want this to happen.”

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U.S. healthcare spending rises 3.9% in 2010

The increase represents the second-lowest rate on record as consumers avoided going to the doctor, taking expensive prescription drugs and undergoing costly elective procedures.

U.S. healthcare spending grew at the second-lowest rate on record in 2010 as recession-spooked consumers avoided going to the doctor, taking expensive prescription drugs and undergoing costly elective procedures.

Public and private healthcare spending totaled $2.6 trillion, representing 17.9% of the U.S. economy, the same proportion as in 2009, according to a government report released Monday. That was a sharp departure from previous years, when healthcare consumed ever-larger shares of the economic pie.

But analysts said spending was likely to pick up as the economy improved and the healthcare law passed under President Obama begins to expand coverage to millions of people now uninsured.

Healthcare spending rose 3.8% in 2009, the smallest rise in the 51 years that the federal Centers for Medicare & Medicaid Services has been tracking the data. It rose 3.9% in 2010.

The figures reflected the "extraordinary" slow growth in consumption of medical services and products, said Anne Martin, one of the government economists who wrote the study published in the journal Health Affairs.

"Persistently high unemployment, continued loss of private health insurance coverage and increased cost sharing led some people to forgo care or seek less costly alternatives than they would have otherwise used," the report said.

The growth in health insurance premiums, while slowing slightly in 2010, exceeded the growth in insurers' spending on health benefits, according to the study. Insurers' spending rose 1.6%, compared with 3.7% the year before.

The report showed that the federal government footed 29% of the nation's healthcare bill in 2010, up from 23% in 2007. Part of that increase reflects a temporary increase in federal aid to states to enroll more uninsured people in Medicaid, which covers medical costs for the poor and disabled. The percentage of spending by private businesses and state and local governments declined.

Paul Ginsburg, president of the Center for Studying Health System Change, a Washington research group, said the report didn't address the biggest question: "When the economy gets strong again, do we just return to the old business as usual?"

"Probably," he said. "But there's a chance that the experience of people economizing may have longer-lasting effects."

Ginsburg said he believed healthcare spending remained slow last year, reflecting the lingering effects of the recession and sluggish recovehttp://www.blogger.com/img/blank.gifry.

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HARI: Cuts to Medicare, Medicaid would put R.I. hospitals at risk

Providence Business News, By Richard Asinof - July 21, 2011

CRANSTON – Proposed cuts to Medicare and Medicaid federal spending, now under discussion in Congress as part of the deficit reduction plans, could cost hospitals in Rhode Island as much as $550 million over the next 10 years, according to the Hospital Association of Rhode Island.

The proposed reductions would “exacerbate health care workforce shortages, jeopardize access to care by undermining financially fragile hospital and health systems [in Rhode Island]," the HARI Tracking Trends study, released on July 19, reported.

One of the proposals now under consideration, to cut Medicare indirect medical education payments to teaching hospitals by 60 percent, would cost the U.S. economy an estimated $10.9 billion and nearly 73,000 jobs, HARI said citing information from the American Association of Medical Colleges.

The study ranked Rhode Island 20th in the country in total economic impact, with a loss of $131 million, a loss of 873 jobs, and $7.9 million in lost tax revenue.

The cuts under discussion include: reductions in federal support for Medicaid by implementing block grants, eliminating Medicaid provider taxes, and restructuring the formula used to provide states with funds to support Medicaid, it said.

Obama: Taxing Very Rich for Health Care Is "Good Idea"

With the cost of health care reform looming over current legislative efforts, President Obama today told CBS News Medical Correspondent Dr. Jon LaPook that he would support measures designed to tax the wealthiest Americans.

In legislation introduced yesterday, House Democrats proposed raising the taxes of those who make more than $1 million a year by 5.4 percent.

Watch CBS Videos Online "I think the best way to fund it is for people like myself, who have been very lucky and are in the top -- not just 1 percent, but top half percent -- of the income ladder to pay a little bit more," Mr. Obama said.

The president acknowledged the House and the Senate may have different ideas about how to pay for reform. He did not specifically express support for House Democrats' proposed tax increases or another particular proposal on the table.

However, he said, "The general notion that those of us who are the best off can pay a little bit more upfront to help reform a system that will save us money over the long term, I think that's a good idea."

He also advocated an employer mandate, which would require employers to either provide insurance to their workers or pay into the public system.

"If a company can afford it, it needs to pony up a little bit if it's not providing insurance directly," Mr. Obama said -- otherwise, taxpayers are left to foot the bill for emergency room costs.

