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I I Managing Health Costs: Strategies for Coalitions and Business is a publication of the Clearinghouse on Business Coalitions for Health Action, a project of the Chamber of Commerce of the United States. This publication was prepared by Sharon F. Canner, under the direction of Jan Peter Ozga, Director of the Clearinghouse. Opinions expressed herein are not necessarily those of the Clearinghouse on Business Coalitions for Health Action or the Chamber of Commerce of the United States. Additional copies are available postpaid: 1-9 copies $9.00 each 10-24 8.00 25-99 7.00 100 or more 6.00 Add appropriate sales tax for deliveries in the District of Columbia and California. Make check or money order payable to: Chamber of Commerce of the United State: 1615 H Street, N.W. Washington, D.C. 20062 Or dial direct: (301)468-5128 U.S. Chamber Publication # 6615 Copyright 1982 bv the Chamber of Commerce of the" United States ISBN: 0-89834-051-9 Library of Congress Catalog Number: 82- 74269

Advisory Committee to Clearinghouse on Business Coalitions for Health Action Gerald A. Gleeson, Chairman Joint Health Cost Containment Program Philadelphia, Pa. George S. Gamble Employers' Health Care Coalition of Greater Los Angeles El Segundo, Calif. Willis B. Goldbeck Washington Business Group on Health Washington, D.C. Robert R. Henderson, M.D. Fairfield/Westchester Business Group on Health Stanton, N.J. Ronald A. Hurst Peoria Area Chamber of Commerce Health Cost Containment Program Peoria, II1. Fritz G. Ihrig Colorado Coalition for Health, Inc. Denver, Colo. Robert E. lvancevich Lehigh Valley Business Conference on Health Lehigh Valley, Pa, James B. Kennev, Ph.D. Minnesota Coalition on Health Care Costs Minneapolis, Minn. Joseph G. Kozlowski Greater Cleveland Coalition on Health Care Cc~st Effectiveness Cleveland, Ohio John H. Kreamer Mid-America Committee on Health Cost Containment Kansas City, Mo. David A. Lieser Atlanta Chamber of Commerce Atlanta, Ga. Gerard E. Maver South Florida"Health Action Coalition Miami, Fla. James D. Mortimer Midwest Business Group on Health Chicago, 111. Jan Peter Ozga (ex o~ficio) Clearinghouse on Business Coalitions for Health Action Washington, D,C, Patrick N. Renaud Marvland Health Care Coalition Sparrows Point, Md. Richard A. Rix Greater Portland-Vancouver Buisiness and Labor Group on Health Portland, Ore. Leon J. Warshaw, M.D. New York Business Group on Health New York, N.Y. Loring W. Wood, M.D. New York Telephone ¢,,0

4~ j" Foreword Concerned with their increasing share of the nation's $300 billion bill for health care, employers are insti- tuting numerous measures to control these costs. Businesses are forming coalitions of firms, which in many cases include health insurers and providers. Employers are negotiating rates with providers. Business associ- ations are educating management on rising costs. Also, the federal govern- ment is developing an inventory of these private sector efforts. The Chamber of Commerce of the United States has taken an active role in encouraging the development of these private initiatives to contain costs. In 1978, the Chamber pub- lished a national health care strategy for employers contained in its widely acclaimed Health~Action Kit. It has since produced a primer for business members of hospital boards, and nu- merous articles on health care costs. Continuing its role as a resource to business, the Chamber established the Clearinghouse on Business Coalitions for Health Action in February 1982. On June 1-2, 1982, in Chicago, the Clearinghouse convened a meeting of representatives from more than 30 business coalitions, and individuals from major corporations, health care provider organizations, state and fed- eral government agencies, local chambers of commerce, and policy research centers. This inaugural meeting of the coalitions focused on specific approaches being taken by coalitions as well as other major de- velopments in health care cost containment. This publication is based, in large part, on the proceedings of that inau- gural meeting. Chapter II is a sum- mary of the five workshop sessions held and includes comments of the moderators and participants. The re- maining chapters summarize the re- marks made by the speakers at the meeting. The Appendix lists refer- ences for additional reading, and public and private organizations ac- tively involved in health cost containment. Managing Health Costs: Strategies for Coalitions and Business has been writ- ten for individual companies, for emerging and established coalitions, for health care providers and insur- ers, and for others concerned with today's high cost of health care. The material presented here is intended to inform as well as to provide a springboard for further discussion and action. 00

Contents ~%,~-~ ~ ~'r INTRODUCTION .................................................................................................... .................. 1 Overview of Business Coalitions for Health Action ....................................................... 1 Coalitions: Framework for Local Cooperation .................................................................. 5 COALITION STRATEGIES .................................................................................................... 7 Forming Coalitions .................................................................................................... ................ 8 Data Collection and Analysis ................................................................................................. 11 Benefits Design and Alternative Plans ................................................................................ 13 Employee Wellness Programs ................................................................................................ 16 Hospital Trustee Education .................................................................................................... . 18 CORPORATE STRATEGIES ................................................................................................. 21 Business Roundtable's "Health Initiatives". ...................................................................... 21 PROVIDER STRATEGIES .................................................................................................... .. 25 Preferred Provider Organizations .......................................................................................... 26 A Physician's Prescription for Managing Costs ................................................................30 PUBLIC SUPPORT FOR PRIVATE INITIATIVES ..................................................... 35 The Federal Government's Role in Competition ............................................................. 35 IMPACT OF RISING COSTS ................................................................................................ 41 Payment Systems and Cost Shifting ..................................................................................... 41 EPILOGUE .................................................................................................... ................................. 47 APPENDIX .................................................................................................... ................................ 49 Publications .................................................................................................... .............................. 49 Organizations .................................................................................................... .......................... 53

¢" A" • Introduction ince employers m _.~ are paying for al- --1 most half of the nation's annual -- --" $300 billion bill ] for health care, business has be- gun to take action against these costs. They are forming business/health coalitions, sometimes sponsored by state or local chambers of commerce. Using their collective leverage as major purchasers of health care, these coalitions are look- ing for voluntary, cooperative meth- ods of improving local health care systems. In addition to representa- tives from business, some coalitions also include leaders from hospital, physician, and insurance organiza- tions as well as government and academia. There are approximately 90 busi- ness coalitions, according to a recent survey by the U.S. Chamber's Coali- tion Clearinghouse, and new groups are continuing to form. This level of activity has stimulated much discus- sion, from concern with basic organi- zational problems to proposed agen- das and legal issues. Local organizers have communicated informally with groups in other areas. An effort of this magnitude requires coordination, however, especially the information being generated by the large num- bers of employers involved and pro- jects being undertaken. In February 1982, the U.S. Chamber of Commerce established the Ch'ariny, house on Busi- ness Coalitions for Health Action. The Clearinghouse conducts sur- veys; publishes a directory of coali- tions and a monthly newsletter; pro- vides technical assistance to some established and emerging coalitions; operates a referral service; and holds periodic meetings on selected topics. Its inaugural meeting in June 1982 brought together coalition staff, other business representatives, and individ- uals from provider groups, govern- ment, and health policy research. The presentations and ensuing dis- cussions provide examples of con- temporary trends in managing health costs at the local level. Jan Peter Ozga, director of the Clearinghouse, was moderator for the Chicago meeting. Gerald Gleeson is chairman of the Advisory Commit- tee to the Clearinghouse and director of the Joint Program on Health Cost Containment (Philadelphia). Ozga and Gleeson, catalysts for coalition development at national and local levels, offer some comments on the past, present, and projected growth of local efforts to manage and contain health care costs. Overview of Business Coalitions for Health Action --Jan Peter Ozga This inaugural meeting is a milestone in the development of private sector initiatives to contain health costs. As demonstrated by their attendance here, coalition staff, company benefit managers, and health organization representatives are expressing their concern over rising costs and the

"" need to exchange information on the status of local initiatives. As a starting point for these discus- sions, it is useful to look at the origins, size, and number of business coalitions, as well as some general background on their composition. Origins of Business Coalitions The name "business coalitions for health action" is an amalgam of terms developed by the Advisory Committee to the Clearinghouse on Business Coalitions for Health Ac- tion. It attempts to identify those groups that are guided by the pur- chaser perspective on health care. By definition, coalitions include repre- sentatives from different interest groups. In many instances, however, the coalitions identified by the Clear- inghouse consist of business repre- sentatives only. Nonetheless, "coali- tion" has become an accepted term of convenience and is being used with that understanding. There are several origins of busi- ness coalitions for health action. The first known formally organized coali- tion was the Joint Program on Health Cost Containment, formed by the Philadelphia Chamber of Commerce in 1977, although similar but less for- real groups have existed as parts of larger organizations for manv vears. Forerunners to today's Heaffh'Svs- terns Agencies were essentially I~usi- ness groups consisting of chief execu- tive officers from major corporations. These groups were concerned pri- marily with the community's abilitv to support hospitals and related pro- jects, rather than cost containment. "'Coalitions were formed in response to a need to develop local solutions to local health care problems, primarily high and risiny, health care costs. Their continued dedication to this mission will result in the success of Business Coalitions for Health Action. "' --lan Peter Ozy, a At the end of I978, the U.S. Cham- ber released its now widely acclaimed Health~Action series, based on "A Na- tional Health Care Strategy," from a study commissioned bv the National Chamber Foundation and conducted by InterStudy of Minneapolis. This five-part series, to which was added a guidebook, has inspired the crea- tion of many business coalitions for health action. The Health~Action series proposed a list of recommendations that closelv .j 60

L~ j' resemble the agenda of many coali- tions today. Specifically, employers were urged to: • Undertake a thorough analysis of their health care benefit packages, including utilization and costs. • Assess their community's health care delivery, infrastructures and the special dynamics related to them. • Implement long- and short-range cost containment strategies. • Become involved in health promo- tion and disease prevention programs. • Play an active role in the commu- nity's health plan and resource al- location efforts. Survey of Business Coalitions In May 1982 the Clearinghouse con- ducted a survey of established and emerging coalitions. Those included in the Clearinghouse directory were required to: • Have s(c, nificant representation by businesses as purchasers of health care. • Submit a list of members to docu- ment this membership. • Have begun to implement at least one health cost containment project. Forty-eight coalitions met these cri- teria. Since that time the existence of more than 40 additional groups has been confirmed. The information summarized in the next three sec- tions is based on the May survey. Membership Total membership in the 48 coalitions is 1,870, with a majority of the coali- tions having a membership of less than 25. Few have more than 50 members. Overall 23 (49 percent) have under 25 members, 16 (34 per- cent) have 26-45 members, and eight (17 percent) have 50 or more members. Business representatives predomi- nate, constituting 74 percent, fol- lowed by health members with 18.5 percent (health includes physician, hospital, and insurance organiza- tions). The remaining seven percent of membership come from govern- ment, labor, and other sectors. Approximately 35 percent have a membership that is exclusively busi- ness. Another six coalitions are al- most exclusively business, each hav- ing only one to three members from other sectors (e.g., health, labor, gov- ernment). In only five cases, the business sector is not dominant nu- merically. That is, the majority of the members in the Atlanta, Maryland, Cleveland, Minneapolis, and Peoria coalitions represent the health sector, although businesses heavily influence the agendas and activities. Nine coalitions have labor mem- bers. In each instance, labor repre- sents from one to three members. Government members are included in most coalitions, with approxi- matelv 24 (44 percent) having one or two government representatives.

