Medical miscalculation creates doctor shortage

By Dennis CauchonUSA TODAY

After a glut was predicted a decade ago, the number of physicians isn't keeping up with the demands of a wealthy, aging population

TALLAHASSEE, Fla. — Retired fisherman Billy Bodiford was diagnosed with prostate cancer in October. The doctor who found the cancer is the only urologist available in Taylor County, Fla. (pop. 19,200) — and he visits just one day a month.
The doctor sent Bodiford from his hometown of Perry to Tallahassee 50 miles away for surgery. “You can't get the type of operation I needed in my town,” says Bodiford, 68, who was hospitalized for six days in December and is feeling better.
Bodiford experienced what many Americans may soon face: a shortage of physicians that makes it hard to find convenient, quality health care. The shortage will worsen as 79 million baby boomers reach retirement age and demand more medical care unless the nation starts producing more doctors, according to several new studies.
The country needs to train 3,000 to 10,000 more physicians a year — up from the current 25,000 — to meet the growing medical needs of an aging, wealthy nation, the studies say. Because it takes 10 years to train a doctor, the nation will have a shortage of 85,000 to 200,000 doctors in 2020 unless action is taken soon.
The predictions of a doctor shortage represent an abrupt about-face for the medical profession. For the past quarter-century, the American Medical Association and other industry groups have predicted a glut of doctors and worked to limit the number of new physicians. In 1994, the Journal of the American Medical Association predicted a surplus of 165,000 doctors by 2000.
“It didn't happen,” says Harvard University medical professor David Blumenthal, author of a New England Journal of Medicinearticle on the doctor supply. “Physicians aren't driving taxis. In fact, we're all gainfully employed, earning good incomes, and new physicians are getting two, three or four job offers.”
The nation now has about 800,000 active physicians, up from 500,000 20 years ago. They've been kept busy by a growing population and new procedures ranging from heart stents to liposuction.
But unless more medical students begin training soon, the supply of physicians will begin to shrink in about 10 years when doctors from the baby boom generation retire in large numbers.
“Almost everyone agrees we need more physicians,” says Carl Getto, chairman of the Council on Graduate Medical Education, a panel Congress created to recommend how many doctors the nation needs. “The debate is over how many.”
Getto's advocacy of more doctors is remarkable because his advisory committee and its predecessor have been instrumental since the 1980s in efforts to restrict the supply of new physicians. In a new study sent to Congress, the council reverses that policy and recommends training 3,000 more doctors a year in U.S. medical schools.
Even the American Medical Association (AMA), the influential lobbying group for physicians, has abandoned its long-standing position that an “oversupply exists or is immediately expected.”
“The truth is, we don't know if there's a shortage of physicians,” says AMA President John Nelson, a Salt Lake City obstetrician. “It looks like there are enough physicians for the short term, but maybe we need more because of the aging population.”
The United States dramatically expanded the number of doctors being trained in the 1960s and 1970s, creating two new physicians for every one that retired, says Richard Cooper,director of the Health Policy Institute at the Medical College of Wisconsin.
But the production of new doctors has changed little since 1985. Today, new physicians roughly equal the number of doctors retiring. Within a decade, baby boom doctors licensed in the 1960s, 1970s and 1980s will retire in large numbers that will outstrip the 25,000 new doctors produced every year, Cooper says.
The effective number of physicians will fall even more, Cooper says, because doctors work shorter hours today. “The public expects good, innovative health care, but we're not producing enough physicians to provide it,” Cooper says.
The marketplace doesn't determine how many doctors the nation has, as it does for engineers, pilots and other professions. The number of doctors is a political decision, heavily influenced by doctors themselves.
Congress controls the supply of physicians by how much federal funding it provides for medical residencies — the graduate training required of all doctors.
To become a physician, students spend four years in medical school. Graduates then spend three to seven years training as residents, usually treating patients under supervision at a hospital. Residents work long hours for $35,000 to $50,000 a year. Even doctors trained in other countries must serve medical residencies in the USA to practice here.
Medicare, which provides health care to the nation's seniors, also is the primary federal agency that controls the supply of doctors. It reimburses hospitals for the cost of training medical residents.
The government spends about $11 billion annually on 100,000 medical residents, or roughly $110,000 per resident. The number of residents has hovered at this level for the past decade, according to the Accreditation Council for Graduate Medical Education.
In 1997, to save money and prevent a doctor glut, Congress capped the number of residents that Medicare will pay for at about 80,000 a year. Another 20,000 residents are financed by Veterans Affairs and Medicaid, the state-federal health care program for the poor. Teaching hospitals pay for a small number of residents without government assistance.
Medicare, which faces enormous financial pressure in coming decades, already spends 3% of its budget training physicians and may not have the resources to spend more.
Cooper says the nation needs 200,000 more physicians because aging and wealthy countries demand more health care.
The portion of U.S. income spent on health care rose from 8.8% in 1980 to 15.4% in 2004 and will reach 18.7% in 2014, according to Medicare estimates. That means more doctors are needed, whether it's for hip replacements or prescribing new drugs.
Demographic changes in the medical profession also contribute to the need for more physicians. Nearly half of new physicians are women, and studies show they work an average of 25% fewer hours than male physicians, Cooper says.
Physicians older than 55 work about 15% less than younger doctors. And medical residents have been limited to 80-hour weeks since 2003, ending decades of 100-plus-hour weeks.
Most worrisome, the retirement of baby boom physicians means the number of doctors will start falling just as the first baby boomer turns 70 in 2016, says Ed Salsberg, a workforce specialist at the Association of American Medical Colleges.
The United States stopped opening medical schools in the 1980s because of the predicted surplus of doctors. The Association of American Medical Colleges dropped this long-standing view in 2002 with the statement: “It now appears that those predictions may be in error.” Last month, it recommended increasing the number of U.S. medical students by 15%.
Florida State University's College of Medicine, the first new medical school since 1982, will graduate its first class this year. Arizona, Nevada, California and Florida are considering opening additional medical schools. Other states are considering expanding theirs.
Florida State won approval from the state Legislature to become the nation's 126th medical school by emphasizing family practice and other specialties needed in rural areas and inner cities, where the doctor shortage is already acute.
Florida State medical student Shannon Price, 34, plans to return to her hometown of Perry when she becomes an obstetrician in 2010. She knows firsthand how having too few doctors hurts Perry.
The only person in her family to attend college, Price worked in a munitions factory after high school. Laid off, she went to junior college, then became a nurse.
“People go without health care in my hometown,” she says. “Women go five or six years without Pap smears. We'd deliver babies in the emergency room. My family didn't go to the doctor, other than occasional visits to the health department.”
Doctors' Memorial Hospital in Perry is paying Price's medical school tuition to encourage her return. “She could go anywhere she wants in the country, yet she wants to come back here,” hospital administrator Rick Brown says. “We appreciate that.”
Because physicians are affluent and in short supply, they tend to locate where they want to live — not, as McDonald's or a Chinese restaurant might, where the most customers are.
Jackson Hospital, a 120-bed hospital in Marianna, Fla., a town of 6,200 an hour west of here, needs a urologist, a radiologist, an ear, nose and throat specialist and a gynecologist. “It's supply and demand, and it's hard to get doctors here,” hospital administrator Charles Ellis says.
Particularly scarce are old-fashioned specialists — general surgeons, radiologists, anesthesiologists — who have a wide range of duties. Jackson Hospital has one radiologist who does the work of two or three doctors. He works 15 to 18 hours a day.
New radiologists are not very interested in traditional radiology, Ellis says. They prefer cutting-edge radiology using catheters to treat cancer, blood clots and other problems, which is more lucrative and has predictable hours.
“It's hard to find a radiologist and orthopedic surgeon who want to focus on broken bones, especially at 3 a.m.,” Ellis says. “But that's what we need.”
Some medical policy specialists say the USA doesn't have too few doctors, just poor distribution of them.
“We have more and more physicians taking care of fewer and fewer patients,” says Kevin Grumbach, chairman of family and community medicine at San Francisco General Hospital.
He says doctors gravitate to high-paying practices — such as sports medicine and total body scans — that serve the wealthy and well-insured at the expense of Medicare patients and others.
“It's wrong to think that we can produce more physicians and have them trickle down to where they are needed,” says Grumbach, who favors a government-run, national health care system. “Investing billions of dollars to produce more doctors is a foolish way to spend money.”
Others worry that more physicians will drive up the cost of medical care, not make it cheaper and more accessible. Physicians will order more tests, more procedures and more drugs — without improving the nation's health, they say.
“Doctors create their own demand,” says physician Don Detmer, co-chairman of an Institute of Medicine committee that, in 1996, recommended cuts in funding for medical residents. “If we produce an abundance of doctors, there's little incentive for the system to become more efficient.” The Institute of Medicine is an independent group created by Congress for advice on medical issues.
But Cooper, a former medical school dean, says it's foolish to limit doctors as a way to control health care costs. “Doctors don't drive medical costs,” he says. “Sickness does.
“We face at least a decade of severe physician shortages because a bunch of people cooked numbers to support a position that was obviously wrong,” Cooper says. “This is a desperate situation. And we need to act now because it takes a long time to train a doctor.”