Many small businesses are simply not providing health care coverage because it is too expensive, he said. By entering into the health insurance exchange the final reform package is likely to include, small businesses and individuals would have the negotiating power to get lower costs.

"That is something that a lot of small businesses want," he said.

The president acknowledged that in order to create the efficiencies in health care he is calling for, some more experimental treatments may not be eligible for insurance coverage.

"We're going to have to make some difficult decisions as a society about that," he said. He added, however, that "right now, we're just wasting so much (money), we don't even have to wrestle with those more difficult ethical questions."

The main focus now, Mr. Obama said, should be creating cost efficiencies in simple ways like replacing prescriptions for brand name drugs with prescriptions for generic medications.

"What we know is that right now there's a whole lot of care that's not improving health," he said. "Those are the situations that we should immediately be focused on."

LaPook pointed out there are many examples of treatments that could come into question under the president's plan. For instance, 30 percent of angioplasties -- the technique of opening up a clogged artery-- are unnecessary.

For those cases, a reimbursement scheme must be developed, Mr. Obama said, so "at the very least, you're not taking money out of physician's pocket for making the better choice."

There will be other tough decisions for the nation to grapple with, the president said, such as improving end-of-life care.

"My hope is as a culture and a society we're going to be able to have an in-depth discussion," Mr. Obama said, so people can agree to "control this end of life process in a dignified way that’s good for (one's) family."

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Thomson Reuters Study Tracks Impact of Recession on Hospitals

Hospitals' Median Total Margin and Cash-on-Hand Hit Unprecedented Lows; Approximately Half of Hospitals Unprofitable

ANN ARBOR, Mich., March 2 /PRNewswire/ -- The median profit margin of U.S. hospitals has fallen to zero percent, according to a Thomson Reuters analysis of hospital finances published today. Driven largely by a decline in non-operating revenues, financial strains are apparent in all types of hospitals - small, medium and large community hospitals, teaching hospitals and major teaching hospitals.

The study tracks two dozen key financial indicators, using proprietary and public data to dissect the balance sheets of more than 400 hospitals nationwide. It evaluates trends in revenue and profit, employment levels, closures, inpatient volume, reimbursement rates, and frequency of elective medical treatments to gauge the fiscal health of the nation's hospitals.

Following are the key findings of the analysis:

Total Margin at Zero: The median total margin among the 439 hospitals in the study was zero percent in the third quarter of 2008 - an historically unprecedented low.

In the Red: Approximately 50 percent of hospitals were unprofitable in the third quarter of 2008.

Growth in Reimbursement Rates Shrinking: Payments hospitals received from Medicare, Medicaid and private insurers were growing at a declining rate through the end of 2008.

Credit Crunch: Hospitals' median cash-on-hand reached an historic low in the third quarter of 2008, demonstrating the impact of the credit crisis on liquidity. There was great variability in the median value of 110 days-cash-on-hand seen at that time - from 57 days for the lowest quartile of hospitals to 203 days for hospitals in the highest quartile.

Stable Operations: Potential recessionary impacts that are not yet seen in the data include bed closures, mass layoffs, declining patient volumes, or a decline in elective procedures.

"Hospitals are facing unprecedented economic stress and many of the indicators we're seeing suggest that things will get worse before they get better," said Gary Pickens, chief research officer for the Healthcare business of Thomson Reuters and lead author of the study. "While operating margins are generally holding steady, non-operating margins have all but disappeared from hospital balance sheets. That makes it difficult for hospitals to secure financing for new equipment and to fund expansion efforts."

"The key metrics we're watching most closely right now are operating margins and frequency of elective procedures," Pickens added. "If they start to slip, it may usher in a host of contagion effects."

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U.S. stimulus plan would pour billions into health

WASHINGTON (Reuters) - Economic stimulus plans being debated in Congress would pour billions into healthcare, propping up Medicaid, the government health insurance plan for the poor, and pushing doctors and hospitals to move from paper to computers.

The House of Representatives version calls for $825 billion (581 billion pound) in emergency spending and tax cuts while the Senate price tag is about $887 billion.

At least $100 billion would go to health care proposals that widen the safety net for the unemployed and back up the idea that improving fractured U.S. health care system would also help kick-start the economy.

The Senate plan includes:

-- $87 billion increase in the federal share for Medicaid, the joint state-federal health insurance plan for the poor. States have complained they are struggling to pay their share of the program because of lost tax revenues in the recession.