Geographic Area Served The geographic area served varies from greater metropolitan areas to co- alitions covering entire states or groups of states. Twenty-five (52 per- cent) of the coalitions serve greater metropolitan areas (e.g., New York, Philadelphia), ten (21 percent) serve county-wide areas, and l] (23 per- cent) are statewide. Four coalitions (8 percent) are regional, crossing state lines. In this category are the Mid- west Business Group on Health, which serves eight midwestern states; the Fairfield-Westchester Busi- ness Group on Health, which serves New York and Connecticut; the Le- high Valley Business Group on Health, which serves Pennsylvania and parts of New Jersey; and the Joint Health Cost Containment Pro- gram of Philadelphia, which serves Pennsylvania, New Jersey, and Northern Delaware. Staffing and Budgets In 21 (44 percent) coalitions, a salaried staff is the rule, while in an equal number, volunteer staffing prevails. Of the remainder, six (12 percent) in- clude a combination of paid and vol- unteer staffing. Half of the coalitions operate with- out a budget, using volunteer staff and resources from their sponsoring organizations. The remainder have annual budgets ranging from a low of S1,300 to a high of $236,000. These budgets break down as follows: S5,000 and under (3); $5,001 to S50,000 (6); SS0,00I to Sll)0,000 (7); and over SI00,000 (8). Projects Generally, most business coalitions are implementing similar projects that fall into five broad categories: benefits design, data analysis, alter- native delivery systems, health edu- cation, and health planning. All of the coalitions reported activitv in one or more of these areas. Health education projects were un- der way in 39 coalitions, with such activities as publications, seminars for employers, and training for employ- ees on making the most of health benefits. Data analysis was a concern of 38 coalitions. Various approaches included utilization review, analysis of hospital billing records, and the development of standardized data formats. Alternative deliz,ery systems, including HMO development, and newer innovations, such as preferred provider organizations, was a project area checked by 33 coalitions. Finally, health plan~mlg, an activity reported by 31 coalitions, involved efforts to work with existing health systems agencies and other entities to bring about changes in the health care svs- tern of the greater community. Regardless of name, length of time in existence or source of inspiration, all of the coalitions listed were formed in response to a need to de- velop local solutions to local health care problems -- primarily high and rising health care costs. It is this rec- ognition and commitment that have helped create coalitions. Their contin- ued dedication to this mission will re- sult in the success of Business Coali- tions for ttealth Action. CO

• A~ Coalitions: Framework for Local Cooperation --Gerald Gleeson The success of the Joint Health Cost Containment Program, which was started in 1977 by the Greater Phila- delphia Chamber of Commerce, dem- onstrates the positive impact that such cooperative action can have at the local level. In addition to the pur- chaser's perspective, the coalition also includes members from the hos- pital sector, the medical society, and local government. The City of Phila- delphia, in fact, is a very active mem- ber and is also one of the largest pur- chasers of health care. In many cities, government is the largest purchaser in the community. The Philadelphia Coalition, repre- senting companies in five southeast- ern counties of Pennsylvania, south- ern New Jersey, and northern Delaware, has led the way in review- ing appropriateness of care. Working with Blue Cross of Greater Philadel- phia, the Coalition compiled a com- prehensive three-part report on hos- pitalization of employees of member firms. The report provides diagnosis and age-specific data on lengths of stay, average charges, admissions by day of the week, and days of preop- erative stay. Employers now have a "yardstick" for evaluating utilization by their own employee groups against the experience of others. Prospective reimbursement for area hospitals is also a goal of the Coali- tion. Currently, the Philadelphia group is designing a system for nego- tiating fixed departmental budgets of "Local coahtions must move to assume greater responsibility. That is not to say that coalitions are a panacea for govern- ment involvement in health care policy and legislation. Rather, each sector has a specific role to play.'" --Gerald Gleeson hospitals. The system will be part of the Blue Cross contracting mecha- nism, and since all but one hospital is under Blue Cross contract, it is hoped that prospective reimburse- ment can be accomplished without government regulation. Both the ap- propriateness review project and that on prospective reimbursement would not have been possible without com- munity-wide cooperation. While Philadelphia and other busi- ness coalitions are having some suc- cess in managing health costs, much remains to be done. Because most Americans receive their health bene- fits from their employers, business has become the largest single source U1 ¢.0

of payment for medical care. Various estimates have been put on this bill. General Motors alone spends approx- imately $1.5 billion a year on health insurance premiums, and Ford spent $520 million in 1979, or $2,300 per employee. However, decisions on how re- sources are allocated are not made by the purchasers of such health care services. It is for this reason that providers, who make the decisions, must be involved in efforts to restrain costs. Recently, Uniform Bill 82, a standardized hospital billing form de- signed to cut excessive reporting and paperwork, was released for imple- mentation. This billing form was made possible through the coopera- tive efforts of providers and insurers, and it is expected to cut hospital costs, which will ultimately result in savings to employers. Business coalitions are a framework for local cooperation. Local needs and medical practice patterns dictate the objectives and membership for these groups. National developments also have a key influence in their for- mation and direction. In the current anti-regulatory and pro-competitive climate, with a declining federal role in health planning, local coalitions must move to assume greater respon- sibility. That is not to say that coali- tions are a panacea for government involvement in health care policy and legislation. Rather, each sector has a specific role to play. Now is the time for businesses to organize and take an active role in fighting rising health costs. Today, many businesses are facing serious fi- nancial difficulties with low produciv- ity and sales decline, while a signifi- cant portion of payroll is consumed by health insurance premiums. Workers, faced with growing unem- ployment, are willing to trade re- duced benefits for job security. As or- ganized groups of business coalitions, employers can make the difference and slow the cost spiral. -4 ¢,a I,a,

Coalition Strate ies he management ~ of health care ~ costs at the local ~ level is being tac- kled through a ~ variety of strate- ~ gies. Formation of business coali- tions is a common starting point for many communities. Once organized, they have undertaken a range of re- lated projects aimed at managing costs: data collection and analysis, benefits design and alternative plans, employee wellness programs, and hospital trustee education. Developing a business coalition is a major challenge. How best to organize interested parties, obtain financial sup- port, formally incorporate the group, determine objectives, establish a dues structure, recruit staff, and work with the greater community are formidable tasks in themselves. Fortunately, more than 90 communities have already formed coalitions and their experiences can be tapped. National groups, repre- senting employers, providers, and in- surers have published directories and guides, and have provided on-site as- sistance to developing groups. Through data collection and analy- sis of hospital utilization, some groups are discovering that various hospitals in the same community charge vastly different rates for the same procedures• This disparity may be a function of many factors, includ- ing incentives in the health care mar- ketplace. Such information has prompted many employers to re-ex- amine their employee health benefits and redesign these packages. Preventing illness and disability be- fore they become acute conditions is being recognized as a way to save on health care spending. A recent study by the Health Insurance Association of America showed that work-site disease prevention programs are saving some major employers millions of dollars a year in reduced health care and time- off costs. Support for employee well- ness programs through technical assis- tance is a key activity of many coalitions. Finally, the management and de- velopment of health care facilities as these operations affect the total bill for services has become a topic of concern to employers. Many corpo- rate managers and business execu- tives are members of hospital boards of trustees and are asked to make de- cisions on expanding bed capacity, purchasing new equipment, and in- stituting new services. Because hospi- tal costs are the fastest rising part of health care expenditures, it is essen- tial that trustees understand how their hospital works and what factors outside the hospital influence its op- eration, particularly its financing. Coalition development, data collec- tion and analysis, benefits design, employee wellness programs, and hospital trustee education rank high on the agenda of most coalitions. Hence, the inaugural meeting of these groups conducted five work- shops on these issues, which were [~h moderated by coalition leaders. The presentations and ensuing discus- sions are the basis for the informa- tion in the following section• ~,~

i~-,i9~~ • Forming Coalitions usiness coalitions may originate from a major em- __ ployer who is concerned with the organization's rising insurance premiums. Or the local chamber of commerce may form a health care committee whose task is to monitor costs and determine strat- egies for approaching providers to discuss the area's bed capacity. Regardless of the initial purpose, the organizing group will be con- fronted with an array of problems to solve, ranging from basic housekeep- ing decisions to overall mission and membership. Robert R. Henderson, M.D. is ex- ecutive director of the Fairfield-West- chester Business Group on Health, and a consultant to the New Jersey Business Group on Health. Patrick Renaud is chairman of the Maryland Health Care Coalition, which is multi-constituency based. Their expe- riences in developing coalitions sug- gest that the following topics are im- portant considerations for most beginning groups. Membership How a coalition is organized and de- veloped, and what form it will take, will depend to a large extent on the area it covers, the type of industry involved, and the experience of the community in working with business on health issues. For example, has there been an ongoing interest in health planning beyond that man- dated by federal law? Have busi- nesses and providers served together on committees? Also, does organized labor play a significant rote in the community? Are private insurers and Blue Cross/Blue Shield active, and what is the role of regulators as well as individual consumers and civic groups? Although all of these may not become full voting members of the coalition, it may be necessary to understand the potential clout 6f these groups and the history of simi- lar community efforts. The employer-only versus the multi-constituency coalition has stim- ulated debate among would-be coali- tions. The employer-only faction con- tends that employers can reach consensus among themselves and then act as a catalyst to stimulate ac- tion by providers and the insurance carriers. Multi-constituency groups, on the other hand, defend their membership strategy by saying that it is necessary to include the health care industry, so that once an action program is defined, the group can act in a consensus manner to implement plans, objectives, and projects. Broad-based groups have been criti- cized for accomplishing more talk than action, but their slower pace some- times results in wider gains by enlist- .ing cooperation for the long term. Jo- seph Kozlowski of the Greater Cleveland Coalition, which includes employers, organized labor, hospitals, physicians, and health planners, sup- ports the broad-based group: bah ¢,0

Robert Henderson, M.D. (left) Fairfield-Westchester Business Group on Health, and Pat- rick Renaud, Maryland Health Care Coalition, co-moderate one of five workshops on coalition strategies at the June 1982 meetiny, of coalitions in Chicago. "A multi-constituency coalition can bring diverse groups together to start talking about cost containment. Rather than providers being defensive and con- tinually justifying maintenance of the status quo, they're willing to explore alternatives, and are more likely to dis- cover the merit of alternatives." On the other hand, Gordon Decker of Allis Chalmers, a member of a business-only coalition, the Midwest Business Group on Health, believes that business people are the only ones who can exert enough pressure to get things done: "Take the example of a hospital want- ing to add a wing. One way it raises money is to go to corporations and ask for it. Corporations can sit back and ask if a wing is really wanted or needed--and decide, do we want to contribute?" As the debate continues, employers, coalition organizers, and others agree on several issues, particularly the need to take cooperative action to reduce the private sector's increasing share spent on health care each year. It is their belief that no coalition, whether business-only or broad-based, can work alone. Each must eventually de- velop a dialogue and a working rela- tionship with the other groups in the health care marketplace. The advantage of the business-only group is that it provides an organiza- tional base for business to become an equal partner with the other organi- zations and entities. The disadvan- tage is that business-only coalitions exclude other stockholders in the health system. lab

:.5 ~ ~i ,~!~ ...... Objectives Although the overall problem is ris- ing costs, coalition organizers must clearly define what they expect the group to accomplish. The following actions are necessary to help coali- tions set their objectives and priorities: • Familiarize members with current health care issues and politics. • Identify cost-control alternatives by analyzing selected health care cost strategies. • Provide information on state and federal regulatory developments as well as information on upcoming state and local hearings. • Encourage employer/employee ini- tiatives, including health education programs and the assessment of benefit packages. • Brief upper management. Identify health cost problems and their im- pact on broader corporate concerns. Structure Several organizational structures are possible. Almost one-half or 20 coali- tions contacted by a survey in May 1982 said they were incorporated as a 501(c)(3) or (6). Six listed their status as "incorporation pending." The re- mainder described their structure as "informal" with no plans to incorpo- rate at this time. Under the Internal Revenue Service tax code, coalitions may qualify for the two tax statuses mentioned above. The 501(c)(3) classification gives tax exemptions to a "Corpora- tion and any community chest, fund, or foundation, organized and oper- ated exclusively for religious, charita- ble, scientific, public safety, literary or education purposes." Such exempt organizations may receive tax-deduct- ible donations and they are prohib- ited from influencing legislation. The ability to receive tax-deductible dona- tions makes this attractive to prospec- tive member companies. Although some coalitions have identified legis- lative goals, they are careful to struc- ture their efforts as educational activi- ties and they present testimony to state legislatures only if requested to do so. Classification 501(c)(6), which cov- ers business leagues and chambers of commerce, is another organizational structure. Since many coalitions have started under the umbrella of local chambers of commerce, they some- times maintain this status until they have recruited sufficient membership and resources to establish an inde- pendent organization. Staffing and Budgets As with many new and developing movements, the coalition field in- cludes a large number of volunteers, many of whom have been loaned by the major employers taking a lead role in trying to manage costs. Out- side of the usual voluntary board of directors, it is a common practice for companies to assign personnel to lead and staff coalitions. Individuals who manage employee benefits and direct other related personnel func- tions frequently volunteer or are re- ha, bah

r ' cruited to manage local cost contain- ment groups. The number of core staff is limited, averaging two to three professionals, and the'number of support personnel is similarly limited. Consultants are used on an ad hoc basis. A small staff tends to encourage the volun- teer representatives of the member- ship to become more active and therefore more interested in the af- fairs of the coalition. Half of the coalitions (24), accord- ing to the Clearinghouse's May 1982 survey, operate without a budget and, of those that have a budget, only eight exceed $100,000 annually. In this group are: the South Florida Health Action Coalition, with five paid employees; the Midwest Busi- ness Group on Health with one part time and two full-time paid employ- ees, and the Minnesota Coalition on Health Care Costs, with one full-time and one part-time paid employee. Each coalition has existed more than two years and conducts an extensive program of activities. As local groups become more in- volved in specific projects, a discrete budget becomes necessary. Revenue has come from the membership with fee structures usually based on the number of employees per member. Additional revenue is derived from issuing publications, holding semi- nars and workshops, and by con- ducting utilization review for member companies. Several coalitions (e.g., South Florida and Utah) have re- ceived multi-year grants from private foundations. Another 10-12 coalitions mav be funded through the Robert Wood Johnson Foundation's "Com- munity Programs for Affordable Health Care." Awards for this pro- gram will be made in January 1983. Program of Activities The choice of program activities is limited only by available resources. Five broad categories comprise the scope of most coalition programs: benefits design, data analysis, alter- native delivery systems, wellness programs, and hospital trustee edu- cation. A variety of specific activities emerge from these categories, such as: encouraging HMO development; supporting a rate review program; limiting acute care beds; monitoring testimony as well as presenting testi- mony on legislation; improving ac- cess to primary care; and educating patients and providers about cost containment. Data Collection and Analysis universally ac- cepted premise among health care policymak- ers, benefits man- agers, and coali- tions is that decisions for change must be preceded by sound data collection and analysis. How- ever, there is often disagreement on how this should be accomplished and how the funds and personnel can be

