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Health Policy Advisory Center No. 49 February 1973 HEALTH PAC BULLETIN Editorial: DOCTORS AND FOUNDATIONS Private practicing physicians, after gen- erations of omnipotence in health care de- livery matters, are slowly losing ground to institutions and organizations - hospital health care providers, insurance com- panies, and even government programs and regulations. Fewer and fewer solo practitioners work out of their own offices; they earn less and less of the health dollar. Less than 50 percent of the nation's 340,000 physicians are presently in solo. practice; the rest work in groups, hos- pitals, teaching administration and re- search. Only 20 percent of practicing doc- tors are general practitioners, and with only 2 percent of the medical graduates entering general practice, the number is still dropping. Many specialists are close- ly tied to hospitals, and their fees are increasingly paid by Blue Shield, com- mercial insurance companies, Medicare or Medicaid. Only about a quarter of the nation's medical expenditures goes to pri- vate practitioners. As their numbers fall, so does their influence. American Medical Association (AMA) membership has de- clined to less than one half - of the nation's doctors; no longer can the AMA single- handedly stop health care legislation. There is no need at this time to pity the poor physicians. They are not about to become society's underdogs. Doctors, as a group, still earn more than any other occupational group - an average of $ 40, - . 500 per year. Furthermore, they are rush- ing to their own defense with considerable success. This BULLETIN examines one of the principle defensive maneuvers of doctors: foundations for medical care. Born on the West Coast and attracting nationwide in- terest, foundations give physicians in local areas as unified bargaining agent for mat- ters related to fees and conditions of med- ical practice. They give patients nothing new. The foundation was developed to foreclose the pre paid - group practice idea. It is a conservative innovation which ad- vertises itself as a cost controlling - boon to the consumer. Actually it assures top dog - status and income to private practice doctors. The foundation idea is popular with doc- tors. It has also been picked up by the Nixon Administration and Congress. Foun- dations are the model for doctor con- trolled Health Maintenance Organizations (HMO's), Nixon's on again -, again off - remedy for the health care crisis. Founda- tions are also central to Professional Standards Review Organizations, Con- gress'mandate in the new Medicare- Medicaid legislation (HR - 1) to doctors to control themselves through peer review. In both roles foundations are principally designed to keep control over fees and medical knowledge in the hands of doc- tors; they will perform self regulation - to prevent the government from performing real regulation. Yet another West Coast doctor defense innovation is the physician union. While conservative doctors are astonished that some of their colleagues would stoop to the commoners'form of organization, the unions are catching on and their real ob- jectives should be cherished by reaction- ary doctors here and far. The first national meeting was held in San Francisco in October 1972; it was followed in January of this year by a constitutional convention of the American Federation of Physicians and Dentists in Las Vegas. Sanford Mar- cus, a Bay Area surgeon turned union organizer, makes the traditional equation in an article in January's Medical Dimen- sions: money quality = . "... Physicians can and must resist the forces that will reduce their professional effectiveness through a cut in take home - pay. " In Las Vegas, physicians on a proprietary hos- pital utilization committee went on strike. Utilization committees are themselves vol- untary peer review mechanisms designed to keep public regulation out of hospital care. It is doubly self serving - and indica- tive of the direction of physician unions that the first union contract now pays doc- tors $ 50 an hour for self regulation - efforts which used to be performed free. It is too early to tell whether or not the foundations, unions and so forth will suc- ceed in increasing the private physician's leverage in the health care system. One thing is " perfectly clear " at this point: claims and sales pitches to the contrary, these " innovations " are meaningless in terms of improving patient care. THE VANGUARD OF THE REARGUARD A new organization of medical services is rapidly spreading from central California to New York, down to Florida and stretch- ing back to Hawaii. These local affilia- tions of doctors, known as foundations for medical care, have grown from five in the mid 1960's - to 112 in or near operation by the end of 1972. Foundation spokesmen claim the participation of over half the nation's private physicians. California is blanketed with 24 foundations, all set up by county medical societies (local chap- ters of the AMA). Four are located in New York State; New Mexico, Georgia and Colorado have state wide - foundations; and 16 other states are planning similar statewide groups. No single definition comfortably fits every foundation. A foundation is an or- ganization created by the private doctors in a given geographical area. It contracts with an insurance company or a govern- ment program (such as Medicaid) to re- view the fees charged by physicians and to determine if the care is appropriate. Occasionally a foundation will act as an insurance company, receiving money from a labor union or a government pro- gram and paying doctors and hospitals to provide care to patients covered by that union or government program. The care is provided in the private doctors'offices as well as in the hospitals where these foundation doctors have admitting privi- leges. The foundation has the right to limit the fees of its doctors, and its physicians ' records are open to inspection by the foundation. So a foundation for medical care is not a visible institution that pa- tients go to when they are sick; it is simply a mechanism through which paper and money flows. 2 While just a few years ago no one had heard of foundations for medical care, now even the " Nixon Administration is showing an increasing interest in the med- ical foundation movement... Indications are that both [foundations and HMO's] will be advanced by Administration speakers as'viable alternatives'in the search for improvements in medical care administration " (Washington Report on Medicine and Health, September 11, 1972). Congress is thinking along the same lines. Health Maintenance Organization (HMO) bills approved by the House Health Subcommittee and by the Senate would also make federal funds available to foundations. And the enormously im- portant new health legislation, the Social Security Amendments of 1972 (HR - 1), will create a nationwide network of Pro- fessional Standards Review Organizations (PSRO's) modeled directly upon the foundations (see box, page 12). Why the new emphasis on foundations for medical care? Because the government and insurance companies maintain that the foundations can control the rapid rise in health care costs and physicians see them as buttresses for their own eroding power vis vis - a - health institutions, insur- ance companies and the government. Laying the Foundations Foundations originated in the unique social and political environment of Cali- fornia, birthplace of several health care innovations. A brief historical look at health care developments in that state is illuminating. During the'30's Cali- fornians were among the most active Americans in the campaign