-- A $25 billion, 10-year injection to COBRA -- the Consolidated Omnibus Budget Reconciliation Act that allows workers who lose their jobs and thus health insurance to keep the insurance.

The Democratic-led proposal calls for the government to pay 65 percent of COBRA premiums for people who lost their jobs after September. Last week a report from the Commonwealth Fund found only 9 percent of people who are eligible for COBRA actually sign up, mostly because it is so expensive.

-- $17.9 billion for health information technology such as electronic medical records and electronic prescribing. Doctors whose patient list is made up of at least 30 percent Medicaid patients will get a bonus of 85 percent of their costs. Hospitals with 10 percent Medicaid clients will get a bonus that has yet to be calculated. A similar plan would apply to providers to Medicare, the insurance program for the elderly.

-- $1.1 billion to study the comparative effectiveness of various medical tests and treatments through the Agency for Healthcare Research and Quality and the National Institutes of Health.

-- $1.3 billion to the Transitional Medical Assistance that gives welfare recipients a little extra time on Medicaid, even after they start earning too much to qualify otherwise.

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Hospitals seeking help from stimulus

The American Hospital Association is lobbying for more help from the federal stimulus package being debated in Congress, arguing that hospitals are delaying or canceling upgrades that would benefit their communities.

Nationally, 45 percent of hospitals say they’ve delayed capital projects that had been scheduled for the next six months, and 13 percent said they’ve halted projects altogether, according to a survey by the association. Some respondents answered “yes” to both questions.

“Making these renovations and upgrades do more than just improve care. They create jobs,” said group CEO Rich Umbdenstock. “In tough economic times, health care is especially vital.”

The projects included new buildings, durable medical technology and computer upgrades. The top reasons for putting them on hold included uncertainty about the future, declining operating performance and reserves and less access to usual sources of capital. Eighty to 90 percent of hospitals said the were having a harder time raising money for projects from the usual sources: operating reserves, donations, investment income and borrowing.

Surveys were sent to 5,000 member hospitals in late December and early January, and the 639 responses came from a representative mix of geographic regions and urban and rural facilities.

“As the House considers their plan this week, we hope this survey helps them keep in mind the tremendous economic needs hospitals serve,” Umbdenstock said.

A provision in the House version of the stimulus package would help by giving incentives to banks that buy tax-exempt bonds, a key financing source for nonprofit hospitals, said AHA lobbyist Mike Rock.

“We’re hoping a provision like that can not only encourage banks to buy bonds but also in kind of a second-hand way get the market moving again,” he said in a conference call with reporters.

The group wants another provision added that would increase the budget for a U.S. Housing and Urban Development program that provides hospitals mortgage insurance, plus grants and other help for institutions that don’t meet all of the program’s requirements – especially one requiring three years in a row of financial surpluses. Rock said the addition would cost “millions, not billions.”

“There might be quite a universe of hospitals that might not qualify but could avail themselves of some kind of subsidy to get in that program,” he said.

In Columbus, the hospital systems have not put major projects on hold. Nationwide Children’s Hospital is building an $800 million expansion, Ohio State University Medical Center is in the design phase of a $1.3 billion expansion, and Mount Carmel Health System plans a standalone emergency department for Canal Winchester in a joint venture with Lancaster-based Fairfield Medical Center.

OSU budget officials told trustees in November the hospital system’s annual $80 million in routine renovations, construction and equipment upgrades would continue separately during the eight-year project. That hasn’t changed, medical center CEO Dr. Steven Gabbe said Friday.

“We monitor our financials every day,” he said. “At this time, we’re going ahead with our plans.”

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Consensus emerging on universal healthcare

The prospect of bold government action appears to be accepted among players across the ideological and political spectrum, including those who opposed the idea in the 1990s.

After decades of failed efforts to reshape the nation's healthcare system, a consensus appears to be emerging in Washington about how to achieve the elusive goal of providing medical insurance to all Americans.

The answer, say leading groups of businesses, hospitals, doctors, labor unions and insurance companies -- as well as senior lawmakers on Capitol Hill and members of the new Obama administration -- is unprecedented government intervention to create a system of universal protection.

At the same time, those groups, which span the ideological and political spectrum, largely have agreed to preserve the employer-based system through which most Americans get their health insurance.

The idea of a federal, single-payer system patterned on those in Europe and Canada, long a dream of the political left, is now virtually off the table.

Rejected as well is the traditionally conservative concept, championed by Sen. John McCain (R-Ariz.) during the presidential campaign, of reforming healthcare mainly by giving incentives for more Americans to buy insurance on their own.

