Hospital-Based Health Care Systems in Transition:

The Post-BBA Era

July 2000

C O N F E R E N C E R E P O R T

April 27-28, 2000Annapolis, Maryland

A Conference Concerning Site Visits toBon Secours Health System (Richmond and

Hampton Roads),Henry Ford Health System (Detroit),

University of Washington Academic MedicalCenter (Seattle)

ContentsDirector’s Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Origin and Description of the Project . . . . . . . . . . . . . . . 1

The Site Visits: Background and Impressions . . . . . . . . . 4

� Bon Secours Health System(Richmond and Hampton Roads, March 16-17) . . . 4

� Henry Ford Health System (Detroit, March 20) . . . . 7

� University of Washington Academic MedicalCenter (Seattle, April 10-11) . . . . . . . . . . . . . . . . . . 9

The Annapolis Conference: Overall Perspectives . . . . . 15

A Research Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Participants’ Comments . . . . . . . . . . . . . . . . . . . . . . . . . 22

Director’s Note

ii

Hospital-Based Health Care Systems in Transition: ThePost-BBA Era summarizes impressions of a two-day work-shop in Annapolis, Maryland, and three small-group site visitsthat preceded it. Designed to look at the far-reaching changesenacted under the Balanced Budget Act of 1997 (BBA) andhow they would play out across the health delivery system,the exercise grew out of discussions with the National HealthPolicy Forum’s Private Market Technical Advisory Group(TAG). It brought together a range of federal policymakersand hospital-based system executives to share their perspec-tives on the outlook for operating in the post-BBA era. Whileinitially intended to look at impacts on many kinds of insti-tutions, the workshop focused on hospital-based systems butattempted to incorporate attention to post-acute needs andservices across the continuum of care.

As this project took shape, the policy environment wasshifting considerably. Rapidly rising Medicare costs andmajor budget deficits that had given rise to the BBA al-ready belonged to the past, replaced by unprecedentedreductions in Medicare outlays and rapidly increasing bud-get surpluses. And there was disagreement about the rea-sons for such a turnaround in expenditures, with ques-tions being raised about the extent to which increased fraudand abuse surveillance and overall belt-tightening in lightof managed care pressures might be at work. Against thisbackdrop, examining the effects of the BBA turned out tobe a difficult task, because the data are incomplete andconflicting on what actually has occurred. Also, becauseimplementation of the BBA extends through 2001, someof its effects have yet to be experienced.

By the time of the workshop, congressional staff mem-bers were still quite mindful of the budget pressures theirbosses had been under and the specific objectives they wantedthe BBA to achieve, while interest groups were intent on“givebacks” that would alleviate the legislation’s impact.Comments received after the workshop indicated equallymixed emotions because many of the disruptions and ineq-uities felt by various players—and explored at the work-shop—had been swept under the rug as election-year poli-tics made across-the-board restoration of funds likely. It wasnoted, however, that at some point a variety of issues such asthe stability of safety net functions and the support for gradu-ate medical education will need to be addressed, with fur-ther analysis required before meaningful action can be taken.

This report takes these factors into account. It was authoredby the three NHPF staff members who developed the project.Nora Super Jones, senior research associate and coordinatorof the project, contributed the “Origin and Description” and

Bon Secours section. Lisa Sprague, senior research associ-ate, prepared the Henry Ford Health System (HFHS) por-tion. Karen Matherlee, co-director, supplied the Universityof Washington Academic Medical Center (UW AMC) sec-tion and wrote the “Overall Perspectives” of the Annapolisconference.

In doing so, the three drew upon the contributions ofnumerous people. Thanking them all would be a docu-ment in itself. Joeann Karibo, director of community com-mitment, and Everard Rutledge, Ph.D., vice president ofcommunity health, Bon Secours, were instrumental to theorganization and conduct of the Bon Secours site visit.Gail Warden, president and chief executive officer ofHFHS and a member of the Private Market TAG, was theforce behind the Detroit site visit and, indeed, of this BBAproject itself. He was ably assisted by Darlene Burgess,vice president, government affairs, for HFHS. Aaron Katz,director of UW’s Health Policy Analysis Program; BruceFerguson, assistant vice president for planning in the UWAMC School of Medicine; and Elise Chayet, director ofplanning and regulatory affairs at Harborview MedicalCenter, as well as John Coombs, M.D., associate vicepresident and associate dean of the UW School of Medi-cine, were key advisors and contributors to the Seattlesite visit.

Sheila Burke, at the time associate dean of the KennedySchool of Government, Harvard University, and LindaBilheimer, senior program officer, Robert Wood JohnsonFoundation, served as moderators at the Annapolis confer-ence and gave generously of their expertise. Julie James, aprincipal at Health Policy Alternatives; William Scanlon,Ph.D., director of health financing and public health issuesat the General Accounting Office; and William Vaughan,minority professional staff member of the House Ways andMeans health subcommittee, were extremely helpful in or-ganizing the Annapolis meeting. Julie James, LindaBilheimer, and Bill Scanlon, along with Katharine Levit ofthe Health Care Financing Administration and Sibyl Tilsonof the Congressional Research Service, reviewed and madeinvaluable suggestions for this report. The responsibility forthe report’s contents, however, belongs to NHPF.

With deep thanks to all who participated in this project,NHPF looks forward to tackling the research agenda thatresulted, with the help of the dedicated corps of people whoappear on this page and those that follow.

Judith Miller Jones, DirectorJuly 2000

1

Origin and Description of theProject

In the last decade, the health care marketplace hasundergone dramatic change, fundamentally altering how andwhere care is delivered, how providers are organized andoperate, as well as how care is financed by both private andpublic sources. Hospitals—traditionally the bedrock of thehealth care system—have developed new ways of doingbusiness to respond to this changing environment. Manyhospital-based systems have moved to integrate care acrossdelivery sites, forging new relationships with physicians,skilled nursing facilities (SNFs), home health agencies, andother parts of the health care delivery system. Others haveconsolidated and merged operations to respond to competi-tive pressures. Changing payment structures and incentiveshave made it more challenging for hospitals to continue tofulfill historical social missions such as providing care to thepoor, training new medical professionals, and conductingclinical research.

In the midst of these challenges, Congress enacted theBalanced Budget Act of 1997 (BBA), which containednumerous changes to the Medicare program as well asother health provisions. These include some changes inMedicaid plus new State Children’s Health InsuranceProgram and Medicare+Choice initiatives. Designedprimarily to balance the federal budget, the act signifi-cantly reduced projected federal spending on the Medicareprogram. A majority of these savings result from slowingthe rate of growth in payments to hospitals, physicians, andother providers. A second major source of savings comesfrom new payment methodologies for SNFs, home healthagencies, rehabilitation hospitals, and outpatient ser-vices—sectors that many hospital-based systems hadexpanded prior to the BBA.