for govern- ment health insurance. In 1935 the Cali- fornia Medical Association (CMA) even appeared to endorse compulsory medical insurance; however, the CMA attached more restrictions than the reform minded - legislature could accept, and the State bill CONTENTS 2 Medical Foundations was defeated. When in 1938 New Deal candidate C. L. Olson took over the Gov- ernor's office, a more rigorous state health insurance plan seemed certain. This time the CMA went to work in earnest against it. By the next year CMA announced its alternative- the California Physician's Service, the first Blue Shield program in the country which successfully sup- planted compulsory government insurance with doctor controlled - private insurance. In 1945, California's Governor Earl War- ren, proposed yet another state health in- surance plan; it was also defeated by the CMA with the help of a public relations firm, Whitaker and Baxter (1). During that same year a new health care concept, the Kaiser Foundation Health Plan, came into being. An out- growth of Kaiser Industry's employee health services, the Kaiser plan operates its own hospitals and adjoining clinics (see BULLETIN, November, 1970). Kaiser members pay a monthly premium and re- ceive specific medical services. Fre- quently a union or employer will arrange for members or employees to join the Kaiser Plan and will pay part of the pre- miums. From the doctor's point of view, the important feature is that Kaiser hires physicians on a salaried basis, in contrast to the traditional " service fee - for -" method of payment under which doctors charge the going rate every time a patient is seen. (Kaiser doctors rarely have private pa- tients on the side.) Many doctors don't like Kaiser's salary system; service fee - for - allows physicians more control over their income (as well as over working condi- tions, hours, choice of patients, location of office) than does a fixed salary paid by a corporation, It's the difference between Published by the Health Policy Advisory Center, 17 Murray Street, New York, N. Y. 10007. Telephone (212) 267- 8890. The Health - PAC BULLETIN is published 8 times per year; January, February, March, April, May, Sept- tember. October and November. 3 special reports are issued during the year. Second - class postage paid at New York, N.Y. Subscriptions, changes of address and other correspondence should be mailed to the above address. New York staff: A. Sandra Abramson. Constance Bloomfield, Oliver Fein, Marsha Handelman, Nancy Jervis, David Kotelchuck, Ronda Kotelchuck, Howard Levy and Susan Reverby. San Francisco staff: Elinor Blake, Thomas Bodenheimer, Judy Carnoy. San Francisco office: 588 Capp Street, San Francisco, California, 94110. Telephone (415) 282-3896. Associates: Robb Burlage, Morgantown, West Virginia; Desmond Callan, New York City; Vicki Cooper, Chicago; Barbara Ehrenheich, John Ehrenheich, Long Island; Kenneth Kimmerling, New York City. 1973. 3 being your own boss and working for someone else. In Stockton, California, a small port town on the San Joaquin River in one of the country's most fertile valleys, Dr. Don- ald Harrington watched the growth of the Kaiser plan with alarm. An obstetrician in private practice, Harrington feared that Kaiser would take patients away from fee- for service - physicians. As legend has it, Harrington's brother walked into the union hall one morning to hear that the Longshoremen were about to sign a health care contract with Kaiser. After hearing his brother's report, Dr. Harrington devel- oped the San Joaquin Foundation for Med- ical Care. He persuaded the county med- ical society that the Foundation would keep Kaiser out of the valley. The union and the patients bought it. Nearly twenty years and several small - town foundations later, Kaiser has not moved from the larger metropolitan areas of California (2). The First Foundation The San Joaquin County Medical So- ciety created the San Joaquin Foundation for Medical Care, with a board of trustees elected by the Society's own Board of Directors. Any Medical Society member was eligible for foundation membership, renewable on an annual basis, and vir- tually all joined. The foundation and the International Longshoremen's and Ware- housemen's Union (ILWU) agreed to a group health plan for union members and dependents that offered office and hospital care similar in scope and costs to that of the Kaiser plan. The ILWU plan continues to this day. The union pays the foundation a carefully worked - out amount to cover the estimated cost of caring for its mem- bers, who then may seek care from any foundation doctor. After seeing a member of the Long- shoremen, the doctor sends the bill to the Foundation. To keep costs competitive with Kaiser, Foundation physicians have agreed to a ceiling on fees charged for Foundation patients. They also monitor one another to eliminate " overutilization " _too much hospitalization, excessive surgery and unnecessary office proce- dures - through a mechanism called " peer review " (explained below). After peer review, the bill is paid by the Foun- dation. The Foundation also pays for hos- pitalization of ILWU members. The San Joaquin Foundation has con- tracted to provide medical care for other 4 groups in the area. Unlike the contract with the ILWU, most of these involve insurance companies. The Foundation, with the strength of the county's physi- cians behind it, gets insurance companies to provide expanded benefits for patients; in exchange, the Foundation agrees to pro- cess the insurance claims and submit them to peer review. Under insurance company contracts, money does not flow through the Foundation. Rather it passes from the group receiving the care to the insurance companies and from the insur- ance companies to the doctor or hospital. The doctor does not bill the insurance company or the patient, but sends his bill to the Foundation, which reviews it and sends it to the insurance company for pay- ment. The insurance company then pays the doctor, and also pays the Foundation TEAM WORK This issue of the BULLETIN was writ- ten by the staff of the San Francisco office of Health / PAC. Their next BUL- LETIN will discuss the threatened closure of county hospitals in Cali- fornia and elsewhere. the administrative costs of peer review. At the present time the San Joaquin Foundation is involved in the medical care of almost half of the 330,000 residents of its expanded four county - domain. Over 60 groups, including state and county work- ers and employees in private businesses, have contracts with insurance companies whose claim forms are reviewed by the Foundation. The ILWU, federal employees and the Medicaid program (called Medi- Cal in California) have direct contracts with the Foundation not involving insur- ance companies. San Joaquin's doctors accept the Foun- dation because it protects them from Kaiser's incursions while allowing them to continue their private practice virtually unchanged. The compromises - opening their fees and records to peer review - ap- ply only to the fees and records of pa- tients belonging to a foundation plan. Doctors continue to see their private, non- Foundation patients. In contrast to Kaiser, the physicians are paid on a fee for- - service basis according to the number of patients seen and the treatment given. There are no salaries and no fixed hours; working conditions are determined by each physician. The Doctors Determine Their Fees When Harrington formed the San Joaquin Foundation in 1954, he had to de- velop a method that would insure the via- bility of fee service - for - practice while at the same time keeping physician costs within limits that would rival Kaiser's. In order to do this