summoned to carry out this task. Co- alitions have additional problems: • Lack of adequate baseline data on community utilization of services. • Multiple employers, providers, and insurance carriers. • The need for confidentiality and the uniform reporting of data. • Lack of coalition staff with exper- tise in data collection and analysis. Further, although local efforts are usually concerned with a single is- sue, such as reducing premium costs, it is important for cost containment groups to consider the broader com- munity perspective. Will a reduction in premiums lead to cost shifting and a rise in public sector spending, which the employer will eventually pay for in increased taxes? Gerard E. Mayer, executive director of the South Florida Health Action Coalition, and James D. Mortimer, president of the Midwest Business Group on Health, represent coalitions that have undertaken regional data projects. Thev offer two different ap- proaches to data collection and analysis. Analysis of Hospital-Based Data The South Florida Coalition is broad- based, with 21 organizations located in Broward, Dade, and Palm Beach counties. In 1979, Medicare recipients consumed 50 percent of patient days in Dade County (which includes the Miami area). This compares to 39 percent for the national average. In 1980, coalition members paid $89 mil- liL~n toward the medical care costs of their employees and dependent fami- lies, a 46 percent increase over 1978. This large cost increase led the coali- tion to make a study of health bene- fits utilization data. Use of a stand- ardized billing form, Uniform Bill 16, which is required of all Florida hospi- tals, will facilitate comparison of hos- pital billing records of member com- panies, basic data for the project. The six insurance carriers involved in the billing project deleted patient identi- fiers before forwarding photostats of the billing records to the coalition. Data collection began in February 1982. Following the analysis phase, member organizations will receive in- dividually tailored utilization reports. Additionally, aggregated data will be made available to the South Florida community with the objective of dis- covering trends and experiences for the entire area. The coalition's objec- tives are to: • Develop an understanding of the hospital services consumed by the insured populations of member organizations. • Compare the utilization of services within and among hospitals, by in- dividual company, and in the aggregate. • Compare the charges incurred for those services among hospitals, by individual company, and in the aggregate. • Compare utilization and cost expe- riences for similar services between different companies. • Identify current trends in tile utili- zation of services and the costs of purchasing these services. • Train staff to use a data terminal to examine the utilization and cost ex-

k 'i:" ~,ii~¸: . I perience of member organizations on an ongoing basis, and to gener- ate specific analyses as needed. The project also will examine utili- zation and cost factors for length of stay; charges per day; charges per case; ancillary charges, by ancillary component; rank order distribution of the data listed above; and medical versus surgical care. Analysis of Insurance-Based Data Eight midwestern states are served by the Midwest Business Group on Health (MBGH) that began opera- tions in 1980. With more than 90 companies representing major indus- tries in the midwest, the coalition has potential access to a broad data base, as well as a broad variety of utiliza- tion experiences of its members. The MBGH has concentrated on identifying the uses of management information within the business com- munity and on specific questions re- lated to those uses. For example, management reports are needed to understand the workings of the health care system, more specifically, the use of particular hospitals, partic- ular physicians, and the patterns of claims in diagnosis and procedure groups. This helps to describe the corporation's relationship with the lo- cal health care system. Questions about benefits plan design and bene- fits plan administration can also be addressed with claims data reports. Additionally, the availability of a spe- cial data base aggregate enables the company to compare its experience against the average of other firms. The objective of developing stand- ardized output report concepts is to enable companies and providers to produce standardized reports for spe- cific types of analyses. The insurance carriers have worked with coalition members to produce effective report- ing tools, recognizing the legfitimate needs of the business community for management reporting. Such coopera- tion is recognized as a unique market- ing opportunity, by the carriers. In support of this effort, the coalition has conducted seminars to discuss particu- lar data applications and to develop in- surance carrier user groups. Analysis of patient claims data is a MBGH goal for 1982. Coalition mem- bers who have the Same insurance carrier have established claims data user groups. Through the sharing of these data, companies are analyzing utilization and hospital-pricing pat- terns. They are now looking at changing plan design, enhancing em- ployee communication, and meeting with selected providers. Benefits Design and Alternative Plans early half of con- sumer expendi- tures on physi- cians' services and 80 percent of hospital expendi- tures were paid through private insurance in 1980, and employee ben- efits cover 84 percent of these ex-

penditures. Faced with the rising costs of benefits, employers have be- gun re-examining how benefits are structured and how such policies can be changed to reduce costs and en- courage better use of health services. Various "pro-competition" legisla- tive approaches include mandating cost sharing, requiring that employ- ers offer multiple health plans, and limiting the current exclusion of em- ployer-paid health insurance premi- ums from an employee's taxable in- come. As Congress debates these issues, business is experimenting with new benefit designs. James B. Kenney, Ph.D., executive director, Minnesota Coalition on Health Care Costs, and Leon J. War- shaw, M.D., executive director, New York Business Group on Health, rep- resent coalitions that include health as well as business members. Both coalition leaders have conducted sur- veys among employers in their communities. Benefits Survey The purpose of the Minnesota survey was to establish a trend line in bene- fits experiences and costs for the last five years. The survey particularly sought to determine the extent of al- ternatives offered and methods of employer contributions toward the al- ternative premiums. Thirty-seven companies responded, with the fol- lowing results: • Overall benefits costs increased moderately in the five-year period and were approximately 30 percent of payroll; health benefits were slightly over four percent based on an average across the firms sur- veyed or 5.64 percent of payroll when averaged across employees. • The largest employers offered an average of 4.3 health plans. • Employers who contributed a level dollar amount, or the same to all premiums regardless of cost, were paying less overall costs as com- pared to other contributions. Results also showed that employ- ers who provided multiple offerings tended to experience increased costs as compared to the employer who of- fered only the single indemnity plans. The Minnesota Coalition has rec- ommended that employers offer mul- tiple health plans, although the sur- vey did not show cost savings. The guidelines also recommend that em- ployers make the same dollar contri- bution for all health plans, regardless of which plan is selected by employees. For example, an employer with three health plans with premiums of $90, $100 and $120 per month respec- tively, may decide to offer $100 as a level contribution. The employee choosing the $90 plan should receive some form of rebate, such as other benefit or salary equivalent to the premium. Under the $100 plan with full coverage, no rebate or further premium contribution should be made. At $120 per month, the indi- vidual would be required to pay the $20 difference between premium cost and employer contribution.

Rethinking Benefits Design From the perspective of the New York Business Group on Health (NYBGH), the concept of benefits de- sign should be based on an under- standing of community utilization trends among major employers. These health care purchasers must first determine who uses the care system, how extensively, and how wisely. A major variable to examine is the extent of the employer/em- ployee share in the health package. Choices of health plans also ex- pand or restrict according to the em- ployer's latitude in structuring health benefit options. Emphasis should be placed on the importance of involv- ing employees in changes to health benefits and helping them under- stand their investment in their plans. Much of what employers can achieve in creative benefit design flows from how well employees are made aware of possible abuse of their benefits. The NYBGH recently concluded a survey of small businesses in its ser- vice area to determine the special health insurance needs of this em- ployer group, which now is facing premium increases of up to 50 per- cent. Results of this survey will be available soon from NYBGH. Both the Minnesota and New York coalitions have found cost sharing to be a key issue as companies address benefits design. Decreased utilization with increased cost sharing and the corresponding difficulty of increasing the employee share is well known. There is a predictable problem in "taking away" without "adding" something in return, especially in a unionized work force. Some ways to approach this problem are: • Offering employees the choice of premium sharing or increased deductibles. • Using the level dollar contribution with an "escalator clause." • Making cost-sharing income re- lated, i.e., a positive correlation. • Introducing some sort of profit sharing in lieu of full coverage. • Offering flexible benefits programs. • Relating deductible and premium shares to participation in wellness programs. • Monitoring for adverse selection when offering variable contribution methods. Ultimately, the objective of benefits design is to encourage employees to use less costly care resources instead of more resource-intensive care, i.e., outpatient versus inpatient. Strategies to accomplish this are to: • Gain a greater understanding of health benefits design through studying the flaws in workers' compensation programs. • Study the Mendicino County Cali- fornia Plan and similar examples of creative benefits design that incor- porate employee incentives to pre- vent overuse of resources. • Assure that cost shifting does not occur as employees use outpatient resources in lieu of inpatient care. ha, ¢,O

• Create positive incentives for phy- sicians to care for certain condi- tions outside of the hospital in ad- dition to incentives for the employees to make use of this alternative. Employee Wellness Programs anagement's in- terest in em- ployee health has changed signifi- cantly over the years. The nurse who handed out aspirin has be- come part of a department devoted to fitness, weight control, smoking cessation, stress management, alco- hol/drug abuse control, and a host of programs to help the employee de- velop and maintain a healthy life- style. Growth of wellness programs in the corporate sector has been dra- matic. In 1975, the American Associa- tion of Fitness Directors in Business and Industry began with a member- ship of 25. Today its 3,000 members are directing company programs ac- ross the country. Technical assistance in planning and implementation of wellness programs is on the agenda of many coalitions. Jospeh Kozlowski is a co-founder of the Greater Cleveland Coalition on Health Care Cost Effectiveness and manager of Employee Benefits Plan- ning at TRW, a company that is trying different program strategies at its various plant locations. Willis Goldbeck is the executive director of the Washington Business Group on Health. Both have been active in the development of company wellness programs. TRW Program At TRW, health promotion and the subsequent implementation of well- ness programs have become part of an overall corporate health care qual- ity improvement/cost containment strategy. To kick-off the effort, a slide/tape presentation called "Health Care Today" was made to employ- ees. This was followed by the devel- opment of a booklet on health pro- motion resources available within the company and the community. Be- cause TRW is decentralized and highly diversified with a wide variety of interests, it has emphasized an in- dividual approach to wellness pro- grams. For example, one location has a program for detection and treat- ment of high blood pressure at the worksite. Other locations have focused on physical fitness programs. Still other sites have stressed the problems of alcoholism and chemical dependency. Starting Wellness Programs Company wellness programs are one component of an overall health care cost-effectiveness strategy that should include benefits redesign, alternative delivery systems, data analysis, com- munit;; involvement, claims audits, and legislative initiatives. Once policy on these issues has been established,

the company is in a position to for- mulate a set of objectives for the wellness program. For example, a company may decide that it wants to keep both its employees and their de- pendents healthy as a means of keep- ing them out of the health care system. A sub-objective might be some- thing more specific, such as identify- ing and treating 25 percent of its al- coholics within two years. Or a company may decide to spend 15 percent of its time on health promo- tion and 85 percent on other cost- containment activities. The key is to have a clear set of objectives and a mechanism to measure progress. Activities At this point, the company is ready to identify specific health promotion activities, which may include some or all of the following: • Stress management • High blood pressure treatment • Physical fitness • Smoking cessation • Accident prevention • Alcohol/chemical dependency • Screening • Prudent purchaser/user of health services • Self care • Nutrition/diet Decisions on which activities to in- clude can be reached in a number of ways. A company may conduct a survey of its employees and man- agers in order to identify problems, needs, and interests.' If the company has a medical de- partment, it may already have an in- ventory of needs. These factors will vary from one company to another. It is also important to determine what is marketable within the particular coalition or corporation involved. Staffing and Budgets Other considerations are staffing and budgets. Without assigned staff, a company must either contract with outside organizations to conduct its health promotion program, or not get involved at all. It may be less costly to contract out for health promotion services in some instances, but the company tends to have less control over the program. Evaluation As the program moves to its imple- mentation phase, its impact on em- ployee health, absenteeism, use of health benefits, and other factors must be determined. There are many theories on the perceived cost effec- tiveness of wellness programs, but very little concrete evidence exists to prove them. A number of organiza- tions are beginning to develop pro- grams with built-in evaluation com- ponents. In time, it is expected that cost effectiveness will be determined, and this will in turn lead to greater interest in, and efforts to promote, wellness as an alternative to tile treatment of illness.