Most of the provisions of the BBA began to take effectin fiscal year 1998; the remainder will gradually be phasedin, with full implementation by 2002. As its many provisionshave come into effect, and with providers feeling increasedfinancial pressure, Congress has been heavily lobbied byindustry groups to restore Medicare funding. In 1999,Congress responded with the Medicare, Medicaid, andSCHIP Balanced Budget Refinement Act (BBRA), whichprovides $16 billion of additional funding over five years and$27 billion over 10 years ($7 billion directly to hospitals).

It is difficult to sort out the effects of the BBA on thefinancial status of hospitals and related providers from those

brought about by other factors. Because Medicare accountsfor about 40 percent of the income of the average U.S.hospital, BBA payment reductions were bound to have animpact on hospitals’ bottom lines. The extent of the impactseems to be the result of a variety of factors, including levelof integration and range of services provided, service arealocation, breakdown of funding sources (Medicare, Medic-aid, private, and uncompensated), managed care penetration,demographics of the population served, level of competitionfrom other delivery systems in the same markets, and theeffects of other federal and state policies, such as fraud andabuse detection and Medicaid payment rates. Hospitals thathave historically subsidized other lines of business withMedicare funds seem especially vulnerable to the effects ofthe BBA.

Data needed to evaluate the impact of the BBAchanges are not available in many cases. In addition, thegradual or delayed phase-in of many BBA provisions, theconcomitant effects of marketplace changes, and otherlegislative and regulatory activities make it difficult toprecisely determine the impact of the BBA. Nevertheless,the enactment of the BBA marked the end of an era inhealth care financing. The philosophies that undergirdmany of its provisions raise fundamental questions aboutthe role of Medicare in the broader U.S. health caresystem. How hospital-based systems respond to this newfinancial environment has important ramifications for thefuture of health care delivery.

To better understand the changes that hospitals andrelated providers face in the post-BBA environment andways in which those changes might affect access to anddelivery of care, the National Health Policy Forum sponsoredthree separate site visits in March and April 2000, with thesupport of the Robert Wood Johnson and John A. HartfordFoundations. Supplementary funds were also provided by theW. K. Kellogg Foundation. These site visits were designedas case studies to examine three hospital-based systems thatrepresent alternative combinations and configurations ofservices operating in different types of markets.

SITE VISITS

Site visitors learned about the structures of each of theparticipating hospital-based systems, the services they

2

provide, the populations they serve, and the circumstancesthey face. The key objective was to assess how eachhospital-based system plans to meet the challenges of thepost-BBA era and what its strategies may mean for thesystem’s ability to fulfill its missions as well as for broadernational policy objectives. Because of their limited scope,these case studies were not meant to provide definitiveconclusions about the status of all hospital-based systemstoday; however, they were intended to provide newinsights and perspectives regarding the future of healthcare delivery.

Three different hospital-based health systems openedtheir doors to NHPF site visitors, allowing participants tohave an inside look at each system’s challenges, priorities,and strategies for the future. The three selected health caresystems offered an opportunity to look at BBA impactsfrom different vantage points. First, the Bon SecoursHealth System, Inc. (BSHSI), with its heavy emphasis onpost-acute services, allowed participants to better under-stand the impact of payment changes across delivery sites.Next, the Henry Ford Health System (HFHS) presented anexcellent example of the challenges facing an integrateddelivery system, known for delivery innovation and qualityimprovement, as it struggles to stay financially viable inthe wake of reduced Medicare and Medicaid paymentrates. Finally, site visitors to the University of WashingtonAcademic Medical Center (UW AMC) gained new insightinto how one of the most significant AMCs in the countryis dealing with private and public challenges.

ANNAPOLIS WORKSHOP

On April 27 and 28, NHPF sponsored an invitation-only workshop in Annapolis, Maryland, at which thefindings from the site visits were featured. Participantsincluded nearly 70 health policy officials, includingmembers of the Forum’s Steering Committee and PrivateMarkets Technical Advisory Group (TAG), as well asother invited representatives from Capitol Hill, congressio-nal support agencies, and executive branch agencies.

On the first afternoon, workshop participants exam-ined the trend data leading up to the BBA, the rationale formany of its provisions, and the legislative and fiscalenvironment in which both the original law and subsequentrefinements were enacted. In addition, the most recentpost-BBA data regarding Medicare spending and utiliza-tion were presented. This session was moderated by SheilaBurke, chair of NHPF’s Private Markets TAG and execu-tive dean of the John F. Kennedy School of Government.Speakers included current and former legislative aides whowere instrumental in writing and designing the BBA aswell as analysts who have been monitoring the impact ofthe BBA on Medicare spending and utilization trends.

Day two highlighted findings from the three site visitsdescribed above. Representatives from each of the partici-pating health systems made presentations that werefollowed by commentary from site visit participantsregarding their key impressions.

Gail Warden, president and chief executive officer(CEO), spoke on behalf of HFHS at the workshop. Hisfocus was an assessment of how Medicare paymentpolicies help or hinder integration of care. He observedthat the BBA had removed some Medicare dollars fromthe system altogether and redistributed others amongdifferent components of an integrated system such asHFHS. At the same time that HFHS was trying to re-orientitself to absorb BBA cuts, the state of Michigan sharplyreduced Medicaid payment rates. The combined impacthas caused HFHS to eliminate 1,300 staff positions,downsize community-based programs, and reduce itscommitments to graduate medical education, healthpromotion, clinical quality improvement training, andother innovative programs. Warden acknowledged thatBBA-related belt-tightening had brought about improve-ments in HFHS’s business practices; however, he ex-pressed concern over the growing numbers of uninsuredand the federal government’s increasing distance from theneeds of low-income populations.

Everard O. Rutledge, Ph.D., vice president of commu-nity health, BSHSI, described Bon Secours’ vision of a newdelivery model that seeks to provide an integrated continuumof care. To pursue this vision, Bon Secours has engaged in aproactive strategy to diversify operating risk, achieveadequate organizational size, and enhance system behaviors(for example, adopting best practices). Eileen Malo, vicepresident of continuing care for Bon Secours HamptonRoads, focused her remarks on the health system’s opera-tions in Hampton Roads, Virginia. Bon Secours HamptonRoads has estimated the net impact of the BBA and theBBRA to be nearly $36 million over three years. While sheacknowledged that the BBA provided needed reforms suchas improved patient care delivery design and processes aswell as data development to benchmark quality, she warnedthat the act has also resulted in several negative, unintendedresults. She said that continuity of care has been impaired bydelinked financial incentives and that access to neededservices has been limited or denied, especially skillednursing for medically complex residents and certain homehealth services. Finally, she emphasized that the BBA hasresulted in an increasing workload and stress for health careworkers and that the inadequate payment rates have left thesystem with no opportunity to adjust wages to reflect value,leading to shortages of certified nurse assistants, registerednurses, and nursing home administrators.

