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Subject: Rochester's Revolution In 'Universal' Care; Experimental Insurance Program
Date: Sun, 8 Nov 92 09:22:42 EST
Message-ID: <52.1992Nov8.092243@AmeriCast.com>

Rochester's Revolution In 'Universal' Care; Experimental In-
surance Program Cuts Costs<By Spencer Rich=Washington Post Staff
Writer=

ROCHESTER, N.Y. - When Donald Vanhaneghem moved back from Cali-
fornia a year ago to be with his family "for the time I have
left," he figured it would be impossible to get health insurance,
because he has AIDS.

 But to his astonishment, Vanhaneghem became eligible for a
health maintenance organization plan offered by Blue Cross-Blue
Shield of Rochester simply by paying $50 to join an insurance
purchasing group sponsored by the local Chamber of Commerce. The
premium is only $348 every three months, exactly the same as a
large company would pay to cover a single employee in perfect
health.

 "The benefits started within a few weeks," said Vanhaneghem.
None of his bills was excluded because he had AIDS when he signed
up.

 Rochester's program to offer virtually universal health in-
surance coverage - and the city's experiment in capping hospital
costs - demonstrate some of the major themes in President-elect
Clinton's health care prescription. Clinton has repeatedly cited
Rochester as an example of some of his concepts.

 Kevin Moley, deputy secretary of the  Department of Health and
Human Services, said he has no problem with letting every commun-
ity adopt its own system, based on "decisions made locally by lo-
cal people."

 However, he said, "Clinton is talking about a board in Washing-
ton imposing solutions for the whole country from the top down
and a national budget cap governing everything from aspirins to
Band-Aids. It's unworkable." Anyone residing in Rochester or its
principal suburbs is eligible to buy a policy from Blue Cross-
Blue Shield (BCBS), the dominant health insurer. "You can walk in
off the street and buy a policy," said Raymond A. Savage, Blue
Cross senior vice president. As a result, only 6 percent of the
Rochester population lacks health coverage, compared with 14 per-
cent of the population nationwide.

 Some of the policies do exclude certain payments for up to a
year  for any illness a person had at the time he or she signed
up.  But the Blue Cross-Blue Shield health maintenance plan that
Vanhaneghem joined had no such limitations.

 The second important concept in  Rochester's program is known as
"community rating." Instead of charging anyone who is a poor
health risk huge premiums, the major private insurers in Roches-
ter  charge everyone the same amount for a given policy - regard-
less of age, sex, medical history or place of employment.

 The community rating concept is increasingly rare, because many
insurers try to avoid high-risk groups and focus on offering
cheap policies to businesses with a low-risk work force, a prac-
tice sometimes called "cherry-picking."

 How can Blue Cross-Blue Shield ward off "cherry-pickers" while
offering open enrollment and community rating? By keeping its
costs low and attracting the largest possible number of partici-
pants, said Blue Cross President Howard Berman.

 In 1991, according to Berman, the average cost for each house-
hold insured by his organization in Rochester was $2,378, com-
pared with $4,361 for New York State and $3,573 for the nation.
But Berman said that his group can still make a profit per house-
hold charging $3,684 a year for a family with children. (The
charge is less for single persons and childless couples.)

Curbing Costs<One reason for that is that Blue Cross has sharply
curbed its administrative costs. Berman said these paperwork and
overhead costs come to only 7 percent of his firm's total costs -
a third of the share typical among commercial insurers.

 In addition, community rating lowers premium costs for some peo-
ple who would not otherwise buy insurance, he noted. Without in-
surance, many of these people would get free care. Blue Cross
would end up paying for it because doctors providing free care
would make up their losses by charging patients insured by Blue
Cross more than they otherwise would.

 Also curbing costs, said Berman, are New York laws that require
the state to approve proposed capital expenditures by hospitals,
to make sure they don't simply duplicate facilities that already
are available in the community, which can lead to considerable
waste and higher hospital charges.

 In addition, Berman said, with its large HMO enrollment, Blue
Cross-Blue Shield can keep down costs by overseeing the care of
patients very carefully to avoid unjustified treatments and hos-
pitalizations. Blue Cross  negotiates with doctors on fees, and
doesn't simply pay them whatever they wish to charge.

 New York State, which sets hospital rates, rewards community-
rating insurers by allowing them to pay hospitals 13 percent less
than commercial insurers do.

Big business is supportive. "Community rating helps focus our
collective attention on controlling health care costs, instead of
encouraging individual businesses to negotiate their own deals,
often at the expense of the community," said  David E. Edwards,
director of benefits for Eastman Kodak Co., which buys its in-
surance through the Blue Cross organization.

 Blue Cross is able to take advantage of economies of scale, be-
cause it has more than 70 percent of the Rochester metropolitan
area's private market, and because more than half of that cover-
age is through HMO-type arrangements in which all needed health
services are provided by a group of doctors working together.
Preferred Care, an HMO, has about 15 percent of the market.

Imperfect Solutions<Derace Schaffer, chairman of the radiology
department at Genesee Teaching Hospital here, said the Rochester
health care picture is far from perfect.

 While dedicated physicians provide quality care, he said, the
system involves "a very subtle form of health care rationing."

 He said some hospitals do not have enough beds, and Blue Cross-
Blue Shield is always pressing doctors to avoid what it thinks is
over-utilization - giving three X-rays where one might do, for
example.

 He said that some hospitals do not have enough high-tech
machinery, and community needs are met only because doctors have
acquired such equipment on their own. Schaffer said managed care
and tight budgets impose many impediments on the way doctors care
for patients.

 Savage disagrees.  "Rationing? Absolutely not."

Cutting-Edge Experiment<Rochester's most revolutionary experiment
in holding down health care costs lasted from 1980 to 1987.

 Under the program, the nine hospitals in the two-county metro-
politan area agreed to operate under annual spending caps. Each
hospital was assigned a budget that covered not only basic costs
for all patients, but also  charity care of the poor, training of
interns and residents and the costs of new beds and equipment.

 "In the first five years of this program," wrote James Block in
the Journal of the American Medical Association, "the increase in
Rochester area hospital expenses was 46 percent, compared with 52
percent for New York State hospitals and 68 percent for U.S. hos-
pitals at large."

 He said the hospitals' financial position improved and there was
no evidence of a reduction in quality of care. Block, who headed
the experiment, is now president of Baltimore's Johns Hopkins
Hospital and Health System. Results were similar for the final
two years.

 The key to success, according to Block, Rochester Chamber of
Commerce President Thomas T. Mooney and others, was that a fixed
budget made each hospital more cost-conscious. They avoided un-
necessary admissions and treatments, and shifted patients to less
costly outpatient care.

 Instead of each hospital trying to compete against the others by
acquiring new beds and equipment, duplicating facilities, "when
we needed a certain piece of equipment, we all sat around a table
and worked out who would get it," said Patrick J. Madden,
president of St. Mary's Hospital.  Though the experiment is still
working well, Mooney and Berman said, it ended in 1987 after both
Medicare and New York State decided to push cost-control systems
of their own that were not structurally compatible with
Rochester's "global budgeting" plan. Clinton himself has used the
term global budgeting to describe his plan to hold down costs.<<
02:54 11-08C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
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