FIRlnGLlne - Hoover Institution...the University of South Carolina School of Medicine. He is a...

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FIRlnGLlne HOST: WILLIAM F. BUCKLEY JR.

GUESTS: GOV. CARROLL CAMPBELL; MARION BURTON, M.D.; RICHARD SCOTT; FRANK MIDDLETON, M.D.; BILL TIMMERMAN; JOHN SEWARD, M.D.

SUBJECT: "PERSPECTIVES ON HEAL TH CARE, PART I: MANAGED CARE"

FIRING LINE is produced and directed by WARREN STEIBEL.

This is a transcript of the fjrjng Ljne program (#1022/2412) taped at Baptist Medical Center in Columbia, South Carolina on September 15, 1994 and telecast later on public television stations.

copyright 1994 NATIONAL REVIEW

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MR. BUCKLEY: The national debate on health reform has been vigorous and inconclusive. It is quite simply unpredictable what will be the health reforms that finally work their way through Congress or, for that matter, through the state legislatures. But the discussion goes on, and it profits from the research spurred by the Clinton proposals.

We are here in Columbia, South Carolina, under the auspices of the Baptist Medical Center, and intend to look one at a time at three divisions of the health care question, beginning with managed health care and going on to the elderly and to hospital care.

We have with us Carroll Campbell, the renowned governor of South Carolina, who not long ago decided he would not serve as president of the United States. [laughter] He is a singular presence in the South and elsewhere, a man of enormous energy and experience, who was elected to Congress in 1978 and governor eight years later. He has an MA in political science and is proud to have completed his college education after he was elected to Congress.

Dr. Marion Burton is a pediatrician who serves now as dean of the University of South Carolina School of Medicine. He is a graduate of Clemson and of the University of South Carolina.

Dr. Francis Middleton is an internist who practices in Charleston and who served in the Navy, where he held the rank of lieutenant commander. He is a graduate of the University of the South, Sewanee, and of the Medical School of South Carolina.

William Timmerman is the chief financial officer of the organization SCANA, was educated at Duke and at the Harvard Business School.

Richard Scott is chief executive officer of Columbia/HCA Healthcare Corporation. He is a graduate of the University of Missouri and of SMU, where he got his law degree.

And Dr. John Seward is the chairman of the board of the American Medical Association, who received his medical training at the University of Illinois and went ~rom there to Mayo.

So let's get on with it and focus on what it is in the fall of 1994 that we know about managed health care that we didn't know before.

My guess is that most people, certainly including myself, didn't know very much about it. But why not begin by asking Governor Campbell: How much managed care goes on here in South Carolina and for that matter, in the nation at large?

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© Board of Trustees of the Leland Stanford Jr. University.

GOV. CAMPBELL: Well, it's a growing field. There's no question about that. The private sector is ahead of the government sector in this, as they usually are. And what we have seen as we have gone through this health care debate is that we have looked for efficiencies and better ways to organize delivery of the health system. For instance, the State of South Carolina put all of its state employees in a Preferred Provider Organization, or a PPO, a few years ago, and we have not had to raise their premiums for four years. And that is a form of managed care. There are other forms in this state. We have health maintenance organizations that are private that people can choose to go into. They have different limitations, different restrictions, in these groups. A PPO is a broader group; people actually in most instances would have a larger choice. In an HMO it might be a smaller group and less choice in the delivery system itself. It is part of the health system that is going to evolve. Hospitals are joining together. They are forming alliances with physician groups all over this country and all over our state. And so in most instances it is the private sector doing this, not the government. The government doesn't need to get in and run this stuff.

MR. BUCKLEY: But do they in fact succeed, Mr. Timmerman, in keeping costs down or is there a cost shifting going on that isn't so easily detectable?

MR. TIMMERMAN: I think there is probably some of both. Clearly there is a lot of cost shifting that occurs when government-sponsored patients enter the private system and the hospitals and doctors are not fully reimbursed by the government for the services provided. In our company we have about a 15 percent overhead burden on payroll dollars just to pay the cost· for the health care program we have in place for employees and that number we know to some extent subsidizes the operations of all the private facilities that exist that our employees use. We have managed to stabilize that cost in the last two years in absolute dollars, so it's falling as a relative percentage of our payroll. So I think many of the initiatives that the private sector has undertaken, at least in our area here, have worked in terms of flattening the growth of health care costs for my employees.

MR. BUCKLEY: What is the easiest way to distinguish between the private sector-engineered managed care the governor refers to and those that are called for in Mr. Clinton's program?