Hospital Trustee Education orty percent of all hospital board members are clas- sified as business persons. But there is a wide range in the de- gree of participa- tion by these trustees at board meet- ings. There are several reasons for this. Hospital operations are fraught with jargon and acronyms. Trustees have limited time in which to under- stand proposals for new and complex technology. Rapidly changing federal laws and regulations affecting hospi- tals demand a knowledge of health policy far beyond the perspective of the local community. Hospital costs in 1981 rose 19 per- cent compared to a nine percent in- crease in inflation in general. Busi- nesses, which pay a large share of these costs through insurance premi- ums, are beginning to realize the im- pact they can have on these costs through their participation on hospi- tal boards. Coalitions are conducting seminars and publishing guides to assist trustees to make cost-effective decisions on hospital operations and policy. Robert Ivancevich, president of the Lehigh Valley Business Conference on Health, (LVBCH), and Ronald Hurst, Chairman of the Health Ser- vices Committee/Peoria Chamber of Commerce (HSC/PCC) and manager of Health Care Planning for Caterpil- lar Tractor Company, have conducted hospital trustee education activities for their respective coalitions. LVBCH works with hospital boards to en- courage greater participation by the business community. In Illinois, the HSC/PCC recently organized semi- nars for 22 Caterpillar employees and retirees who are hospital trustees. The central message of these semi- nars was that trustees are primarily responsible for running hospitals, not medical staffs or administrators. Planning Hospital Trustee Education Programs Programs to educate hospital trustees present a number of issues for coali- tions to consider: • How sophisticated is the hospital board? In some areas of the coun- try, there is a metamorphosis of trustees from ceremonial/unin- formed to knowledgeable/substan- tive participants. • Do administrators know about the program's efforts, so as to mini- mize any potential resistance? • What particular individuals should be included: only trustees from co- alition member companies or all trustees? • Should there be a different ap- proach for different hospitals? The boards of multi-hospital systems differ from single-board hospitals. Often multi-hospital system boards are more expert and responsive to the demands of the competitive marketplace. • Do business members of boards face conflicts of interest between their corporate responsibilities and

~i~¸~ ~.~ ~ .. their duties on the board? Attor- neys have advised them to con- sider their responsibilities primarily as members of the community served by the hospital. What hospitals include business people? Determine their composi- tion as well as that of Health Sys- tems Agency Boards, Blue Cross/ Blue Shield Boards and others. Some of their members may be candidates for the coalition's program. Potential Topics Exhibit 1 is a guide for planning for trustee service. The New Primer For Hospital Trustees, published by the U.S. Chamber, provides trustees with an overview of hospital issues. Syn- opses of the Primer's chapters follow: • The hospital industry, particularly ownership, and the distinctions be- tween nonprofit, investor-owned, community, and government-oper- ated institutions. • Reasons for rises in hospital spending, including labor costs, government programs and regulations, sophisti- cated services requiring highly skilled personnel and modern equipment, payment procedures, and inflation. • Hospital revenue and finances with a discussion of third party insurance, self-insurance, cost-based reim- bursement, Medicare and Medi- caid, alternative delivery systems, financial planning, and strategic planning. • Accreditation and regulation with in- formation on the Joint Commission on Accreditation of Hospitals, professional standards review or- ganizations, private review, con- current review, medical care evalu- ations, profile analysis, federal health planning legislation and competition approaches, certificate- of-need, Section 1122, and state rate regulation. • Operations and management, includ- ing the development of effective relationships with hospital admin- istration and medical staffs, the role of quality assurance, hospital occupancy/utilization, personnel policies, security issues, energy conservation, and legal duties and obligations of board members. • Cost containment and steps employ- ers can take, including redesigning benefit packages, auditing claims, analyzing data, encouraging the use of alternative delivery systems, and initiating legislation. • Future trends, particularly the aging of the population, wellness pro- grams, shared services, multi-hos- pital systems, and investor-owned hospitals.

Exhibit I Trustee Communications Plan Program Development 1. Analysis of potential participants to determine types of trustee and length of service. 2. Definition of specific objectives. 3. Determination of content of major program segments. 4. Agreement on the focus or emphasis of each segment. 5. Time allocation for presentation and discussion. 6. Evaluation outline for sponsoring organization. 7. Structure alternatives for further joint efforts. Participant Recruitment 1. Letter to trustees explaining corporate involvement, goals, and brief description of program agenda. 2. Request response indicating desire to participate. 3. Assessment of number of trustee responses by corporation, location, and type of health board. 4. Coordination of response to planning. 5. Determination of conference site, dates, and length. Speaker Recruitment 1. Assessment of capable speakers for each program segment from academic and professional community. 2. Selection of speakers and moderator. 3. Invitation to speakers---costs defined. 4. Precise development of presentation with each speaker includes assessment of composition of participant trustees, overall subject areas, goals, length. Survey of Materials 1. Survey of literature on each program segment. 2. Selection of pertinent material. 3. Arrangements for duplication. 4. Development of bibliography for interested participants. 5. Arranging for distribution of any pre-conference reading material or tasks. Source: Midwest Business Group o~l Health

Cor orate Strate ies orporate Ameri- ca's involvement with health is not new. The Gillette Company, for ex- ample, began a health care pro- gram for employ- ees 30 years ago, and Henry Kaiser created the first prepaid group prac- tice for employees during World War II. In the mid-1970s, this involvement broadened, as health costs became an issue and government became more involved in the financing and regula- tion of health services. In 1976, the Council on Wage and Price Stability, recognizing corporations as major purchasers of health care, called upon labor and industry to increase their cost containment efforts. The Council's report, The Complex Puzzle of Risin,~ Health Care Costs: Can the Pri- vate Sector Fit It Together, warned the private sector that industry and labor must seize control of costs or the fed- eral government would step in. In 1978, the U.S. Chamber of Com- merce, the largest federation of busi- ness and professional organizations in the world, published a six-volume series, Health~Action, a document that has been the catalyst in encouraging many employers to organize local cost containment groups. The re- cently established Clearinghouse for Business Coalitions is a continuation of the Chamber's efforts to assist business in managing health costs. In 1974, the Business Roundtable (BRT), an organization composed of Chief Executive Officers from Ameri- ca's 200 largest corporations, created the Washington Business Group on Health. Recently, the BRT has under- taken a new project, the "Health Ini- tiatives." Managing that effort is Lin- don Saline, executive assistant, Corporate Employee Relations, for the General Electric Company. Business Roundtable "'Health Initiatives" --Lindon Saline The BRT's Task Force on National Health developed the "Health Initia- tives," an action plan that is attempt- ing to deal with the cost spiral in health care. Before describing the Ini- tiatives, it is important to understand the reasons for this cost spiral and subsequent development of the plan. In addition to the BRT Initiatives, business can take steps to contain costs. Reasons for High Health Costs The health care system is experienc- ing a tremendous rate of growth as it strives to provide all Americans with high quality care. Its increasing costs are attracting attention from top man- agement, the Congress, the Adminis- tration, and the press. As a system it is extremely complex -- socially, eco- nomically, politically, and technically. It is particularly complex because: • The number and diversity of stake- holders is large: patients, physi- cians, hospitals, insurers, govern- ment payors, regulators, pharmacists, organized labor, professional associations, and trade associations.

I "Companies have responsibilities far be- yond just paying for care. Rather, it is within their purview to aggressively work internally and through the community for quality, affordable, accessible health care for all Americans." --Lindon Saline • The system does not follow a con- ventional market structure. Pa- tients are not adequately informed on treatment alternatives and costs. Physicians as purchasing agents are not held accountable to the bill payors. The vendors or hospitals have few incentives to be cost-effective. Regulations are often counterproductive. Consumers (pa- tients) are further insulated through tax sheltering. • The system is unstable in that in- put resources seem to be ever in- creasing in breeder reactor fashion. Physicians dictate hospital admis- sions, which dictate the need for beds, and beds dictate the need for more physicians, and the circle goes on. All the health care avail- able is quickly absorbed by pa- tients, who rarely pay directly for this care, which is usually reim- bursed retrospectively. The tradi- tional laws of supply and demand do not operate here. Further, special population groups are consuming a disproportionate share of the resources. Those over 65, for example, constitute 11 percent of the population while consuming 31 percent of the resources. Tobacco- related illness is estimated to con- sume 11 percent of this nation's bill for health services. Poor hospital management practices, counterprod- uctive philanthropy, and inefficient cost accounting are other contributing factors to the cost spiral. Health care costs are the antithesis of no-fault automobile insurance, in that everyone is guilty. Too much at- tention has been paid to turf protec- tion by the stakeholders than to the management of costs. Attention must be directed to changing behavior, particularly the relationship between patient and physician. It is here that key consumer decisions are made. Steps Business Can Take Businesses can take six steps to change behavior and affect costs: 1) Develop an understanding of the total health care costs for the

company, and inform top man- agement of these health care costs, with a detailed explana- tion of each component. Such a briefing should also include in- formation on workers' compen- sation and in-house medical services. 2) Develop a claims data base that can identify the kinds of health care services being delivered. 3) Implement utilization review us- ing information collected from the data base. 4) Give increased attention to well- ness programs; help employees and their dependents under- stand that lifestyle has a direct bearing on personal health and well-being. 5) Investigate and implement plan design changes that will cut health care costs. Items .for con- sideration are deductibles, co- payments, preadmission screen- ing, ambulatory surgery, home care, hospice, and alternative delivery systems. 6) Participate in local health care systems by joining with other businesses in coalitions and by participating as trustees and di- rectors of health care facilities. Two points are at issue here: The first concerns businesses coming together initially to de- fine their goals and subse- quently involving providers at the appropriate time. Second, business leaders are urged to bring their management skills with them when sitting on boards of trustees; good man- agement principles and practices are the same for nonprofit as well as for profit corporations. Status of the "Health Initiatives'" The goal of the Roundtable Initiatives is to provide quality, affordable, ac- cessible health care for all Americans. This goal is articulated in BRT's plan- ning document, entitled: "An Appro- priate Role for Corporations in Health Care Cost Management". The plan urges BRT companies to imple- ment the six steps just outlined. The Initiatives also sets up a formal net- work of contacts who will coordinate each company's actions and commu- nicate this information to the rest of BRT members. Using this network, the Initiatives has distributed a survey to determine each company's activities/plans for wellness programs, plan redesign, community participation, and other factors. Communication will be coor- dinated through dissemination of a newsletter and periodic meetings. BRT has taken these actions to demonstrate the fact that member companies have responsibilities far beyond just paying for care. Rather, it is within their purview to work ag- gressively internally and through the community for quality, affordable, ac- cessible health care for all Americans.

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Provider Strate ies ospital and physi- cian groups are beginning to take a more active ap- proach as health care purchasers, the federal gov- ernment, insur- ers, and others have exerted pressure for major changes in the health care system. Several of these actions have been in direct response to federal leg- islative proposals, while other steps have stemmed from initiatives taken by businesses. In 1978, the Carter Administration proposed to restrain the rise of hospi- tal costs through cost containment legislation. The hospital industry vig- orously fought the proposal and, as an alternative, offered a private ap- proach, known as the Voluntary Ef- fort. The VE membership included the American Hospital Association, American Medical Association, Blue Cross and Blue Shield Associations, Health Insurance Association of America, Health Industry Manufac- turers Association, and the National Association of Counties. The organi- zation was initially successful in slowing the rate of increase in hospi- tal costs, but more recently its focus has shifted to broader policy matters. As more and more employers have formed business coalitions, the AMA has urged local medical societies to get involved. To support physician participation in coalitions, the Associ- ation established a fully staffed divi- sion. HIAA, which has sponsored four coalitions with multi-year con- tracts, continues to monitor the coali- tion movement. The AHA is involved in similar activity and has recently prepared a bibliography on coalitions. These private initiatives have helped to promote competition and alternatives in health care. A recent innovation is attracting attention from physicians and hospitals, espe- cially in areas with physician and bed surpluses, is preferred provider or- ganization (PPO). In Denver, a PPO called Mountain Medical Affiliates is serving 100,000 beneficiaries with a panel of 320 phy- sicians. Gary Brukardt is vice presi- dent for Marketing of Presbyterian/St. Luke's Medical Center, the PPO's sponsor. His discussion of the PPO concept presents some reasons why the idea may be a boon for both pur- chasers and providers. Individual physicians have also been vocal in analyzing the health care system. George Ross Fisher, M.D., an internist practicing in Phila- delphia, believes that hospital financ- ing methods and comprehensive health insurance are the culprits of rising costs. These thoughts are articulated in his book, The Hospital That Ate Chi- cago. Following Brukardt, he offers some advice to business on ways to change the health care system and better manage costs. O O

