As the year 2003 dawned, more than two dozen
orthopedic, heart, and general surgeons walked off the job
at four West Virginia hospitals to protest sky-high malpractice
premiums, leaving in the lurch patients who might need emergency
surgery. One doctor said that in his twenty-two years in practice,
his premium had shot up from $800 to $160,000 annually. “Our
group can’t do business,” he said. “We’re
broke.” Restive surgeons in other states threatened
their own demonstrations.
A week later came another sign that the
American health care system wasn’t well. The government
came out with statistics showing that health care spending
was at its highest level ever, making up 14.1 percent of the
nation’s gross domestic product, or GDP. The New York
Times reported that “spending on health care is increasing
at the fastest rate in a decade.”
Over the past twenty-five years, the American
public has been regularly subjected to news bulletins like
these that scream out about a health care crisis du jour.
Ambulances turned away from overcrowded emergency rooms. Seniors
going without food so they can buy the expensive prescription
drugs they need. Managed care horror stories of treatments
denied. Double-digit increases in insurance premiums. An unconscionable
number of uninsured people that continues to mushroom. Health
care costs rising faster than GDP—grabbing too much
of consumers’ hard-earned income and threatening the
ability of American business to remain competitive globally.
And over and over, during the crises in
the health care system that peaked in the early 1980s, 1990s,
and the past few years—coinciding with national economic
downturns—there has been sufficient blame to go around.
Some point their fingers at greedy hospitals, doctors, pharmaceutical
companies, and insurers. Others say the biggest culprit is
overuse of the medical system by patients—often elderly
ones—who have insatiable appetites for costly diagnostic
tests and the latest that technology can do for them or who
live unhealthy lifestyles. Still others zero in on the way
the health care system is financed, offering too many incentives
for doctors and hospitals to spend wastefully and function
inefficiently.
Numerous antidotes have been prescribed
over the years, with various degrees of success—including
price controls; certificate-of-need programs to limit hospital
beds and redundant technology; utilization review to prevent
unnecessary care; malpractice reform; Medicare’s prospective
payment system to lower reimbursements for hospitals and doctors;
Medicaid’s cutbacks in eligibility and benefits; managed
care with its capitation and gatekeepers; pushing operations
out of hospitals and into outpatient surgery centers; medical
practice guidelines for particular health problems; and higher
deductibles and copayments that transfer some of the cost
burden to patients.
“We have a cycle of blame shifting,
cost shifting, and causal analysis shifting,” said Lawrence
Brown, a Columbia University public health professor. “When
you try to think about strategies to address the cost issue,
it gets fragmented awfully fast—there are so many causal
elements and places you could focus your resources and attention
on.”
There have been brief periods when health care cost inflation
seems to have been tamed, particularly in managed care’s
heyday in the mid- to late 1990s. Yet runaway health costs
persist. Fixing one piece of the puzzle seems to simply
pawn the cost off elsewhere in the system in an elaborate
cost-shifting game.
“The problem as I see it is that it’s been like
squeezing balloons,” said Steven Schroeder, former
Robert Wood Johnson Foundation president and chief executive
officer. “Fundamentally, you have surges in demand
and supply. You can put the brakes on by changing how you
reimburse, being more efficient, moving care out of the
hospital, lowering malpractice costs, and lowering the tendency
to do defensive medicine. All of those kinds of things would
be helpful. If you do them all at once, you might have a
perfect storm for cost containment, but it’s really
hard to do them all at once.”
The Robert Wood
Johnson Foundation’s Approaches to Cost Containment:
1972–2003
Throughout these tumultuous times for the
health care industry, The Robert Wood Johnson Foundation has
struggled to define what role it should play in cost containment.
In its fledgling days in the early 1970s, the Foundation stayed
out of the cost debate, pursuing its goals of improving access
to and quality of care. Because many staff members and trustees
believed that national health insurance was right around the
corner, the Foundation looked for ways to help expand the
health care system’s capacity to meet the anticipated
increased demand. This led the Foundation to focus its efforts
in areas such as helping to develop hospital group practices,
nurse practitioners and physician assistants, the emergency
medical services system, community health centers, and regional
perinatal care networks. The Foundation addressed cost issues
only indirectly. If, for example, it turned out that using
nurse practitioners to extend quality care to more people
also happened to lower health care costs, that was a nice
by-product, but not the intended purpose of the nurse practitioner
program.
As health care costs climbed later in the
1970s, however, sitting on the sidelines became increasingly
uncomfortable for the Foundation. “A lot of distinguished
people were very critical of us over the years because high
costs were driving everyone crazy,” said Robert Blendon,
a former senior vice president, who helped lead the Foundation
from its inception in 1972 to 1986. “But both the board
of trustees and David Rogers [the Foundation’s first
president] always felt that their passion was not saving money
but giving better care to people who couldn’t get it.