In the briefing that John B. Coombs, M.D., associatevice president for medical affairs and associate dean of the

3

University of Washington’s School of Medicine, providedAnnapolis participants, he reviewed UW AMC’s compo-nent parts and described the environment in which eachcomponent operates and the public and private policies towhich each responds. Focusing on the academic program,he emphasized its five-state reach (Washington, Wyoming,Alaska, Montana, and Idaho), as he looked at state andregional pressures on a system that is broadly dispersed. Inbreaking down revenues and costs, he stressed the publicbenefits—in regional and safety-net services, basic scien-tific advances, and technology—that the system provides.In looking at Medicare, Medicaid, charity care, and otheraspects of the BBA, he predicted a $58 million to $65million impact in the next five years, compounded bycutbacks in state-funded programs.

The workshop concluded with a wrap-up session atwhich participants were asked to tie together the legisla-tive, regulatory, and delivery system priorities that hadbeen discussed throughout the conference. The keyquestion driving the discussion was what role Medicareshould play in an interdependent, public-private financingand delivery system.

4

The Three Site Visits:Background and Impressions

�������������� ���� ��������

BACKGROUND

NHPF organized a two-day site visit to Richmond andHampton Roads on March 16 and 17, 2000, to study post-BBA issues in the context of the Bon Secours Health Sys-tem’s Virginia operations. The site visit was designed to helppolicymakers better understand how changing paymentincentives—particularly the move to prospective paymentsystems for post-acute services—has affected the ability toimplement a continuum of care across delivery sites. Elevenindividuals participated in the site visit, including representa-tives from the U.S. General Accounting Office, U.S. Depart-ment of Health and Human Services, Congressional BudgetOffice, Congressional Research Service, and U.S. House andSenate staff.

Components

The not-for-profit Bon Secours Health System, Inc.,includes 24 owned or joint-ventured acute care hospitals,nine long-term nursing care facilities, seven assisted andindependent living facilities, 11 home care and hospiceservices, and numerous primary care and outpatientfacilities in 14 communities across nine states. BonSecours has pursued strategic growth in existing and newcommunities. The growth objectives are to develop aconcentrated presence on the East Coast and, within eachcommunity served, to develop a continuum of health careservices that meet the community’s needs and is attractiveto managed care plans. This site visit examined the sys-tem’s operations in Virginia, which include four hospitalsin Richmond and three hospitals in the Hampton Roadsarea, in addition to nursing care, home health, assistedliving, and ambulatory care facilities.

Health Marketplace

In the Richmond metropolitan area, two major net-works have developed, Bon Secours and Columbia.Columbia has four hospitals in Richmond and holds 40percent of the market share. The leading hospital isoperated by the Medical College of Virginia, with a 24percent market share. CenVaNet is a physician-hospitaljoint venture formed in 1996. This regional organizationcomprises 11 participating hospitals, 1,500 physicians, and

a complete continuum of ancillary services. In addition, itis the leading delivery system in Medicare and Medicaidmanaged care in central Virginia, accounting for 21,000combined lives. Managed care penetration in Richmond islow. Payers have either abandoned products designedaround capitation/risk or are discontinuing capitation/riskdeals as corporate strategies.

Bon Secours Richmond Health System owns fourgeographically dispersed hospitals. It participates in theCenVaNet as a founding member and holds approximatelya 30 percent market share. Besides acute care, the contin-uum of services includes hospice, home care, occupationalmedicine, senior services, assisted living facilities andphysician support services.

In Hampton Roads, Sentara and Tidewater Health Carerecently merged their two systems into a joint operatingcompany, making Sentara the leading acute care provider inHampton Roads and the only acute care provider in VirginiaBeach. Bon Secours Hampton Roads has two majorcompetitors—Sentara, which operates five acute carehospitals, and Riverside Health System, which operates fourhospitals. Sentara commands 46 percent of the market share;Bon Secours is the second leading provider network, with a20 percent market share. Managed care penetration inHampton Roads is stabilizing at around 28 percent. Capitat-ed products have not been successful in this market, exceptfor specialty services such as behavioral medicine.

Bon Secours Hampton Roads consists of three acutecare hospitals, a behavioral medicine facility, two nursingcare centers, and one existing assisted living facility and anassisted living facility in construction. Additionally, theservice continuum includes home health, off-site diagnos-tics, primary care, urgent care, outpatient rehabilitation andoccupational health services, physician practices, and anoutpatient facility.

PROGRAM

Site visitors spent the first day in Richmond discussingthe changing health care financing environment, theresponses of the hospitals and other parts of the BonSecours system, and the impact on the system’s patientcare and social missions. Discussions centered on shifts inthe sources of revenue, federal and state policy changes,

5

and market consolidation and competition. On day two,participants visited the Hampton Roads Virginia area,which includes Portsmouth, Norfolk, and Virginia Beach.Discussion focused on the challenges of developing aninfrastructure across the continuum of care and the impactof new prospective payment policies on acute, skillednursing, and home health care delivery. Site visitors alsotoured a nursing home and an assisted living facility.

IMPRESSIONS

�

Competition has caused the Bon SecoursHealth System to think more strategically.

Through a series of acquisitions, BSHSI has pursuedstrategic growth in existing and new communities. Theseacquisitions have enabled Bon Secours to consolidateservices and thereby reduce excess capacity. For now, theacquisitions seem to allow them to stay competitive in themanaged care market. Yet it remains to be seen whetherthese multiple lines of business will remain profitable. BonSecours has found that effective consolidation of servicesrequires significant investments in information systems.Future success will depend on its ability to successfullycoordinate care through the various levels of integration.

Bon Secours has developed comprehensive assess-ments of the unique needs and capacities of each of thefourteen communities it serves. Observations of thedifferences between the Richmond and Hampton Roadsmarketplaces show that while the corporate parent canoffer direction, all health care is essentially local.

Bon Secours’ business strategies seemed designed tomake money or avoid losses and mirrored strategiesusually associated with for-profit entities. This troubledsome site visitors who thought the Catholic non-profit hadlost sight of its mission. They raised concerns about theimplications for charity care and care of the uninsured.Other site visitors thought the hospital-based system hadresponded appropriately to payment incentives and haddone what it needed to do to survive in today’s market-place, such as reducing marginal services and consolidat-ing to improve efficiency.

�

In each of the markets in which it oper-ates, Bon Secours tries to find its nicheand focus on core strengths, striving to bethe number one or number two deliverysystem (direct or aligned) in marketsserved.

BSHSI is willing to exit unprofitable operations whenneeds can be met by other means or providers. Selectivemovement of certain profitable services outside of institu-tional settings (for example, oncology, neurology, radiol-ogy) have made it difficult to subsidize unprofitable linesof business.

In Richmond, Bon Secours has recently acquired StuartCircle Hospital and Richmond Community Hospital andplans to close Stuart Circle in the near future. This closurewill shift more of the burden of indigent care onto theMedical College of Virginia. Initially, the community—through the certificate-of-need process—had objected to theclosing of Stuart Circle but these objections seemed to havebeen overcome.