Views On Prescription Drugs And The Pharmaceutical Industry

Kaiser Health Poll Report

This Featured Topic uses current and historical public opinion data from the Kaiser Family Foundation and other polling organizations to examine the public’s attitudes towards prescription drugs and pharmaceutical companies.

Views On Prescription Drugs And Drug Safety
Prescription drugs play a part in half of all adults’ daily lives, and most agree that these medications have a positive value to society. Majorities say that prescription drugs have had a positive impact on the health and quality of life of Americans in general (78%) and have made a “big difference” in the lives of people with chronic conditions such as heart disease (72%) and cancer (63%).
Despite recent news attention to prescription drug safety following the recall of the drug Vioxx, most Americans feel confident about the safety of prescription drugs sold in the United States (80%) and similar shares feel confident in the FDA’s ability to ensure this safety (77%).
Views On The Pharmaceutical Industry
Understanding the public’s views on the pharmaceutical industry is important because these views can influence policy preferences. Although the public is generally positive about the value of prescription drugs to society, they have much more mixed views of pharmaceutical companies themselves. One-half of adults have an unfavorable opinion of pharmaceutical companies with drug companies ranking ahead of oil and tobacco companies in favorability, but behind many other groups such as hospitals, airlines and banks.
And while nine in ten (91%) adults say that drug companies make an important contribution by researching and developing new drugs, beliefs about the motivation behind drug companies’ work are less positive. Seven in ten (70%) agree that drug companies put profits ahead of people, while one-quarter (24%) agree that companies are more concerned with saving lives and improving quality of life than profits.
Ratings of pharmaceutical companies’ customer service have been on a decline since 1997 when almost eight in ten (79%) people said drug companies generally do a “good job” serving consumers. In 2004, for first time, more people said drug companies generally do a “bad job” (48%) than a “good job” (44%) of serving consumers.
Views On Drug Costs
The public views pharmaceutical companies as major contributors to rising health care costs. In 2004, seven in ten (69%) adults say that high profits made by drug companies are a “very important” reason behind rising health care costs, and almost a quarter (24%) say drug company profits are the most important reason, ahead of malpractice lawsuits (20%) and greed and waste in the system (20%).
Furthermore, an argument sometimes put forth by the pharmaceutical industry that prescription drugs decrease overall medical costs by reducing the need for other services does not resonate with the majority of adults: fewer than a quarter (23%) agree with this view, compared with six in ten (59%) who agree that prescription drugs increase overall medical costs (11% do not think prescription drugs affect the nation’s medical costs).
Most of the public do not believe that research and development drive the cost of prescription drugs, instead three-quarters (74%) say drug company profit margins or marketing costs are the largest contributors to the price of prescription drugs and eight in ten (81%) say that drug costs are not justified because companies charge more for medications than necessary.
Prescription Drug Advertising
The vast majority of adults (90%) have seen or heard advertisements for prescription medications, but many are skeptical of the information provided. Fewer than two in ten (18%) say they can trust what pharmaceutical companies say in their ads “most of the time”, a much smaller share than in 1997 when 33% said they could trust drug company ads “most of the time”.
Despite this skepticism, many people are paying attention to these ads. Almost two-thirds (64%) of people who have seen prescription drug ads say that these advertisements generally provide useful information at least some of the time. One-quarter (26%) of people who have seen drug ads say they have talked to a doctor about a medication as a result of seeing an ad and more than half of these people said the doctor prescribed the particular medication.
Government Regulation of the Drug Industry
The public’s concerns about prescription drug prices and drug company profits translate into support for many proposals to control drug costs. For example, in 2005, almost two-thirds (65%) of the public say there should be more government regulation of prescription drug prices, and 70% of these people (or 46% of all adults) continue to support more regulation of prices even it leads to less research and development of new drugs.
And, in November 2004, nearly three-quarters (73%) of adults supported the idea of allowing Americans to buy prescription drugs imported from Canada and eight in ten (80%) favored changing the law to allow the government to use its buying power to negotiate lower drug prices for people on Medicare. The argument that these policies would lead drug companies to do less research and development does not resonate with most Americans: 70% disagree that importing drugs and 64% disagree that negotiation would affect development of new medications.

U.S. Workers Greatly Underestimate How Much Their Employer Contributes to Their Medical Insurance

Business Wire
February 28, 2005 Monday 4:05 PM GMT

Majority of U.S. Workers Greatly Underestimate How Much Their Employer Contributes to Their Medical Insurance, According to MetLife Study NEW YORK Feb. 28, 2005-

Employers' Under-Communication Yields Under-Appreciation -Despite the escalating cost of healthcare insurance, few employees understand the full and growing magnitude of their company's investment. More than one-quarter (28%) of full-time employees believe that their company spends less than $1,000 per employee annually on medical and nearly half (49%) believe their company spends less than $2,000, according to the recently released MetLife 2004 Employee Benefits Trend Study.

Only 27% of full-time employees estimate correctly that their company spends $4,000 or more per year. Nationally, companies spend an average of $7,289 per employee annually for family coverage and $3,137 for single coverage, according to the Kaiser Family Foundation and Health Research and Education Trust.

Divorced/separated employees and those in a domestic partnership are most likely to assess their employer's contribution realistically, with 41% and 44% of these employees respectively estimating their company's investment at $3,000 or more per year, compared with 38% of employees overall. Employee communications may be partially to blame for the misperceptions by today's workers.

Currently, only 31% of employees give their companies' benefits communications program high marks. Roughly the same percentage (36%) give high marks to their companies' benefits package, up only slightly from last year (32%).

"Rising healthcare premiums are having an impact on many companies' bottom lines," notes Beth Hirschhorn, chief marketing officer, MetLife. "Yet far too many employers are not taking the time to educate their employees on the value of their investment, causing employees to underestimate the worth of their individual and family benefits."As a result, many employees take their employer-funded benefits for granted and do not invest the time to research the products that best fit their needs.