DR. MIDDLETON: Let me speak to that, Mr. Buckley.

MR. BUCKLEY: Dr. Middleton.

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DR. MIDDLETON: My HMO is the largest in the state. I think what's happening with it is typical of what's happening with HMOs across the country. We are eagerly pursing Mr. Timmerman's employees amongst others, we're growing at 50 percent a year in enrollment; 70,000 South Carolinians are actively working with the private sector to reduce costs. I think the evidence is clear that we do, both directly and indirectly from our marketing success as well as the actuarial studies. I think that the governor, who has been so active in this at the National Governors Association as well as in the state, can certainly bring the principles of managed care to the government in a way that we have applied it in the private sector to achieve the kind of savings that we can achieve and are achieving, and at the same time improve access, improve quality of the care of, for instance, the Medicaid population so that the Medicaid folks understand where they go for their family doctor. A very interesting study on the subject of quality in these various sectors in the New England Journal in the past few months looking at ruptured appendix as sort of a flag for deferred care. If you arrive at the surgeon with a ruptured appendix--

MR. BUCKLEY: You've got to do something right away.

DR. MIDDLETON: --that's obviously not ideal. You should have gotten there sooner. This study demonstrated that within the HMO population, the incidence of rupture was very low. In the uninsured population the incidence of rupture was high, relative to even sort of the old style health insurance. The issue here to me is that while we shift costs from the private sector to these folks, we're also, because they're uninsured, not giving them the best health care. I don't know that HMOs per se as they grow solve this, but I think there needs to be some way to incorporate managed care principles, HMO principles, into the governmental sector to achieve savings that we can achieve.

GOV. CAMPBELL: One of the major-- Excuse me. One of the major things that I think is important that we need to recognize, whether we are talking about a PPO or managed care system or whatever, is that we have a system that has grown up because 50 years ago when we had wage and price controls, employers started giving health insurance to their people.

MR. BUCKLEY: Yes.

GOV. CAMPBELL: And as such it became somewhat of an industry entitlement or a government entitlement and we took all the discipline out of the system. There is no first-party payment any more; nobody is responsible. And I'll give you a prime example of that. My predecessor in this state put in a drug card in South Carolina, where you went into the drug store and

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handed a credit card. Our cost of drugs went up $10 million in one year. We liberalized the program and gave more prescriptions but made people put their own money up first and reimbursed them, and brought it right back down the next year. So whether we are on an HMO or PPO or private practice or anything else, if we are ever going to do anything about our system, we are going to have to get the patients back into the system asking why, what it costs, is it necessary? And if we are going to discipline any system, it has got to be the consumer that disciplines it. Right now none of the systems call for that.

MR. BUCKLEY: Is this an aspersion on the medical profession, if--

GOV. CAMPBELL: Not at all.

DR. MIDDLETON: No.

MR. BUCKLEY: Well, you're talking about prescribed drugs, aren't you, and the person who goes to the drugstore--

DR. MIDDLETON: No, I think what the governor is saying, there clearly needs to be shared responsibility. Tiered co-pays so that when a generic drug is effective, a brand name that costs 10 times as much is not prescribed that does no more. And the member of the HMO or the PPO needs to share in communicating with the physician, Marion or whoever, that there is a simpler choice if Marion makes a mistake and writes an expensive prescription.

MR. BUCKLEY: Well, who is supposed to check on Marion? [laughter]

DR. MIDDLETON: Well, there are several. One, Marion--

GOV. CAMPBELL: Somebody threw Marion in the creek, I'll tell you. [laughter]

DR. MIDDLETON: Let's choose someone else who maybe needs to be check on. HMOs have ways to check on utilization, the prescribing of brand name versus generic. That's part of the information systems of an HMO--

MR. BUCKLEY: And that's good.

DR. MIDDLETON: --that's never been present there before.

MR. BUCKLEY: That's good, right?

DR. MIDDLETON: That's good. We can go in, in Healthsource, which is the HMO that I manage, and we can show a physician--we

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can show Marion--that his generic prescribing is 25-30 percent; excellent. We can go in to another doctor and show him that he is prescribing only five percent generic and--

MR. BUCKLEY: You are the HMO in this situation.

DR. MIDDLETON: Yes.

MR. BUCKLEY: Okay, right.

DR. MIDDLETON: That's right. So I can show him the data. I can educate him.

MR. BUCKLEY: Right.