In Hampton Roads, Bon Secours has acquired DePaulMedical Center and Portsmouth General, which was closedshortly after purchase. Services previously provided atPortsmouth General have been consolidated at MaryviewMedical Center, a Bon Secours hospital, and at Bon SecoursHealth Center at Harbor View, an outpatient facility.

�

In light of competition and populationshifts, Bon Secours has elected to movefacilities to the suburbs.Payer mix seems more critical for financial stability

than patient mix in the new health financing environment.Bon Secours Richmond has entered into joint ventures torelocate urban hospitals to suburban locations strategicallyplaced near interstates. Moving to the suburbs seems to bea direct effort to follow insured patients.

Relocation of hospitals is also important for successfulmanaged care contracting. Bon Secours is number two inthe marketplace in both Richmond and Hampton Roads.This position gives it much less negotiating clout withmanaged care plans. For example, Columbia/HCA, whichhas a 40 percent market share in Richmond, routinelyachieves a 30 percent greater reimbursement from privatepayers than Bon Secours does.

In Hampton Roads, the leading system, Sentara, hadbeen able to shut Bon Secours’ facilities out of managedcare contracts. Bon Secours has had to work aggressivelyto be included in the Sentara network of products, whichincludes Optima—the area’s largest health maintenanceorganization (HMO).

�

Creating a system to deliver an integratedcontinuum of care is a key operatingprinciple of Bon Secours.

6

The Bon Secours service continuum includes acutecare hospitals, SNFs, assisted or independent livingfacilities, primary clinics, physician service organizations,home health services, hospices, and community-basedprevention and wellness programs.

The basic strategy of Bon Secours is to operate as asystem, with each entity doing its best to carry its ownweight. Site visitors speculated that, through Medicarepolicies, managed care, and private payer policies, thefuture may see the demise of the stand-alone facility.Views on whether this was positive or negative varied.

In care management, Bon Secours has been trying tomove from episodic care to population management. Whileit is not quite there yet, it has made improvements in chroniccare patient management. Its model favors heavy R.N.involvement across the continuum.

Care management has also focused on reducingvariations by comparing all facilities in the system to oneanother. Bon Secours has focused on developing aninfrastructure to successfully work within the “averages”dictated by prospective payment systems.

While integrated delivery is the goal, the Bon Secourssystems have a way to go in terms of full system integration.Payment incentives often create instances in which one partof the system competes against another. It is difficult tointegrate care delivery in such a way as to ensure that loss tothe overall system is at a minimum (for example, troubleplacing hospital patients into skilled nursing can result inhigher total system cost). Impact on the bottom line could belessened if services were better coordinated.

Labor pressures have hampered Bon Secours’ ability toprovide needed services and keep costs down. Nursingshortages and home health and nursing aide shortages areprevalent. The booming economy, coupled with increasedpaperwork requirements and the demands of caring forcomplex patients, have made recruitment extremely difficult.

�

The BBA has challenged Bon Secours’ability to fulfill its mission.

Changed financial incentives and payment reductionshave caused the system to better coordinate and managepost-acute care. For example, home health care providersreported that they have had to move their care philosophymore in the direction of teaching family caregivers toprovide care and away from providing care directly.Hospital discharges to SNFs have had to be better coordi-nated and marginal home health visits have been reduced.

SNF, home health, and transfer payment changes haveaffected acute facilities’ ability to discharge patients,according to BSHSI representatives. Several staff memberssaid it had been increasingly difficult to place patients whomeet care criteria because the SNFs will not or cannotaccept them.

Reduced revenue has forced Bon Secours to eliminateselect missions programs and to search for grant funding tosupport missions such a mobile “care-a-van.” Yet, sitevisitors noted that, despite payment reductions, Bon Secourshas been able to make significant capital acquisitions.

The Bon Secours Richmond home health agency hasa low interim payment system cap rate based on earlierexperiences. As a result, Bon Secours officials contend,efficient providers have been penalized. The interimpayment system has been a major challenge; Bon Secoursrepresentatives believe their organization will do betterunder the prospective payment system.

As an integrated health care system, Bon Secoursofficials believe the most needed additional BBA refine-ments are an increase in the Medicare hospital inpatientpayment rate and the repeal of the 15 percent reduction inpayments for home care services. The anticipation of anoutpatient prospective payment system causes them to beconcerned about the system’s future ability to provide carein the most appropriate setting.

One Bon Secours hospital in the Richmond areareceives disproportionate share payments from Medicare.The BBA changes have created concerns about the abilityto provide a safety net to uninsured patients.

While Medicare’s tightened payments have clearlyaffected BSHSI’s bottom line, the evidence presented at thesite visit indicated that private-payer efforts were at least asimportant in contributing to the system’s financial condition.In addition, Virginia’s Medicaid program has also had anegative impact, with a recent move to mandatory managedcare and a practice of retroactive payment reductions.

�

Gearing up for new regulations placessignificant burden on staff and resources.

For example, the SNF’s entire profit margin for 1998was used to get systems in place for prospective payment.OASIS has been a big expense and time drain, accordingto the home health agency representative. However, sitevisitors expressed concern that the agency did not recog-nize the value in measuring quality and health status—keyobjectives of the OASIS system.

7

�

The promise of more choice in the Medi-care program has not materialized in theRichmond and Hampton Roads markets.

Medicare HMOs have not done well in either market-place. Before the BBA, Richmond had five HMOs partici-pating in the Medicare-risk program; today, only oneHMO (CIGNA) participates in Medicare+Choice. InHampton Roads, there are currently no Medicare HMOsavailable for beneficiaries.

����������� ���� ��

BACKGROUNDNHPF organized a one-day site visit to the Henry Ford

Health System in Detroit on March 20. Participantsincluded representatives of the Office of Management andBudget, the Health Care Financing Administration, theVeterans Health Administration, Medicare PaymentAdvisory Commission, and the Urban Institute. HFHSpresident and CEO Warden and HFHS government affairsvice president Burgess assembled a rota of key executivesto discuss the impact of the BBA on an integrated healthsystem.

ComponentsHFHS provides acute, primary, specialty, and preven-

tive care to a diverse population. It includes the HenryFord Hospital, a 903-bed tertiary facility in Detroit, and the359-bed Henry Ford Wyandotte Hospital to the west of thecity; HFHS also participates in joint ventures with BonSecours and Mercy Health Services to provide services inoutlying areas. (A Mercy hospital in Detroit, formerly partof the joint venture, was recently closed.)