There also is a widespread understanding that any expansion of coverage must be accompanied by aggressive efforts to bring down costs and reward quality care. And key players in the healthcare debate increasingly back a massive investment of taxpayer money for healthcare reform despite the burgeoning budget deficits.

Beyond those areas of basic agreement, the details of what would be one of the most momentous changes in domestic policy since World War II remain vague.

As a presidential candidate, Barack Obama embraced both expanded insurance coverage and preservation of the job-centered system, but since he won the White House he has provided few specifics about his plans once he takes office.

Disagreements over specifics could again lead to a stalemate. Even the most sanguine advocates of sweeping reform concede that difficult negotiations lie ahead.

But what is taking shape is a debate very different from previous discussions about what America's healthcare system should look like.

"A lot has changed," said Karen Ignagni, president of America's Health Insurance Plans, or AHIP, a leading trade group whose members helped kill the Clinton administration's healthcare campaign in the early 1990s.

AHIP is participating in talks with other interest groups to build consensus before Obama takes office in January and Congress begins debating any healthcare legislation.

Unresolved issues

Among the issues to be decided as more concrete proposals emerge in the months ahead is whether the roughly 46 million uninsured people in the U.S. will be pushed to buy private coverage or will be enrolled in a government insurance program, as some consumer groups want.

Hospitals and doctors fear another public program would reduce what they are paid, as Medicare and Medicaid have done. Insurers worry they could lose customers to the government.

Also unresolved is what mechanisms might be created to force individuals or businesses to get insurance, both potentially contentious subjects.

And few have tackled how the government will control costs and set standards of care, proposals that raise the unpopular prospect of federal regulators dictating which doctors Americans can see and what drugs they can take.

"There are some very big questions and some very big stumbling blocks," said Stuart Butler, vice president for domestic policy at the conservative Heritage Foundation, who has been watching the healthcare debate for three decades.

"Once you get into the details, the consensus is going to vanish pretty quickly, I suspect," he said.

At the same time, advocates for a single-payer system, including the California Nurses Assn., have vowed to continue pushing the idea next year along with many Democrats on Capitol Hill.

Republican lawmakers, still reeling from their election day losses, have signaled discomfort with a major expansion of government spending, a position many in the GOP hope will help return the party to power.

"Increasing access for the uninsured is not going to come cheap," Sen. Charles E. Grassley (R-Iowa) said at a recent hearing on healthcare reform. "And it's clear to me that our economy cannot stand much further deficit spending."

Nonetheless, the current agreement on principles contrasts markedly with previous reform efforts. Today, many of the key players in the debate see the importance of preserving elements of the current healthcare system that many Americans say they like.

"There is a growing understanding that you have to give people choice and you can't take away what they have," said Ron Pollack, head of Families USA, an influential advocacy group for healthcare consumers that is working with a diverse collection of interest groups to build consensus. "One of the big no-nos is that you must not ever threaten the coverage that people have."

The Clinton effort

Fifteen years ago, there was much less agreement about preserving an employment-based system that now insures about 177 million people.

Opponents of President Clinton's plan were able to sink it by raising the specter that government would take away consumers' choices in a new system that would force them into inferior health insurance.

But now the prospect of bold government action to address the healthcare crisis appears to have been accepted far more broadly by many of those involved in the debate.

Even business leaders traditionally wary of government intervention now are pushing for the federal government to act decisively to reshape the healthcare marketplace -- in large part because of the increasing burden imposed on them by rising costs.

"Doing this piecemeal is not going to work," said Todd Stottlemyer, president of the National Federation of Independent Business, which was also instrumental in defeating the Clinton plan.

Many involved in the healthcare debate, including Democratic lawmakers and members of Obama's team, also see healthcare reform as part of a broader economic picture.

Democratic leaders on Capitol Hill have begun sketching out plans for healthcare reform that, like Obama's plan, preserve the employer-based system and create a new system for those without insurance.

Last month, Senate Finance Committee Chairman Max Baucus (D-Mont.) outlined such a plan in an 87-page white paper titled "Call to Action." Similar approaches have been endorsed by House Democrats.

In contrast, the Clinton administration drew up its healthcare reform plan with little involvement from congressional Democrats. In the Senate, then-New York Democrat Daniel Patrick Moynihan, who was chairman of the finance committee at the time, actively resisted the idea of sweeping change in healthcare.

There are no signs of a similar rift today, said Jacob Hacker, a political scientist at UC Berkeley who has written a book about the failed Clinton effort.