More than half (57%) of the full-time employees surveyed by MetLife, for example, report that they spend 30 minutes or less making benefits decisions during open enrollment. On average, employees spend 62 minutes making their enrollment decisions. The median is 30 minutes.Currently, 60% of full-time employees (and 71% of those aged 21-30) don't understand which benefits best meet their needs. To fill the gap, 27% of full-time employees overall (and 40% of those age 21 - 30) rely on friends and relatives for financial advice, while 46% don't consult with anyone. Among older workers, 53% of employees age 51 - 60 and 56% of employees age 61 - 69 don't consult with anyone."

A robust communication and educational plan is a critical component of any benefits program," notes Hirschhorn. "Our research shows that when employees understand their insurance, savings and retirement needs, they make better benefits decisions and have higher levels of benefits and job satisfaction. In fact, among full-time employees who are highly satisfied with their companies' employee benefits, overall job satisfaction is nearly three times as high as it is for employees who are not satisfied."

As voluntary benefits (i.e., benefits for which employees pay all or most of the cost) become increasingly popular, benefits education is all-the-more critical. "With employees now responsible for funding an ever-increasing percentage of their own benefits, they need better decision support tools to make informed decisions," adds Hirschhorn.More than one-third (34%) of the full-time employees surveyed say they are interested in having their employer provide a wide array of voluntary benefits.

Employees view the payroll deduction associated with voluntary benefits as a "convenient way to make payments" (62%) and as a means for becoming "more disciplined about saving" (51%).The ability to sign up for insurance without going through a medical exam is also a strong selling point for 50% of employees. In terms of buying patterns, young workers (25%) - in addition to African American (28%), Hispanic (25%) and Asian (20%) employees - are more likely than their peers to purchase their financial and protection products at work.

The MetLife Employee Benefits Trend Study was conducted during the third quarter of 2004 and consisted of two distinct surveys. The employee survey, fielded by NOP World, polled 903 full-time employees, age 21 and older, at companies with at least two employees, and 1,542 voting-age consumers. The employer survey was conducted by TNS NFO and polled a total of 1,528 HR/Benefits executives from companies with at least two employees participated in the employer survey.

STUDY: PRIVATE HEALTH INSURANCE SYSTEM TO SUFFER STRAINS IN COMING YEARS

February 24, (BestWire) -
With national health-care spending expected to grow faster than the economy and private health-care premiums rising faster than per capita disposable income, a new government study projects that population growth will outstrip growth of enrollment in private health insurance in the next 10 years.

This means more and more people will be turning to government-funded health insurance and "strain the current system of employer-sponsored insurance coverage," according to the study by the Centers for Medicare & Medicaid Services."No one should find this surprising," said Robert Hartwig, chief economist at the Insurance Information Institute. "The government has long been the largest provider of health care, and that's only going to be more so the case in the future."

Growth of private health-care spending is expected to slow to 7.4% for 2004, down from 9% in 2001-2002. By 2005, growth of private spending will drop to 6.6% and in 2006 it will "sharply dip" to 3.1%, the study predicts. The average annual growth for private health-care spending is projected to be 6.4% for 2004-2014, below the 1965-2003 average of 9.3%.

The cause for this slowing of spending, according to the study, is slower growth in the use of medical care and the introduction of Medicare Part D, a new prescription-drug benefit under the public health insurance plan for the elderly, in 2006. Medicare Part D is "anticipated to have only a minor impact on health spending" but signifies a shift from private payers and Medicaid to Medicare.

The study predicts public funding of health care to exceed 49% by 2014. It currently is at about 46%.By 2014, total health-care spending is projected to be 18.7% of the gross domestic product, up from 15.3% in 2003, according to the study.Hartwig said the government-funded programs would be "filling the void left by the private sector." Many companies, he said, are cutting back on the employer-sponsored benefits they offer as a cost-saving tactic."There's a general cheapening of the benefits employers provide," Hartwig said, noting higher deductibles, less choice in doctors and more costs to employees as prime examples. "That can be expected to continue for the future."
"There's no end in sight for this trend," Hartwig said. "Many people believe there is a health-care crisis in this country, with millions without health care."Private health insurance premiums per enrollee will slow in growth from 9.9% for 2003 to 7.7% for 2004, the study predicts, citing a slowdown in the growth of the underlying costs of benefits per enrollee from 8.9% in 2003 to 7.7% in 2004.The premium cost per enrollee rose at an annual rate of 9.3% from 1998 to 2003, while per capita disposable personal income only rose by 5% a year.

The study predicts premium costs will continue to exceed personal income by 1.4 percentage points in the next 10 years, further straining the system.Out-of-pocket spending for health care grew to 7.6% in 2003, up from 6% in 2001-2002, the study said. The study expects out-of-pocket spending to "keep pace" with growth in private health insurance spending.Prescription-drug spending has slowed from 14.9% growth in 2001-2002 to 10.7% growth in 2003, reflecting several factors that include the now over-the-counter status of former prescription drugs, and is expected to rise to 11.9% growth for 2004, the study found."Health-care spending in this county is simply out of control," Hartwig said.

As the health insurance market swings more toward government-funded programs and farther away from employer-sponsored benefits, Hartwig said private health insurers would have to compete differently than what they do now."They're not necessarily cut off," Hartwig said. "But instead of providing through an employer-sponsored health care plan, they may end up bidding on public contracts."

BestWeek: February 25, 2005

State may go after estate to fund care; Homes of those who use Medicaid are fair game after death