HFHS operates the Health Alliance Plan (HAP), amixed-model managed care plan with 540,000 members,and the Child Health Network, a joint venture with theChildren’s Hospital of Michigan to coordinate pediatriccare. The Henry Ford Medical Group is one of the nation’slargest group practices, with 850 salaried physicians in 40specialties. Horizon Health System is one of the majorosteopathic providers in Michigan. Henry Ford BehavioralHealth offers inpatient care for those experiencing severeepisodes of mental illness and both residential and outpa-tient treatment for chemical dependency. Henry FordSenior Services coordinates care for the elderly andoperates two nursing homes. The William Clay FordCenter for Athletic Medicine treats many members ofDetroit’s professional sports teams. Henry Ford Hospiceserves more than 1,100 patients annually. Community CareServices offers a variety of supplies and services, including

pharmacy, home infusion, dialysis, and home health andprivate-duty nursing care.

The Henry Ford Sciences Center, which comprises theHenry Ford Research Institute and the School for HealthSciences, combines teaching, research, and advancedpatient care. The School for Health Sciences offers morethan 70 physician, nurse, allied health, and continuingmedical education programs. It has educational affiliationswith a variety of midwestern institutions, including CaseWestern Reserve University School of Medicine, Univer-sity of Michigan School of Medicine, Chicago MedicalSchool, and the Medical College of Ohio.

Health MarketplaceHFHS operates primarily in an area comprising

Wayne, Oakland, Monroe, Washtenaw, and Macombcounties, which encompasses a range of socioeconomicconditions from inner-city Detroit to upscale suburbia(Oakland is said to be the second-richest county in theUnited States). Henry Ford Hospital, HFHS’s anchorfacility, is located in Detroit, where it shares safety-netresponsibility with the Detroit Medical Center (DMC).Since two other safety-net hospitals have closed, andDMC’s financial situation is precarious, the responsibilityfor uncompensated care is of grave concern to HFHS. TheBeaumont system dominates in well-to-do Oakland. Otherplayers include the St. John, Mercy, Oakwood, and BonSecours systems, as well as the University of Michigan.

HFHS owns two of the area’s 12 hospitals, and accountsfor approximately 11 percent of admissions in southeastMichigan. HFHS officials point out that no one in southeastMichigan lives more than 10 or 15 minutes from an HFHSfacility. HFHS is recognized as a market leader in generalmedicine, neurosciences, and orthopedics.

One in four residents of southeast Michigan is enrolledin a managed care plan. Of this group, approximately one-third are members of HFHS’s Health Allliance Plan.

HFHS’s payer mix in 1999 was 43 percent managedcare (primarily from HAP), 26 percent Medicare, 10percent Blue Cross Blue Shield, 5 percent Medicaid, and16 percent other. Medicaid patients are also reflected in themanaged care figure.

PROGRAM Warden and various staff members kicked off the day

with a breakfast briefing on HFHS’s overall structure, casemix, competition, and strategies for adapting to changes inhealth care delivery and financing. Successive panelsfocused in turn on financing and information systems, theintegration of diversified services, academic mission andoutreach, safety net services, and hospital operations.

8

IMPRESSIONS

�

Henry Ford Health System (HFHS) is notcontemplating abandoning either its mis-sion in Detroit or its commitment to deliver-ing a full range of integrated health care.

However, “the need to earn revenues where we can” isforcing greater concentration on certain “centers of excel-lence” within the system.

�

Responding to the BBA was like the pro-cess of grief (anger, denial, etc.), but ulti-mately the scrutiny of expenditures andassumptions and the redesign of processesthat it forced were beneficial.In this light, the BBA may be regarded as a necessary

call to greater efficiency. Cost containment has beenachieved, and still patient satisfaction reportedly is higherthan it has ever been.

�

HFHS president and CEO Warden creditshis optimism—a belief that the system willreturn to profitability—to HFHS charac-teristics not shared by all hospital systems:(a) an in-house medical group that can tosome extent be told what to do and that inany case has a stake in the whole organiza-tion’s performance; (b) an ability—still—to attract the best and brightest practitio-ners; and (c) an in-house health plan thathas been challenged but not obliterated.

The Health Alliance Plan (HAP) steers business to thehospitals, and disputes between the plan and provider sidesare “family feuds” that can be resolved at the executivelevel rather than fought to the death. (It should be notedthat other HFHS executives, taking a perhaps narrowerview, are concerned about their ability to continue to fulfillall aspects of HFHS’s education, research, and communitymissions.)

�

There have been casualties of the post-BBA turnaround plan.Five hundred employees were laid off and other posi-

tions shed through attrition and a voluntary severancepackage. No component of the system has gone unscathed inthis process. Programs not directly linked to patient care,

such as training, prevention, and outreach, have been de-emphasized or suspended. Nevertheless, there was surpris-ingly little discussion of Medicare payment inadequacy.

�

HFHS’s biggest problem may well be thestate of Michigan.

An ongoing certificate of need requirement has stymiedplans to expand into geographic areas with a stronger payermix. Medicaid rates have been slashed, even though the statehas a substantial rainy-day fund at its disposal. Medicaidreimbursement is adjusted for age and sex but not healthstatus. The only profitable category is males under the age ofone. Michigan is one of only a few states that includes thedisabled in the capitated population.

�

Safety-net funding is problematic acrossthe board.

The county has not increased its reimbursement ratesin at least ten years. Very little federal money is availablefor Detroit’s uninsured. “The market is not going to decidein favor of the poor.”

�

Emergency services are a major concernfor HFHS, particularly in that DetroitMedical Center, the other safety-net pro-vider, has severe financial problems.

The emergency room is a significant source of admis-sions to Henry Ford Hospital, not surprising given the poorpopulation in the surrounding community, where somehealth indicators were described as “third-world-like.”

�

Local employers, notably the automobilecompanies, place heavy emphasis onquality measurement and improvement.

HFHS is GM’s benchmark plan. HFHS physicians areinvolved in and committed to in-house quality improve-ment efforts.

�

The most significant variable in generat-ing revenue is payer mix, not case mix orvolume.

Overall, though, each payer increasingly wants tocover only its own population and wants any gains from

9

efficiency to be returned in the form of lower rates. Cross-subsidization is a thing of the past.

�

CarePlus, the electronic patient recordsystem, continues to develop.

A current project is an enhanced security protocol,designed in anticipation of allowing patients access to theirown records. Getting doctors to use CarePlus has not beenan issue; making the system available whenever they wantit is still a challenge.

������� ����������� ���������������������� �

BACKGROUND

NHPF organized an April 10 and 11 site visit at theUniversity of Washington for seven federal congressionaland agency health staff and a health policy analyst from athink tank to explore post-BBA academic health center(AHC) issues. The visit focused on the challenges UWfaces in carrying out its three missions of delivery of healthservices (with emphasis on the safety net), health profes-sions education, and health science and clinical research.The visit developed the themes through briefings, paneldiscussions, a van tour of the UW complex and affiliatedorganizations, and stops at individual facilities.