physicians in that area were asked to enumerate their fees for all services; the Foundation staff then chose as the ceiling price the " 80th percentile. " In other words; suppose that local doctors charge anywhere from $ 6 to $ 12 for a regular office visit, with 80 percent of them charging $ 10 or less. $ 10 then becomes the limit a Foundation doctor can charge a Foundation patient for an office visit. It should be noted that the 80th percentile is higher than the fees most doctors charge; by definition, more than half charge at or below the 51st percentile. The Foundation, then, only affects the fees of the highest charging doctors. To aid in determining a " reasonable " fee for a particular service, the Founda- tion turns to the California Relative Value Study (RVS) which the CMA published in 1956. The RVS book lists in minute de- tail all possible services performed by a doctor and assigns each one a code num- ber and a unit value. For example, a brief examination of a patient in the office (code 900400, has a unit value of 12; an extended re examination - (code 90070) has a unit value of 30; and an " annual " examination (code 90088) has a unit value of 40. Doctors calculate their fees by multiplying the unit value by a " conver- sion factor " which turns the number into dollars and cents. If the conversion factor is 75 cents, then the brief exam costs 12 x 75 cents or $ 9.00. . Each year the Foundation lists a conver- sion factor that corresponds to the 80th percentile of the doctors'fees in the county. But doctors can disregard the Foundation's conversion factor and charge patients either more or less. Doctors with a lower income - clientele may charge less so that their fees do not scare away pa- tients without insurance. Doctors interest- ed in higher income - patients may charge more, though for Foundation patients they will receive only the 80th percentile fee. Doctors are free to raise their own fees at will. Each year the Foundation recalculates the 80th percentile and, since doctors con- tinue to raise their fees for non Founda- - tion patients, each year the 80th percentile goes up. So foundations do nothing but slice off a few fees of the highest - priced doctors and do little to slow the rise of doctor's fees in general. Peer Review Peer review, not fee ceilings, is the foundation's most important cost control - device. In fact, physician peer review was practically invented by the San Joaquin Foundation. Because it is becoming a con- troversial issue in medical care delivery, a detailed look at peer review is worth- while. Although foundation advocates talk of improving the quality of medical care through peer review, its primary purpose is economic. The idea is that medical costs are too high because fee service - for - doctors hoping to earn more fees by sup- plying more services. - are providing many unnecessary procedures. Peer re- view seeks to cut the costs by cutting the gross utilization of services. How does peer review work? The foun- dation doctor sends the local foundation office a claim form each time he treats a patient. The form lists the physician's di- agnoses, services rendered (including drug prescriptions), charges and addi- tional comments. (This is the same form used by the doctor to bill the foundation or insurance company.) Hospitals follow the some procedure. At the foundation, row upon row of clerks (or computers, as the case is com- ing to be) scan the claims forms. The clerks are provided with RVS schedules " We've actually been called socialistic; the truth is, we're intensely capitalistic. " - Dr. Donald Harrington Medical World News October 20, 1972 15 to see if the fees charged by the doctors are within the 80th percentile limit. The clerks also have a booklet, developed by the foundation, listing local " standard criteria " for care. The booklet has a long list of diagnoses and each diagnosis has certain acceptable criteria of care. For ex- ample, a patient with high blood pressure may be allowed only two doctor visits each month; a patient with a minor illness may only be charged for a short office visit rather than for an extended office visit; no more than two vitamin B12 shots per month are allowed, and so forth. Other foundations have different cri- teria though, many have adopted the San Joaquin standards. In any event, the cri- teria of acceptable care are related more to the amount of care and the fees charged than to the quality of the care itself. According to foundation spokesmen, as many as 95 percent of all claims meet the specified criteria and are automatically approved for payment. These claims are then sent to the insurance company which pays the doctor or hospital or else the foundation pays the bill itself as in the case of the San Joaquin contract with the ILWU. What happens if a doctor has seen a patient with high blood pressure three times in a month rather than the accepted two visits? In that case the clerk or com- puter rejects the claim and gives it to a reviewing physician, who usually re- ceives $ 25 an hour for the work. If the doctor feels, after looking at the com- ments on the claims form, that the extra visit is justified, payment is approved. If the doctor can't approve payment in full, the claim then goes to a physician review committee which meets every two or three weeks over a two hour - lunch. Each specialty has its own review committee; GP's review GP's, orthopedists review or- thopedists, etc. These committees make final decisions on doctor payments, al- though doctors can appeal their decisions back to the same committee. Peer review is not always objective. In most situations, each foundation doctor knows every other doctor in his specialty. If a reviewer doesn't like a physician for personal or political reasons, he can slash a fee or deny a payment. One foundation doctor in California reports that " the peo- ple on the peer review board spend less than two minutes per claim. Often they only read the doctor's name. Someone says,'Oh, I know him. He's a good doc. 6 " Medical care foundations have burst out of California to become the fastest spreading phenomenon in U.S. medicine since the coming of the pill. " - _ Medical Economics September 27, 1971 Let's pay him.'Or,'He's bad, let's cut his fee.'" By controlling the purse strings, a foundation can stop doctors from bad- mouthing the foundation or discourage them from changing local patterns of med- ical care. Quality of Care Does peer review improve the quality of medical care? Clearly it concerns itself with the number of patient visits to a doc- tor rather than with the quality of care within each visit. It deals with the num- ber of prescriptions given rather than with the correctness of the drug prescribed. The reviewers do not question the diag- nosis made. Supporters of peer review are correct in saying that limiting excessive surgery will improve the quality of care. Ralph Nader has charged that 10,000 Americans die each year as a result of unnecessary op- erations. This staggering figure is based on a New England Journal of Medicine article (Jan. 15, 1970) by Dr. John Bunker of Stanford Medical School. Bunker argues that the United States has an excess of sur- geons and that Americans are operated on twice as much as their English counter- parts. Particularly astounding is the enor- mous volume of hysterectomies, which are four times more common among California Blue Shield patients (not subject to peer review) than among English women. Dr. Harrington claims that his founda- tion has reduced excessive surgery. The San Joaquin clerks and computers detect surgeons doing unusually large numbers of tonsillectomies and hysterectomies, and these doctors can