DR. MIDDLETON: So many doctors don't know what's being practiced down the street. Now, they need to be--

MR. BUCKLEY: But the governor was talking about checking the consumer, wasn't he?

DR. MIDDLETON: Yes. The consumer can be checked also at the point of service. Our systems can tell where the member goes to get the prescription f illed--if the member is going to five different pharmacies to get a prescription filled, gaming the system. There are information systems in the managed care sector that have never been present before in fee-for-service to check on the member, to check on the physician, to bring the member into a shared responsibility with the primary care physician to see that their care is both efficient and high quality.

MR. BUCKLEY: Where is the market mechanism in what you describe?

DR. MIDDLETON: The market mechanism is very clear. We can--as we have demonstrated by enrollment growth and by the kind of savings that we can generate--actuary is, say, 20 percent or more--we can market this.

MR. BUCKLEY: Well, suppose Marion--

DR. MIDDLETON: Benefit and wean the marketplace.

MR. BUCKLEY: --insists on writing this expensive drug, specifying the--

DR. BURTON: Well, okay--

MR. BUCKLEY: What do we do to him?

DR. MIDDLETON: Marion, what should we do?

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MR. BUCKLEY: Just say, Dr. Burton, cut it out?

DR. BURTON: Well, first of all, the governor is very correct. The patient needs to be brought back into this equation, because for many years the patient has almost been out of the equation. To a certain extent the physician has, because neither one of them had to relate directly to the cost of care. What is happening now though is the patient other than the small copay and deductible may be removed even further from the health care decisions and that's because Dr. Middleton's company has been very successful in getting a lot of covered lives into their organization. And as they can move market shares, they can move large numbers of patients between providers; they can negotiate huge discounts. So the costshifting that we are talking about is not just going from the government to the private sector any more; the cost is going between private sector and private sector, so at some point we have to reach an equilibrium so--

MR. BUCKLEY: The discipline--

DR. BURTON: --it's not just the government cost shifting to private sector any more. We have private sector shifting to private sector.

MR. BUCKLEY: The discipline is an aspect of his privilege to take business away from this set of doctors and give it to another set of doctors because this set of doctors. is too profligate--

MR. SCOTT: It's volume for price basically.

DR. BURTON: Yes.

MR. SCOTT: What's happening in the industry today is, whether it's an HMO, whether it's an employer, whether it's a purchasing cooperative, they are saying, We will direct this number of patients if you will give us a discount. And as a provider you will give them a significant discount for volume, because as we--as the biggest hospital provider in the country--have more volume, we can reduce our average cost per patient day, per surgery, per diagnostic test, everything. And that's basically what's happened. We have way too many hospitals, way too many surgery centers, way too many of everything, and the private sector and the managed care players employers are telling us they are not going to pay us as much, but they will give us more volume for better pricing.

MR. BUCKLEY: Okay, now--

DR. SEWARD: That's just half of it, Mr. Buckley.

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MR. BUCKLEY: Sorry. Dr. Seward.

DR. SEWARD: We have been talking about cost here.

MR. BUCKLEY: Yes.

DR. SEWARD: And I think there is another tack that possibly is very appropriate here. Not that I don't think that cost should not be a factor that we should look at, but it depends on your premise. When you talk about it with patients, if your basic premise is: My only purpose is to cut costs and everything is going to be predicated on whether or not I cut costs, this is the area that I think we have to look at very, very closely when we start cutting costs and saying that a certain percentage of-- For instance, I know of some companies that have said that they will be paid extra if they just do generic prescribing. Period. I'm sorry, from a clinical standpoint as a practicing family physician, there are certain, you know, trade-name drugs that I think from a true clinical standpoint are the only things to provide. Now--

MR. BUCKLEY: Should that be your option?

DR. SEWARD: I think it should be my option--

MR. BUCKLEY: Yes.

DR. SEWARD: --because it's a patient thing that we're talking about there.

MR. BUCKLEY: Right.

DR. SEWARD: And whenever you talk about cost, somehow you have to get it back to: How is that going to affect that patient?

MR. BUCKLEY: Well, what is it in the whole Clinton package that draws attention to the HMO in the sense in which you're talking about it? Or is this simply an exploration that was conducted collaterally? Now the alliance includes obviously HMOs but on a grand scale, doesn't it?

MR. SCOTT: On a government-run alliance.