"Possibly more important than policy agreements," Hacker said, "is the fact that the political forces now are in alignment."

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Why Hospitals Are Suddenly in The Doghouse

U.S. hospitals posted record profits of 6.9 percent in 2007, continuing a trend that extends back to 2004. In aggregate, the 4,897 community hospitals took in $43 billion more in revenue than they paid out in expenses. So why are they in such bad economic shape today that Moody’s recently lowered its outlook on hospitals to “negative”?

First, it’s important to remember that nearly a third of U.S. hospitals lost money on operations even in 2007, when the economy was still rolling along at a good clip. In areas where there are a lot of poor and uninsured patients, many hospitals have closed in the past few years. For example, 18 acute-care hospitals in New Jersey have shut their doors since 2000, and half of the state’s hospitals lost money last year.

Second, the hospital systems that did well in previous years invested heavily in the stock market and in the same toxic securities that have hurt many other institutions. For example, Chicago’s Advocate Health Care reported $108.8 million in investment losses for the first six months of 2008; Minnesota’s Allina system lost $10.4 million on its investments in the same period; and Catholic Healthcare West saw its investment income drop to $9.9 million for the fiscal year that ended in June 2008 from $591.6 million for the prior year.

This precipitous decline in investment income affects not-for-profit hospitals — the vast majority of U.S. institutions — far more than it does for-profit hospital chains. Because they’re unable to raise money on the public markets, not-for-profits rely on investment income to supply funds for capital projects and to cover shortfalls in operations. In better times, they could borrow money to make up the difference, but tighter credit has largely closed that spigot.

To make matters worse, hospitals across the country are starting to see fewer patients as people put off elective procedures. Fewer admissions mean fewer prescriptions and tests done at hospitals, and the downturn in physician practice business also means that fewer tests are being ordered from hospital labs.

Meanwhile, patients now bear a greater share of financial responsibility for their care because employers have changed their benefit designs to deal with soaring costs. High-deductible plans are on the increase, and the number of people considered underinsured has jumped 60 percent in the past five years. Hospitals often find it more difficult to collect from patients than from insurance companies, so their bad debt can be expected to rise.

The cost of uncompensated care as a percentage of hospital expenses (PDF link) — 5.8 percent in 2007 — has stayed fairly level for the past several years. And in 2007, the difference between Medicaid payments to hospitals and the cost of providing care (PDF) actually fell to $10.4 billion from $11.3 billion the previous year. However, states are staggering under the burden of soaring Medicaid costs as their tax revenues drop, and the federal government recently reduced what it pays for hospital outpatient care. So, unless the Obama administration antes up more for Medicaid, overall Medicaid payments to hospitals will fall, and the amount of uncompensated care will increase.

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Obama healthcare plan boon for hospitals: Moody's

President-elect Barack Obama's plan to extend health care to uninsured Americans will provide a boon to hospitals, along with medical centers and hospital equipment makers, according to Moody's Investors Service.

"Moody's estimates that the annual cost of the plan could be on the order of $100 billion to $200 billion, inclusive of participant contributions, on top of current annual government spending of about $800 billion," the rating agency said in a report this week.

"The expected spending could positively affect the top-line growth of many health care providers," the rating agency added, noting that the agenda of Obama's Democratic party includes increasing research funding and providing $10 billion over five years to health care providers to build up electronic-information systems.

The agency added that for-profit and non-profit hospitals alike could benefit from the plan, which was a cornerstone of Obama's campaign. He was elected president on Tuesday and will be sworn in in January.

The plan will raise some revenue by taxing larger employers that do not offer health coverage, Moody's said.

Because the plan would increase the number of insured patients and the amount of reimbursements for care, hospitals could benefit directly and indirectly, Moody's also said.

"The improvement would be direct, through reimbursements, as well as indirect, if more people seek primary-care treatment in a more-appropriate setting such as a physician's office or a clinic, for example, rather than in an emergency room," Moody's said. "This would free capacity and reduce pressure at hospital (emergency rooms), many of which are operating well-above capacity."

But the agency said there may be some negative effects on hospitals and insurers, as well.

The plan's mandate to coordinate care better through improved information technology and provisions to tie payments for Medicare, the federal health care program for the elderly, to performance may impose greater costs.

"Also, hospitals could find themselves in tougher contract negotiations with insurers that may experience tighter margins under the Obama plan. Lower rates of reimbursement growth could, in turn, put new pressure on hospital margins," the agency said.

The president-elect's plan may take years to implement as the country tries to untangle its current economic snarl that includes a growing deficit, Moody's warned.