be subjected to peer re- view and denial of payment. However the San Joaquin Foundation has no fig- ures comparing its surgery rates with non- foundation rates. There is real question whether surgeons reviewing other sur- geons will make a significant dent in excessive operations. The same goes for drug prescriptions. It is estimated that six out of ten prescrip- tions are unnecessary, and the side effects of drugs make excess prescribing ex- tremely dangerous. On December 7, 1972, Dr. Henry Simmons, a top FDA official, testified that tens of thousands of people die each year from needless use of anti- biotics. With the close alliance of doctors and the drug industry, it is unlikely that doctors will truly curb excessive prescrib- ing. Seven out of ten physicians invest in drug companies (Morton Mintz, The Ther- apeutic Nightmare). One third - of the AMA's operating budget comes from drug company ads in AMA journals. Again, the San Joaquin Foundation does not compare its prescription rates with other patient populations. Foundation spokesmen say they are powerless to take any action against doc- tors who refuse to change their practices; - fearing lawsuits, they will not publicize the physician's name in the community. To be meaningful, it is clear that review forms complete, hour - long examinations, including preventive care on new patients. Because this is not customary in his county, he is penalized. Instead of receiv- ing $ 30, the fee for an extended office visit, the foundation peer review commit- tee allows him only 12 $, the rate for a routine quick exam which is the " standard of care " in the community. Because he could see four patients hastily and collect $ 48 rather than $ 12 for an hour's work, he wonders, " Why bother doing a good job? Peer review keeps the quality of care at a static mediocre level. " " CHAPping " the Patient Since peer review is mainly a device to cut medical costs, its most obvious appli- cation is to hospitalization rather than office visits. The reduction of a patient's stay in the hospital by one day saves unions and insurance companies more money at $ 100 a day than cutting several office visits at $ 12 a visit. Hospitals have traditionally had tissue review committees to check up on sur- geons who persistently remove normal organs. Yet unnecessary surgery con- tinues. More recently hospitals have been required to set up utilization review com- mittees, which try to reduce the number " Many hospitals don't like the foundation approach at all. After years of having the last word, they're uncomfortable about turning leverage over to physicians. So another aspect of the foundation movement is how it bears on the quiet battle for control of doctors between hospitals and doctors themselves. " -Boyd Thompson, Executive Director San Joaquin Foundation must go beyond the " peers " who share the same interests, to include trained con- sumers, nurses, pharmacists and other health workers within each institution where health care is delivered. One general practitioner in a northern California foundation feels that peer re- view may actually lower quality. He per- of days that patients stay in the hospital. These committees have likewise had only a minor effect on the quantity of hospital care; they show little, if any concern with quality. An inherent problem with review committees is that they look at services after they have already been performed. In 1969 the Sacramento Foundation for 7 Medical Care became the first organiza- tion to review hospital admissions before the patient is admitted, as a way to cut hospital stays and costs. Known as the Certified Hospital Admission Program (CHAP), the program was originally de- signed by California - Western States Life Insurance Company, in an attempt to re- duce its hospital claims. Cal Western - took the idea to the fledg- ling Sacramento Foundation, The Founda- tion liked the plan and CHAP was incor- porated into an experimental group health plan for 2,000 persons insured through the Sacramento printers'union. The Founda- tion claims that the printers'plan cut hos- pitalization by 18 percent. Medicaid Management In 1972 California's Medicaid program (Medi - Cal), under Earl Brian, a Reagan ap- pointee, implemented a $ 6 million pilot project (with some Federal help) called Medicaid Management System (MMS). " Applying the latest computer technology and physician criteria for medical claims reimbursement " MMS was initiated in San Diego and Santa Clara counties to stream- line the payment of Medi - Cal money to doctors and hospitals. The MMS brochure states that the program offers a large vol- ume capacity; rapid response: high qual- - ity service to both patients and physicians: immediate verification of Medi - Cal eligi- bility; comprehensive claims processing; ability to control costs; and utilization eval. uation. This is all done with computers de- veloped by a consortium of Lockheed and commercial insurance companies. But the computers short circuited - . In the four month - period following MMS's incep- tion in August, 1972, hospitals and doctors were not reimbursed for any Medi - Cal pa- tients. " The system isn't working; claims are neither accepted, nor rejected " com- plained Howard Pierce, Assistant Director of the Santa Clara County Medical So- ciety. " Doctor are so mad that some aren't taking any more Medi - Cal patients, and hospitals are losing money. " " Hospitals and nursing homes as of December, 1972, had not received $ 3 millon owed to them by MMS. Doctors and hospitals are calling for an end to MMS if it doesn't straighten out by February, 1973. 8 How does CHAP work? If a Sacramento doctor who wants to perform a gall blad- der operation must first get the patient " CHAPped, " by sending a certification re- quest form to the Foundation office. The form is processed by a registered nurse coordinator employed by the Foundation who sends the physician a form specify- ing the initial length of stay the patient is allowed. Lengths of stay are based on averages for a particular diagnosis and vary with the patient's age. If the gall bladder patient is 51 years old, for ex- ample, the initial length of stay is certified at ten days. CHAP will not authorize pay- ment of funds for longer than that unless the physician explains any complications that require an extension of stay and ob- tains certification for it. When an exten- sion is requested, physician advisors, who are appointed and paid for their time, take over and make the final decision. Emer- gency patients are admitted but once in the hospital they too must be " CHAPped. " CHAP administrative costs are high: each hospital admission costs $ 9.60, which is paid by the insurance company. In 1971 figures were publicized showing that CHAP was cutting hospital costs by 20 percent and saving millions of dollars. However, the Sacramento Foundation's new executive director, George Deubel, implies that many of the early statistics may have been misleading. According to Deubel no new figures on cost cutting or reduced lengths of hospital stay will be available until September, 1974, when CHAP is completely computerized. Mean- while other studies are underway to de- termine whether CHAP and similar pro- grams actually have the long range - po- tential of cutting medical care costs. Foundation Capitation In 1970, medical care foundations band- ed together to form the American Associ- ation of Foundations for Medical Care (AAFMC) " a communications organiza- tion " for foundations. Donald Harrington, who has served variously as President or Medical Director of the San Joaquin Foun- dation since its inception, is currently President of the Board of the AAFMC. In mid 1972 - it received a Federal grant to turn six foundations into HMO's. Seven other foundations or medical societies have received Federal HMO grants di- rectly. An HMO is an organization which guar- antees medical services from specific hos- pitals, doctors and clinics to its enrollees, who pay a fixed amount yearly regard- less of the amount or cost of the services they may use (see BULLETIN, April and December, 1971). The San Joaquin Foun- dation has been a model HMO for mem- bers of the International Longshoremen's Union since the original 1954 ILWU con- tract. The contract specified certain med- ical services which the Foundation as- " I believe that the founda- tion is the last remaining hope to preserve the freedom of the profession in the United States. " - Dr. George Himmler, President N.Y. State Medical Society sured it would provide to all union mem- bers; in exchange, the ILWU paid the Foundation a lump sum based on its total membership. This kind of financial arrangement is called " capitation: " one fixed payment for each person covered no matter how many services are actually used. Although money comes to the foundation through capitation payments, the foundation pays its doctors on a fee service - for - basis. If the lump sum runs out before the end of the year, the foundation's doctors are bound by the contract to continue provid- ing care anyway; the losses are divided among them and come out of their own pockets. Such a situation is extremely rare because the foundation staff knows enough about health care costs to bargain for more than enough money to cover one year's care. But since losses are a technical possibility, doctors are said to be " on risk " under a capitation contract. (In fact, San Joaquin and other foundations which have capitation contracts sometimes take out their own insurance policies to cover cost overruns. The policy which protects doctors from " risk " is called " insur- re - ance "). So far, no contracts on a capitation basis have been signed between the foun- dations and insurance companies. But Boyd Thompson, Executive Director of the AAFMC, speculates that it's only a matter of time. Capitation has too many advan- tages for the insurance companies to ig- nore. Primarily, one flat payment allows the insurer to predict its own cash outlay more accurately for a given year and also saves the necessity of claims review, individual payments, and other adminis- trative costs. But if the HMO model benefits insur- ance companies and the medical profes- sion, what does it do for patients? The Nixon Administration had supported HMO's with such phrases as " better pre- ventive care, " " convenient for patients, " and " available at night and on week- ends. " A look at San Joaquin's 20 year- - old ILWU contract shows that there's at least one kind of HMO that brings no changes from the patient's point of view. The capitation contract brought no new services into the county, no new physi- cians, no night or emergency clinics; did not make care more easily available for people in the rural areas or in any way distribute specialties throughout the county; and in no way improved the gen- eral health of the union members and their families through preventive medicine or public health campaigns. The contract CORRECTIONS Last month's BULLETIN on " The Poli- tics of Mental Retardation " contained two errors: 1) New York State spends $ 171.6 mil lion on its State Schools. The fig- ure of $ 111.6 million which ap- pears on page 6 is a typographical error. 2) On page 16 the American Civil Liberties Union was credited with assisting in a class action suit against the State Department of Mental Hygiene over Willowbrook State School. Apologies to the New York Civil Liberties Union which is actually helping in this case. 9 simply insured them for specified health services. San Joaquin and other foundation HMO's provide an illuminating case study of the system Nixon is holding up as the solution to America's health care crisis. Foundations in Action: The Medi - Cal Market In 1968 the San Joaquin Foundation sidestepped the customary intermediaries -Blue Cross and Blue Shield and signed an historic contract with the State of Cali- fornia to provide care for all Medi - Cal (California Medicaid) patients in its area. The State pays a flat fee for each Medi- Cal patient and the Foundation reim- burses the doctors on a fee service - for - basis. " In our first year, " Harrington boasts, " we were able to pay our usual customary fees which - were better than other doctors'in the state. " In their sec- ond year, however, the Foundation mis- calculated and the doctors'fees for Medi- Cal patients had to be lowered toward the end of the year. Now that the Foundation knows the program, such an error won't recur; the State will always give enough to cover all services. In 1972 the Sacramento Foundation signed a similar HMO - like contract with Medi - Cal officials. But whereas the power- Abortion After The recent Supreme Court decision on abortion is an important legal victory for women and the women's movement. But, like most legal issues, it leaves the real problems of implementation to be decided outside the courtroom. In its ruling, the Court held that during the first trimester of pregnancy, the state has no " compelling reason " to interfere with a woman's right to abortion. During the second trimester, the state may only interfere in ways that are " reasonably related to maternal health, " such as licensing or regulating the persons and facilities involved. The Court declared that " reasonably " did not include requiring hospital abortion committees; two physicians certifying that the abortion was necessary to save the woman's life; residency in the state: and other restrictions suggested by the American Law Institute model abortion code. Only during the last ten weeks of pregnancy, when the fetus could be viable, " may " the state prohibit abortion except when necessary to preserve the mother's " life and health. " The Court rejected the position of the women in the suit that a woman's right to abortion is " absolute and that she may terminate her pregnancy at any time in whatever way and for whatever reasons she alone chooses. " However, Nancy Stearns, staff attorney for the Center for Constitutional Rights who pre- sented an amicus brief on behalf of the New York Women's Health and Abor- tion Project and represented Women vs. Connecticut, believes: " The women's position was absolutely crucial in creating the climate for the decision. Last year, when the case was argued the Court asked narrow legal questions. This year, they asked about a woman's right to make the decision. " But the crucial factors underlying the decision were that widespread availability of abortion also means lower birth rates, decreasing numbers of children born to welfare mothers and larger numbers of third world women having abortions. Nevertheless, some women's groups now believe the time is ripe to push for total repeal of all abortion laws on the statute books. Several New York State legislators have offered a repeal bill; in Congress, Representative Bella Abzug has introduced a bill that " would eliminate any state laws of any nature concerning the regulation of abortion. " On the state level, differing interpretations of the decision may lead to a variety of restrictions on the conditions under which abortions may be per- formed or who may receive them. Many institutions and doctors will be very slow in gearing up to provide the services. While the Court's decision may take abortion out of the legal arena, crucial health issues remain: 10 ful San Joaquin Foundation has a monop- oly on all Medi - Cal patients in its