Health Care Industry

It’s not just big insurers who are sinking into the swamp these days — hospitals are slipping as well. And while it’s a little early to know for sure, the problems of health plans seem quite likely to make those of hospitals even worse.

Yesterday, Tenet Healthcare and Kaiser Permanente — a major for-profit hospital chain and a big nonprofit HMO, respectively — both reported lousy first-quarter earnings, although for very different reasons. Tenet’s $31 million loss largely reflected costs related to its legal dispute with two USC hospitals as well as an ongoing restructuring aimed at relieving bad debt and slowing revenues from patient treatment. Kaiser, meanwhile, blamed a deteriorating economy for a 64 percent slide in net income, largely because the HMO’s investments produced a $295 million loss in the quarter.

Both healthcare providers insist their underlying business is strong. Kaiser, for instance, said it gained 25,000 members during the quarter and boosted operating income, which is separate from investment-related earnings. And Tenet’s year of cost-cutting, during which it sold off “poorly performing” hospitals and cut employment, have led to two successive quarters of “positive admissions growth,” a measure of the number of patients a hospital system is treating, according to CEO Trevor Fetter:

“Our earnings have steadily grown; our margin has expanded; we’ve now had two quarters in a row of positive admissions growth. Those are the metrics that are most important for assessing that we’re in a growth path,” Fetter said.

“The kind of classic things you would expect to see if you were having a recession right now, we’re not seeing,” he said. […] “Since about the third quarter of 2007 we’ve really been doing very well.”

All this, I suspect, is so much whistling past the graveyard. WellPoint and other major insurers clearly intend to bolster their sagging businesses by raising health-insurance premiums. As insurance grows more expensive for employers, many are likely to scale back or drop coverage. That means hospitals will end up treating a greater number of underinsured or uninsured patients, leading to more bad debt, more aggressive collections procedures, and in some cases, draconian measures such as forcing patients to pay in advance for cancer care and other expensive treatments (along with the resulting bad PR).

All of which suggests, at best, another round of contraction and consolidation among both insurers and hospitals, as they struggle to shift rising healthcare costs onto consumers and businesses that are increasingly unable to pay for them. At worst, it could mean the beginning of a death spiral for the byzantine and inefficient U.S. healthcare system. Nothing seems more likely to precipitate a general healthcare crisis than the continued collapse of employer-provided health insurance, and it’s hard to see how that ends short of some form of dramatic government takeover that could shake all three industries to the core — and possibly even legislate health insurers out of business.

I don’t doubt there’s a better way, but almost no one seems to be looking for one. Instead, everyone’s intent  on rearranging the deck chairs while they can.

Update: At the Health Affairs Blog, Jeff Goldsmith offers a dissenting view, albeit one that mostly suggests increased cost-shifting will hold down overall healthcare inflation — and thus delay what still looks like an inevitable crisis — for at least a few years.

Image by Flickr user thetorpedodog, CC 2.0

Medical costs continue to rise much faster than general inflation, the insurance safety net is fraying as health plans and hospitals push the financial burden of being ill back onto the sick themselves, and even people who get their insurance through work have seen their premium contributions rise ten times faster than their incomes. But it turns out there’s some good news in the healthcare industry:

While the nation as a whole lost some 20,000 jobs during the month of April, employment increases were seen in hospitals and physician offices, according to preliminary seasonally adjusted figures from the U.S. Bureau of Labor Statistics.

Hospitals hired about 9,400 people in April for a 0.2% increase over March, and the roughly 4.61 million people employed at hospitals represented a 2.8% increase from 4.49 million in April 2007. Physician-office employment rose by around 7,600 during April for a 0.3% increase, and the almost 2.26 million physician-office employees represented a 3.1% gain compared with April 2007’s total of just over 2.19 million.

Meanwhile, Aetna has a new strategy for expanding access to health insurance — it will require more than 1,300 of its vendors and suppliers to offer healthcare plans to their employees:

The health insurer has set a goal of having 80% of all its vendors offering health benefits by 2010, and all vendors must offer workers coverage by 2012, Aetna announced in a letter to shareholders in its 2007 annual report.

“As a business leader, we have both an opportunity and an obligation to be part of the solution to the problem of the uninsured,” said Ronald Williams, chairman and chief executive officer of Aetna, in the letter. “We expect nothing less from the companies that do business with Aetna.”

That’s a pretty big-hearted idea, especially since I’m sure none of those vendors or suppliers will be under any compunction whatsoever to offer Aetna plans to their workers.

Anyway, it’s nice to know that not all the news coming out of healthcare is bleak. You just have to know where to look.

Image by Flickr user Betsssssy, CC 2.0

When a Michigan commission recently voted to deny several hospitals the right to build expensive “proton-beam therapy” sites for cancer treatment, it took a major step into the brave new world of explicit healthcare rationing.