10:19 PM CST on Sunday, February 27, 2005
By BOB MOOS / The Dallas Morning News
Beginning Tuesday, older Texans who apply to Medicaid for long-term care will need to read the fine print.
The state may try to get its money back from their estates once they die.
"These seniors are going to have to understand the long-term financial consequences for their families," said Anne Dunkelberg, assistant director of the Center for Public Policy Priorities in Austin.
Congress, grappling with soaring Medicaid costs, required all states to implement "estate recovery" programs 12 years ago.
Texas, where belief in property rights runs strong, is one of the last to comply.
The program's launch this week pits people who believe the law promotes taxpayer fairness against critics who fear it will deny heirs their rightful inheritances.
Though experts characterize the Texas Health and Human Services Commission's rules as among the most lenient in the nation, the program could affect tens of thousands of families that don't do estate planning.
Medicaid is the biggest safety net for older people in long-term care, Ms. Dunkelberg said. Seven of 10 Texas nursing home residents – or about 60,000 people – depend on the federal-state health care program each month.
"When an elderly parent begins to decline, many families are surprised to discover that Medicare doesn't cover custodial care," said Trudi Matthews, a health policy expert for the Council of State Governments.
$40,000 a year for care
Long-term care averages $40,000 a year, so even people with a hefty nest egg for retirement quickly deplete their savings and become eligible for Medicaid, she said.
But because Medicaid exempts houses and certain other assets when applicants sign up for benefits, "it's possible for someone with a very nice home to collect public dollars for his long-term care," Ms. Matthews said.
The thought of subsidizing seniors who still own comfortable houses has fueled support for recovering tax dollars after death, she said.
Under Texas' program, the state can file a claim in probate court against the estate of a Medicaid beneficiary older than 55 who applied for long-term care benefits on or after March 1. The estate includes the home and any other assets that remain.
State officials emphasize that the new rules don't cover anyone now on Medicaid.
They also say they won't file a claim if there's a surviving spouse, a child under 21, a child of any age with a permanent disability or an unmarried adult child who's lived in the beneficiary's home for at least a year.
Other relatives may seek hardship waivers to ward off the state's recovery efforts, and state officials say they'll consider those on a case-by-case basis.
"The Medicaid dollars we recover will be plowed back into long-term care," said Don Rogers, a spokesman for the Texas Department of Aging and Disability Services, which will administer the program.
Mr. Rogers said the state has no estimate of how much it will recover. Experts familiar with other programs said Texas can expect to reap about $8 million annually within several years, though they warn that state-to-state comparisons are unreliable because programs vary widely.
Recovery average: 1%
The national average for estate recovery has been less than 1 percent of overall Medicaid spending. Even so, almost all states are leaving no stones – even gravestones – unturned when searching for ways to pay for long-term care.
Long-term care costs Texas about $2 billion a year and accounts for about 30 percent of the state's Medicaid spending, according to the Health and Human Services Commission.
People who work with Texas seniors disagree about the merits of the new rules.
Lynda Ender, chairman of the Texas Senior Advocacy Coalition, said the state is being a good guardian of taxpayers' money.
"We're strapped for Medicaid dollars in this state – many seniors are having to wait for at-home care," she said. "Estate recovery will produce some revenue that may make that care more readily available."
Patricia Sitchler, president of the Texas chapter of the National Academy of Elder Law Attorneys, says the rules are hardhearted.
"One way families improve their economic standing is for elders to pass on something to the next generation," she said. "The state's new rules will take that opportunity away from many Texas families."
Hardship waivers
Some senior advocates say the state was careful to make allowances for lower-income families.
"These rules have been misportrayed as seizing the homes of poor folk – that's just not true," said Bruce Bower, director of advocacy and client services with the Texas Legal Services Center. "There will be no liens against homes."
The hardship waivers are among the most generous of any state's, he said.
Texas will exempt $100,000 of a homestead's appraised value in lower- and middle-income families and exclude farms and ranches that provide at least half of families' livelihood, Mr. Bower explained.
But specialists in elder law warn that the exemptions are narrowly drawn and that much property will be subject to recovery, particularly in the state's urban areas, where home values generally are higher.
"Many older Texans will be tempted to transfer their property directly to their children to avoid falling under the estate recovery law," said H. Clyde Farrell, an elder law attorney in Austin.
Yet that has its own risks, especially if the children get into financial trouble and have to sell the house, Mr. Farrell said.
"The family would have escaped the state's grasp, but it still would be left with nothing," he said.
Elder law attorneys urge older adults and their families to seek professional help to find legal ways to protect their assets.
"One is to transfer the homestead into a revocable trust," Mr. Clyde said. "After death, the title passes to the heirs. And because the property doesn't go through probate, it won't be subject to recovery."
Avoiding Medicaid
Both critics and supporters agree that estate recovery may cause families to think twice about applying for Medicaid when an elder requires long-term care.
"I'm advising clients to avoid using Medicaid, if they can, by purchasing long-term care insurance or better managing their assets," Mr. Clyde said.
Mr. Bower of the Texas Legal Services Center believes estate recovery will give families another incentive to care for elders themselves.
"As long as the family is capable, that would be good," he explained. "Some adult children have been too eager to put Mom or Dad in a nursing home and let Medicaid foot the bill."
Some health policy experts say the contentious debate over estate recovery laws shows how poorly this nation has prepared for the long-term care of its aging population.
"The only publicly financed system we have for paying for long-term care is Medicaid," Ms. Matthew said. "A system that was meant to be a safety net for the poor has turned into a middle-class entitlement."
Taxpayers can't sustain the current system, she said.
Nationally, Medicaid spending has increased 63 percent in the last five years, and the Congressional Budget Office projects it will grow an average of almost 8 percent annually in the next decade.
Policy experts say the nation needs a comprehensive solution to the mounting costs of long-term care.
"Someone's nursing care can easily approach six figures," Ms. Matthews said. "What will we do when 76 million baby boomers begin to require it?"

WellPoint's size can help it effect reform, CEO says

Indianapolis Star, February 24, 2005
As the nation's new No. 1 health benefits company, WellPoint Inc. packs the clout to improve the workings of America's health care system, says its president.
In a luncheon speech to the Economic Club of Indianapolis on Wednesday, Larry Glasscock sketched out his view of a more efficient, better-performing health care system, with Indianapolis-based WellPoint leading the charge.
The newly merged WellPoint serves 27.7 million members, or about one of 10 Americans, giving it the scale and leverage to push programs that improve care to patients, he said.
"With the resources we have brought together, we have created a company that can play a key role in meeting the challenges facing health care in our nation," he said.
Glasscock's comments, before more than 600 people in an Indiana Convention Center ballroom, drew on much of the rationale he cited to persuade insurance regulators in 10 states to approve Anthem Inc.'s $20.8 billion acquisition late last year of California-based WellPoint Health Networks.
WellPoint can use its size to help reduce upward-spiraling health care costs by pushing disease- and care-management programs that direct help to chronically ill patients before their health problems become more serious and costly, Glasscock said.
"Quality in health care can actually cost less," he said.
Glasscock also said WellPoint is investing in a "wired" health care system that makes patient records more accessible by putting them in electronic form, rather than on paper, and moves insurance claim processing onto electronic systems, which are 18 times cheaper to administer than paper.
Information technology can be "the penicillin of the 21st century" for health care if it is widely used, he said.
For the 16 million Americans too poor to afford health insurance and not old enough to qualify for federal Medicare coverage, private companies like WellPoint are at a loss, Glasscock acknowledged.
"We do need government help here," he said in answer to a question about aiding the uninsured.
Glasscock suggested that new government programs or tax credits to private insurers are needed to extend health care or health coverage to those with low incomes.

WellPoint Funds Clinic Grant Program

NU Online News Service, Feb. 24, 2005, 2:23 p.m. EST
An Indiana health insurer is making good on promises it made to do good works.
The insurer, WellPoint Inc., joined today with California Insurance Commissioner John Garamendi to launch a $35 million grant program for community clinics.
Garamendi required Anthem Inc., Indianapolis, and WellPoint Health Networks Inc., Thousand Oaks, Calif., which joined to form the new WellPoint Inc., to promise to make big contributions to California health care programs before he approved the deal.
The California Health Facilities Financing Authority will administer the new community clinic program, according to California officials.

Insurance Wholesale Brokers Become Hot Potatoes and Hot Properties for Mergers & Acquisitions