Their thinking was that government and business should worry
about saving money.”
A turning point came when costs spiraled
further skyward in the early 1980s, rising faster than the
overall economy, which was sputtering into deep recession.
Those who led the Foundation felt that the time had come when
the nation’s largest health care philanthropy had to
become part of the solution. In his 1980 president’s
statement in the Foundation’s Annual Report, Rogers
noted just how pressing health care cost inflation had become.
“The public now lists high costs as the single most
important problem facing American medicine, and when polled
independently, physicians agree,” he wrote. He worried
that some of the remarkable gains of the 1970s in access to
care for the poor, which the Foundation and others had fought
for, would be lost as economic resources shrank.
Rogers went on to state that the Foundation
was stepping out in a new direction by including cost as one
of its three goals (the other two were improving access for
the underserved and helping the ill and the
disabled to function as highly as possible). Under the new
goal, the Foundation would support programs “to make
health care arrangements more effective and care more affordable.”
The idea was to fund research, development, and demonstration
projects aimed at slowing the rate at which health care costs
rise while still maintaining the quality of care.
In 1982, Rogers announced what would be
the Foundation’s largest effort in the 1980s focused
exclusively on containing costs, Community Programs for Affordable
Health Care. This effort sprang from the many notions percolating
up around the country on how to rein in runaway health care
costs at the local level, particularly an idea in Rochester,
New York, that had been successful in marshaling community
leaders to hold costs down. Community Programs for Affordable
Health Care would use a community coalition model in the hope
that major interest groups—business, labor, physicians,
hospitals, and insurers—sitting around a table would
find bold, imaginative ways to lower costs for the common
good. This voluntary approach could then be reproduced in
other communities.
The Foundation also kicked off a number
of other cost-related initiatives in the early and mid-1980s:
the Physician-Directed Program to Improve Medical Care Services
and Control Costs, the Program for Prepaid Managed Health
Care, the Faculty Fellowships in Health Care Financing, and
the Program for Research and Development on Health Care Costs,
which would evolve over the years into today’s Changes
in Health Care Financing and Organization.
In 1987, Leighton Cluff, who was then president
of the Foundation, included the organization and financing
of health services among the Foundation’s ten new “areas
of particular concern.” He noted that there had been
“sweeping changes” in how the medical care system
was organized and that financing methods had “undergone
something of a revolution over the past twenty years.”
The Foundation would fund grants that looked at the “systematic
reorganization” of how health care was delivered and
paid for and would also support health care policy analysis.
By 1990, the Foundation had authorized
an estimated $192 million for a patchwork of grants related
to cost containment, financing, and related issues. Reflecting
the evolving understanding of this field, there was disagreement
about what actually constituted cost containment efforts and
whether grants aimed at health care financing and related
issues were in fact true cost containment measures. But nearly
everyone at the Foundation did agree on one thing—that
none of the programs had produced the kind of impact in holding
down health care costs that had been hoped for.
Schroeder stepped into his new post as
Foundation president in 1990 with a definite predilection.
His own scholarly research into the financial incentives doctors
have to overuse expensive technologies had shown him the limited
ability of studies to bring about lower costs in the health
care system—even when the research draws much attention,
as his did.
“When I got here, there was some
pressure from the board to take costs on in a bigger way,”
Schroeder said. “I didn’t want to do it. I knew
quite a bit about this field. It seemed to me that the drivers
of medical costs were the diffusion of technology, patient
demand, the way care is reimbursed, the policies of insurance
companies—and those were all outside of what we could
do much about. The Foundation just didn’t have any leverage
to use.”
In his first presidential message, in 1990,
Schroeder named three goals and subordinated cost to what
later became a “half goal.” Nevertheless, Schroeder
said at the time that the Foundation would “seek opportunities
to help the nation address, effectively and fairly, the overarching
problem of escalating medical care expenditures.” He
cited the inability of numerous efforts within the Foundation
and without to wrestle down cost inflation. “Since there
is little likelihood that we or anyone else will forge
a ‘magic bullet’ to solve the problem of cost,
our efforts will embrace a system-wide approach, involving
many separate interventions. These will include support for
policy analysis to inform the cost containment debate, exercise
of our convening powers to bring appropriate leaders together,
and health services research.”
Meanwhile, some Foundation staff members
felt that by downgrading cost containment to half goal status,
such issues as affordability and health care financing would
get short shrift. They also worried that this might be the
first step toward folding cost into other goals, thus reducing
their ability to look broadly at what was going on in the
health care market.
“We may not have been able to do
much about cost containment per se, but there were many of
us who felt we needed to learn a lot more and could have an
impact on influencing health care financing,” said Nancy
Barrand, a senior program officer.