area, the Sacramento Foundation competes for patients with other Sacramento health providers: an OEO network, a Depart- ment of Public Health clinic and the Uni- versity Medical Center. Employing 30 salesmen who work in the field, the Foundation uses Madison Avenue gimmicks to enroll patients by ad- vertising " Welcome To The Good Health Community. " The Foundation Medi - Cal patients do get more services than those who do not enroll. While ordinary Medi- Cal patients are restricted to two physi- cian visits and two prescriptions per month, the Foundation allows unlimited visits and prescriptions. This is certainly an incentive for patients to join the Foun- dation. Business is good: since July, 23,000 Medi - Cal patients have enrolled. The Foundation pays its doctors their customary fees rather than the lower fees that Medi - Cal pays through its usual Blue Shield intermediary. To ease the risk to doctors, the Foundation has ar- ranged for Medi - Cal to pick up the tab on patients with over $ 10,000 in medical bills per year. Enormous problems face the Founda- tion's Medi - Cal patients. The Sacramento Foundation has insufficient general phy- The Court OE Quality of Care: Abortion will now become another medical procedure, regulated by health codes, medical institutions and doctors. Findings of the Joint Program for the Study of Abortion (Population Council, 245 Park Avenue, New York) and studies by Dr. Jean Pakter (New York City Health Department, 125 Worth Street, New York, New York) can be useful in outlining safe proce- dures and detailing the morbidity and mortality rates that can be expected. But reports and state codes tend to concern themselves with the minutia of how far apart beds should be in recovery rooms, or how many social workers are necessary, rather than more crucial issues like the quality, style and length of counseling, the attitudes of physicians, and speed - ups in the clinics. Many of the New York City clinics, perfectly legal according to the State, are indeed " mills " where the women are pushed through like so many parts on an assembly line. OE Comprehensive Care: While in the very short run, separate abortion clinics may seem like a boon to women, they are a creation re - of the fragmen- tary approach to the delivery of care. Now that abortion is legal, it could be- come part of comprehensive services for women. Separate facilities take the pressure off the major health institutions to provide comprehensive care. OE Profiteering: Free standing abortion clinics are a lucrative business ven- ture for both doctors and entrepreneurs. The opportunity for profiteering is enormous. Several of the New York clinics have already branched out into other cities. Monitoring and publicity from women's group can help bring down the prices, but do not touch the real problem of control over the services. @ Coercion and Punitive Procedures: In many states there have been attempts to require welfare mothers with a certain number of children to have abortions. Rumors persist in many communities that welfare allotments will be cut, if such women refuse abortions. In some New York hospitals, both public and private, the number of sterilizations, especially those performed on black and Puerto Rican women, have increased markedly since the liberalization of the abortion law. Thus, legal abortions mean that the health system rather than the legisla- tures and courts will have to become the focal point. The New York experience has proven that ambulatory abortion clinics, women counselors and referral groups do not, in and of themselves, guarantee quality of care. Abortion and sterilization can be liberating or repressive procedures depending upon who controls the delivery of the service. -Susan Reverby 11 sicians to care for the enrolled Medi - Cal _ sicians. Thus patients find themselves patients, and it is not recruiting more phy- without a family doctor as promised, are PSRO's If there were no foundations before October 30, 1972, they would have had to be invented. On that date President Nixon signed the new Social Security Amendments (HR - 1) which include the controversial Professional Standards Review Organization (PSRO) amendment for Medicare and Medicaid reim- bursement. A PSRO is a peer review organization which is supposed to oversee the quality and appropriateness of medical services paid for by Medicare and Medicaid. The prototype for PSRO's is none other than the San Joaquin and Sacramento Foundations. And in all likelihood foundations will now be trans- formed into PSRO's. The amendment, originally inserted by a foundation sympathizer, Utah's Re- publican Senator Bennett, was opposed by the American Medical Association, " the American Hospital Association and Blue Shield. Bennett, saying we sim- ply cannot afford to continue down the high costs road we have been travel- ling. " convinced his colleagues in Congress that PSRO's would save the Federal government substantial sums of money. By January 1, 1974, the Secretary of HEW must designate PSRO areas throughout the nation. Areas could be as large as an entire state, but in any case must contain at least three hundred practicing doctors. Organizations rep- resenting large numbers of physicians in an area medical - societies, founda- tions, group practices like Kaiser would " be invited and encouraged to submit plans meeting the requirements of the programs. " The AMA was particularly opposed to the stipulation that allows the HEW Secretary to enter into PSRO agreements " with other agencies or organizations with professional compe- tence as he finds are willing and capable of carrying out PSRO functions, " when medical organizations cannot carry them out. The AMA fears, with some justification, that these organizations will be physician non - dominated, but rather run by large companies such as Blue Cross or consortiums of insurance com- panies and computer corporations. PSRO's will review all Medicare and Medicaid claims, initially for hospitals and nursing homes and in future years for doctors'offices and pharmacies. PSRO's can recommend appropriate action against doctors responsible for gross or continued overutilization and even theoretically for inferior quality of services. The HEW Secretary would be authorized to assess a fine related to the significance of the acts or conduct involved - but not to exceed a paltry $ against 5,000 - persons or institutions found to be at fault. Although one of the stated purposes of the PSRO system is to monitor the quality of care, the amendment, like its foundation prototype, downplays this objective. The real push of PSRO's will be to monitor the number and costs of the services provided. Congress saw that hospital utilization committees failed to cut Medicare's costs significantly. With PSRO's, Congress is going to see if practicing doctors can be better cost cutters through PSRO's. It is unclear from the foundation experience whether PSRO's will have a major impact on costs. What is clear is that the government pays for the administrative costs of PSRO's, so that foundations becoming PSRO's can look forward to a windfall of government dollars. Passage of the PSRO legislation insures the spread of Foundations For Medical Care. One of the chief functions of the American Association of Foun- dations for Medical Care will be to teach Foundations how to set up PSRO's as quickly as possible. Private doctors now need the Foundations to keep other institutions away from the PSRO function. 