MR. BUCKLEY: It comes out of--

MR. SCOTT: I mean, what doesn't work i ·s it's going to be run by the government, it's going to be a government monopoly. As we know, the government cannot run health care. The average Medicaid recipient gets more than twice as much health care as the average employed person in this country, and they don't like the care, the doctors don't like how they are getting paid, nor does the hospital, and there is no control on

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quality. So there is no way the government can control cost and run a program efficiently. I mean that's the biggest problem in the Clinton bill.

MR. BUCKLEY: Why did you people come out for it?

DR. SEWARD: We did not.

MR. BUCKLEY: Didn't you?

DR. SEWARD: No, sir. The point that we came out for was principles that we think health system reform should be tagged on. What's fascinating is the president did take our principles. Now how he applied them though, Mr. Buckley, you know, in that 1300-page thing was somewhat different. We had some difference of opinion in that regard. [laughter)

MR. BUCKLEY: The sorcerer's apprentice. [laughter)

GOV. CAMPBELL: Not being in the medical side of it, the National Governors took all of that up and rejected essentially the program that President Clinton came out, and this was a bipartisan rejection. Looking more at how do you access the system responsibly for people, how do you maintain insurability for people, how do we make those proper type of reforms and how do we discipline the system--not looking at HMOs, not looking at PPOs or private practice. The fact is that what we came up with was, we have to make sure that people are not out of the system for a pre-existing condition. We have to make sure, because if they are, we wind up servicing them anyhow in the system and cost shifting. We have to make sure that the people that are on Medicaid, for instance, are not getting the type of care that is emergency-room-based, which is unfortunately where a lot of them go. They get actually the poorest medical care because they go after the fact instead of for preventive care, because the system is not set up and disciplined to give them real good care on the front end. So they wind up with no doctor, going in the middle of the night for a non-emergency item to an emergency room and that is cost shifted onto the hospital, and those are the things that we have tried to work on to try to access and change this system.

MR. BUCKLEY: Well, apropos the point you raised, you said that your predecessor instituted a system, it was manifest abuse, you repealed it, and we are back in the right direction. Now isn't this an excellent example of the fruits of a federalist structure? In South Carolina you can try something, Hawaii can try something, Minnesota, Oregon. And then you pool each others' experiences and learn from them. Why should there be such a departure, this hectic concern to federalize the entire--

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GOV. CAMPBELL: There is a school of thought that exists in Washington that comes down on high from some of the professors from Harvard with whom I had the privilege to sit for countless hours and listen and learn very little--[laughter]--that they know best, that they know best what we should do, that they understand more than we do, and there is an elitist attitude that basically is prevalent in this whole debate, that we know best what you should do for yourself, and we can put a system together that will do for you what you are not capable of making a decision to do for yourself.

MR. BUCKLEY: Yes.

GOV. CAMPBELL: Now that is far beyond the idea of creating a system that people have insurance, have. access, have choices, that operates on the principles that we've been discussing, whether it's an HMO, whether it's what we chose to do with a PPO in the State of South Carolina, where we've involved our hospitals and doctors in it, or whether it's the pure private practice of medicine, where people say, "I want to go to this particular doctor and that's what I want in my system." Now we've lost all this in this idea that we can create some monumental government entity with a seven-person board that can tell you what, when, where, and how to do things and administer that through some public alliance. The states can do better individually.

MR. BUCKLEY: Yes.

GOV. CAMPBELL: You're absolutely right. We're the laboratories of democracy, and that's where you experiment.

MR. BUCKLEY: What the governor is saying is: Is that in your experience communicable, or is the inclination to have "the government" do it so all-encompassing that it's difficult to speak to people about it?

MR. TIMMERMAN: I think I am fairly close to my employees, and the last thing in the world they want to have is the government telling them how their health care is going to be provided. In fact my own view is that there are too many people that sit at the table now, and that clogs up the consumer-provider relationship that would lead to market efficiencies that we have talked about. In fact I think that going back to what the governor was talking about a few minutes ago, there really isn't a role for employers in this. The analogy I like to use is that the employer in all of this is sort of like the father of the bride at the wedding festivities.

MR. BUCKLEY: Useless, yes.

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MR. TIMMERMAN: He's sort of useless and stands off to the side but go into your back pocket and bring money out all the time. [laughter] I think that with a few sentence modifications to the tax code, you could get the employers out of the game of having to write the checks for health care, and at the same time allow employees or consumers the pocketbook veto over the kind of services they are provided or not provided. Consumers are not stupid, and over time they will make the right choices for themselves.