During the early 1990s, the Foundation
concentrated its efforts on costs in a special staff work
group that oversaw grants for analytical work and demonstration
projects in health care financing and the Changes in Health
Care Financing and Organization, or HCFO, program, which funded
research, demonstrations, and evaluations on the financing
of health care delivery systems. By the mid-1990s, when managed
care brought growth in health care spending under control
for several years, the Foundation established its ambitious
Health Tracking initiative to monitor this new marketplace
approach and any possible fallout.
As it turned out, cost containment lasted as a half goal for
five years, and then in 1996 was blended into the Foundation’s
other goals. The 1996 Annual Report noted that “controlling
costs is clearly an essential prerequisite for our other goals
of assuring access to care, improving services for people
with chronic illnesses, and expanding efforts to prevent and
treat the harm caused by substance abuse.”1
In 1998, cost containment was added to the Foundation’s
access goal: “To assure that all Americans have access
to basic health care at reasonable cost.”2
In hindsight, one can see that the story
of how the Foundation’s role in health care costs evolved
in the 1990s is really that of how a strong leader with a
clear vision of what is and isn’t possible for an organization
holds his troops to that vision. “We haven’t done
cost containment because I sort of threw cold water on it
when it came up,” Schroeder said. “Not that I
didn’t think the cost issue was critical. I think it
is very important. But I didn’t see what advantage this
Foundation had.”
Over time, the cost half goal simply petered
out, he said. “Gradually, the half a goal atrophied
to a quarter of a goal, and then finally we went to the board
and said, ‘We’re not really able to sustain this
as a goal anymore, so let’s quietly bury it,’”
he said. “It was a nonevent. It was a very quiet interment
without ‘Taps’ or flowers.”
Through 2003, the Foundation had spent
somewhere between $250 million and $500 million in grants
that in some way touched on cost. The wide range stems from
uncertainty about what to consider as a cost containment grant.
When staff members were asked which grants aimed at cost over
all these years stand out as having made a difference or having
pointed the way, there was near unanimous head scratching.
No shining examples sprang to mind. And there was little agreement
among staff members about cost containment programs that were
at least worthwhile or highly interesting. Their choices seem
to reflect their own personal interests, indicating that cost
containment is in the eye of the beholder. These are some
highlights:
- Schroeder praised the Foundation’s support since
the early 1990s of the Dartmouth Atlas of Health Care in
the United States, a regularly updated book by John Wennberg
of the Dartmouth Medical School showing that health care
spending is much higher in some regions of the country with
greater supplies of hospitals and doctors but with no resulting
benefit in health outcomes. In other words, more health
care is not necessarily better health care. Wennberg has
been an advocate of improving health care access without
more spending by cutting back in areas in which too much
care is given. His work has had enormous influence on the
thinking about what is necessary care or too much care.
- Some mentioned the On Lok approach to care for the elderly,
an HMO model in which one provider managed all the acute
and long-term care for the frail elderly. This program succeeded
in its main goal, to bring high-quality care to the elderly
in a managed care setting, but secondarily also reduced
costs some. It has been replicated, but not as broadly as
had been hoped.
- The studies carried out under the HCFO program on risk
adjustment were cited as pioneering and particularly useful.
Under a risk adjustment system, an employer pool or health
plan pool would pay more to the insurer that enrolled more
sick people and less to one that enrolled just the healthiest.
- The Center for Studying Health System Change’s
regular reports on the cost impact of managed care have
become an important and trusted source of information for
the public, policymakers, and researchers, others said.
The center, in Washington, D.C., is the centerpiece of the
Health Tracking initiative and conducts regular surveys
to pick up changes in the health care marketplace and understand
what they mean. The annual cost reports, produced since
1996 by the center’s president, Paul Ginsburg, from
data outside the surveys, have been recognized as an early
warning system about trends in underlying health services
costs and insurance premiums. Also, the many other Foundation
grants that examined managed care produced a balanced and
needed look at the pros and cons of this health care delivery
approach that swept the nation in the 1990s, some said.
- The Foundation has played a vital role in building the
capability and capacity of the field of health services
research and policy analysis, according to some staff members.
Particularly through the highly regarded meetings it sponsors,
the Foundation has fostered debate on the major health policy
issues of the day relating to costs, financing methods,
and health care organization.
Many Foundation staff members have
also come to believe that cost implications are inherent in
virtually all the Foundation’s programs. They point
to a wide assortment of programs, including those dealing
with health care for the uninsured, increasing access to medical
care, improving end-of-life care, medical malpractice, nurse
practitioners, workers’ compensation, long-term care
insurance, care of those with chronic mental illness, and
health care reform at the state level. The way this thinking
goes, a program to provide better care for people with chronic
illnesses, say, will usually turn out to be more affordable,
too. “I would say cost is an element in most things
we’re working on, but it’s not the lead element,”
said Robert Hughes, coordinator of special projects at the
Foundation. “It’s sort of woven throughout.”