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Hospitals See Drop in Paying Patients

In another sign of the economy’s toll on the nation’s health care system, some hospitals say they are seeing fewer paying patients — even as greater numbers of people are showing up at emergency rooms unable to pay their bills.

While the full effects of the downturn are likely to become more evident in coming months as more people lose their jobs and their insurance coverage, some hospitals say they are already experiencing a fall-off in patient admissions.

Some patients with insurance seem to be deferring treatments like knee replacements, hernia repairs and weight-loss surgeries — the kind of procedures that are among the most lucrative to hospitals. Just as consumers are hesitant to make any sort of big financial decision right now, some patients may feel too financially insecure to take time off work or spend what could be thousands of dollars in out-of-pocket expenses for elective treatments.

The possibility of putting off an expensive surgery or other major procedure has now become a frequent topic of conversation with patients, said Dr. Ted Epperly, a family practice doctor in Boise, Idaho, who also serves as president of the American Academy of Family Physicians. For some patients, he said, it is a matter of choosing between such fundamental needs as food and gas and their medical care. “They wait,” he said.

The loss of money-making procedures comes at a difficult time for hospitals because these treatments tend to subsidize the charity care and unpaid medical bills that are increasing as a result of the slow economy.

“The numbers are down in the past month, there’s no question about it,” said Dr. Richard Friedman, a surgeon at Beth Israel Medical Center in New York, although he said it said it was too early to call the decline a trend.

But many hospitals are responding quickly to a perceived change in their circumstances. Shands HealthCare, a nonprofit Florida hospital system, cited the poor economy and lower patient demand when it announced last month that it would shutter one of its eight hospitals and move patients and staff to its nearby facilities.

The 367-bed hospital that is closing, in Gainesville, lost $12 million last year, said Timothy Goldfarb, the system’s chief executive. “We cannot carry it anymore,” he said.

Some other hospitals, while saying they have not yet seen actual declines in patient admissions, have tried to curb costs by cutting jobs in recent weeks in anticipation of harder times. That includes prominent institutions like Massachusetts General in Boston and the University of Pittsburgh Medical Center, as well as smaller systems like Sunrise Health in Las Vegas.

“It’s safe to say hospitals are no longer recession-proof,” said David A. Rock, a health care consultant in New York.

A September survey of 112 nonprofit hospitals by a Citi Investment Research analyst, Gary Taylor, found that overall inpatient admissions were down 2 to 3 percent compared with a year earlier. About 62 percent of the hospitals in the survey reported flat or declining patient admissions.

Separately, HCA, the Nashville chain that operates about 160 for-profit hospitals around the country, reported flat admissions for the three months ended Sept. 30 compared with the period a year earlier, and a slight decline in inpatient surgeries.

Many people are probably going to the hospital only when they absolutely need to. “The only way they are going to tap the health care system is through the emergency room,” Mr. Taylor said.

And now, as the economy has slid more steeply toward recession in recent weeks, patient admissions seem to have declined even more sharply, some hospital industry experts say. “What we have not seen through midyear this year is the dramatic slowdown in volume we’re seeing right now,” said Scot Latimer, a consultant with Kurt Salmon Associates, which works closely with nonprofit hospitals.

While the drop-off in patient admissions may still seem relatively slight, hospital executives and consultants say it is already having a profound impact on many hospitals’ profitability. As fewer paying customers show up, there has been a steady increase in the demand for services by patients without insurance or other financial wherewithal, many of whom show up at hospital emergency rooms — which are legally obliged to treat them.

“It’s disproportionately affecting the bottom line,” Mr. Latimer said.

In California, for example, the amount of bad debt and charity care among hospitals has been steadily climbing, to $7.1 billion last year from about $5.8 billion in 2005. Those numbers could approach $8 billion for 2008, according to an analysis by Kurt Salmon.

The situation is exposing a main vulnerability of the nation’s hospital care system, which executives say relies heavily on private insurance to subsidize certain services. When there is a decline in profitable procedures paid for by private insurance, hospitals have less money to offset the relatively lower fees they receive from government insurance programs like Medicare and Medicaid.

“What happens in our country is that there’s really a hidden tax built in,” said Richard L. Gundling, an executive with a trade group for hospital financial executives, the Healthcare Financial Management Association. “Hospitals have to balance the mix of patients in order to survive.”