Insurance Journal February 23, 2005
The decisions of two of the largest insurance brokers to sell off their wholesale divisions is a reaction to the Spitzer investigations and could be a sign of more to come, according to insurance merger specialists.
"This is absolutely defensive," said Kevin Donaghue, managing director, Mystic Capital Advisors Group in New York, in reacting to the news that Willis Group Holdings is selling its Stewart Smith unit to American Wholesale Insurance Group Inc. and Aon is shopping its wholesaler, Swett & Crawford.
Donaghue said that the brokers who own their own wholesale divisions are "clearly looking to get around the conflict of interest" concerns raised by New York Attorney General Eliot Spitzer in his charges against giant broker Marsh. Faced with expectations that they disclose to clients if they place business with their own wholesaler and further explain why they selected their own wholesaler over competitors, some brokers are looking to just avoid any potential conflict, Donaghue believes.
Steven Wevodau, chief executive officer of WFG Capital Advisors of Harrisburg, Penn., agrees that the charges and investigations by Spitzer and state attorneys general have "cast a different light" on brokerage operations.
"I do expect to see some repositioning mainly because of the Spitzer and attorneys general investigations," said Wevodau, who sees brokers returning to their basic business model.
Wevodau expects that the "lemming effect" will probably come into play, whereby other brokers follow the lead of those that have already decided to relinquish their wholesale divisions. He thinks brokers may also rethink their ownership of other entities as well, pointing to Aon's decision late last year to sell all of its interest in the Bermuda-based specialty insurer, Endurance.
The broker at the center of the Spitzer charges, Marsh & McLennan, owns its own wholesaler, Crump. Wevodau thinks Marsh may eventually follow the direction set by Willis and Aon and seek to sell Crump. A Marsh spokeswoman said the firm won't comment on rumors.
The defensive nature of the transactions could mean some sellers may not get top price for their wholesalers, Donaghue added.
Wevodau, however, thinks it is far from a "fire sale" and that sellers will still get traditionally high values.
As for potential buyers, Donaghue noted that Brown & Brown, the Florida-based broker, continues to be in a buying mode and tends to "march to its own drum" in building its insurance distribution network.
In addition to Brown & Brown, Wevodau would not be surprised if some super regional banks or a firm like BISYS take interest in a wholesale unit.
Another possible acquirer: employees. Insiders suggested that's a possibility for Swett & Crawford.
Whether the largest brokers choose to divorce themselves from their wholesalers remains to be seen but even without that happening there is likely to be activity surrounding the wholesale segment.
"Wholesalers are definitely in play," said Donaghue, referring to the overall insurance mergers and acquisitions environment.
For more on merger and acquisition activity involving wholesalers, see the February 21 and March 7 print editions of Insurance Journal.

The Business of Cancer

HealthLeaders Magazine. By E. Thomas Wood, for HealthLeaders News, February 14, 2005

Oncologists run a business where nobody ever wants to be a customer. Yet the universal experience of cancer has touched virtually everyone in and outside of healthcare with a heart-wrenching experience. But it may not always be so. Much talked-about clinical advances on the horizon will revolutionize the prevention, diagnosis and treatment of cancer. At the same time, those same advances will bring about far-reaching changes in how the hospitals, physician practices and health plans involved in treating cancer will operate in the future.