Components

UW has Schools of Dentistry, Medicine, Nursing, Phar-macy, Public Health and Community Medicine, and SocialWork that collectively are referred to as “the health sci-ences.” The vice president for medical affairs/dean of theSchool of Medicine oversees UW’s Academic MedicalCenter, which owns and/or manages UW Medical Center,Harborview Medical Center, UW Physicians, UW Physi-cians Network, Children’s University Medical Group, andSeattle Cancer Care Alliance. The AMC is closely affiliatedwith Children’s Hospital and Regional Medical Center, FredHutchinson Cancer Research Center, and VA Puget SoundHealth Care System. It administers a well-known educationprogram in five states: Washington, Wyoming, Alaska, Mon-tana, and Idaho (WWAMI). The program’s service areaoccupies about 27 percent of the land mass of the UnitedStates and contains 9 million people.

Rankings

UW ranks high in various national AHC statistics. TheSchool of Medicine ranks sixth in the percentage of gradu-

ates practicing in the primary-care fields of family medicine,general internal medicine, and general pediatrics. The schoolhas nearly 1,500 residents and fellows in accredited clinicaltraining, including 343 residents in its affiliated familymedicine network. Residency training in primary care andsome specialties takes place at more than 26 community sitesin the five states that UW serves. The school is consistentlyamong the top five medical schools in receipt of federalresearch funding. In FY 1999, it received approximately$282 million in grant and contract awards. It also is amongthe top ten institutions in the nation in technology transfer.

The School of Nursing also is top-ranked nationally. Ithas 450 clinical agreements for delivery of acute, long-term-care, and public health and community services. With151 undergraduate and 300 graduate students, it providesbaccalaureate, master’s, and doctoral degree programs andhas one of the oldest F.N.P. programs in the United States.It ranks second in National Institutes of Health grants andthird in health science funding in the country. Moreover,it has numerous interdisciplinary health service andeducation projects.

Health Marketplace

Although UW serves five states, most of its services,education, and research are concentrated in Washington.According to Aaron Katz, director of UW’s Health PolicyAnalysis Program, who provided an overview of themarketplace at the beginning of the visit, the insurancestatus of Washingtonians in 1998 was, as follows:

� 25 percent in large groups and 6 percent in smallgroups;

� 19 percent in self-funded plans;

� 6 percent with individual policies;

� 2 percent in Medicare;

� 3 percent in the state’s Basic Health Plan;

� 4 percent in Medicaid fee-for-service;

� 8 percent in Healthy Options, Medicaid’s managed careplan;

� 6 percent in Department of Defense programs; and

� 11 percent (540,000 persons) uninsured.

The state’s 1993 enactment and 1995 repeal of statehealth insurance reforms resulted in extensive fluctuations inthe marketplace. For example, in response to the law,Providence Health System, a Catholic provider in Seattle andthe rest of the state, had invested heavily in the acquisition ofprimary-care practices and steadily lost money after therepeal. It recently joined with Swedish Medical Center toconsolidate its Seattle-based Providence Medical Center with

10

Swedish, putting the new operation in control of 52 percentof the licensed nonfederal staffed beds in the city.

According to Katz, Seattle has a long-standing traditionof local, not-for-profit health plans and providers. Majorplans include Premera Blue Cross, Group Health Coopera-tive/Kaiser Permanente, Regence Blue Shield, and FirstChoice (a provider-owned preferred provider organization[PPO] and health plan).

HMO penetration rose to 35 percent in 1998 from 26percent in 1997, although the popularity of PPOs andpoint-of-service plans is said to be growing as consumersopt for greater choice. Seattle’s HMO penetration rate wasslightly lower than the average for all metropolitan areasand particularly low for the West Coast; however, thestate’s capitation rate (the percentage of providers accept-ing some capitation) of 70 percent was higher than that forall metropolitan areas (about 63 percent). Its 1998 percent-age of Medicare enrollees in risk contract health plans was26 percent, while the national rate was 15 percent. Thehealth plan underwriting margin that year—approximatelyminus 4 percent—was in the red for the fourth straightyear.

According to Katz, recent developments include thefollowing:

� Health plan withdrawals from public programs, such asMedicaid and the Basic Health Plan, as well asMedicare+Choice.

� The collapse of the individual insurance market.

� Limits on state spending and revenue reductions throughtwo initiatives, affecting payments for health care.

� A decline in overall hospital margins, with UW Medi-cal Center at 2.4 percent and Harborview MedicalCenter at 2.2 percent.

� A tight labor market, affecting the supply of healthworkers.

PROGRAM

Before the site visit program began, five attendeesmade an optional visit to Children’s Hospital and RegionalMedical Center. The program, which began in mid-afternoon on April 10, featured a briefing—followed bydiscussion—of UW’s health components and a dinner forfederal and Seattle participants. On April 11, federalparticipants engaged in a series of tours and discussions atUW Physicians Belltown Clinic, Pioneer Square Clinic (afacility for persons who are homeless), HarborviewMedical Center, and UW AMC. Topics included themarket implications of the BBA; UW’s health service,health professions education, and research missions;

ambulatory care, education, and research; safety-net issues;and impacts of the BBA and other issues.

The case study showed that UW AMC runs a gamut ofservices—from preventive and primary to tertiary andquaternary—with links to various kinds of post-acute care.It underlined UW AMC’s heterogeneity, as the institutiondraws upon public and private payers and multiple othersources, with different payer mixes for its individual facili-ties. Relative to missions, the case study demonstrated thatUW AMC more than meets the definition of an AMC. Itsmissions include delivery of services to a wide range ofpatients (including those categorized as safety net), healthprofessions education across the health-care spectrum, andbroad-based health services and biomedical research.

IMPRESSIONS

�

UW fully fits the definition of an “academichealth center” in its service delivery, healthprofessions education, and health sciencesand clinical research components, whichhas policy implications relative to federaland state recognition of those missions.

Prior to and during the visit, there was some discussion ofdifferences among AHCs and between an AHC and ateaching hospital. From the start, participants saw UW as afull-fledged AHC. In addition to meeting the Association ofAcademic Health Centers’ base requirements of a medicalschool plus one other health professions school (for example,a nursing school), UW has five other health professionsschools; in addition to at least one teaching hospital, itmanages another and is affiliated with others. Moreover, itscomplex includes numerous other entities: physician clinics,research centers, and other organizations. For those whoarrived with preconceptions, UW confirmed the adage, “Ifyou’ve seen one AHC, you’ve seen one AHC.” In terms ofpolicy, it called into question whether service and educationadjustments intended to preserve the two AHC missionscover the circumstances of contrasting AHCs. For instance,can one payment policy address the circumstances of anAHC like UW as well as those of much smaller complexesthat rank low in the acuity of patients and in the number andbreadth of residents trained?

�

While UW provides concentrated services toSeattle, the surrounding counties, andWashington, its status as an AHC servingfive states seems to have both positive andnegative ramifications.