The amount of charity care provided by Shands HealthCare, the operator of the Gainesville hospital, has doubled in the last four years, to $115 million in fiscal 2008, Mr. Goldfarb said. He worries that the financial outlook will become even worse, with the prospect of payment cuts from state governments that are facing large budget shortfalls.

“If we’re going to survive the next few years,” he said, “we have to circle the wagons.”

The rapid moves by hospitals to cut costs — by laying off workers, consolidating facilities and freezing construction and other capital spending — are an abrupt change for an industry traditionally seen as insulated from economic woes.

Some hospital executives say they are simply being prudent. The University of Pittsburgh Medical Center, for example, is eliminating 500 jobs. The hospital system, which includes 20 hospitals and serves a large portion of Medicare and Medicaid patients, says that so far it has not seen a drop in patient admissions, but growth is tailing off.

“It’s much, much slower than we’ve seen in years past,” said Robert A. DeMichiei, Pittsburgh’s chief financial officer.

Mr. DeMichiei said Pittsburgh was mainly trying to reduce administrative jobs as a way to keep ahead of the worsening economy. Because large hospital groups like his have become more professionally managed in recent years, he said, they are no longer slow to reduce expenses.

Hospital executives “are beginning to act more like Corporate America,” said Mr. DeMichiei, whose own résumé includes various jobs at General Electric.

Another source of financial anxiety, hospitals say, is the continued difficulty in raising money through the credit markets. The majority of the nation’s hospitals are nonprofit, and they often raise capital through the municipal bond market to erect new buildings or make other significant capital investments. Because many hospitals say they are still unable to borrow easily, they have reacted by scaling back projects or holding off on major purchases.

“We are being extremely cautious about approving spending in these 60 to 90 days, until the markets stabilize,” said Michael A. Slubowski, the president of hospital and health networks for Trinity Health, a large Catholic system based in Novi, Mich., which operates nearly four dozen hospitals, mostly scattered across the Midwest.

While Trinity says it has not seen an overall reduction in its patient admissions, Mr. Slubowski says many of his counterparts have. “People are seeing declines,” he said.

Making matters worse for some hospitals has been a slowdown in bill payments, particularly by state Medicaid programs. The money hospitals are owed for their services — their accounts receivable — is growing, said Mr. Rock, the health care consultant, who works for the investment and consulting firm Carl Marks & Company in New York. “What we’re finding is one of the key drivers is Medicaid,” he said.

Many hospital executives also expect outright reductions in payments by Medicaid and Medicare.

Mr. Rock predicts that many hospitals will soon start to reconsider the services they provide, with an eye toward scaling back or eliminating some altogether. Procedures that rely heavily on patients’ making sizable cash outlays, like bariatric surgery, are particularly vulnerable, he said.

Hospital executives concede that they may not be as directly affected by the weak economy as retailers and banks, but they also say they are bracing for what is shaping up to be a severe and prolonged recession.

“There’s a lot of C.F.O. doom and gloom,” said Robert Shapiro, the chief financial officer at North Shore-Long Island Jewish Health System. “The sky may be really falling this time.”

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Massachusetts: Doctors oppose health plan

US doctors favour single payer system.

The Massachusetts healthcare programme widely seen as a test case for universal health coverage in the US faces mounting opposition from doctors who say the reform is failing.

More than 250 physicians in the state have signed an open letter warning that the healthcare plan, which was signed into law in April 2006 by Mitt Romney, the former Republican governor of Massachusetts, is “already proving fiscally unsustainable”.

The landmark programme, designed to provide uni­versal health insurance, requires all uninsured people to purchase private insurance or face a fine or tax penalty.

The doctors’ discontent with the plan, and their support for a single-payer system – whereby payments to healthcare providers would all be made by one administrative body like Britain’s National Health Service, rather than individual insurers – could send a strong signal to other states considering similar reform measures.

Healthcare is one of the main issues on the presidential campaign trail. Both candidates have called for radical reform of the $2,300bn (€1,477bn, £1,172bn ) healthcare system, although neither supports mandatory insurance payments.

In the letter, the Massachusetts doctors say the state-subsidised insurance offered to low-income families is too expensive and that “few can afford premiums for even the skimpiest coverage”. The doctors also warn that funding the plan in future will be hard because it deepened the state’s “dependence on private insurance, [so] can only add coverage by adding costs”.

The Massachusetts plan is an example of “the same reform being tried over and over”, according to Dr Rachel Nardin, assistant professor of neurology at Harvard Medical School, who wrote the letter. “This kind of incremental reform is very popular because it’s politically feasible: it allows the current stakeholders to stay in play,” she said. “But there are a lot reasons why it can’t work.”

