HEALTH CARE COSTS: Employers Rally As Inflation Returns
The Wall Street Journal reported yesterday that big employers "are stepping up pressure on health maintenance organizations and health care providers to cut costs the way the rest of American industry has done." Employers' actions are being driven by "demands for steep rate increases" from health plans. The Journal noted that pharmacy "costs at some HMOs are rising at a 10% to 15% annual clip." Besides higher drug costs, HMOs say their rate hikes are in response to "higher hospital charges." But Jim Cubbin, executive director for health care initiatives at General Motors, said: "We're not just going to say, 'OK, we will pay your higher rates.'" According to the Journal, "corporate America [is] disillusioned by the failure of HMOs to keep a lid on medical costs," leading many employers to consider the idea of "direct contracting" to skirt HMOs and "buy services directly from hospitals and doctors" (White/Rundle, 5/19).
The Minnesota Experiment
"Here in the cradle of the managed-care revolution, the dragon of inflation is reviving with a vengeance" -- thus began the last installment in a Wall Street Journal series entitled, "Sick Business: The Resurgent Turmoil in Health Care." Appearing in yesterday's issue, the article focused on efforts by Minneapolis employers (through the Buyers Health Care Action Group) to halt health care inflation and improve quality. George Halvorson, CEO of HealthPartners, said: "We're going to see double-digit inflation in health care return. What we're seeing in Minnesota is beginning to happen in every other market in the country."
The article came to several conclusions about why health care costs are beginning to rise again nationwide. "The short answer is that HMOs concentrated too much on managing costs and not enough on managing actual care," the Journal reported. As health plans fought for market share, they entered into "bidding wars that resulted in artificially low rates to employers." In other words, the article reported, HMOs "forced down the prices charged by doctors and hospitals and made little headway altering the patterns of care that are the true drivers of cost. Now, in many markets, that short-term solution has run its course." But the Journal didn't lay all the blame on health plans, noting that the "trillion dollar health care machine is fueled by three seemingly immovable forces: consumer demand for free choice of doctors and access to the newest, best technology; innovative and market-savvy companies determined to invent and sell this technology; and doctors and medical centers eager to provide it -- for a fee." As the Journal reported, "In the face of these forces, the drive to contain costs is faltering all across the U.S." (Winslow, 5/19).