Even with a track record of worthy programs
to look back on, many current and former Foundation staff
members have come to agree with Schroeder that the Foundation
cannot have any real impact on a trillion-dollar-plus health
care industry. Its place, they say, is not to have a central
role in solving the problem of rising health care costs but,
from the margins, to advance the knowledge base and stimulate
a national conversation on the major cost-related issues.
“It’s a fantasy for any foundation to believe
it can fundamentally influence health care costs in the nation,”
said Drew Altman, who heads the Henry J. Kaiser Family Foundation
in Menlo Park, California, and who stewarded a number of cost
containment initiatives while at The Robert Wood Johnson Foundation
from 1981 to 1986. “Health care has become dominated
by money, Congress, and for-profit medicine, and it’s
an arena you cannot control. What a foundation can do is produce
useful information on health care costs. It can inform the
discussion of those who do have leverage. The health care
system is now too big and too affected by politics for foundations
to have the direct ability to bring about change.”
But there are others who believe the Foundation could have
done more. Bruce Vladeck, an assistant vice president of
the Foundation in 1982 and 1983 who subsequently headed
the federal Health Care Financing Administration (now the
Centers for Medicare & Medicaid Services), found the
Foundation’s approach to cost containment lacking.
“I disagree with the assessment that the Foundation
can’t have an impact on costs,” he said. “Foundations
should be able to say something major about costs and have
an impact. I don’t know how work on cost containment
is different from anything else a foundation does that takes
time to show results. You can publish data on beta-blockers
reducing the risk of heart attacks, and it takes twenty
years for most cardiologists to change their practice patterns,
but it does come. The Foundation needed some strategy for
advancing a particular set of ideas or proposals or activities,
and my sense is they never had such a strategy.”
Community Programs for Affordable
Health Care
The one major demonstration program
mounted by the Foundation directly to contain costs was the
Community Programs for Affordable Health Care, or CPAHC. When
Ronald Reagan took office in 1980, despite many governmental
cost containment efforts attempted in the 1970s, health care
spending had reached what was then an all-time high, and the
nation was in recession. The rate of growth in hospital spending
was increasing at an annual rate of 20 percent in 1980.
Employers were concerned that jumps in
health care spending meant that they had to pick up more of
the cost of health benefits for their employees, their dependents,
and retirees. As a result, business coalitions had begun forming
in the late 1970s to negotiate better premium rates with insurers.
Another response was coming from communities, which were trying
to find ways to clamp a lid on rising costs themselves, before
the government or market forces did it for them. Most notable
among them was the Rochester, New York, experiment, where
nine hospitals, the largest employers, and the two major insurers
joined together to restrain the growth in hospital expenses.
This leadership group capped the amount that the insurers
would pay the local hospitals. It also controlled the hospitals’
spending on technology and new service needs by administering
a special fund that took the community’s overall needs
into account. This was the first self-regulated, community-based
program to actually hold down hospital spending—and
to the slowest rate of spending in the nation.
Many communities interested in a similar
strategy approached the Foundation, and vice presidents Robert
Blendon and Drew Altman met with top leaders and thinkers
of this community coalition concept around the country. Their
input helped design CPAHC, a large, multisite national experiment
to see if a coalition of community stakeholders— not-for-profit
hospitals and insurers, major employers, labor, doctors, and
local government—could find creative, groundbreaking
ways to restrain rising health costs locally without sacrificing
quality or access to care. Although the $17.5 million, seven-year
program began operating in 1982, the eleven demonstration
sites didn’t start up until 1984.
It was an idealistic, sunny notion—and
particularly American, many said—that community representatives
holding very different vested interests would voluntarily
put aside their own needs and aspirations to find a solution
to a problem for the greater good. Expectations were high
that CPAHC might produce tangible results, such as slowing
the rise in expenditures, keeping premiums from their relentless
climb, and providing models that could spread to other communities.
The Foundation specified that it would be interested in making
grants that would support new ways to finance health care
(such as changes in incentives and reimbursements to doctors)
and to integrate all of a community’s local health care
services.
It seemed at the start that CPAHC was set
up auspiciously. The program was cosponsored by the American
Hospital Association and the Blue Cross Blue Shield Association.
Its day-to-day operations were headed by Robert Sigmond, a
well-regarded leader known for promoting a community leadership
model that stressed transcending individual interests to arrive
at what is best for the community as a whole. Its National
Advisory Committee was led by John Dunlop, a former secretary
of labor, who was then an emeritus professor of economics
at Harvard University. Dunlop favored community coalitions
that arrived at consensus through negotiation. The National
Advisory Committee consisted of an elite group including leaders
from the American Hospital Association, the Health Insurance
Association of America, the American Medical Association,
the AFL-CIO, Blue Cross Blue Shield, and the United States
Chamber of Commerce.
Even so, there was some skepticism—even
within The Robert Wood Johnson Foundation itself—that
a cooperative community approach would work. “We had
a difference of opinion about whether we could do it,”
said Blendon, who, with Altman, was a prime mover of the program.