There will be winners and losers, and they may not be the ones you would expect. For instance, today, medical oncologists are viewed as the relative underdogs. They command a high salary, but Medicare payment trends in the pipeline may substantially damage their business. Conversely, large academic medical centers wield a tremendous amount of power when it comes to the business of cancer. Not only can these institutions afford both the hardware costs and the labor expense of fully embracing new radiation technology, they also are backed by health plans that are steering their most challenging cases to these centers.
Long-term gain
A generation ago, a cancer diagnosis often meant a certain death sentence. A generation hence, cancer will be just one more chronic illness that people live with and overcome. The National Cancer Institute has made it an institutional goal to "eliminate suffering and death due to cancer by the year 2015." NCI Director Andrew C. von Eschenbach, M.D., speaking at the American Society of Clinical Oncology's annual meeting last June, insisted this goal is realistic: "Is 2015 bold? Absolutely. We not only can do it, we must do it."
No matter how much progress researchers make, oncologists will never lack for work. Nationwide, the total direct medical cost of cancer care leapt 23 percent between 2001 and 2004, according to estimates by the American Cancer Society Inc. and the National Institutes of Health. Among people under 85, cancer is America's No. 1 killer.
Much of von Eschenbach's vision to make cancer a more manageable disease is based on breakthroughs in emerging sciences such as genomics and proteomics. Ultimately, cancer experts predict that the end-stage treatments will not make the huge differences in quality of life and cost. Instead, the massive impact will come from screening, early detection and "theranostics" (pairing a diagnosis with instant therapy for a cancerous condition).
The technologies that will bring about this revolution range from multimillion-dollar pieces of equipment that enable heroic treatment of tumors to humble-looking devices and substances capable of detecting and destroying incipient cancers.
Says Ellen V. Sigal, Ph.D., founder and chairperson of Friends of Cancer Research in Washington, D.C., and a member of NCI's Board of Scientific Advisors: "The consensus among the science community is that for the first time, we understand the genetic underpinnings of this disease."
Short-term pain
This is all great news for patients. But the strategic outlook for healthcare organizations over the next couple of years is causing deep concern on many fronts.
"In the short term, we have the potential to see convulsions in the business of oncology," says William N. Hait, M.D., Ph.D., director of The Cancer Institute of New Jersey and a professor at UMDNJ-Robert Wood Johnson Medical School in New Brunswick, N.J. The main reason is a provision of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 that changes how medical oncologists are reimbursed in the outpatient setting. The changes are meant to fix a situation in which reimbursements for the drugs were often much higher than the physicians' costs, while payments for administering the medication did not cover costs.
In 2004, the Centers for Medicare & Medicaid Services introduced stopgap initiatives to temper the legislation's effects for the moment. Settling on a final system of reimbursement formulas will be a multiyear process, but it is clear that the CMS numbers as they now stand will reduce drug reimbursements to outpatient practices that administer chemo. A recent Government Accountability Office study estimated that total Medicare drug payments to oncologists will come in at $202 million above cost in 2005, down from $790 million in 2004. The report found that payments for administering chemotherapy increased substantially from 2003 to 2004, covering more expenses for oncologists than what Medicare covers, on average, for other specialties. 2005 rates, however, will dip slightly below 2004 levels.
Meanwhile, it is still unclear how hospital reimbursements will be affected by the MMA. "As we remove any profit margin from chemotherapy, it will have the unintended consequence of shifting care into the hospital," Hait predicts.
While hospitals worry about a flood of chemo patients coming their way, physician practices are scrambling to cope with the loss in pay due to Medicare changes. Many medical oncology practices are exploring mergers with radiation oncologists, albeit from a position of weakness because of the uncertainties over the future of chemo administration.
When health plan leaders talk about cancer, their mantra is "evidence-based medicine." With costs spiking and untested medical innovations proliferating, payors have reason to fear the loss of whatever tenuous grip they now have on the application of new cancer treatments. They lost their footing most spectacularly in the 1990s, when the popularity of autologous bone marrow transplantation, as a last-ditch therapy for breast cancer, leapt ahead of scientific investigations. By the time the procedure was proved to be largely a failure, insurers had been forced to pay many millions to cover it.
Insurers know that focusing on clinical evidence is a sure way to maintain logic in coverage decisions. But can they convince docs and patients to accept the "evidence?"
Forward thinkers in the oncology industry are receiving an ambiguous diagnosis of the future of their business. The few available certainties involve trends they must watch, and prepare to encounter, rather than concrete steps they must take. Cancer caregivers must keep close tabs on Medicare reimbursement for chemotherapy. Radiation technology is rapidly advancing, and healthcare organizations must be ready to embrace technologies that have popped up in only the last few years. Those who want to be ahead of the curve must start to think about evidence-based cancer medicine. There can never be many sure things about the future in oncology-except the knowledge that those involved in its practice will proceed, as ever, with determination.
How Cancer Is Changing Business Strategies at MEDICAL GROUPS
Almost anyone running an oncology physician practice today must contend with two issues that are mirror images of one another: Medical oncology may soon become a commodity, and radiation oncology is becoming so specialized in its technological demands that finding and affording qualified staff is now a major challenge.
Practice anxieties
The Medicare Modernization Act, with its downward adjustments of drug reimbursement and slighter upward push to administrative payments, has made strategic planning in medical oncology all but impossible for group practices. "Everybody thought the sky was falling from 2003 to 2004, and then 2004 has been anxiety-provoking," says Thomas A. Marsland, M.D., a member of Florida Oncology Associates, an 18-physician, nine-office network of cancer practices in and around Jacksonville. "It's only in the last six weeks of 2004 that they came around and started putting some money back in. It's going to take us some additional administrative expense to figure out how exactly to use these codes correctly." But it isn't enough, he adds; there still is a net deficit.
Marsland's group has tried to cope in a variety of ways. It is negotiating a merger with a large radiation group in the area that will bring in top-flight imaging capabilities, including a positron emission tomography/computed tomography (PET/CT) scanner. An electronic medical record system is under consideration, with some hope that the practice can recoup its cost of more than $1 million through improved efficiency as well as the sale of outcomes data to companies conducting clinical research. Marsland has even given some thought to creating a specialty pharmacy within the practice as a way to diversify revenues. "You gotta be creative," he says.
Because of the Medicare Modernization Act, Marsland anticipates a sea change in how oncologists like himself do their daily work. Today, he can make his own decision about how to administer certain drug cocktails. He gives the commonly used combination of 5-FU (5-Fluorouracil) and Leucovorin as an example: "Some people give it five days in a row every 28 days; some people give it once a week for six weeks in a row." Marsland sees that discretion being eroded in the near future. Physicians typically bristle at administrative efforts to standardize therapies, but he expects the more business-savvy of his fellow practitioners to realize that doing things their own way may not be a luxury they can afford in the future. "As the margins become less and less, we have to look at the economics of how the drugs are given."
That step may be only the beginning of a broader trend of reduced autonomy for medical oncologists. "Just using my crystal ball, I think all of these changes are eventually going to force some standardization, for better or worse," Marsland says. "And that drives folks into bigger and bigger practices. It's going to be very hard for the smaller groups of two or three, or even seven or eight physicians, to survive."
Radiating hope (and fear)
Radiation oncology appears to be a more fortunate species within the cancer industry. A stroll around the exhibit floor at last October's annual meeting of the American Society for Therapeutic Radiology and Oncology (ASTRO) revealed the vast array of new devices offering ever more precise weaponry against tumors-and conversations with physicians made it clear that many willing and able buyers exist for this gear. In the parallel universe of diagnostic imaging, the market is even larger and more bullish. Yet medical oncologist Marsland cautions that all is not so rosy for his radiation brethren. "The radiation folks have their own
Headache No. 1 is the fact that advances in radiation oncology and diagnostic imaging arrive at the practice with huge amounts of labor-cost baggage. Intensity modulated radiation therapy (IMRT), for example, is truly a lifesaver, delivering a more precise dose of radiation to tumor sites and thus making possible higher doses than traditional radiation methods, while doing less damage to surrounding tissue. But it's not a plug-and-play procedure. Whereas a prostate treatment with an old-fashioned linear accelerator might require an hour of planning time on the part of a highly paid physicist, doing a prostate with IMRT can take eight to 10 hours. For the moment, Medicare reimbursement reductions on IMRT are negatively impacting hospitals more than freestanding medical radiation practices, but industry observers don't expect that difference to persist. "I believe at some point CMS will start to correct this," says Andre A. Konski, M.D., MBA, who serves as the director of clinical research for radiation oncology at Fox Chase Cancer Center in Philadelphia. "As with anything else in medicine, reimbursement starts to fall as time goes on and more people adapt the technology."
Meanwhile there is also a severe shortage of radiation therapists, with the nationwide workforce some 18 percent or 1,800 short of demand as estimated by ASTRO. For now, says Joseph Spallina of Arvina Group LLC in Ann Arbor, Mich., radiation oncology "is still a moderate-margin business," but it may not be so indefinitely: "We are beginning to see signs of erosion."
How Cancer Is Changing Business Strategies at HOSPITALS
Despite all the advances affecting the clinical practice of cancer care, most hospitals are not showing parallel improvement in how they run their cancer business. Healthcare consultant Joseph Spallina, of Arvina Group LLC in Ann Arbor, Mich., reports that in at least nine out of 10 hospitals he visits, the cancer program is "looked at as a department, not a business unit." As a litmus test, Spallina always asks for a profit-and-loss statement on the program. Only rarely can executives deliver one. If they can't quantify what the business is worth, then it's not hard to imagine their chances of thriving in a rapidly evolving environment.
A grim future?
Hospitals face some of the same issues in their cancer business that they deal with in other specialties: payor reimbursement policies that squeeze margins, boutique competitors skimming off some of the most profitable cases in their mix, and costly treatment of uninsured patients. But they also are confronted with problems specific to oncology. Among these are the threat of a disruptive increase in chemotherapy patients shunted away from outpatient facilities because of Medicare policies, as well as the consequences of a greater payor emphasis on clinical quality benchmarking in oncology.
The possible influx of medical oncology patients, in the wake of the MMA's changes in how physicians are paid to deliver chemotherapy infusions under Medicare's outpatient Part B, is an issue clients regularly bring up with consultant Heather Pfeiffer of Washington D.C.-based The Advisory Board Co. "Probably the biggest concern is that they don't have the capacity and they don't have the staff," she says. "Honestly, the education of smaller nonspecialized hospitals is probably not at the level of the medical oncology practices, either. They're not dealing with the brand new regimens and the really complicated patients taking these new drugs."
Publicly, hospitals put on a brave face: "We're absolutely prepared," says Jennifer Daley, M.D., senior vice president for clinical quality and chief medical officer of Dallas-based Tenet Healthcare Corp., which has deployed a clinical program development group to peer "over the hill" at future cancer issues and to help roll out preparations for change across the company's multihospital network. "We have the capacity," she emphasizes.
William N. Hait, M.D., Ph.D., director of The Cancer Institute of New Jersey and a professor at UMDNJ-Robert Wood Johnson Medical School in New Brunswick, N.J., likewise plays down the logistical difficulties, but he nonetheless dreads the prospect of a mass migration into inpatient care: "For the healthcare system, this will be exceedingly more expensive-and for the patient, a complete disaster." More to the point, Hait believes that if CMS can find savings by cutting outpatient reimbursement for chemo, it will move promptly to do likewise with its inpatient Part A payments to hospitals.
The P4P push
While hospital cancer units face the potential burden of a rising number of patients, they also will be challenged with quantifying quality in the near future, with pay for performance in oncology not far behind. Pfeiffer sees the nation's major academic cancer institutions driving the trend, spurred on by the government's move toward P4P. "I think CMS opened Pandora's box," Pfeiffer says. She notes that clients of hers at the leading edge of research and treatment want to be rewarded for their excellence and are asking for more information about quality indicators and benchmarks so they can negotiate pay for performance with payors.
With P4P becoming more common in cardiac care and other areas of practice, the desire to bring it to oncology is no surprise. But the task is infinitely more complicated in oncology than in cardiology, given the tremendous diversity of cancerous conditions, diagnostic techniques and treatment options. Obviously, this means that the largest providers are the best equipped-based on volume-to furnish evidence of successful outcomes. Health plans already have policies in place that tend to shift the more complicated cases toward the major tertiary centers. For example, Hartford, Conn.-based Aetna Inc. now pays to fly patients and family members to major treatment centers. "We design our products and benefits so that it is significantly to the patient's advantage to go to an institute of excellence," says James D. Cross, M.D., Aetna's national medical director for medical policy administration.
Edmund Pezalla, M.D., M.P.H., of Costa Mesa, Calif.-based pharmacy benefit manager Prescription Solutions, says "health plans are concerned about areas where there are fewer large centers and more care is being delivered in smaller offices, because they have less opportunity to look into those. They are moving toward adopting guidelines from the large cancer centers for the diagnosis and treatment of the more common cancers." Smaller and less specialized hospitals may therefore have good reason to view the notions of quality measurement and P4P in cancer care with a jaundiced eye, seeing more burden than benefit.
Yet some community hospitals are taking concerted steps to meet the quality challenge. Roger S. Hunt, president and CEO of BroMenn Healthcare System in Normal, Ill., which has about 225 staffed beds, has recently joined with the staff of the Community Cancer Center (a five-year-old facility that is a joint venture of BroMenn and cross-town competitor OSF St. Joseph Medical Center in Bloomington, Ill.) in an effort to establish standards for benchmarking against other cancer centers. The process is meant to turn the medical advisory board of the Community Cancer Center into "the cancer quality committee of the two hospitals," Hunt explains. "Large health plans, but also large employers, are far more sophisticated in looking to find providers that are using broader-based protocols, are using disease management, and are able to demonstrate their results," he adds. "We recognize we've got to develop our own structure to be in that position."
How Cancer Is Changing Business Strategies at HEALTH PLANS
Strategic thinkers in America's health plans have seen one possible version of the future of cancer care, and it's not one they want to experience again. If they are to avoid quagmires like the autologous bone marrow transplant controversy of the 1990s, they must evangelize successfully with the gospel of evidence-based medicine.
The ABMT controversy inflicted both financial and reputational scars on insurers before the scientific verdict largely vindicated their reluctance to pay for the treatment. The notion was that extremely high-dose chemotherapy, followed by a bone marrow transplant to alleviate the effects of the chemo, held the hope of beating back late-stage breast cancer. The first limited clinical trials in the late 1980s confirmed only that further study was warranted, but they gave rise to newspaper headlines suggesting a miraculous cure was at hand. By 1990, the first lawsuit had been filed challenging a health plan's denial of coverage on the roughly $100,000 procedure.
Patients won a series of these cases (with survivors of one patient taking home an $89 million settlement), while insurers took a beating in the press and public opinion. Under pressure from members of Congress, the Office of Personnel Management mandated coverage of the treatment in federal workers' health plans. A 1995 clinical study from South Africa appeared to confirm that ABMT worked, and although other studies continued to question its efficacy, the public debate was all but over. In 2000, a team of independent oncologists conducted an on-site review of the South African research and found it to be entirely fraudulent.
"There's always going to be pressure in life-threatening illness to do things before all the science is there," says James D. Cross, M.D., national medical director for medical policy administration at Hartford, Conn.-based Aetna Inc. He emphasizes that the health plan is not the only party that suffers when patients, physicians, the courts and the press pile on to condemn a refusal of coverage. When the pressure succeeds, as it did with ABMT, a new technology floods into the marketplace before trials are conducted-thereby making it very difficult to get subjects to take part in trials. Science itself is the loser.
As a matter of fact
No wonder, then, that the evidence fetish is all the rage in the health plan world. Yes, "evidence-based medicine" has inherent merit for many reasons, but its greatest virtue is that it inoculates against corporate disasters like the ABMT fiasco. Cross at Aetna states the case bluntly, as he pleads for doctors to "follow evidence-based medicine and not be the old prima donna physician who knows best because he knows best."
Health plan leaders are nervous these days as they see Medicare straying from the path of evidentiary righteousness. Politically influenced coverage mandates by CMS tend to ricochet back to health plans as evidence of clinical validity. Case in point: intensity modulated radiation therapy for breast cancer. "IMRT has not been proven for breast cancer as it has been for other cancers, but as a political matter and a national directive, they have said IMRT is approved for all kinds of cancer," Cross argues. "They're not following the science. They're following the political persuasion." The impact on Aetna's own coverage decisions follows a familiar pattern. If a CMS coverage decision is more liberal, "the providers want us to follow CMS," Cross says. "If it's more restrictive, they don't want us to follow CMS quite so aggressively."
Manage this
Coordinating the entire continuum of oncology, from prevention to detection to treatment, clearly will become a daunting challenge as science offers a multitude of new options for intervention. That's why healthcare economist Alain Enthoven, Ph.D., looks at the financial future of cancer care and shudders. "You can be assured that all people who are diagnosed with cancer are going to exceed their deductibles," he says. "At that point, in an open-ended, fee-for-service system, the costs will be uncontained and unconstrained." For Enthoven, who was a member of the Jackson Hole Group, which birthed the concept of "managed competition," the cancer conundrum is one more argument for policy change.
Aetna's Cross disagrees. "It is true that with current plan designs, and even with some of the newer consumer-based plan designs, there is a component of patient responsibility in the early dollars of care," he concedes. "But we still do a tremendous amount of case management, disease management and all kinds of interventions to help manage that dollar once it goes beyond what the patient is responsible for."
Denver-based Great-West Healthcare, with around 1.9 million members nationwide, has implemented a customized oncology disease management program with some success despite the fact that, according to Michael Norris, manager of medical outreach programs, "cancer docs are not used to managed care." The initiative includes specialty pharmacy services and makes available a nurse on a 24-hour/7-day basis to handle calls from patients. "There is some pushback," Norris concedes. "We do have some oncologists around the country who do not want to work with this program. We have found ways to deal with that, so we still bring educational benefits to the members without having to go into any confrontational mode with the physician."
Great-West is not alone in trying to apply disease management principles to cancer care: Premera Blue Cross, a Mountlake Terrace, Wash.-based health plan serving Washington and Alaska, has had a benchmarked disease management approach to cancer since 1998.
Great-West's Norris would philosophically like to see all cancer services under a disease management umbrella, though he does not expect to see that happen soon. "I believe in the fundamental idea that if you could pay a physician for keeping somebody well, that would improve our overall health," he says. "But our system is not set up to allow that. I don't believe it will happen until there are system-wide changes. One employer or one health plan is not going to do it."