Preferred Provider Organizations --Gary Brukardt The health care industry is big busi- ness. Hospitals and physician ser- vices consumed 60 percent of the health dollar in 1980. Presbyterian/St. Luke's in Denver grossed $114 mil- lion last year. Hospitals are also pur- chasers of health care for their em- ployees, and are well aware of the costs of insurance premiums. Attempts to manage health costs through planning mechanisms, how- ever, have been thwarted by the cur- rent political environment, which is confused, given the absence of major legislative changes in the regulatory areas. Lack of direction from Wash- ington makes it imperative that the providers and purchasers take deci- sive action. The formation of busi- ness coalitions and the development of alternate delivery systems, such as PPOs, are positive signs that change is taking place, and the health care industry is moving toward market- place demand. How the PPO concept and its cost- saving features are working in Den- ver, and what advantages this alter- native delivery system has for all par- ties concerned is addressed in the remainder of this section. PPO Development Factors The Presbyterian/St. Luke's Medical Center is a six-hospital system cre- ated through merger of two tertiary care facilities, a primary/secondary care facility, and three other facilities located in Denver and surrounding areas. "A major difference between the PPO and HMO models is the former's ability to of- fer a broad selection of physicians. While encouraging use of cost-conscious practi- tioners, the PPO also permits subscribers to maintain existing relationships with their family physicians.'" --Gaw Brukardt Since the mid-1970s these hospitals have experienced stable inpatient uti- lization. A physician surplus also ex- ists in Denver. In the mid-1970s, a closed panel HMO entered and has since captured I0 percent of the marketplace. The Center's philosophy is to posi- tion itself in the market for pending changes, such as pressure from regu- latory agencies and groups of em- ployers. Its strategy is to encourage the use of high technology tertiary resources on the hospital side, and the use of low technology on the pri- mary care health promotion side. The answer for St. Luke's was to form a preferred provider organization. ha, lab

Structure and Functions Participating in Mountain Medical Af- filiates, the name given to the PPO, are 320 physicians representing 28 specialties. These providers are geo- graphically dispersed throughout the Denver area. The Center, with its six hospitals, offers physicians and pa- tients a wide range of facilities and locations. Subscribers who use plan physicians incur little out-of-pocket expense with the exception of a co- payment. Selection of a non-PPO physician will cost the beneficiary more. It is an economically driven system. Once a service is rendered, the physician bills Mountain Medical Af- filiates (the third party), which in turn pays the claim within seven to 10 working days. Physicians agree to accept a five to 20 percent discount in exchange for rapid payment of claims. This flow of dollars is de- scribed in Exhibit 2. The contract to provide services is between Mountain Medical Affiliates (MMA) and the employer, usually a self-funded benefit trust fund. In Denver, an estimated 35-40 percent of large employers are self-funded and it is this type of purchaser who is particularly cost-conscious and likes the direct rela- tionship with providers. The Center provides the manage- ment and marketing support for the PPO. Funds to cover claims process- ing and data-collection processing are obtained monthly from the employer or purchaser, who pays a fee based on the number of employees enrolled in the plan. MMA's board of direc- tors consists of 13 physicians and one layperson, the president of Presbyter- ian/St. Luke's Medical Center. Exhibit 3 summarizes the functions of the PPO. PPOs versus HMOs A major difference between the PPO and HMO structure is the PPO's abil- ity to offer a broad selection of physi- cians. While encouraging use of cost- conscious practitioners, the PPO also permits subscribers to maintain exist- ing relationships with their family physicians. Each plan includes a dual option that allows the patient to se- lect a non-PPO physician. In this case, the out-of-pocket expense will be greater. Another difference betwen the PPO and the HMO models is the way in which claims are handled. The PPO conducts claims review, a process that focuses on assuring the quality of care delivered. No claims are actually paid or administered by the PPO; instead, a third party bills the employer for the services. Fee Negotiation, Utilization Review, and Peer Review Fees are negotiated by the Board us- ing relative value units. MMA then negotiates conversion factors with purchasers. The discount ranges from five to 20 percent depending on the type of procedure performed. Because the physicians have a vested interest in making the PPO work, there is pressure to keep fees

Exhibit 2 Flow of the PPO Health Care Dollar I PPO Employer Patient Care Physicians and Employees " Hospitals $ Contributions/ Provider Premiums Billing Provider Payment Trust or Indemnity Carrier Third Party Administrator $ Source: Mountain Medical Affiliates; Denver, Colo. at a reasonable level and conduct quality review. Even in its brief his- tory, several practitioners left the or- ganization because they did not feel they were being adequately compensated. Yet, it was a decision of the organi- zation that compensation was ade- quate. This is the type of action that is consistent with the PPO's goals. Peer review is conducted by a com- mittee appointed by the Board. Pur- chasers and providers agree that de- cisions by the committee are binding. In 1981, the committee reduced the charges it reviewed by 29 percent. Advantages to Business, Providers, and Consumers All parties stand to gain from the PPO concept. Businesses: • Can establish their own PPOs; em- ployers may directly contract with providers eliminating a third party, especially where self-funded trust funds are in use. • Can save through the discounted provider fees as well as through lowered administrative costs. • Can offer their employees a flexible health plan that allows them the opportunity to maintain relation- ships with their family physicians. ta ¢,a

r~, ! Exhibit 3 Functions of the PPO MMA Physicians Contractual Agreements Marketing Patient Care MIS and Reporting Utilization and Peer Review Claims Assistance Membership Physician and Consumer Awareness ~PPO J 1 t P/SL Hospitals Contractual Agreements Marketing Health Care Services MIS and Reporting Utilization Review Billing and Collections Source: Mountain Medical Affiliates, Denver, Colo. • Can predict future health expendi- tures through use of past actuarial experience in the PPO. Providers: • Find the PPO attractive because it enables them to maintain an inde- pendent practice, permits a limited amount of this practice to be man- aged by an outside group, and al- lows accessibility to new patient markets. • Like the rapid payment of claims and elimination of the need to bill patients. • Like the opportunity to develop their own fee schedules, conduct the review process, and manage the affairs of the organization. Consumers: Can access the PPO at any point; it is not necessary to be screened by a nurse practitioner or general practitioner. Instead, the patient may go directly to a specialist. Can find a suitable practitioner in most geographical areas, unlike a HMO, which restricts its subscri- bers to one or two central locations. Can easily move back and forth be- tween the PPO provider and non- : i PPO provider. ca o o Go

% Future Trends and PPOs By 1990, a surplus of 70,000 physi- cians is predictednationwide and hospital utilization is expected to go down. This presents an opportunity for shifts in the marketplace and for the purchaser to assume a more ag- gressive role. Clearly, PPOs are only one solution, and many other cost- saving alternatives must be imple- mented as well. The recent attention given to PPOs has some negative implications, as witness what happened to HMOs when the federal government became involved. In 1973, federal legislation authorized funding to support the development of HMOs. As a result, some groups became less cost con- scious and lost their competitive ad- vantage. MMA has received calls from the Office of Management and Budget and the Federal Trade Com- missions recently, a sign that the fed- eral government may try to regulate PPOs. At the moment, there is an oppor- tunity to be innovative and try the PPO concept. It is also critical that other alternatives be implemented and that purchasers and providers work together to solve health cost management problems. A Physician's Prescription for Managing Costs --George Ross Fisher, M.D. Current problems of financing health care, paying for indigent care, and the corollary issue of rising costs are fairly recent developments. Major changes in the health care system -- passage of the Medicare and Medi- caid legislation, emergence of com- prehensive health insurance, and tax- exempt financing of hospitals -- have had a profound impact in creating the situation facing this country to- day. The relationship of these events to the current crisis in the system and what business can do to change the situation are discussed below. Indigent Care Before 1965 The old system of running hospitals evolved over two centuries and was based on a realistic recognition that most individuals were not generous with regard to charity. Operating a general hospital on voluntary contri- butions was not feasible and using public taxes to pay for indigent care was not popular with the electorate. But somehow the system worked by overcharging private patients, invok- ing the Robin Hood principle, and thus finding the means, however questionable, to finance this care. Further, the medical training system helped out by providing unpaid in- terns, residents, and nurses who de- livered free care to those unable to pay. One underlying principle made the system work. It was essential to keep down indigent medical costs or be bankrupted by these costs, but at the same time, there was the correspond- ing issue of providing equal indigent and private care. A significant dispar- ity between these types of care would have made a mockery of this generosity.

) I I I "'Hospital utilization has been decreasing since the mid-1970s. As utilization has gone down, total hospital costs to the community have seen an escalation at double the general rate of inflation." --George Ross Fisher, M.D. Passage of Medicare/Medicaid In 1965 the system changed and the federal government undertook to pay for indigent care. But more impor- tant, it undertook to pay for it at the prevailing middle class standards of convenience and amenity. While it is true that care has been extended to some previously under- served populations under these pub- lic health assistance programs, it is also a fact that since 1965 hospital rates have gone up 77 percent, which is an inflation of unit prices. Experi- ence over the past 17 years, and par- ticularly during more recent times of high inflation, has prompted reduc- tions in Medicare/Medicaid benefits. As a nation, there seems to some re- thinking on the financing of indigent care through taxes. Barring a return to the Robin Hood principle, society must decide exactly how it wishes to pay for such care in the future. Fail- ure to act will lead to a regulatory re- sponse much worse than the existing system. The use of hospital cost reimburse- ment has defeated efforts to hold down costs by utilization restraint. For example, under the PSRO pro- gram, if physicians succeeded in cut- ting blood counts in half, the result would be a doubling in price for each blood count. Hospital utilization has, neverthe- less, been decreasing since the mid- 1970s. As utilization has gone down, in Philadelphia for example, total hospital costs to the community have escalated at double the general rate of inflation. The number of hospital employees and their salaries have increased dur- ing the past 17 years. Improved tech- nology and the need for more highly skilled and specialized personnel are partly to blame, but the existence of comprehensive insurance coverage to pay the bill has been an overriding factor in promoting carefree internal hospital expenditures. Cost Shifting and Cross Subsidies Through Blue Cross discounts, the federal government's less-than-equal O %

share for Medicare/Medicaid pay- ments, and arrangements of commer- cial insurance carriers, cost shifting and cross subsidies have become characteristic of the way the hospital covers its costs, and more broadly, the way the entire insurance system has created the current crisis in health care financing. This situation conceals what services/procedures ac- tually cost the hospital, what they cost the individual, and what they cost the purchaser of the services. By shifting the overhead costs, for example, patients who stay a long time usually subsidize patients who stay a short time, and patients who need laboratory work subsidize pa- tients who don't. By using two differ- ent and unequal pricing systems~ pa- tients with commercial health insurance are made to subsidize pa- tients with Blue Cross and Medicare, and patients without any health in- surance subsidize those who are insured. Young people subsidize older peo- ple through paying the same pre- mium but using less service. Ambula- tory patients subsidize inpatients, and ambulatory care is thereby dis- couraged, with the result that care is provided in the more expensive set- ting. Through "community rating" of insurance premiums, patients in non- teaching hospitals subsidize those in teaching hospitals. By only permit- ting selective premium adjustments, some insurance commissioners have seen to it that subscribers in small groups subsidize individual non- group subscribers. The income tax code extends a $27 billion exemption of health insurance fringe benefits to salaried employees that is not enjoyed by, and hence subsidized by, self-employed and un- employed persons. Through coordi- nation of benefits, the 30 million working couples in America receive only half the fringe benefits they think they are getting, so they are ef- fectively subsidizing single-earner families. This process extends even to the corporate stockholder level. For in- stance, stockholders of corporations are deprived of dividends to the ex- tent that the company is overpaying for employee health insurance, and the customers of the company are also paying somewhat higher prices because of it. As this affects interna- tional competitiveness, one could say that the big winners are the Japanese. Capital Financing of Hospitals Although this is a time of recession, many communities are constructing new wings to existing hospi- tals,building additional specialty units, and renovating buildings con- structed only five to ten years ago. Building costs are astronomical. A new 200-bed hospital will cost $70 million without cost overruns, but af- ter 30 years of a 15 percent tax-ex- empt bond, the community will have paid $240 million for the structure. That is well over a million dollars per bed, most of which will be paid to banks, insurance companies, and other institutional investors. Over the

i ,! 30 years, it can be conservatively esti- mated that the 200 beds will generate $2 billion in costs, half of which will be paid out in employee salaries. It is conservatively estimated that $200 million will be spent on administra- tive costs. Hospital governance can be par- tially faulted for this situation. Trust- ees of the largely nonprofit hospital system have lost their concern with costs because society has become in- sulated from cost consequences by being overinsured, thereby falling victim to what is known as the "moral hazard of insurance." Since everyone is desperate to keep the government from exerting dominance over hospitals, which its financial contribution would normally entitle it to, administrators and providers have clung to the honorary trustee form of governance, for lack of a substitute. The consequence is that hospitals threaten to become employee benev- olent societies, displaying a marked distaste for supervision. Recommendations for Business The foregoing situation -- increasing costs for Medicare/Medicaid, cost shifting and cross subsidies, the moral hazard of insurance, and tax- exempt financing of hospitals -- present some challenges as well as opportunities for the private sector. Although there are a number of options for business, overestimating its commitment is also a danger. In the nation's experiment with health planning, the community elected a board of laymen to oversee the affairs of the local health systems agency. The laymen often quickly lost inter- est, and the most pressing problem often became the inability to achieve a quorum to conduct business. The original idea was that leaders in the business community would make the decisions. But in fact, the decisions were made by staff committed to per- petuating the organization, rather than advancing its mission. Business is further cautioned against becoming involved in the minute details of the operation of hospitals and how physicians practice medicine. The medical literature in- cludes 200,000 new articles a year: a challenge for the physician, an ab- surdity for the layman. Avoid being misled by so-called innovations and new trends in health service delivery. HMOs, for instance, appear to drasti- cally reduce costs, but a more careful analysis will reveal problems of ad- verse risk selection. Steps that business can take to change the system are: • Search for ways to restore the mar- ket mechanism. • Devise new ways to govern hospi- tals. Try splitting the board into a two-corporation entity. One board would be responsible for teaching, research and charity, and the en- dowment portfolio; the second would be responsible for running the business. • Consider requiring that hospitals pay local property taxes; such a move might quell criticism that since government pays half the costs of running hospitals, it should control them. t'0

iT • Urge state and local governments to reassume responsibility for char- ity care. Because the federal gov- ernment can print money, it has spent more on this item. Local and state governments would be more cautious in this regard. • Offer employees several choices of health insurance, including plans with high deductibles and co- payments. • Consider supporting a change in the tax laws to permit a health- hardship exemption from tax and penalty for early withdrawals from IRAs. Such an exemption could then be used for payment of health insurance premiums. Encourage Blue Cross to adopt higher co-payments and deducti- bles. The intent of this is to even- tually eliminate the cost reimburse- ment system. Support a limitation on the tax-ex- empt status of employee health benefits. mmmmm~mnm mmmnmmmmmmmm mmmmmm~mmmmm ......... m mum ummm mmmmmmmum iNn nnmmmmmmmmm him mmmmmmmimm mmm mmmmmmmmmm mmm ummmmmum mpn mummmmmmm mmmmmmmmmm mmm mm mmm mm mmm mm mmm mmm