12 referred from specialist to specialist, and are unable to get prompt appointments. Ironically, because of its lack of available doctors, the Foundation has been forced to send some of its enrolled Medi - Cal pa- tients to a competitor, the University Out- Patient Department. Although many Sacramento Foundation doctors don't like to hear it, the Sacra- mento Foundation acts as an HMO in its Medi - Cal program. The Foundation through CHAP will probably cut hospital perhaps costs - by up to 15 percent. It can lower the cost to the State by ten percent and still have five percent left for higher doctor fees. Thus, whether doctors realize it or not, foundation HMO's tend to shift money away from hospitals, toward high- er physician incomes. Arresting Change Whether acting as HMO's or the gov- ernment's mandated newly - peer review organization (see PSRO's, p. 12) or both, the chief purpose of foundations is to pre- vent government interference in medical care. This is done by setting up mechan- isms for physician self regulation - of the costs of care. And there is some indication that foundations may have an impact on costs. The San Joaquin Foundation, per- forming the peer review function for insur- ance companies, says it can save between 8 and 15 percent. The Colorado Founda- tion claims that peer review of Medicaid patients reduced the average length of hospital stay by one day and decreased hospital admissions by 10 percent. CHAP boasts cuts in hospital stays of 14-18 per- cent. The most impressive foundation sta- tistics come from San Joaquin's HMO - like plan for federal employees. By carefully reviewing hospital use, the foundation claims to have cut the number of hospital days per 1,000 insured persons per year to 390, compared to 924 for Blue Cross / Blue Shield federal employee plans. Who benefits from the savings of re- duced hospital use? Over the past ten years the federal employees'premium has roughly approximated the Blue Cross / Blue Sheld premium. So the savings from decreased hospitalization are not all used to lower patient costs, but appear to go in part to the foundation for overhead and administrative costs and to the doctors. Also, under the Sacramento Medi - Cal plan hospital costs are lower but doctor fees are slightly higher than in the Blue Cross / Blue Shield Medi - Cal mechanism. Only part of lowered hospital costs will be passed on to the government. The crackdown on hospital and nursing home use may cut costs, although quite possibly at the expense of long term - chronic patients who are the most costly to care for. Cost control which would not harm patients would mean reductions in doctors'fees and the cost of drugs, and elimination of massively duplicated - facil- ities and equipment that keep hospital rates rising. Foundations can not be ex- pected to touch these matters. Foundation Futures Foundations for medical care have es- tablished themselves on the American health scene. Foundations started as a re- sponse to corporate group practice. Now, fed by Nixon and HR - 1, they are spread- ing due to fear of more thorough - going government intervention. The conserva- tive innovators such as Harrington, who spur the foundations'growth, hope that physicians themselves can act to control the costs of care. PSRO's and doctor - run HMO's will be the mechanisms used by foundations to attempt to cut costs while retaining control over the practice of medicine. Foundations will mainly take hold in Can physicians who dine, golf and otherwise socialize together be relied on to effectively police each other? " LDr. Andrew Fleck Deputy Health Commissioner New York State rural and medium - size urban areas, with large medical school and hospital com- plexes continuing to dominate in large cities. In some localities, foundations loom as threats to Blue Cross, Blue Shield or Kaiser - type plans over issues such as: who will be the Medicare and Medicaid intermediary, and who will take care of desirable populations with ability to pay. But in general the Blues, Kaisers and 13 Medi - Cal Reformed? Watch out here - comes another Cali- fornia innovation in health care delivery: HMO's for the poor. Called PHP's (prepaid health plans), these new creatures of Cali- fornia's Medicaid program (Medi - Cal) have already created a storm of protest and controversy. Under the 1971 Medi - Cal " reform " law the State can contract with PHP gen- - erally corporations or groups of doctors- to provide care to Medi - Cal recipients. The State pays the PHP a flat fee (capitation fee) for each Medi - Cal patient enrolled and the PHP provides patient out - , hospital and nursing home services. If the flat fee is, for example, $ 300 per patient, a PHP enrolling 10,000 patients will receive $ 3 million from the State. The State will save money be- cause the capitation fees are set at 10 percent less than the average cost per pa- tient under the present fee service - for - method of Medi - Cal payment. And the PHP will make profits by providing as few services as possible to the patients. Esti- mates are that PHPS especially - by cut- ting down patient use of hospitals and nursing homes - can make profits of up to 30 percent. Thus far the State has signed over 20 contracts covering a potential 40,000 Medi- Cal recipients, and many more contracts are being processed. Most of the PHP's are in the Los Angeles area and many ap- pear to be fly night - by - operations run by investment - hungry doctors. A coalition of community, legal and health provider or- ganizations has already formed to dis- enroll patients from PHP's and to prepare legal and legislative action against them. According to the Los Angeles Times (De- cember 10, 1972) the Los Angeles County Medical Association received over 500 complaints about PHP's between October and December. For example, a woman came to the clinic of her PHP one night and found it closed even though emer- gency service was supposed to be avail- able 24 hours a day. The PHP's will certainly use their profits to expand and enroll non Medi - - Cal pa- tients. So the Medi - Cal program is pres- ently the most potent stimulus in the US for HMO development. The outcome of the struggles against the proprietary PHP's in Los Angeles will affect consum- ers and health workers across the country. 14 foundations will divide up the money and the paying patients without major battles. Private doctors are by no means unani- mous in supporting foundations. The most conservative will balk at the idea of federally mandated - peer review and some will even refuse to serve Medicare and Medicaid patients to avoid such re- view. The AMA, though not unfriendly, has not officially welcomed the founda- tion concept. A growing number of doc- tors, however, see foundations as the only way to preserve fee service - for - practice. Furthermore, they realize that the fee- limiting function of foundations is so min- imal that fees may actually increase by the shifting of government funds from hospitals to doctors. Foundations help to entrench a system of medical care which leaves people ig- norant about their bodies and their health needs and problems. Fee service - for - en- courages doctors to see the greatest num. ber of patients in the shortest time to make the most money. Anyone who wants to change a founda- tion's approach will have to push from outside, because most foundations ex- clude patient or health worker representa- tion. In San Joaquin County only the ulti- mate threat by the Regional Medical Pro- gram of loss of funds forced the founda- tion to allow community members on an advisory board of a foundation - run clinic in the low income - section of Stockton. Dr. Harrington gives lip service to consumers saying that they will have a voice through organizations which have arranged for their group health plans. However these organizations - frequently an employer, a union or government - often lack the pow- er to negotiate with physician monopolies, nor are they known for their responsive- ness. Foundations bring some reforms in health care, but only at the cost of poten- tially greater reforms. They exist for the benefit of doctors. The health care patients receive or don't receive - will be virtu- ally indistinguishable from the health care they are presently complaining about. Footnotes 1. After this success, Whitaker and Baxter was paid $ 5 million by the AMA to wage a " stop socialism " campaign against the Truman health insurance pro- posals, and from that victory went on to the payroll of the Eisenhower / Nixon campaign. It continues to manage reactionary political campaigns and in the last two California elections was hired by big busi- ness to fight conservationist issues. 