“I felt the Foundation had a legitimate role to encourage
voluntary groups to see if something could come out of it.
I felt it could be productive.” For his part, Altman
saw that it might be valuable, even noble, to give the private
voluntary forces the opportunity to rein in costs themselves.
But, he says, “I went into it with the expectation that
it couldn’t be successful but it was important for the
country to try.”
The eleven sites selected to participate—Atlanta;
Boston; Detroit; Iowa; Mecklenburg County (North Carolina);
Minneapolis–St. Paul; New York City; Pittsburgh; Topeka;
Tulsa; and Worcester, Massachusetts—had four years to
implement their strategies for restraining costs. They tried
a number of different approaches: Detroit, for example, emphasized
reducing outpatient surgery while Worcester promoted the use
of health maintenance organizations.
As time went on, however, the Foundation’s leadership
came to believe that nothing truly different or innovative
was being tested. Instead, many of the projects focused on
utilization review of patient services and other approaches
that were not brand-new or trailblazing. “They used
the lamest strategies in the world,” said Alan Cohen,
at the time a Foundation vice president who monitored the
outside evaluation of CPAHC.
The Foundation’s staff became increasingly
concerned that the star-studded National Advisory Committee
was a major part of the problem. The committee was being run
almost as its own private club. And each member had veto power
over any project that might be recommended for approval. “I
thought this was an embarrassment,” said Bruce Vladeck,
the former Foundation official. “It was basically saying
we’re only going to fund something to the extent all
the existing power structure supports it, which meant nothing
significant would happen.”
A blisteringly critical evaluation of CPAHC
by Lawrence Brown of Columbia University and Catherine McLaughlin
of the University of Michigan confirmed the worst fears. Published
in Health Affairs in 1990, the Foundation-commissioned evaluation
concluded that the program had come up empty-handed, with
no models for slowing the rise in health care costs.3
For many key indicators, such as hospital spending, outpatient
surgery, lengths of stay in the hospital, and hospital admission
rates, the program sites did no better than the sites with
which they were compared. “There is little indication
in the data . . . that the rate of growth of health spending
in CPAHC sites slowed in contrast with comparable communities
outside the program,” the evaluators concluded.
Even when sites appeared to show declines
in spending, the evaluators said, they could almost always
be explained away by looking at trend lines—either at
the sites themselves or occurring nationally—that had
begun before the program’s funding or by the much greater
impact of the Medicare system, introduced in 1983, of reimbursing
hospital care by diagnostic-related groups.
What had gone so wrong? To the evaluators, it was fairly simple:
the program had always been a “mission impossible.”
Expecting community leaders to exert the discipline needed
to slow the growth of health costs without shifting costs
or reducing care to the disadvantaged was politically naive;
“the program’s reach vastly exceeded the communities’
grasp,” the evaluators wrote.
ffective cost containment strategies entail
making tough choices, such as paying lower salaries, imposing
restrictions, and contracting with certain doctors and not
others. But community leaders, who prefer to be known for
expanding and improving their community’s health care
services, didn’t want to gore anyone’s ox. “Because
no one would do anything that affected anyone around the table,
they got the lowest-common-denominator projects that had been
tried in other places, and nothing audacious,” evaluator
Lawrence Brown said in an interview. “Not much about
cost containment was accomplished. Maybe there were some improvements
in local service delivery. No harm done.”
Steven Schroeder and coauthors Alan Cohen
and Joel Cantor, both then senior officials at The Robert
Wood Johnson Foundation, got to the crux of CPAHC’s
shortcomings in a companion Health Affairs article. “The
program’s central flaw, perhaps, was its misguided assumption
that cost containment could be achieved through intervention
at the community or local level, when the true levers of power
and control existed (and still exist) at the national and
state levels of the health care system,” the three authors
wrote.4
In an article in the same issue of Health
Affairs, John Dunlop, the National Advisory Committee chair,
and George Stiles, a CPAHC grantee, vehemently defended the
program. The authors charged that Brown and McLaughlin misinterpreted
the program’s objectives and results and
didn’t understand the constraints it was under. “Some
CPAHC activities produced impressive results in a relatively
short time,” Dunlop and Stiles wrote. “It is ludicrous
to believe, however, that the modest CPAHC resources could
demonstrate major community-wide savings (especially in larger
cities such as New York and Detroit) in four years or less.”5
CPAHC did not disprove that community forces
can play a part in tackling health costs, they asserted. “Issues
involving delivery of services require action at the community
level, where the critical clinical decisions that significantly
influence cost and quality are made,” they wrote. “Problems
of physician practice patterns, coordination and integration
of services, utilization and managed care, data systems, and
so on, need to be addressed at the community level.”
Despite the rebuttal by Dunlop and Stiles,
the predominant view was that the program had failed.