Behind Those Medical Malpractice Rates

New York Times JOSEPH B. TREASTER and JOEL BRINKLEY Published: February 22, 2005

Speaking before hundreds of doctors and medical workers in a St. Louis suburb last month, President Bush called attention to a neurosurgeon on stage with him in the small auditorium. The doctor, the president said, was paying $265,000 a year in premiums for insurance against malpractice claims.

Such high prices, "don't start in an examining room or an operating room," the president declared. "They start in a courtroom." Indeed, at many recent appearances, Mr. Bush has complained about the "skyrocketing" costs of "junk lawsuits" against doctors and hospitals.

But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data compiled by the Health and Human Services Department.

"There is an underlying cost push," said J. Robert Hunter, the director of insurance for the Consumer Federation of America, who is a former insurance regulator in Texas. "But there has not been an explosion of big jury verdicts or settlements. It's a constant drip, drip every year."
Lawsuits against doctors are just one of several factors that have driven up the cost of malpractice insurance, specialists say. Lately, the more important factors appear to be the declining investment earnings of insurance companies and the changing nature of competition in the industry.

The recent spike in premiums - which is now showing signs of steadying - says more about the insurance business than it does about the judicial system. "You get these jolts in insurance prices periodically, and they attract a lot of attention," said Frank A. Sloan, a Duke University economist who has been following medical malpractice trends for nearly 20 years. "They're a result of a confluence of many things."

Data compiled by both the federal government and by insurance organizations show costs for the insurance companies climbing steadily over the last decade at an average annual rate of about 3 percent, after adjusting for inflation. Over most of that period, premiums for doctors rose modestly and sometimes even dropped as the insurance companies battled for market share in a scramble to collect more money to invest in strong bond and stock markets. But when the markets turned sour and the reserves of insurers shriveled, companies began to double and triple the costs for doctors.