The rationale behind the decision was fairly straightforward. Four hospitals had each planned to build a new proton-beam treatment facility, which provides a new type of radiation therapy for cancer using an enormous particle accelerator, at a cost of more than $100 million apiece. Instead, however, the state’s Certificate of Need Commission, which sets hospital-construction standards, said it would only allow one center to proceed, and ordered the state’s largest hospitals to work together to build and run it.

Proton-beam treatment may be more accurate — and thus somewhat safer and more effective — than traditional X-ray radiation therapy, although that advantage hasn’t really been proven to anyone’s satisfaction. Because the technology is shiny and new, however, hospitals see proton-beam centers as prestigious facilities that can attract new patients and doctors, potentially giving them an edge over their rivals. The centers are also likely to be quite lucrative, as high-end cancer care tends to be reimbursed by insurers at fairly high rates.

The problem for the state, of course, is that four new proton-beam centers would rack up huge medical costs. (All would likely operate at close to capacity, due to the way boosting the supply of new medical technologies tends to create fresh demand for their use.) “The costs of multiple centers, each having the most expensive medical equipment yet developed, would be tremendous,” the state commission said.

Because of their expense, proton-beam centers appear to be breaking down the reluctance of many states to explicitly ration medical care by interfering with hospital-construction plans. A similar commission in Illinois, for instance, said last month that it may deny one of two proton-beam facilities planned for the Chicago suburbs.

Of course, healthcare is already rationed in the U.S. — it’s just that it’s usually done so covertly and haphazardly via insurance status and the ability to pay large up-front hospital bills or significant coinsurance for expensive drugs. The main reason, of course, is that overt rationing is never very popular. States that decide to limit the availability of new but unproven treatments could very easily face a political backlash. Such policies can also cross powerful business interests such as hospitals and their partners, who can mobilize legal and political counterattacks.

Ugly as it is, however, explicit rationing is an entirely understandable response to escalating medical costs and hospitals that have no incentive not to build out expensive but duplicative facilities in their zero-sum pursuit of patients and profits. For that very reason, though, rationing is pretty likely to fail as a cost-control measure — it makes no one happy, and simply requires the expenditure of too much political capital in order to ward off intangible future costs.

Image by Flickr user freeparking, CC 2.0

If you flog it, they will come. Or so ten major pharmacy chains seem to think, since they’ve just launched a national marketing campaign aimed at raising “consumer awareness” about electronic prescriptions, or e-prescribing (free registration required).

The logic behind electronic prescriptions is much the same — and every bit as good — as that behind electronic medical records: They’re fast, efficient, accessible remotely, legible and help keep people from taking the wrong drugs (and prevent pharmacies from handing out misfilled prescriptions). And, of course, they’ve been slow to take off for exactly the same reason: Only a fraction of doctors are wired up with the capability to write and send them. According to SureScripts, an e-prescription network vendor, more than 70 percent of pharmacies can receive e-prescriptions — but only six percent of doctors can send them.

(Another issue highlighted by the Fort Worth Star-Telegram: State law in places like Texas requires prescriptions for certain restricted drugs to be written by hand.)

On the other hand, e-prescriptions have one thing going for them that digital medical records don’t — a government mandate, albeit not a very strong one. Medicare insists that all computer-generated prescriptions for its prescription-drug benefit be transmitted electronically by next Jan. 1, instead of by fax, as is often the case now. Notably, that doesn’t seem to cover handwritten prescriptions at all, which looks like a major loophole.

Thus the marketing campaign, which aims to fascinate consumers so much that they’ll ask their doctors to adopt e-prescribing technology. Sounds like a stretch to me, but maybe these pharmacies know what they’re doing. Or maybe they just have more money burning a hole in their collective pocket than they know what to do with.

Here are details of the program, courtesy of Health Data Management:

The chains, which along with participating independent pharmacies represent 26,000 stores, are sponsoring a new Web site for consumers, at LearnAboutEprescriptions.com. The site explains the technology and enables a consumer to enter a ZIP code to find physicians and pharmacies that support e-prescribing. Electronic prescription network vendor SureScripts, Alexandria, Va., also supports the site.

The pharmacies also will put signs on their doors and counters informing consumers that they fill electronic prescriptions….

Participating pharmacy chains include CVS, Duane Reade, Giant Food, Kerr Drug, Longs Drugs, Rite Aid, Stop & Shop, SUPERVALU Pharmacies (Acme, Albertsons, bigg’s, Cub, Farm Fresh, Osco, Shop & Save, and Shoppers), Walgreens and Wal-Mart.

Photo by Flickr user ((brian)), CC 2.0