11

Most participants had a favorable view of the uniquenessand geographic reach of UW as the one AHC in theregion—for example, in its specialty referral services,provision of the only Level I trauma services in the state ofWashington, and WWAMI education program. For example,one participant had this impression: “UW serves as a uniqueeducational resource for five thinly populated states. It wouldhave been economically and organizationally unthinkable forstates like Idaho and Montana, which only recently ap-proached one million population, to develop their ownmedical schools. It’s an example of taking regional responsi-bility.” Some other participants took a different view. Theytended to see UW as monolithic. Seeing health care as local,they were suspicious of UW’s concentrated resources,especially as an educational and referral center for peoplefrom other states. For instance, even within Washington,some worried about barriers to trauma care due to traffic,weather, distance, and time. UW officials indicated, how-ever, that their data regarding trauma care in the region didnot support this worry.

�

A state institution that manages or is affili-ated with a group of facilities and organiza-tions (for example, a county hospital, afederal health network, and not-for-profitphysician clinics), UW acts as an “academicentrepreneur.” However, its entrepreneural-ism is tempered, so that it seemingly hasavoided the mistakes of some other provid-ers in the Seattle area or of some otherAMCs in the country.

Participants discerned dynamism at UW—at BelltownClinic, Pioneer Square Clinic, Harborview Medical Center,and at UW Medical Center—that led one federal sitevisitor to say, “UW is academically entrepreneurial.”Officials at UW seem to have a knack for putting piecestogether while avoiding the pitfalls that some otherproviders in the area, such as Providence Health System,have encountered. For example, instead of acquiringphysician practices in order to build a primary-care base,the UW AMC had organized the not-for-profit PhysicianNetwork of nine primary-care clinics from the ground up.On the other hand, in the words of one federal participant,there were no indications that UW is making overt movesto “game” the reimbursement system, for example, bydeveloping post-discharge “subacute” beds or by settingup satellite clinics as hospital outpatient departments.

�

While UW has all the service delivery pieces,either by ownership or affiliation, necessary

for a full continuum of care, continuity ofcare seems to be a facility-by-facility, ratherthan a systemwide, concern.

While it could have been a function of separatediscussions—particularly at Harborview Medical Center andUW Medical Center—the idea of a system of care seemed tobe institution-specific rather than systemwide. UW officialscontended that development and oversight of the continuumare at the system level, while execution of the strategy forcontinuity—which is dependent on collaboration amongphysicians, nurses, social workers, and others—is at theinstitutional level. However, some individual physiciansseemed to be integrators. Examples include F. BruderStapleton, M.D., pediatrician-in-chief at Children’s Hospitaland Regional Medical Center and chair of UW’s Departmentof Pediatrics, and Wayne C. McCormick, M.D., associateprofessor of medicine in the Division of Gerontology andGeriatric Medicine, Harborview Medical Center, andmedical director of VNS. In addition, some departmentsseemed more interested than others in integrating care; theSchool of Nursing, for instance, seems to be behind numer-ous interdisciplinary continuum-of-service efforts.

�

UW facilities and providers share the safety-net mission.

Participants were struck by the sense of mission thatpervaded UW, a sense of shared commitment to safety-netservices. This was particularly striking at HarborviewMedical Center. The county hospital managed by UW,Harborview gives priority for care to persons who areincarcerated, mentally ill, substance-abusing, indigent, orbelong to certain other vulnerable populations. Thecommitment to mission was demonstrated first-hand atHarborview’s Pioneer Square Clinic, an ambulatoryfacility for persons who are homeless or otherwise withoutaccess to care, and at Harborview’s Crisis Triage Unit, acrisis stabilization center in the Emergency Department forscreening mental health, chemical dependency, anddevelopmental disability needs.

�

Harborview Medical Center is an unusualpublic hospital, in that it combines publicpatient caseloads with a high percentage ofprivately insured, seems to seek to deliverservices (generally subsidized) that someother facilities shun, has access to capital,and is breaking even.

Harborview Medical Center’s financial profile for 1999includes 34 percent Medicaid, 21 percent Medicare, 7

12

percent no pay, and 38 percent private pay/insured. With its11 categories of priority patients, it combines last-resort(public inebriates) with first-resort (burn treatment andspecialized emergency care) patients. To break even, itsupplements its routine patient-care revenues with publicsubsidies: Medicaid disproportionate-share hospital (DSH),special state, trauma, and interagency funds; Medicare DSH,direct medical education, and indirect medical education(IME) dollars; and other funds. It has access to capitalthrough UW, the state, Medicare, and periodic bond issues.

�

UW health facilities are efficiently man-aged, which works to their detriment whennational payment policies are imposed uponthem. Some think this calls for better recog-nition of geographic variation in Medicarepayment policy, while others are doubtfulthat it would reward the more efficient.

As discussed during the site visit and summarized by onefederal participant, health care in the Northwest is tradition-ally viewed as efficient. The average length of stay (ALOS)in the region is consistently lower than the national average.In 1998, for example, the ALOS in Washington was 4.6days, while the national average was 5.8 days. Home healthutilization averaged 24 visits per patient in the state, com-pared to the national average of 51. Skilled-nursing facilityutilization averages were also lower in Washington, at 24.5days, while the national average was 28.5. The AAPCC(Medicare capitation amount) in Washington is also consis-tently lower than the national average, and there are debatesabout the reasons. One participant who attributed it to greaterefficiency concluded that it means the system experiences agreater impact from global changes to federal programs,particularly those aimed at getting greater efficiency frominefficient providers. This participant thought it advisable toconsider geographic diversity in Medicare payment policy.Another participant opposed this idea, indicating that theNorthwest generally benefitted when Medicare moved to onenational standardized amount (as opposed to payments basedon regional costs).

�

Complaints about the effects of the BBA onoperating revenues are obviated somewhatby UW’s ambitious construction projects, acontrast that has come to be called “thecrane problem.”

As some participants saw and heard about newprojects—the construction of an expanded Fred Hutchin-son Cancer Research Center, a new Research and Technol-ogy Building at Harborview Medical Center, and a bond

issue for a new building at Harborview to replace one thatis not seismically sound—they reacted. To use a termcoined during an NHPF site visit to AHCs in Boston, theyhad a “crane problem.” A crane problem arises when AHCadministrators complain about federal cuts in hospitaloperating revenues when their complexes are filled withthe cranes of construction projects. In Seattle, the craneproblem came up even though the Fred Hutchinson hotelfacility was funded by private donations and the Researchand Technology Building by a mix of university and statefunds; the bond issue, the first in 15 years, is scheduled togo before county taxpayers this year for approval. More-over, UW officials indicated that these projects had beenin the planning stages for ten or more years and that UWranks low among its peer AMCs in the ratio of squarefootage per dollar of research funding.

�

UW is experiencing a shortage of workers inpost-acute settings (largely due to a robusteconomy) and difficulty (attributed to BBAcuts) in referral of patients from acute topost-acute care, but its post-acute providerarrangements seem to be stable at present.