A growing number of US doctors favour switching to a national healthcare plan. According to an earlier survey in the journal Annals of Internal Medicine, 59 per cent of doctors said they backed legislation to establish a national health insurance programme, a rise of 10 per cent from 2002.

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Hospitals' funding for migrant care in jeopardy

Facilities got $30 mil a year for unpaid emergency bills

A federal government program that pays Arizona hospitals more than $30 million a year to offset unpaid bills for emergency care provided to undocumented immigrants likely will end next week.

Hospitals in Arizona and other border states have turned to the program to defray the costs of providing emergency care to illegal immigrants. But the program expires at the end of this month, and lawmakers say there is little chance that more funding will be added.

Arizona hospitals have lobbied U.S. Sen. Jon Kyl, R-Ariz., who sponsored the original bill, to help extend the program. But Congress just doesn't have enough time to deal with the issue during this fall's limited session, which has been dominated by Wall Street's financial crisis.

"I don't think it is a very rosy prospect because we are just about out of the legislative session," said Kyl, who favors extending the program. "The only bit of good news is there is still a little bit of money left over."

The program was meant as a temporary fix for hospitals until Congress passed comprehensive immigration reform.

The program provided $250 million a year to states such as California, Texas and Arizona that have been hardest hit by immigrant care costs.

Though the program expires at the end of the month, there will still be about $77 million available to Arizona hospitals and doctors, according to the Arizona Hospital and Healthcare Association.

Still, Arizona hospitals want a long-term fix.

"We are disappointed but not surprised or discouraged," said John Rivers, president and chief executive officer of the Arizona hospital association. "This touches the immigration issue, and that is considered a hot potato both nationally and in Arizona. You need a broad coalition to get support for this and get it done."

Arizona hospitals say the program has been pivotal in offsetting the costs of providing emergency care for undocumented immigrants. Hospitals are required to provide emergency care for anyone needing immediate care.

Rep. Gabrielle Giffords, a Tucson Democrat, has sponsored a bill, called the Border Health Care Relief Act, that would extend the funding to hospitals in border states. But the bill has little momentum.

Giffords said southern Arizona hospitals are grappling with large numbers of undocumented immigrants seeking care.

"We are challenged in Arizona because we are in the front lines of a national immigration (debate)," Giffords said. 'These smaller hospitals are incredibly stressed."

St. Joseph's Hospital and Medical Center in Phoenix has received about $2.5 million to $2.9 million annually from the federal program. The hospital does not know how much it spends on immigrant care each year because it does not ask whether patients are U.S. citizens.

The hospital's overall "charity care" bill is about $17 million each year, which includes both citizens and undocumented immigrants.

Hospitals such as St. Joseph's determine whether a person may be eligible for the federal program by asking for identification such as Social Security cards, driver's licenses, border-crossing cards or temporary visas. Some patients volunteer to hospital staff members that they are not in the United States legally.

"We have been communicating with our congressional delegation about how important this funding is," said Suzanne Pfister, St. Joseph's vice president of external affairs. "It is the only public funding available."

Kyl said hospitals in Arizona and other states will need to demonstrate that they need the money He said the American Hospital Association, in particular, needs to lobby on behalf of all border state hospitals.

"The problem is the American Hospital Association had its eye on some other issues this year," Kyl said. "Despite repeated pleas from me to get in the game on this issue, they did not do so."

Arizona hospital interests said they will continue to press their case. Pfister will travel to Washington, D.C., next week to explain to lawmakers how important the funding is for area hospitals.

Gov. Janet Napolitano's staff also sent a letter urging Congress to extend the program.

An analysis by the Washington group Center for Immigration Studies, which favors restricting immigration, found that Arizona hospitals are hard hit by the issue of uncompensated immigrant care.

"Arizona has the highest stakes in this debate of any state," said Steve Camarota, CIS' director of research.

The issue of immigrant care has been controversial. St. Joseph's and other Arizona hospitals have been criticized for discharging immigrant patients too quickly or arranging to have them transferred to medical facilities in their home country.

In some cases, patient transfers were over the objections of family members.

St. Joseph's will continue to make transfers because other Arizona health-care facilities are unwilling to continue caring for undocumented patients after initial treatment, Pfister said.

Lawmakers such as Giffords say such patient transfers are an outgrowth of a broken immigration system.

"That is one reason we need comprehensive immigration reform," Giffords said.

"The bottom line is hospitals provide the best care they can to save peoples' lives. They are not there to provide ongoing care."

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