MR. BUCKLEY: Weil, would you advise them to join up with a managed care HMO simply to begin with?

MR. TIMMERMAN: I wouldn't propose to make that decision for any of my employees, because I think they are capable of making it for themselves, given enough information and--

MR. BUCKLEY: Suppose they want some friendly advice? Because you are more experienced than they are.

MR. TIMMERMAN: Well, you know, that puts me in a very difficult and awkward position with my employees. It's really a personal choice. An HMO might be right for one family, a PPO arrangement might be better for another, and private care might be better for a third.

DR. MIDDLETON: Mr. Buckley, he should offer both. He should offer traditional--

MR. TIMMERMAN: Well, why should I have to offer anything? I mean, I shouldn't be in a position of having to choose your HMO versus his HMO versus anybody else's HMO.

MR. BUCKLEY: Okay--

MR. TIMMERMAN: Because when I do that, then I am put in the position of being some kind of parent for my employees, and that's not my role with my employees.

MR. BUCKLEY: But aren't they going to want you to bargain on their behalf since you can get a better deal for them than they could operating individually?

MR. TIMMERMAN: I would agree with that if the situation stays like it is and we've had some fairly hard negotiations with Mr. Sellers, who will be on a later edition, and with some of the hospitals around here. The fact is though that if a truly quality competitive marketplace can exist where consumers have education and choice and consumers have the money that they spend to buy an HMO coverage or to buy a PPO coverage or to buy some other form of insurance, they will make the right choice for them and their families and not make me have to make that

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choice for them. The competition will create the cost savings, not the fact that I can negotiate tougher for 4,500 employees.

MR. BUCKLEY: Well, having said that, would you agree that although there oughtn't to be any compulsion that's unnecessary, that it would be wise to require insurance against catastrophic illness because it becomes sort of a social concern the moment it happens? Would you go along with that, Dr. Seward?

DR. SEWARD: I think your question comes down to whether or not you really believe that government has the ability to decide something and mandate it for the public. Now I personally--

MR. BUCKLEY: They do with a driver's license.

DR. SEWARD: Yes, I understand that, and there are a lot of other things. But when you actually mandate that-- Now personally I think that I should have catastrophic insurance, frankly and have the ability to do that.

MR. BUCKLEY: I think you should too. [laughter]

DR. SEWARD: I do too.

MR. BUCKLEY: My point is, if you have Mr. Jones or Mrs. Jones develops an illness that eats up $200-300,000, as a matter of fact we agree that they can't handle that. Therefore, since it's going to be handled, shouldn't there be some-- That's the whole idea of insurance, isn't it?

DR. SEWARD: Certainly.

MR. BUCKLEY: Is it your philosophical point that you can't compel something of that nature?

DR. SEWARD: Well, I am not sure that we have the ability to compel it well. But I think you raise up a different point here about the types of insurance that-- Really what is the basis of insurance? and I think we have gotten away from that. It was supposed to be to insure against risk. And I think to an extent now that you have not defined really that you are-You want just a benefit rather than having to insure against risk. And I think more and more, when I look at my patients, when they have the ability to be able to be part of that equation, they will make good decisions. And I think that is what we need to get back to is that concept where they're part of the equation rather than having a company offer it or government offering it, that they are a part of the decision making.

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" '

MR. BUCKLEY: Well, does anybody dissent from Dr. Seward? I mean, is anybody here prepared to say yes, I think there ought to be a law that people insure themselves against catastrophic illness? [pause) Great heavens, that's extraordinary. Has the proposal ever arisen in South Carolina?

GOV. CAMPBELL: No, but there have been a lot of proposals that encompass catastrophic insurance, and there are a lot of people--as a matter or fact, there are a number of people in the mythical 37 million uninsured in America who make over $50.,000 a year and a close study of that will find that some of them are uninsured for primary1 but they have some catastrophic coverage and they have made an independent decision that they are capable of taking care of their minor illnesses, but they want to protect against a major illness. And there are many proposals that make a lot of sense Irom the standpoint of insurance which in ef£ect allow people, and companies even, that have looked at this, or individuals, where they can have a medical savings account or where the company can say you have $3, 000 a year and catastrophic too that you can purchase •.

MR. BUCKLEY: Thank you, Governor; thank you, gentlemen; thank you all.

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FIRlnGLlne - Hoover Institution...the University of South Carolina School of Medicine. He is a...

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Transcript of FIRlnGLlne - Hoover Institution...the University of South Carolina School of Medicine. He is a...