/ Public Support For Private Initiatives number of factors are responsible for the current fo- cus on private ini- tiatives by health policymakers. In- flation continues to affect hospital services and supplies while complex technology demands more costly and skilled personnel. Taxpayers are balk- ing at the high cost of public medical assistance programs. The current Ad- ministration has interpreted its man- date as a call for less regulation and more competition in the health care system. The Administration's pro-competi- tion approach proposes offering pa- tients a choice of health plans; using rebates to encourage employees to select plans with higher deductibles and cost-sharing; capping the tax-ex- emption on health benefits; eliminat- ing the federal health planning and PSRO programs; instituting a pro- spective reimbursement system for hospitals and nursing homes; and of- fering a voucher plan to Medicare recipients. Segments of these proposals have been introduced in Congress and some have passed the requisite com- mittees. A Task Force on Competi~ tion, chaired by David Winston, a consultant to the White House, has held meetings with concerned groups---employers, providers, insur- ers, organized labor, and consumers. The Administration's competition proposal is expected to reach the Congress by 1983. In line with this approach, the De- partment of Health and Human Ser- vices (DHHS) is supporting health policy research aimed at providing the Administration with information it needs to make major policy deci- sions on restructuring the health care system. The Office of the Assistant Secretary for Planning and Evaluation is charged with investigating what the private sector, particularly em- ployers, are doing to encourage com- petition and manage costs. Bruce Steinwald, director, Division of Eco- nomic Analysis, Office of the Deputy Assistant Secretary for Planning and Evaluation, has been involved with this research. The Federal Government's Role in Competition --Bruce Steinwald Much has been written and said about the respective roles of the pri- vate and public sectors in providing for the health needs of the American people. The current Administration places great emphasis on developing public-private relationships in foster- ing a more competitive health system -- one that relies on choices and in- centives to control health expenditure inflation rather than regulatory pros- cription. Relatively little mention has been made of the role of information in this process, however. Information, like any other com- modity, is produced and sold in the private sector in accordance with "laws" of supply and demand. !; !! 'iiI i/l~ ii i iii|

~:.,~ ~ i~ "'Very few analysts relish the prospect of further regulation of health sector institu- tions; nevertheless, the status quo is not a viable option, and if current efforts to contain costs are unsuccessful, the regula- tory 'stick" is in the closet." --Bruce Steinwald Nevertheless, there is general agree- ment that government has a role in producing certain types of informa- tion as a public good and disseminat- ing it to private organizations. To- day's changing health system and the need to develop solutions to the health expenditure inflation problem make information production and ex- hange essential. Consumers, provi- ders, insurers, and purchasers (in- cluding government) will need new information to guide them as they se- lect from an array of options for a more competitive health system. The health expenditure problem, its sources and proposed solutions will be described below. A discussion of current information production ef- forts at DHHS will follow. It is hoped that such efforts will benefit both fed- eral health policy development and private sector efforts to control health care expenditures. Health Expenditure Inflation: Culprits and Solutions The increase in health care expendi- tures since 1970 has been dramatic and the rise is expected to continue, as shown in Exhibit 4. In the absence of significant re- form, the outlook for the remainder of this decade is bleak. Note that in addition to the enormous increase in expenditures, the proportions paid by private health insurance and by the federal government are growing. This means that consumers have not felt the full brunt of inflation in this sector, at least in terms of out-of- pocket expenditures at the time of re- ceiving care. But let there be no mis- take -- consumers are certainly pay- ing for these increases in insurance premiums, foregone wages, taxes, and tax subsidies for health insurance purchases. According to the Congres- sional Budget Office, for example, the tax loss due to tax-free contribu- tions made on behalf of employees for health benefits are estimated at $19 billion for 1980, $35 billion for 1985, and $73 billion for 1990. Every analyst of health policy has a list of culprits regarding the health expenditure problem. No claim can be made that the following list is more authoritative than any other, but these items are clearly targets for health policy reform: t#

i I ! I Exhibit 4 Health Care Spending | 1970, 1980 & 1990) (Amounts in Billions) 1970 1980 1990 (proj.) All health care expenditures Amount paid by private insurance Amount paid by federal programs $75 $245 $821 17 (23%) 64 (26%) 226 (28%) 18 (24%) 71 (29%) 262 (32%) Source: National Health Expenditures: Short Term and Long Term Projections. Health Care Fi- nancing Review. Winter 1981. • Open-ended tax subsidies of health benefits that have led to excessive purchases of health insurance that, in turn, have insulated consumers and providers from the costs of services. • Insurance reimbursement that fre- quently covers the first dollar of expenses (and often does not cover truly catastrophic expenditures) and pays hospitals costs after they are incurred, providing little incen- tive for private cost containment. • Uncontrolled public entitlement pro- ,~rams, particularly Medicare and Medicaid, that are taking an in- creasing share of the health care dollar. • Lack of consumer information for both patients and purchasers that is, in part, a result of low incentives to search for efficient methods of health care financing and delivery. Over the years, the Congress, the executive branch, and the health sec- tor have debated and tried various approaches to controlling health care costs. National health insurance was considered too costly to implement and regulatory efforts, such as certifi- cate-of-need and professional stan- dards review organizations, have not appreciably restrained costs. State hospital rate setting has shown some restraining effect on hospital reve- nues, but the long-term effects of this type of regulation are uncertain. Few analysts relish the prospect of further regulation of health sector in- stitutions; nevertheless, the status quo is not a viable option, and if cur- rent efforts to contain costs are un- successful, the regulatory "stick" is in the closet.

It is well-known that the Adminis- tration is considering legislation and other reforms to enhance incentives for cost containment. Elements of a pro-competitive strategy might include: • Reforming reimbursement, especially for hospital services delivered to Medicare beneficiaries, by replac- ing the current retrospective reim- bursement system with a prospec- tive one. • Changing the tax treatment of em- ployer-sponsored health benefits to reduce employer/employee incen- tives that favor more generous health benefits over higher wages. • Encouraging choices in health care fi- nancing and delivery through sup- port of alternatives to traditional methods of financing and delivery. • Encouraging innovation in the pri- vate sector to develop private solu- tions to health care expenditure inflation. Private Sector Cost Containment There is no doubt that the private sector has already begun to innovate as it seeks to gain control of health care expenditures. With health benefits exceeding an average of six percent of total labor costs and climbing, many companies have eschewed reliance on the health sector or on government to control these increases and accepted the re- sponsibility themselves. Employers have actively experimented with re- shaping health benefits packages, stay-well programs, company-spon- sored utilization review, self insur- ance, preferred provider organiza- tions, and other innovations designed to maintain employee health while controlling expendi- tures. Private foundations such as Johnson and Hartford have com- mitted significant resources to both encouraging and analyzing these ac- tivities. And, of course, business health care coalitions in cities across the United States are developing in- novative methods to help local busi- nesses actively participate in cost-re- duction programs. This country has long depended on the private sector for innovation in a variety of areas, and health care is no exception. Today, the political and economic climates are conducive to innovation and change. Government is responsible for ensuring that the public's interest is protected during periods of transition. For this reason, one may expect the antitrust enforce- ment agencies will view the activities of health care coalitions with some interest. Nevertheless, government will support and encourage private efforts at health care cost contain- ment and will try to set a good exam- ple in the management of public programs. One means of support is through federal demonstration and research activities. During recent years of budgetary pressure, federal health care research programs have suffered their share (or greater) of retrench- ment. At the same time, research

agendas have been substantially reo- riented to produce information for federal health policy development and for private efforts to restructure the health system. Federal Research to Support a More Competitive Health System The Health Care Financing Adminis- tration (HCFA), the agency responsi- ble for the Medicare and Medicaid programs, has the largest research and demonstration budget in the De- partment of Health and Human Ser- vices (DHHS). Other agencies cur- rently conducting research on competition in health care include the National Center for Health Services Research (NCHSR) and the Office of the Assistant Secretary for Planning and Evaluation (ASPE). The remain- der of this discussion will offer an overview of research on health care competition being planned and con- ducted at ASPE. Since the early 1970s, ASPE has supported the Health Insurance Study, conducted by the Rand corpo- ration. This major, ongoing project was initiated during a different era in health policy, but the questions it ad- dresses regarding the relationships between health insurance coverage, health expenditures, and health out- comes are so fundamental that it is entirely relevant to developing a pro- competition health policy strategy. In the Health Insurance Study, 2,700 families at six demonstration sites across the United States were randomly assigned health insurance plans with varying co-payment char- acteristics. Data collection was based on personal interviews, self-adminis- tered forms, claims for reimburse- ment, medical records, and medical examinations. Collection of data ended in early 1982, but analysis of the data will continue for several years. A public use data set will be prepared so that other researchers will have access to these findings. The Rand Study has already pro- vided information on how cost sharing reduces health expenditures, and will continue to generate findings helpful to both government and private health program development. These findings will include relationships between cost sharing and specific types of utilization (e.g., hospitalization, dental care, men- tal health benefits); effects of insurance on choice of provider, qualilty of care, and health outcomes; utilization com- parisons between traditional and HMO settings, and many others, all of which will be in the public domain. In FY 1982, ASPE established a re- search agenda specifically oriented to pro-competition health policy devel- opment. The agenda includes exami- nations of health plan choice under the two largest multiple choice plans in the United States -- the Federal Employees Health Benefits Program and the California Public Employees Retirement System. These studies will yield information on factors that influence plan choice and on the problem of risk selection that may oc- cur when alternative plans have sub- stantially different benefits. The prob- lem of risk selection will also be

examined through review of data on private insurance program claims experiences. The major competition research project for FY 1982 is an 18-month study of private sector health care cost containment initiatives. Objec- tives of the study are to determine what innovations are developing, ex- amine the market factors that have precipitated these innovative prac- tices, and begin to assess the impact of these developments on local health care market performance. This study is being conducted by Lewin and As- sociates with subcontracts to the Washington Business Group on Health and the Boston University Center for the Study of Industry and Health Care. For FY 1982 and beyond, ASPE's competition research agenda will build upon FY 1982's beginnings. This agenda includes: a continued investi- gation of the attributes of multiple choice in health plans; experimenta- tion with programs designed to cre- ate incentives for choice of efficient health care financing options; investi- gation of private-sector-based meth- ods for providing protection to unin- sured populations; improvement of existing data on the benefit structure of private health insurance; further investigation into the cost and bene- fits of specific health care financing; and delivery innovations developed in the private sector. The Department's aim is to build an information base that will be used and relied upon for the development of pro-competition health policy re- forms. It is hoped that private sector organizations will participate both in the development of this data base and in its use for private health pol- icy. It is believed that investments of this kind in support of the develop- ment of a more competitive health system, will substantively reduce health expenditures in the future.