The evaluators closed their critique with an upbeat silver
lining. “Often, in health affairs, understanding what
has failed is as important as—and a natural prelude
to—discovering what might work.” In fact, it seems
that Foundation staff members did make the most of this disappointing
enterprise. Although they certainly smarted from the critique’s
harsh assessment at first, many later said they found it very
valuable to have an honest, candid appraisal from which they
could gain insight useful to future programming. For example,
the Foundation learned where community coalitions can and
cannot best be used, and thus has turned to them for such
endeavors as the substance abuse and homeless health care
programs.
“CPAHC was a disaster for many reasons, but
we learned from it,” Nancy Barrand, a Foundation senior
program officer, said in an interview, echoing the remarks
of other staff members. “We learned about the voluntary
sector politics and how special interests play out. Even
though on paper and in public we’re all holding hands
as a community coalition, when it comes down to the bottom
line business, it’s a matter of what is in your self-interest.
What are you in business to do if you’re an insurance
company—save the world? Probably not. What are you
in business to do if you’re a hospital? Is it to provide
free care to everybody? No. We were naive then. Now, as
result of CPAHC and some other experiences, we’re
no longer naive.”
Other Programs Related to Cost
Containment
The Robert Wood Johnson Foundation has
undertaken several initiatives in addition to CPAHC that have
included an element of cost control or that were in some way
related to cost containment.
The Physician-Directed Program
to Improve Medical Care Services and Control Costs
With fervor to cut health care costs
building in the 1980s, many physicians were becoming sensitive
to their central role in determining how health care dollars
are spent. They were estimated to influence anywhere from
50 to 80 percent of all decisions on health care spending—from
when and for how long patients will go to the hospital to
whether they will have lab work and X rays. Some approached
the Foundation, eager to test ways to put their house in order
by themselves rather than have a solution forced on them by
the government or private insurers. As a result, the Foundation
launched the $2.3 million Physician-Directed Program to Improve
Medical Care Services and Control Costs, which ran from 1983
to 1986.
A number of factors had led doctors to
err on the side of doing more rather than less—their
training to do all they can for a patient’s benefit
without regard to cost; fear of malpractice lawsuits; and
the way fee- for-service health insurance covered all medical
expenses, leaving no incentive to cut out wasteful services.
The Physician-Directed Program to Improve Medical Care Services
and Control Costs provided funds for research and demonstration
projects aimed at finding ways for physicians to stop giving
patients more medical resources than they needed and to change
some of the assumptions about how they practice. The following
are some highlights from a sampling of grants that were awarded
under the program:
- A Boston University Center for Industry and Health Care
utilization management project looked into whether physicians,
if given information comparing their own medical practice
patterns with others, would reduce their patients’
time in the hospital and the testing they ordered for
certain common conditions. Although use of services went
down a bit at first, the drop did not hold up as this
project came to an end. Also, the study could not get
all the data it needed to inform the doctors about their
practice patterns.
- A three-year University of California, Los Angeles,
School of Medicine study created a method for determining
the appropriateness of six common medical and surgical
procedures, including coronary angiography, coronary artery
bypass surgery, and colonoscopy. The investigators said
their approach, which they hoped to extend to fifty procedures,
held the potential to improve quality while reducing costs.
- A University of Pennsylvania School of Medicine study
analyzed the costs and variations in use patterns of sixteen
diagnostic services, such as urine cultures, CT scans,
ultrasounds, X rays, and electrocardiograms at sixty-three
hospitals in five regions. The three-year study found
a strong link between the use of these tests and hospital
size, number of residents and fellows in relation to beds,
and length of patients’ stay.
- The Maine Medical Association was given a grant to continue
and evaluate a program to encourage Maine doctors to examine
variations in surgery rates and, by eliminating unnecessary
operations, to reduce costs. This project built on work
by one of its coprincipal investigators, John Wennberg.
Under the grant, local doctors received feedback on differences
in surgery rates and met in small groups to agree on appropriate
treatment for certain conditions.
The Program for Prepaid Managed
Health Care
The Foundation’s $20.4 million
Program for Prepaid Managed Health Care, cosponsored with
the federal Health Care Financing Administration and the National
Governors Association, was a six-year (1984–1990) effort
to bring managed care tools, such as case management and capitation,
to low-income people receiving Medicaid benefits. A primary
care doctor working in private practice, a community health
center, or a hospital would act as a gatekeeper, manage all
of a patient’s care, and serve as a financial manager
of a set budget to cover the patient’s medical needs.
Although its primary motivation was to
ensure access to care for the poor, the program had cost implications,
especially for the states, which share the cost of Medicaid
with the federal government. It set out to cut costs by capitalizing
on managed care’s developing track record in holding
the line and by strengthening the ability of community health
centers to withstand competition from private insurers.