2. A second story heard is that local physicians were dissatisfied with the level of Blue Shield payments and wanted a payment system they could control more directly. -Elinor Blake and Judy Carnoy San Francisco Beat For over three years, San Francisco General Hospital has been under pressure from community groups, hospital workers and professionals to improve patient care and working conditions. Strikes in 1970 and 1971 generally failed to bring about improvements (BULLETINS, July August -, 1970 and March, 1971). But in March, 1971 a public hearing before the Joint Commis- sion on Accreditation of Hospitals, organ- ized by hospital workers and community groups, led to a probationary accredita- tion which required the hospital to make substantial changes. Using the probationary status as lever, the Thursday Noon Committee, a group of social workers, doctors, nurses and other workers, prepared a plan for an improved emergency room (BULLETIN, February 1972). With the threat to disac- creditation in the background, the emer- gency room plan was budgeted in full and is presently being implemented. Thurs- day Noon Committee also organized an- other community - worker hearing for the Joint Commission on its repeat inspection tour in June, 1972. In September the new accreditation report was unveiled: another one year - probation. The conditions that the hospital must meet in order to gain accreditation in 1973 are far reach-i bnugd g-et increases not tampered with by City Hall, promise of adequate staffing, more job security for workers and an end to short rotations of University doctors through the hospital. The hospital administration is scurrying about trying to figure out how to make these long overdue changes. The city government is undertaking a major study of San Francisco General, but until recently the committee performing the study had failed to generate great in- terest not only in the community but even among its own members. Following the Joint Commission's new report, the com- mittee leapt into action and is recommend- ing the formation of a hosiptal corporation for San Francisco General. Hospital work- ers and community groups must now react to this possibility. Health - PAC is planning an issue of the BULLETIN on significant changes taking place at San Francisco and other county hospitals. LETTERS Dear Health - PAC: I have often been critical of the quality of articles you publish, and have wished for a muck raking - organization which would be more effective. However, if you keep to the standard set in your Novem- ber 1972 issue, I would have few com- plaints. The article on Licensure by Emily Spieler is particularly excellent. I have read a lot in this area, and I think it is a good historical review and a fair analysis. The citing of references is a positive in- novation, although I wish that she had at- tached them by number to specific facts in the text. Susan Reverby's article is generally good. However, it suffers from the lack of references, as so many of your articles do. I am particularly disturbed by the last paragraph on p. 10, where the author tries to develop a case that Stead and Estes are sexists. This may be true, but I am not convinced by the quotations, espe- cially when they are out of context and without citation. Furthermore, the fact that Estes argued something about nurses has no particular bearing on the case. I know a little about the situation in North Carolina, and the two statements quoted seem to me to be fair. Perhaps Estes was sloppy in not con- fining his remarks to his own situation, but out of context one cannot even tell that. Estes did in fact want to work with the nursing school, but has been rebuffed. I have other criticisms of the article, but they all could be answered by citing ref- erences. I think it is a particular reverse snobbery not to list them. Sincerely, H. David Banta, Assistant Professor Department of Community Medicine Mt. Sinai Hospital, New York The author replies: The quotations from Estes and Stead were based on my interviews with them. I also stated in the article that one of the reasons for the growth of physician assist- ant programs has been the attitudes and positions of the nursing schools toward the changes in nursing roles. The references for my article were un- fortunately placed at the end of the first article. As in the current BULLETIN, we will continue to give references and foot- notes where appropriate. 15 HEALTH / PAC PUBLICATIONS THE AMERICAN HEALTH EMPIRE An analysis of the American health system - who profits from it and who loses. It documents the bankruptcy of recent health reform programs from Medicaid to National Health Insurance. PAPERBACK $ 2.00 NEW YORK CITY'S MUNICIPAL HOSPITALS: A POLICY REVIEW by Robb Burlage The study which blew the whistle on the NYC hospital crisis in the late 60's. Now considered a classic, it foresaw the current problems created by benefit cost - reforms. PAPERBACK $ 10.00 YOUR HEALTH CARE IN CRISIS: A HEALTH / PAC SPECIAL REPORT A 14 page illustrated pamphlet that analyzes the forces in the health system that prevent most Americans from getting good health care. $.15 each EVALUATION OF COMMUNITY INVOLVEMENT IN COMMUNITY MENTAL HEALTH CENTERS * The Health / PAC study, done under the auspices of the National Institute of Mental Health, is an depth in - analysis of how the community is manipulated, ignored, and contained by the mental health establishment. (* Accession # PB 211 267) AVAILABLE FOR 6.00 $, ONLY FROM: U.S. Department of Commerce, National Technical Information Service, 5825 Port Royal Road, Springfield, Va. 22151. CONEY ISLAND HOSPITAL: A CASE STUDY IN THE POLITICS OF HEALTH A 16 page Health / PAC report documenting the politics and decision making of a New York City municipal hospital: Coney Island Hospital who controls it, how they control it, and the power of the present leadership. $.15 each HEALTH / PAC INDEX An index of all past BULLETIN issues and subjects. Complete and comprehensive from June, 1968 through December, 1972. 1-9 COPIES $.60 each - 10 OR MORE $.40 each HEALTH / PAC BULLETIN BACK ISSUES 1-9 COPIES $.60 each - 10 OR MORE $.40 each ALSO AVAILABLE FROM HEALTH / PAC BILLIONS FOR BANDAIDS A new 128 page analysis of the U.S. health care system. 1-9 COPIES 2.00 $ plus $.25 mailing costs per copy - 10 OR MORE $ 1.50 plus.25 $ mailing costs per copy Available from Bay Area MCHR, P.O. Box 7677, San Francisco, Calif. 94119 WITCHES, MIDWIVES, AND NURSES: A HISTORY OF WOMEN HEALERS by Deirdre English and Barbara Ehrenreich An illustrated pamphlet on how women healers were suppressed and how the male medical pro- fession rose to dominance. PAPERBACK $.75 each THE POLITICS OF HEALTH CARE edited by Ken Rosenberg and Gordon Schiff An annotated bibliography with readings in the following areas: Power in the Health System, Health Capitalism, Community Control, Strategies for Change, and others. $.30 each 16