% Im act of Risin Costs usiness coalitions, the federal gov- ernment, the BRT companies, and the providers are simultaneously acting in their best interests to make the health care system work. Many of their actions are coordi- nated, while others, perhaps una- voidably so, are contradictory. Health-policy researchers not allied with any particular group seek to analyze these reactions and suggest options to improve the system. Various health policy research groups, mentioned earlier, are re- sponsible for many of the concepts and experiments widely known to- day. InterStudy was responsible for popularizing the HMO form of ser- vice.delivery, and it recently de- scribed the notion of discounted phy- sician fees, calling it a preferred provider organization. The Rand Cor- poration is currently conducting a longitudinal study on consumer se- lection and use of health benefits. The Goverment Research Corpora- tion (GRC) is a private professional organization established in 1969 to provide independent analysis and forecasting. Its president, Stephen C. Caulfield, who has published articles on health care trends, reviews cost shifting, its impact on the private sec- tor, and the influence of capital fi- nancing on future health costs. Payment Systems and Cost Shifting --Stephen Caulfield The problem in health care today is not cost itself, but cost benefit or value. Major public health and medi- cal advances and technical break- throughs reducing mortality have de- clined in the sixties and seventies, and as a result, more and more money is being spent with fewer re- sults. Related to the cost benefit question is that of choice. Is the money being spent on items that most Americans consider a priority? Or is the insurance carrier making the choices? In addition to questions of value and choice are issues of cost, Medi- care, methods of reimbursement, cost shifting, and the proposed cap on health benefits. These points are ad- dressed below with a final note on future trends. Cost Variables Cost is a function of four factors: the price variable, the volume variable, the intensity variable, and the capital variable. Over the past few years these factors have shown the follow- ing changes: • Price. While physician fees-for-time adjusted for inflation have been flat or, in some areas, on the de- cline, physician income from ancil- laries has risen dramatically. Fur- ther, although the number of tests performed by independent labora- tories have increased over the past decade by 109 percent, expendi-

"'Cost shifting operates on three levels. Within the hospital, one service subsi- dizes another. At the second level, one class of payors subsidizes another. At tire third level, cost shifting occurs between classes of patients." --Stephen Caulfield tures rose by 636 percent, suggest- ing a dramatic increase in price. Thus, ancillaries appear to be a sig- nificant price problem and any pro- spective payment system should address this issue. Volume. Admissions for the fourth quarter of 1981 and the entire year were up 0.5 percent and 0.9 per- cent respectively; and for the over- 65 population, admissions were up 1.7 percent and 3.0 percent. This modest increase in volume is con- trary to what was expected with the cutbacks in PSROs. Days per thousand are flat or slightly down, suggesting that volume adjusted for growth in population is not a significant component of the hospi- tal sector of health care costs. • Intensity. As with price, ancillaries have led in a greater intensity of services. In the period 1968-78, in- patient radiology and pathology expenditures grew 678 percent, in- dependent laboratory expenditures rose 636 percent, while other health expenditures went up 176 percent. Clearly the Medicare data on the skewed distribution of ex- penditures toward the last days of life demonstrate a significant in- crease in intensity. • Capital. This last variable may well become the driving force behind health care inflation in the latter part of this decade. In the 1980s, the aggregate capital needs of hos- pitals will exceed $190 billion just to maintain current bed capacity, with 71 percent of this going for replacement of new technology and renovation. With a 15 percent reduction in bed capacity, the fig- ure would be $158 billion with a 66 percent rate for replacement. Debt as a percent of new project fun~s is projected to increase from 71 percent to 81 percent in this decade. The ratio of debt to capital expendi- tures for 1968 was 40 percent; in 1974 it was 61 percent. Those in the debt market know that capital is costly and apt to go much higher. Tlle ma- jority of U.S. hospitals were capital- ized between 1946 and 1960, much of this through the federal Hill-Burton program. That capital stock is now aging to the point of replacement or substantial renovation. While the is- tO %

il¸¸ sues of physician supply and com- plex technology are important, the cost of capital may become the en- gine firing the inflationary spiral in health care over the next few years. Medicare and the Private Sector In this context of rising costs, Medi- care and Medicaid are the major pub- lic policy vehicles affecting the pri- vate sector's bill for health. Because Social Security involves a very large voting block, and Medicare a smaller one, Congress and the Administra- tion are more likely to make cuts here. This program directly affects private purchasers because the gov- ernment's failure to pay its fair share results in a shift of costs to private patients whose benefits are paid for by employers. It is important for both business and labor to pay close atten- tion to Medicare policy. It can be very significant to their interests. Methods of Reimbursement Reimbursement has two sides. The retrospective side includes charges, charge discounts, limited charges, and cost-based charges. The prospec- tive side focuses on a total prebudg- eted amount eliminating the complex details just listed. Rate-setting is being tried with limited success in some states. Case-mix reimbursement is being implemented in New Jersey, but it is still too soon to determine its effectiveness and applicability to other locations. A prospective payment plan has been proposed by the American Hos- pital Association (AHA), which is to be commended for its courage in of- fering the plan. Because AHA is a complex organization with multiple constituencies -- urban and rural hospitals, community hospitals, teaching institutions, small and large hospitals, and voluntary and proprie- tary institutions -- this development is especially noteworthy. The plan's positive features are its recognition of regional differences, its ease of ad- ministration, its use of a fixed-price payment, and its method of dealing with some of the problems of Section 223, the part of the Medicare law that deals with payment. On the negative side, the plan is limited to Part A of Medicare, ex- empts out-patient departments and emergency rooms for up to two years, proposes a high base of in- crease -- 14 percent -- and allows hospitals to refuse assignment. Over- all, the proposal has merit and cur- rency and is a better solution than the two percent across-the-board cut proposed by some. Cost Shifting As discussed above, public policy has generated cost shifts from the public sector to the private sector. Some, in- cluding Office of Management and Budget Director-David Stockman, be- lieve it is essential and appropriate to have this kind of income redistribu- tion because there is never going to be a perfect match between what people pay and what people receive. More than a year ago, Stockman said: Such transfers must come in the form of fixed monetary subsidies that ¢.n i,a. oo

a are visible, debatable, and changeable. The subsidies must be inherently controllable as opposed to the own- ended contract that drives Medicare, Medicaid, and income tax expendi- tures for health care today. At this juncture cost shifting does not conform to Stockman's model. Cost shifting operates on three levels. Within the hospital, one service sub- sidizes another -- laboratory services subsidize the outpatient department, the operating room subsidizes the emergency room. Hospital account- ing systems are designed to accom- modate this practice. At the second level, one class of payers subsidizes another, with Blue Cross and the commercial carriers paying for some Medicare costs that the federal gov- ernment does not cover. At the third level, cost shifting occurs between classes of patients with less-poor pa- tients subsidizing poorer patients. It is estimated that in 1979 there was a cost shift of $3 billion. Exhibit 5 il- lustrates what different third parties pay for selected procedures. Patient shifting often follows cost shifting. Indigent patients treated in emergency rooms of private hospitals are soon moved to public hospitals, producing two classes of medicine. Proposed Cap on Health Benefits The proposal to cap the tax-exemp- tion on health benefits is ill-con- ceived. When the Senate debated the measure six months ago, there was general agreement among Finance Committee members that the tax would not structurally alter the health care system and cause result- ing changes in behavior and cost re- ductions. The White House agreed not to press for a cap at that time. Three months ago, when added reve- nues became the issue, the Senate re- vived the issue, but at the same time acknowledged it was still a revenue raiser. For a tax cap to significantly change behavior, a variety of other benefit redesigns must occur. Future Trend: Rationing The future for tax cap proposals, a prospective payment plan, and other approaches is unclear at this point. But any solution will have to address questions of allocation, which is ac- tually rationing. This premise is summed up in the following passage from General Research Corporation's publication, "Health Care Cost: Pri- vate Initiatives": Some . . . interventions . . . are, in reality, recommendations for several methods of rationing. They are barriers to access, barriers created by financial incentives for the user, barriers created by limitation on the reimbursement system, barriers created by limits to the supply of facilities and services, and barriers imposed by the physician. Ef- fective cost containment will probably involve some kinds of effective rationing .... We would hope that any system of rationing would acknowledge and maintain the diverse and pluralistic nature of our tu'alth care system, al- lowing those who need care to obtain it without suffering adverse conse- quences, and at the same time dis- couraging inappropriate or excessive utilization.

21 m Exhibit 5 Comparison of Sample Hospital Costs Private Patient's Medicare Hospital's Cost Payment Actual Cost Operating room $250 $178 $231 EKG 40 22 31 CT scan 225 162 210 Average daily patient cost 449 303 399 Source: The Wall Street Journal, January 19, I981. Data are sample medical costs for Erlinger Medical Center, Chattanooga, Tennessee. Editor's Note: In a handbook produced by the Health Insurance Association of America entitled, "Hospital Cost Shift- ing: The Hidden Tax--What Should Be Done About It," several solutions to the problem of cost shifting are offered: Establishment of state prospective pay- ment systems to determine approved hospital revenues in advance, encour- age cost containment, and permit all payers--government and private---to pay hospitals on an equitable basis. Federal legislation to allow insurers to join together to negotiate with hospi- tals to cut costs and seek lower charges for their policyholders. • Appointment of a Presidential Com- mission on Health Care Payment Re- form to make specific recommendations to Congress. • A diagnostic related groupings (DRGs) or other case mix reimbursement type of payment plan, Under this approach payment is based on predetermined charges for specific diagnoses, regard- less of length of hospitalization or ex- tent of services provided. The HIAA booklet concludes with the statement that: "There is broad agree- ment that the status quo is unacceptable • . . the future stability of the health care system demands that.., cost shifting be recognized, addressed and resolved .... %

d his publication -- has provided a -- glimpse of what the business com- munity is doing to manage health costs. It has de- scribed the devel- opment of business coalitions and the steps they are taking at the local level; reviewed the Business Round table's "Health Initiatives"; discussed the preferred provider organization concept and its significance for busi- ness; reported on the federal govern- ment's study of private sector health care initiatives; and analyzed these developments as they relate to the to- tal health care system. While this level of activity is en- couraging, much remains to be done. As we proceed into the 1980s, busi- ness firms of every size will be con- fronted with the impact of rising health costs on their operations. Clearly, the experience of the past decade has not shown restrictive fed- eral legislation and regulations to be the answer. "Cost control incentives proposed by the private sector," ac- cording to the 1976 Council on Wage and Price Stability (CWPS), "promise to be more effective than those im- posed by the multitude of govern- ment agencies. The private sector is motivated by economic incentives which the government will simply never share.., the key ingredient in bringing about much needed change in the system." As more and more employers have come to realize, health care costs must be restrained at the company level. But success at this level is only a limited victory. Actions by federal, state, and local governments have a decided impact on the company's health costs. For example, reductions in federal Medicare payments to hos- pitals frequently result in a cost shift to private patients whose insurance benefits are paid by employers. Through local coalitions, employers can work together to find voluntary, cooperative methods to improve the health care system and manage costs. However, given the variety of solu- tions to achieve these goals, business faces a formidable challenge -- but one that must be met. Quoting fur- ther from the 1976 CWPS, "The pri- vate sector is up to the challenge" of containing health costs. Business Co- alitions for Health Action are proving CWPS correct.

Publications he following list m includes references used in prepara- tion of this publi- cation and other pertinent material keyed to the top- ics discussed. It is intended as a general guide, rather than an exhaustive list of the types of information available in the area of health care and business. Alternative Delivery Systems '.'Cutting Cost Without Cutting the Quality of Care," Shattuck Lecture. A.C. Enthoven. New England Journal of Medicine (298:22); June l, 1978. pp. 1229-1238, Alternative Delivery Systems. Industry and HMOs: A Natural Alli- ance, R.H. Egdahl and D.C. Walsh (Editors). New York, N.Y., Springer- Verlag, Inc. "Health Care Industry, Business Show Increasing Interest in PPO Concept." Federation of American Hos- pitals Review, July/August 1982, pp. 12-18. "InterStudy Researchers Trace Prog- ress of PPOs, Provide Insight into Future Growth," Linda Krane Ellwin and David D. Gregg, M.D. Federation of American Hospital Review, July/Au- gust 1982, pp. 20-28. "An Introduction to Preferred Provi- der Organizations." Linda Krane Ellwein. InterStudy, Excelsior, Minn. "Investor's Guide to Health Mainte- nance Organizations." Office of Health Maintenance Organizations, Depart- ment of Health and Human Services, Washington, D.C., March 1982. "Mountain Medical PPO: A Case His- tory of Marketing a New Concept in the Denver Area." Federation of Ameri- can Hospital Review, July/August 1982, pp. 29-32. "A National Health Care Strategy: How Business Can Stimulate a Com- petitive Health Care System." Cham- ber of Commerce of the United States, Washington, D.C., 1978. "Three Networks Reflect Growing In- terest in the Development of California PPOs." Federation of American Hospital Review, July/August 1982, pp.36-42. "Time Ripe for HMO Investment." Washington Report, Chamber of Com- merce of the United States, Washing- ton, D.C., May 4, 1982. Benefits "Controlling the Costs of Benefits." Interview with John K. Kittridge. Benefits News Analysis, May 1981, Vol. 3, No. 5. "Health Care Alternative: American Can Company's Flexible Benefits Programs." American Can Company, March 1982. "Leadership in Benefits Redesign: The American Can Experience." Overview of speech presented by 1'0

