Health Perspectives Vol. I No. 2 September-October 1973


The national expenditure for all health services was $83 billion in 1973. In 2010, the national expenditure was over $1.3 trillion; an increase of 17.5 times. The GNP increased on average at about 3% per year while the increase for medical care ranged from 6%-13% per year. The percentage of the GDP spent on health services increased from 5% to nearly 20%. That increase translates into $1 of every $5 of goods and services produced in America is now spent on medical services. Part of the problem of escalation and unaffordable expense for health care and insurance was the lack of information, its analysis and action based on that analysis.

While disclosure in the first issue of Health Perspectives of the names of owners and descriptive information about proprietary hospitals in New York City rose more than a few eyebrows, this issue blew the lid off of the then confidential Blue Cross, Medicaid and Workmen’s Compensation per diem reimbursement rates to hospitals located in Westchester, Nassau, Kings, Queens, Richmond, New York and Bronx Counties. Having the information was helpful to many self-insured unions and companies but it had extremely important potential for change in social policy. While the range of reimbursement could be partially explained by some factors considered important to the establishment those explanations failed miserably when comparing reimbursement to municipal hospitals and voluntary hospitals that were almost side by side in each community.

More so, it became clear that hospitals willing to spend money without much regard to the consequences of those expenditures which were a duplication of other resources, unnecessary or unproven, or grandiose would gain in the cost-plus reimbursement. Other hospitals which controlled expenditures (costs) were penalized because over a period of years its base rate year did not increase as fast as other hospitals. All acute care municipal hospitals received the same reimbursement as all other municipal hospitals; $111.24 (Blue Cross); $129.62 (Medicaid) and $143.00 (Workmen’s Compensation). Without knowing it then, the data was very suggestive that that per diem reimbursement was a dinosaur whose day of destruction was fast approaching. The Medicare DRG reimbursement methodology gave hospitals a negative incentive to admit and keep patients in the hospital. The DRG methodology replaced the positive incentive of per diem reimbursement to do just the opposite. Over time, actually almost immediately, hospitals figured ways to game the new DRG methodology. And with the new rules, each side parried to gain an advantage: one seeking to maximize income as the other sought to place limits on income. What was and is still lost on everyone is that the only way to save money is not to spend it. Reimbursement systems that crippled hospitals in their efforts to stay competitive only caused reductions in service and that elusive property known as ‘quality’.

As the admissions tumbled hospitals closed services that were determined to be loss centers and reduced the number of beds. But competition forced the hospitals to continue to seek professional staff and new technology that was costly. As the not really sick and only somewhat sick patients were reduced at first and eliminated eventually, the only people still in the emergency rooms and beds were the as Reagan would say ‘truly’ sick patients. These patients used hospital resources at a greater intensity, needed those resources from day one until discharge. The old per diem rates that did not cross the $100 on average glass ceiling until the late 1960’s shattered. The average hospital per diem charge (not to be confused with per diem reimbursement) soon hit $200, $300, $400 per day. In 2008 the daily average hospital expense was slightly under $1,800.

Don Rubin said, “Now we see the injustice of the reimbursement system. Losses in income due to discounts given to Blue Cross, Medicaid and Workmen’s Compensation are being underwritten by self-pay patients and self-insured insurance plans. The self-pay patients are billed 20%-25% more to cover the losses caused by hospitals giving discounts.” The CCAHS disclosures put the issue into the public’s eye and put pressure on hospitals, insurers and self-pay patients to question why the system was designed to not work. Unfortunately, the reaction was not to fix the errors but to prevent self-insured and self pay patients from enjoying a reduction in their bills or an equal discount. That reaction supported the continued previously veiled transfer of wealth from them to the insurers and hospitals. With the next CCAHS publication the battle continued and escalated.

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