“There was a sense that state
Medicaid budgets were rising at the time, and that the states
were concerned,” said Alan Cohen, the Foundation vice
president who oversaw the external evaluation of this initiative.
“If HMOs could be shown to be more cost constraining,
you might be able to kill two birds with one stone—improving
access to routine primary care for people who can’t
get it in urban and rural settings and providing care at lower
cost than Medicaid fee-for-service. It might relieve some
of the budget pressures at the state level.”
The evaluation found that the program did reduce utilization
and costs, and some health centers that participated in
the program still use this approach today, said Drew Altman,
who shepherded the program when he was a Foundation vice
president. “This was the first really big effort to
support Medicaid managed care, and it did some good,”
Altman said. “This program pioneered some of the early
models of Medicaid managed care—who’s going
to do it and how you do it. We wanted to safely control
Medicaid costs without losing benefits and to help safety-net
institutions to be players in managed care so they weren’t
cut out by the private insurance companies.”
The Faculty Fellowships in Health
Care Finance Program
Another initiative with a broader
purpose that contained a cost control element was the Faculty
Fellowships in Health Care Finance program, a $5.1 million
initiative that began in 1984 and continued through 1992.
During the first year of the fellowship, the fellows studied
at the Johns Hopkins University and were placed in a relevant
organization, such as a health insurer or a government health
care financing agency. The second year, they returned to their
university positions, receiving a stipend to conduct research
on health care financing. In this way, the program would fund
the training of academics who would then become experts in
the revolutionary changes under way in how health care was
being financed. “We hoped we would turn out a generation
of people with good economic credentials interested in applied
policy in health care economics,” said Bruce Vladeck,
who was a Foundation assistant vice president when the program
was being planned.
But the program did not perform up to expectations,
an evaluation found. There was disagreement about the goals
of the program and the kinds of participants it was supposed
to attract. Moreover, the evaluation found that many of the
participants were not as “distinguished” as the
Foundation had hoped they would be; for their part, many of
the fellows were dissatisfied with the program, finding it
wasn’t “compelling” enough and didn’t
fill the gaps in their knowledge. The program was also faulted
for not recruiting candidates aggressively enough.
“The big disappointment was that most of the
fellows didn’t have an impact when they returned to
their schools or weren’t likely to have,” said
Alan Cohen. “It wasn’t an effective program.”
The Faculty Fellowships in Health Care Finance program was
not refunded, but in 1992 the Foundation did launch two
companion programs—Scholars in Health Policy Research
and Investigator Awards in Health Policy Research—that
focus more broadly on health policy issues.6
Changes in Health Care Financing
and Organization
One last outgrowth of the Foundation’s
1980s funding of cost containment initiatives was the Program
for Research and Development on Health Care Costs, later to
be modified and retitled the Program for Demonstration and
Research on Health Care Costs. The original emphasis was on
new approaches to cutting health care costs, and grantees
were funded to do research, demonstrations, or evaluations.
From 1982 to 1987, some forty-six grants
costing $10.6 million were made under the umbrella of this
program. Although many of the projects were worthwhile, the
Foundation concluded that they would have been far more useful
if they had not focused solely on cost, while ignoring the
major changes and policy issues dominating the health care
marketplace.
In 1988, reflecting the growth in the Foundation’s own
understanding of the complexity of health policy issues, the
program was retooled and renamed Changes in Health Care Financing
and Organization, or HCFO. The nation’s largest private
investigator-initiated grant program, HCFO provides funds
for research, demonstration projects, and evaluations that
look at the many emerging approaches for financing and organizing
the health care delivery system and how they might affect
access, quality, and cost. Through mid-June 2003, 192 awards
totaling $55.8 million had been made under HCFO.
Managed by AcademyHealth, a Washington,
D.C.–based nonprofit health services research and policy
organization, HCFO has become a resource for both policymakers
and researchers. “Our significant contribution is probably
in part understanding how various public and private strategies
people have devised have worked,” said Anne Gauthier,
HCFO program director and AcademyHealth vice president. “This
includes such work as looking at the impact of managed care,
insurance market reform, and studies that look at the behavioral
response of key players when you put in cost containment strategies,
with managed care being a huge one among them.”
An outside evaluation of HCFO done in 2002
by Jack Hoadley and Michael Gluck at Georgetown University
found that its “projects address some of the most important
health policy issues being debated at the national and state
levels” and cited its work on insurance market reform,
physician payment, hospital financing, cost containment, the
uninsured, and risk adjustment. Many HCFO grantees are highly
regarded within their fields and looked to by public policymakers,
the authors said.