"The insurers were catching up, getting to where they should have been," said Larry Smarr, the president of the Physician Insurers Association of America, a trade group of companies that provide more than 60 percent of the nation's medical malpractice insurance.
While acknowledging the impact of industry forces and practices on prices, Mr. Smarr and many others in the insurance industry still regard lawsuits as their biggest problem. Claims of medical malpractice are typically complex and are rarely paid without a lawsuit or the threat of a lawsuit. If the insurance companies could find a way to limit payments for lawsuits, they say, they could significantly reduce their costs.

President Bush, supported by the insurance industry and the American Medical Association, is proposing a remedy: a national limit on what juries can award in medical malpractice cases. Such a limit, or cap, has often been cited by the president as an important part of what has been called tort reform - limiting what Mr. Bush calls costly and frivolous lawsuits.
The Bush administration is pushing for a $250,000 limit on jury awards to victims of medical mistakes and their families for pain and suffering. No limit would be placed on the more quantifiable payments for economic losses, including medical expenses and lost wages.

Introduction of legislation calling for such national medical malpractice limits - traditionally left to individual states - is at least a month away. Still, the administration has been bolstered by stronger Republican majorities in the House and Senate and by last week's signing into law of a measure that would move many class-action lawsuits to federal court, sharply limiting their potential spread.
Senate Majority Leader Bill Frist of Tennessee, who is a doctor, calls malpractice award limits "a majority priority." The House has passed similar proposals seven times in the last 10 years, most recently in 2003.

While this Congress might be the best opportunity yet for supporters of jury award limits, there will certainly be a fierce battle from Democrats, consumer groups and plaintiffs' lawyers.
Consumer advocates say such limits would mean that some of the most seriously hurt patients would not receive fair compensation. Also, they say, in the death of an infant, an elderly person or a homemaker, there would be little compensation because of the prevailing view that there could be no economic loss because no income was being earned.

Trial lawyers and consumer groups have been parading heart-wrenching victims of doctors' mistakes to make their argument. Among them, the American Trial Lawyers Association says, is Alice Lloyd of North Carolina. Doctors failed to treat her blood infection for so long that finally they had to amputate both legs above her knees, her left arm and all the fingers from her right hand. She still has her right thumb.

As the two sides dig in for a fight in Congress, 27 states have already adopted award limits, with caps ranging from $250,000 to $1 million. In some states, insurers have agreed to reduce, at least temporarily, premiums in exchange for limits on awards.

Insurers say that caps not only promise lower costs, but greater predictability on potential payouts. "It takes an unknown entity, which is the pain and suffering component, and makes it quantifiable and estimate-able," said Mr. Smarr of the Physician Insurers Association of America.
Insurers acknowledge that they consider several factors besides claims costs in setting prices for doctors. In the 1990's, even as their costs were rising, malpractice insurers held firm on prices, even lowering them in some years to hold or win a share of the market.

"You always try to say you're not chasing market share," said Donald J. Zuk, the chief executive of Scipie, a medical malpractice insurer that does business in about 30 states. "On the other hand, you have to have a certain market share, you have to show a certain amount of growth, or you don't survive."

But by the late 1990's, some insurers discovered that they had dropped prices well below the cost of paying claims. Several went out of business. One of the biggest insurers, the St. Paul Companies, now Travelers St. Paul Companies, stopped offering medical malpractice coverage.

The surviving companies "had to raise prices or go out of business," Mr. Smarr said.
In 2000, about the same time that under-pricing and other market conditions began to push up prices in medical malpractice, the much larger world of commercial insurance was also going through a cycle of higher prices. The Sept. 11 terrorist attacks cost insurers $40 billion and accelerated the upward pressure of the latest premium cycle.

Martin D. Weiss, the chairman of Weiss Ratings Inc., an independent financial rating agency, said the cyclical nature of the insurance business and a drop in insurers' investment earnings when markets fell had been among the strongest forces behind the rise in medical malpractice premiums.

Over the last year, insurance analysts say, prices for most lines of commercial insurance appear to have peaked and have begun to decline. While prices for medical malpractice coverage are not yet falling, they rose less steeply in 2004.

Costs for most doctors last year rose between 6.9 percent and 24.9 percent compared with increases of between 10 percent and 49 percent in 2003, according to The Medical Liability Monitor, a newsletter published in Chicago.

The most expensive place in the country is South Florida, where some obstetricians and general surgeons paid nearly $280,000 for coverage last year, according to The Monitor. Obstetricians in Illinois paid as much as $230,428, The Monitor said, while in Nebraska, the least expensive place in the country for malpractice insurance, obstetricians paid $16,194. Florida adopted a cap on awards of $500,000 to $1 million in 2003. Illinois has no cap and Nebraska has a cap of $500,000.

The recent jump in premiums shows little correlation to the rise in claims. According to the National Practitioner Data Bank of the Health and Human Services Department, the total paid out by insurance companies for claims against doctors and other medical professionals rose 3.1 percent annually, on average, between 1993 and 2003 and then declined last year.

The average payment in 2003 for malpractice, the data bank said, was $268,605, up from $197, 753 in 1993, after adjusting for inflation. In 2004, the average payment fell to $262,486 and the number of payments made for medical malpractice cases dropped to 17,696 from 18,996 the year before.
What may muddy the public picture is that while claims are rising at a measured pace, there have been more headline-grabbing big awards. Data compiled by the Physician Insurers Association of America show a distinct rise in payments of more than $1 million to victims of medical mistakes. In 1993, the organization said, 2.9 percent of the payments made by its companies exceeded $1 million. A decade later, 8.5 percent of the payments were for more than $1 million.
Many insurers regard the $250,000 limit in California as a model for Mr. Bush. They see it as largely responsible for California's shift from being one of the most expensive places for medical malpractice insurance to one of the least expensive. Consumer advocates, however, say the main reason costs for doctors have fallen in California has been a 1988 law that prohibits insurers from raising rates more than 15 percent a year without a public hearing.

And some researchers are skeptical that caps ultimately reduce costs for doctors. Mr. Weiss of Weiss Ratings and researchers at Dartmouth College, who separately studied data on premiums and payouts for medical mistakes in the 1990's and early 2000's, said they were unable to find a meaningful link between claims payments by insurers and the prices they charged doctors.
"We didn't see it," said Amitabh Chandra, an assistant professor of economics at Dartmouth. "Surprisingly, there appears to be a fairly weak relationship."

EDS, Towers Perrin to create HR outsourcing company

Electronic Data Systems Corp. said Tuesday it will pay Perrin Towers $420 million to form a new company for human resources outsourcing.


EDS will own 85 percent of the new company, which will be located in Plano, and Towers Perrin will own the remaining 15 percent. It will be led by Steve Bohannon, EDS' vice president of HR services, and governed by a board of directors representing both companies.
The transaction is pending approval by Towers Perrin shareholders, and expected to close by the end of the first quarter of 2005.

The newly created company will combine the technology and business process expertise of Plano-based EDS (NYSE:EDS) with the benefits administration and HR domain expertise of Towers Perrin. It will have $600 million on global revenue and serve more than 400 organizations and 33 million employees and participants, the companies said.

In a separate transaction, Stamford, Conn.-based management consulting firm Towers Perrin awarded EDS a 10-year, $365 million information technology outsourcing contract to support Towers Perrin's global infrastructure.