Robert Felder (director, Salaried Ben- efits, American Can Company) to National Health Policy Forum, Wash- ington, D.C., May 1982. "Options, Incentives, and Employ- ment-Related Health Insurance Cov- erage." Pamela J. Farley and Gail R. Wilensky. National Center for Health Services Research/Department of Health and Human Services, Wash- ington, D.C., 1982. "A National Health Care Strategy: How Business Can Use Specific Tech- niques to Control Health Care Costs." Chamber of Commerce of the United States, Washington, D.C., 1978. Coalition Development/ Corporate Involvement "An Appropriate Role for Corpora- tions in Health Care Cost Manage- ment." National Health Care Task Force of the Business Roundtable. New York, N.Y. February 1982. "Boon or Bane, Business Coalitions Have Entered the Health Care Scene." Hospitals, February I, 1982, pp. 64-70. "Business Groups on Health vs. Multi-constituency Coalition." Benefits News Analysis, Vol. 4, No. 2, Febru- ary 1982, pp. 24-31. "Controlling Health Care Costs: The Role of Business Coalitions." Alpha Center, Bethesda, Md., August 1982. "Corporate Involvement in Health-- A Growing Investment." Health Policy Issues -- 1981. National Health Policv Forum, Washington, D.C. March 1982, pp. 75-83. "Directory of Business Coalitions for Health Action" Third Edition, Clear- inghouse on Business Coalitions for Health Action, Chamber of Com- merce of the United States, Washing- ton, D.C., May 1982. "Formation of Medicine/Business Co- alitions." A Guidebook for Medical Societies. American Medical Associa- tion, Chicago, Ill., February 1981. "Health/Action; How to Improve Health and Contain Costs." Chamber of Commerce of the United States, Washington, D.C., 1978. "Health Care and American Busi- ness." John K. Iglehart. New England Journal of Medicine. January, 14, 1982, pp. 120-124. "Health Care Coalition Information Guide." Health Insurance Association of America, Washington, D.C. "Health Care Cost: Private Initia- tives," Stephen Caulfield and Pamela Hayes. Government Research Corpo- ration, Washington, D.C., 1982. "A National Health Care Strategy: How Business Interacts with the Health Care System." Chamber of Commerce of the United States, Washington, D.C., 1978. "A Report on Coalitions to Contain Health Care Costs," Stephen Caul- field and Pamela Hayes. Government Research Corporation, Washington, D.C., 1979. 6a

Competition/Health Care Financing "American Hospital Association Pro- posal: Medicare Prospective Fixed Price Payment to Hospitals." Ameri- can Hospital Association, Chicago, Ill., April 1982. "Balancing Social Policy and Market Demand." Marc J. Roberts. Issues in Health Care, Layentahal and Horwath, Vol. III, No. 1, 1982, pp. 27-33. "Competition and Consumer Choice: National Health Care Legislative Pro- posals," Blue Cross and Blue Shield Association, Washington, D.C., 1981. "Competition -- The First Anniver- sary," Willis B. Goldbeck. Issues in Health Care, Published by Laventhal and Horwath, Vol. III, No. 1, 1982, pp. 2-7. "Competition vs. Regulation in Health Care: Interview with Alan C. Enthoven." Walter Unger. Hospital Fi- nancial Management, November 1980, pp. 12-25. "Cross Subsidies in Hospital Reim- bursement," Stephen C. Caulfield, Journal of the Hospital Financial Man- agement Association, October 1981, pp. 14-30. "Do We Need Legislation to Achieve Competition?" Richard A. Gephardt. Health Affairs, Spring 1982, Vol. I, No. 2, pp. 53-68. Published by Project HOPE. "Health Insurance Association of America: Health Care Payment Re- form Package." Health Insurance As- sociation of America, Wash., D.C. "Hospital Cost Shifting: The Hidden Tax." Health Insurance Association of America, Washington, D.C., 1982. "Hospital That Ate Chicago," George Ross Fisher, M.D. Saunders Press, Philadelphia, Pa., 1980. "Task Force Report on Competition Legislation." Submitted to the Presi- dent by private sector task force on competition, David A. Winston, Chairman. December 1981. Data Collection and Analysis "Investing in Utilization Review: More Savings on the Way?" Over- view of a discussion with Paul Gert- man, M.D., Health Policy Consor- tium; Mick Johnson, Minnesota Foundation for Health Care Evalua- tion; and Peter Borchardt, Delmarva Foundation, National Health Policy Forum. Washington, D.C., May 1982. "Minnesota Coalition on Health Care Costs -- Private Utilization Review." R.J. Frey. Minnesota Medicine, Vol. 64, No. 225, April 1981. "A National Health Care Strategy: How Business Can Use Specific Tech- niques to Control Health Care Costs." Chamber of Commerce of the United States, Washington, D.C., 1978. "Use Claims Data to Cut Expenses: Benefit Manager." Jerry Geisel. Busi- ness Insurance. Vol. 64, No. 225, April 1981.

7 Employee Wellness "Consumer Incentives -- A Cost Management Strategy." Summary of three health promotion programs: Medocino County Stay Well, Bank of America Stay Healthy, Blue Cross of Oregon WELLCHEC and Health CHEC. Memo prepared by Washing- ton Business Group on Health, Washington, D.C., June 1982. "Good Health for Employees and Re- duced Health Care Costs for Indus- try," Charles A. Berry. Health Insur- ance Association of America, Washington, D.C., 1981. "Healthy People." Surgeon General's Report on Health Promotion and Dis- ease Prevention. U.S. Department of Health and Human Services, Wash- ington, D.C., 1979. "Industry's Stake in Healthier Em- ployees." Chemical Week. February 17, 1982, pp. 33-38. "A National Health Care Strategy: How Business Can Promote Good Health for Employees and their Fami- lies," Chamber of Commerce of the United States, Washington, D.C., 1978. "Resource Guide to Health Promo- tion." Vol. I, Maryland Hospital Edu- cation Institute and Blue Cross/Blue Shield of Maryland. Lutherville, Md. "Stay Well Incentive Plan A New Concept in Health Care," Gus Barlas. Issues in Health Care, Published by Laventhol and Horwath, Vol. III, No. 7, 1982, pp. 47-49 "Wellness at Work." Robert M. Cun- ningham, Jr. Blue Cross and Blue Shield Associations. Inquiry Books, 1982. Hospital Trustee Education "Governing Hospitals: Trustees and the New Accountabilities." Robert Cunningham. American Hospital As- sociation, Chicago, Ill. "Hospital Boardsmanship for the 80s." Maryland Hospital Education Institute, Lutherville, Md. "Hospital Trustee Development Pro- gram." American Hospital Associa- tion, Chicago, Ill. "New Primer for Hospital Trustees." Chamber of Commerce of the United States, Washington, D.C., 1981. "Urge Trustees to Lead Coalitions," D.E. Johnson. Modern Healthcare. Vol. II, pp. 114-116, August 1981.

Organizations he following or- - -- ganizations con- - -- duct activities re- _ __ lated to the topics discussed in this -- -- publication. Some -- -- of the groups are involved with ac- tivities cutting across several topic areas. This list is intended as a gen- eral guide, rather than exhaustive in- ventory, of such groups. Alternative Delivery Systems AMERICAN GROUP PRACTICE ASSOCIATION 20 South Quaker Lane Alexandria, Va. 22314 AMERICAN ASSOCIATION OF FOUNDATIONS FOR MEDICAL CARE 5410 Grosvenor Lane Suite 210 Bethesda, Md. 20814 CALIFORNIA HEALTH NETWORK (Preferred Provider Organization) 630 Leavenworth Street, Suite One San Francisco, Calif. 94109 GROUP HEALTH ASSOCIATION OF AMERICA, INC. 624 Ninth Street, N.W. Washington, D.C. 20001 MEDICAL MANAGEMENT ASSOCIATION 4101 East Louisiana Avenue Denver, Colo. 80222 MOUNTAIN MEDICAL AFFILIATES, INC. (Preferred Provider Organization) 1955 Pennsylvania Street Denver, Colo. 80203 NATIONAL HMO INDUSTRY COUNCIL Division of Private Sector Initiatives Office of HMO Development Park Building Room 3-32 12420 Parklawn Drive Rockville, Md. 20857 SOCIETY FOR THE ADVANCE- MENT OF FREE-STANDING AMBULATORY SURGICAL CARE 1040 East McDowell Phoenix, Ariz. 85006 Benefits Design ASSOCIATION OF PRIVATE PENSION AND WELFARE PLANS 1725 K Street, N.W., Suite 801 Washington, D.C. 20006 COUNCIL ON EMPLOYEE BENEFITS 1144 E. Market Street Akron, Ohio 44316 EMPLOYEE BENEFITS RESEARCH INSTITUTE 1920 N Street, N.W. Suite 520 Washington, D.C. 20036 INTERNATIONAL FOUNDATION OF EMPLOYEE BENEFIT PLANS 18700 West Bluemound Road Brookfield, Wis. 53005 ha,

,. -t~ PUBLIC RISK AND INSURANCE MANAGEMENT ASSOCIATION 1120 G Street, N.W. Suite 707 Washington, D.C. 20005 SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS 1800 M Street, N.W. Suite 1030N Washington, D.C. 20036 Coalition Development/ Corporate Involvement BOSTON UNIVERSITY Center for Industry and Health 53 Bay State Road Boston, Mass. 02215 THE BUSINESS ROUNDTABLE 200 Park Avenue New York, N.Y. 10166 CLEARINGHOUSE ON BUSINESS COALITIONS FOR HEALTH ACTION Chamber of Commerce of the United States 1615 H Street, N.W. Washington, D.C. 20062 NATIONAL ASSOCIATION OF EMPLOYERS FOR HEALTH CARE ALTERNATIVES 1134 Chamber of Commerce Building 15 South 5th Street Minneapolis, Minn. 55402 Competition/Health Care Financing AMERICAN HOSPITAL ASSOCIATION 840 North Lake Shore Drive Chicago, II. 60611 AMERICAN MEDICAL ASSOCIATION 535 North Dearborn Street Chicago, Il. 60610 BLYTH EASTMAN PAINE WEBBER HEALTH CARE FUNDING, INC. One Lafayette Centre Suite 410S 1120 20th Street, N.W. Washington, D.C. 20036 HEALTH CARE FINANCIAL MANAGEMENT ASSOCIATION 1050 17th Street, N.W. Washington, D.C. 20036 HEALTH CARE FINANCING ADMINISTRATION Department of Health and Human Services 200 Independence Avenue, S.W. Washington, D.C. 20201 HEALTH CARE MANAGEMENT, INC. 2221 University Avenue, S.E. Minneapolis, Minn. 55414 HEALTH INSURANCE ASSOCIATION OF AMERICA 919 Third Avenue New York, N.Y. 10022 KIDDER PEABODY, INC. 10 Hanover Square New York, N.Y. 10005 Data Collection and Analysis AMERICAN MEDICAL PEER REVIEW ASSOCIATION 11325 Seven Locks Road Potomac, Md. 20854

BUREAU OF HEALTH PLANNING 3700 East-West Highway Hyattsville, Md. 20782 THE COMMONS MANAGEMENT GROUP One Knoll North Drive Columbia, Md. 21045 CORPORATE HEALTH STRATEGIES 47 Trumbull Street New Haven, Conn. 06511 HEALTH DATA INSTITUTE 7 Well Avenue Newton, Mass. 02159 LUDY AND ASSOCIATES, INC. 475 Falcon's Roost Harbor Springs, Mich. 49740 PEER REVIEW NETWORK, INC. P.O. Box 230 445 West Acacia Street Stockton, Calif. 95201 HEALTH SYSTEMS INTERNATIONAL 345 Whitney New Haven, Conn. 06511 Employee Wellness AMERICAN HEALTH FOUNDATION 320 East 43rd Street New York, N.Y. 10017 AMERICAN SELF-HEALTH ASSOCIATION 1420 16th Street, N.W. Washington, D.C. 20036 BLUE CROSS AND BLUE SHIELD ASSOCIATIONS 676 North St. Clair Street Chicago, II1. 60611 CENTER FOR CONSUMER HEALTH EDUCATION 1900 Association Drive Reston, Va. 22091 CENTER FOR HEALTH PROMOTION AND EDUCATION Building 14 Center for Disease Control 1600 Clifton Road, N.E. Atlanta, Ga. 30333 GENERAL HEALTH 1046 Potomac Street, N.W. Washington, D.C. 20007 HEALTH EVALUATION AND LON- GEVITY PLANNING FOUNDATION 2200 S. Priest Drive Tempe, Ariz. 85282 LIFE EXTENSION INSTITUTE P. O. Box O Minneapolis, Minn. 55440 NATIONAL CENTER FOR HEALTH EDUCATION 211 Sutter Street, 4th Floor San Francisco, Calif. 94108 OFFICE OF DISEASE PREVENTION AND HEALTH PROMOTION 200 Independence Avenue, S.W. Washington, D.C. 20201 Hospital Trustee Education NATIONAL COUNCIL OF HOSPITAL GOVERNING BOARDS 840 N. Lake Shore Drive Chicago, Ill. 60611 VOLUNTEER TRUSTEES OF NOT-FOR-PROFIT HOSPITALS 2550 M Street, N.W., Suite 450 Washington, D.C. 20037 O

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