Former Foundation president Schroeder cited
as particularly “promising” HCFO’s many
studies looking at the concept of risk adjustment, in which
managed care health insurers carrying a heavier load of sick
patients are paid more for covering them and thus have an
incentive to provide them with quality care. Currently, the
best way for an insurance company to keep costs down is to
avoid insuring sick people, who need more care and thus cost
it more. Risk adjustment realigns payments from within a health
plan pool or employer plan, allocating more to an insurer
with more high-risk patients—and thus equalizing financial
risk. This would give insurers a monetary incentive to enroll
patients with high risk factors. Although risk adjustment
has begun to be used in the public sector, particularly in
the Medicare + Choice program, it has not yet gained wide
acceptance among private insurers.
HCFO was one of the early movers in risk
adjustment, having funded some of the first research aimed
at developing tools for assessing what a health insurer’s
risk would be and then running simulations to show how the
assessment tools might work in practice. HCFO also funded
demonstrations of risk adjustment tools within the Medicaid
program. And through its research and conferences, it has
shown that although assessing risk is highly complex and requires
a great deal of data, the tool doesn’t have to be perfect
to be useful.
Of particular note has been the work of
Richard Kronick of the University of California, San Diego,
and Harold Luft of the University of California, San Francisco.
Kronick developed a risk adjustment payment system that provides
Medicaid managed care plans with a rich enough payment to
cover the costs of patients who are sicker or have disabilities.
A number of states use this system with their Medicaid managed
care programs. Luft has been designing a user-friendly Web-based
tool for potential use by actuaries or health consultants
to test which of many risk adjustment models would work best
in different situations.
Despite HCFO’s having funded a great
deal of research on health financing, organization, and costs,
the program is not without its critics. One of them is former
Health Care Financing Administration chief Bruce Vladeck.
“They do an amazing job of following every short-term
fad in academic health policy and have helped reinforce whatever
the conventional wisdom was at any point in time rather than
calling it into question,” he said recently. He cited
as an example “tons of research” that HCFO had
supported on refining methods of providing financial incentives
for physicians in managed care plans. “This was the
hottest thing in academic health economics,” he said.
“But when people started doing it in the real world,
many doctors didn’t understand it and gave up.”
On the whole, though, HCFO is generally well regarded. “This
program . . . is seen as an important source of funding
not found elsewhere,” the evaluators wrote. “Federal
funders are less interested in organization and financing
than in quality of care and mandated studies. In addition,
federal resources are becoming more constrained.”
Postscript
Surely health care costs will continue
to rise, but why should they concern us so? “This is
something that matters to us if it’s not fair,”
former Foundation president Steven Schroeder said. “It
matters if costs keep people from getting things that are
vital for their health and well-being. It matters if costs
exacerbate distributional issues that aren’t fair. It
matters if costs push a nation into investing less wisely
for its overall economic health.”
Over twenty-two years—or longer,
according to some viewpoints—the Foundation has tried
to find solutions to this stubborn problem, first through
cost containment initiatives and then through more sophisticated
approaches that examine how the health care delivery system
is paid for and organized.
It has found no prescription pill that
will lower health insurance bills or the nation’s overall
spending. Instead, the Foundation has learned some basic lessons
about both cost containment and itself.
“In some ways, it’s misleadingly simple—the
idea of cost control seems so straightforward, but we’ve
found that it’s actually very complex,” said the
Foundation’s Robert Hughes. “It gets at every
aspect of health care delivery. And there is no quick fix
that even a majority of a minority would go for. It’s
not clear what to do.”
The Robert Wood Johnson Foundation has
learned to scale back its aspirations for what it can do—through
conferences, research, demonstrations, and evaluations, it
can stimulate debate and contribute knowledge and analysis
that may lead to important, though more modest, changes in
health care policy.
According to the Kaiser Family Foundation’s
Drew Altman, it’s a matter of gaining perspective. “A
foundation has to be realistic about what it can do in a $1.4
trillion dollar national health care system,” Altman
said. “You have to understand how marginal you are but
wake up raring to go because you have a role to play. Foundations
can be a bit player in the big game or a major player at the
margins. Most choose the latter.”
Today the Foundation’s continuing
but indirect commitment to cost containment can be seen primarily
in its HCFO program, the Center for Studying Health System
Change’s reports on health care costs, and various individual
grants addressing health system policy research. The Foundation’s
new president and chief executive officer, Risa Lavizzo-Mourey,
expects one cost-related area of study to be evaluating the
defined contribution model—also called “consumer-driven
health care.” This is hailed by some as a way to give
employees incentives to manage their own health care more
cost-efficiently by providing them a set sum of money to use
as they wish for their care along with an insurance plan with
a high deductible.
The new Foundation chief, who took
the helm as the country again was wrestling with stratospheric
health care costs and double-digit premium hikes, expresses
a clear-eyed view about what the past tells the Foundation
about what it can do. “We can have an impact in defining
and identifying new models, evaluating solutions that are
put in place,” Lavizzo-Mourey said. “We are not
likely to implement large-scale change. We have a role to
seek information and try to evaluate various techniques that
might be useful in forming new models. We don’t have
a regulatory role or really strong leverage in reducing costs.”
