HEALTH CARE BUSINESS: Thriving Despite Gloomy Forecasts
"At the beginning of the 1990s, health care inflation was running in the double digits; analysts predicted that by now the nation would be devoting 17% of its gross domestic product to health care," NPR's Robert Siegel reported. According to NPR's Patricia Neighmond, "This is a story with an ominous beginning for many, and an unexpected, happy ending for most. The ominous beginning occurred around 1992, in the form of predictions about what to expect from the tidal wave of managed care companies that were expected to reshape the practice of medicine, predictions that forecast doom and gloom for mostly everyone in the health care industry, other than managed care companies." Princeton University economist Uwe Reinhardt said, "Hospitals were told you're going have huge layoffs, the hospital sector is going to shrink. One-third of the hospital capacity nationwide isn't needed and you're going to have to close them and lay off all these people. Doctors were told there will be a surplus of 165,000 doctors out of 500,000, which is close to 38%. ... Everyone told the drug companies you're going to shrink and you're not going to see profits for a decade." He noted, however, that "[n]one of that has come about." According to Neighmond, "most segments of the health care industry are facing some of the best financial years ever."
Hooray For The Hospitals
"How did it happen?," Neighmond asked, going on to report that "one big reason has to do with the quick response of at least one industry -- hospitals." Industry analyst Ian Morrison noted that hospitals prepared for the managed care revolution by engaging in a "frenzy" of mergers and acquisitions. "They reengineered and they outsourced and they downsized and they fired their nurses and made themselves lean and mean. And as a consequence, they've been lucky enough to make money over the last couple of years," he said. Neighmond noted, "Hospital profits nationwide are in fact higher than they've ever been, growing nearly 25% in 1996."
Not For Everyone
"[N]ot all hospitals are doing well," Neighmond reported, citing American Hospital Association's Rick Wade as saying "[a]bout 20% of hospitals nationwide are seriously troubled." Wade said, "They're losing money [and] could go under financially. Unfortunately, those institutions are in communities where you can least afford to have something go under because there's nothing there to take its place." Neighmond reported, "In fact, many rural and inner city hospitals have been on the financial edge for years, long before the onslaught of managed care. But a market-based health system, says economist Uwe Reinhardt, is designed to force weak hospitals out of business."
Doctors Doing Well
"For doctors, their financial status isn't ... nearly as tragic as once predicted. Managed care has not forced thousands of doctors into joblessness. ... Incomes have dropped for some high-tech specialists like radiologists and anesthesiologists, but most doctors have seen their income steadily increase," Neighmond reported. But according to AMA board Chair Dr. Thomas Reardon, physician incomes "have only barely kept up with inflation." Reardon said, "From 1992 to 1996, median income rose ... 10%, and mean about 9%, while inflation was close to 11%, so that in the last five years their incomes have really lagged some." "Even so," Neighmond reported, "lagging behind inflation by just one percent still means physicians have seen much healthier increases than the average American. And last year physician incomes reached another record high, averaging $199,000."
Neighmond reported that drugmakers are "[r]eaping the benefits as hospitals shift more patients from overnight stays to outpatient clinics." Reinhardt said, "As you empty the hospitals, drugs become the maintenance by which you actually maintain patients. ... And you're making up on the volume more than what you lost on price. So the drug companies are sitting pretty."
Boom Times Are Here
"Reinhardt says that the biggest reason why drug companies, doctors and hospitals, home health care companies and other health providers are doing so well under managed care has to do with the overall economy -- an economic boom that has continued far longer than anyone thought," Neighmond reported. Reinhardt said, "Nowadays, employees know they are scarce, there's a tight labor market and they're fussy, and they tell their employers, 'We're not going to put up with gatekeeper models.'" "And because business profits are also up," Neighmond reported, "companies are more willing to keep employees happy. ... Ironically, the segment of the health care industry that's suffering are HMOs and other managed care health plans themselves." Morrison said health plans have had to "capitulate" to employers and enrollees who want more choice "because they are commodities. None of them are unique, really, and so if one of their competitors says that we're offering an open-access product, they have to follow suit or lose the business." As a result, Morrison said, health plans have "failed to deliver on one of their biggest promises -- to transform the way medicine is practiced by doctors and hospitals." Neighmond concluded: "At some point, Morrison says, discounts on medical care will go as far as they can. Then, he says, a more dramatic approach will be necessary in order to truly contain health care costs -- the explicit rationing of medical care. But until the next recession, that's unlikely to happen, because until then there seems to be plenty of money to keep the health care industry thriving" ("All Things Considered," 5/5).