In Seattle and in Washington as a whole, as in other partsof the country, competition for employees has led to ashortage of low-wage workers in nursing homes and homehealth agencies. Aware that this affects the ability of acutefacilities to discharge patients needing a lower level of care,participants sought to learn how severe the problem is and towhat extent it is influenced by market forces as opposed toprovisions in the BBA (for example, provision for SNFprospective payment, ceilings on rehabilitation services, andimposition of a home health interim payment system).Anecdotally, while SNFs and home health agencies inSeattle were described as having undergone strain, they alsowere said to have survived. Practice patterns seem to be afactor, such as having the second- or third-lowest days per1,000. (UW does not have SNF or home health facilities; itdoes have six teams of geriatric-trained providers who go to12 affiliated nursing homes and other facilities to seepatients.) There seems to be continuity in providers’ follow-ing patients from acute to post-acute beds, a practice said toease problems in the discharge of patients from one settingto another.

�

There are shortages of certain health profes-sionals (for example, pediatric specialistsand nurses).

Some participants took part in a pre-site visit to Chil-dren’s Hospital and Regional Medical Center, which is

13

affiliated with UW; it handles most pediatric cases, trains 72pediatric residents, and conducts pediatric-based research.Participants learned that there is a shortage of pediatricspecialists, at a time when policymakers in Washington havebecome attuned to thinking of pediatricians mainly asprimary-care providers. (However, the graduate medicaleducation program for children’s hospitals enacted in late1999 does not differentiate between types of pediatricresidents.) A severe shortage of nurses of all types was alsopointed out, with one participant noting that a positivebenefit of a BBA provision on independent practice for nursepractitioners was enhancement of the value of their work.

�

CHIP is viewed as unsuccessful in Wash-ington, because providers do not want toaccept patients and because enrollment hasbeen slow.

Washington had already moved to 200 percent of thefederal poverty level for Medicaid eligibility before CHIPwas enacted as part of the BBA. So Washington’s CHIPtarget is to enroll eligible children at 250 percent ofpoverty in its Medicaid program. Because this applies onlyto 9,200 children (out of 72,671 children who are unin-sured), the chances for success seem slim, according toinformation provided by Children’s Hospital and RegionalMedical Center. While CHIP did not figure prominently insite visit discussions, the comments about it invariablycentered on its small enrollment and its general lack ofacceptance by providers.

�

Overall, UW health facilities’ level of acuityis higher than the levels of other providersin the area, which has led UW officials toseek a severity adjustment, but the adjust-ment’s definition and ultimate benefit are indoubt.

UW participants presented a Milliman & Robertson,Inc., analysis of patient severity and efficiency that com-pared UW Medical Center 1995 and 1996 data on com-mercial patients with those of three other hospitals. Thefirm used specific ALOS and charge bias to examine dis-charges for all patient refined diagnosis-related groups(APR-DRGs). It found an estimated severity factor of 1.41percent, which it said was “the highest we have found forany health care system we have evaluated, academic orotherwise.” The firm also looked at inpatient records forcommercial patients treated at UW Medical Center in1997. Its analysis “indicated 125 potentially avoidabledays out of a total of 1,057 days reviewed, or 12 percent oftotal days.” The firm concluded that the “finding of 12

percent potentially avoidable days is one of the lowest wehave observed and indicates well managed delivery ofcare.” It concluded that current case rates “do not accu-rately compensate for the care of these severity levelpatients.” Responding to UW’s assertion that it handles 70percent of the high-risk obstetrics patients in the Seattlearea, federal participants questioned the availability of anadequate measure of severity, the determination of winnersand losers relative to the type of measure, and, because theIME is used as an indicator of greater acuity in teachinghospitals, the need to separate out what supports teachingand what supports patient care.

�

While confusing in policy terms, the lack ofexplicit definitions for Medicare paymentadjustments—for example, IME and DSH—is viable in political terms.

Picking up on the discussion of the level of acuity andthe fuzziness of the concept of IME and, to some extent,DSH, some participants indicated that strict definitionswould fail to gain the adjustments political acceptance.Other participants pointed to the need for targeting andadjusting for specific needs: in the case of IME, the costsof training residents, and, in the case of DSH, care for low-income people in the Medicare program.

�

Across the country, the VA’s relationshipswith AHCs in providing safety-net servicesto veterans, offering health professionseducation, and conducting research (espe-cially in focused areas, such as spinal-cordinjury) tend to be overlooked. This is not thecase in Seattle.

VA Puget Sound Health System is a vital partner ofUW. VA Puget Sound Health System has 250 staff withfaculty/teaching appointments at UW. Whether in provid-ing care to service-connected veterans (and being part ofthe safety-net that reaches out to the homeless); educating500 medical residents (a $7 million program) as well asnursing, dentistry, social work, and pharmacy students; orconducting research, it has a large presence. Of VA units,it is the fourth largest service network and has the secondlargest research program in the country.

�

UW faces significant cross-cultural pres-sures, such as Harborview’s need to provideinterpreters for 70 languages, and is re-sponding positively.

14

UW’s cross-cultural initiatives—responding to thepatients from diverse immigrant populations in the area—has become a model for other parts of the country. Forexample, UW has a web link called “EthnoMed” thatprovides cultural profiles, medical topics, cross-culturalissues, and patient education. Some participants wereintrigued by the challenges UW— especially HarborviewMedical Center—has relative to cross-cultural compe-tency, the growing emphasis on effective responses fromthe health care system, and the costs involved.

�

One of the top academic research institutionsin the country, UW has research initiativesranging from collaborative programs with theFred Hutchinson Research Center, where thephysician who developed bone-marrow trans-plants is on staff, to a Harborview MedicalCenter facility that conducts research cen-tered on the health problems of vulnerablepeople.

In exploring UW’s research initiatives, participants sawthe same degree of scope and breadth that they had with itsservice delivery and education missions. Although theyspent less time discussing and seeing research compo-nents—because of lesser relevance to BBA provisions—they nonetheless appreciated the commingling and interde-pendence of UW’s three missions and the participation inall three by some UW faculty and staff with whom theytalked. Prominent examples are John Harlan, M.D., ofHarborview Medical Center’s Research and TechnologyBuilding, who provided a tour of the new facility, andChristopher Marsh, M.D., associate director of the Divi-sion of Transplantation, UW Medical Center, who de-scribed the service, education, and research aspects ofUW’s transplant program. Similarly, they benefitted fromthe health services research of the Health Policy AnalysisProgram, which publishes studies of health care in Wash-ington on an ongoing basis.

�

In responding to the BBA, UW seemingly isnot changing its modus operandi but isstaying on course and is seeking revisions inpolicy.

Some federal participants came to Seattle expectingbehavioral changes at UW in response to BBA provisions.They came away from UW believing that the AMC itselfdoes not want to change the ways it is addressing itsservice, teaching, and research missions to adapt to thechanges, but instead wants policymakers to revise thepolicies to fit their practices. In this sense, there was

somewhat of a power struggle, similar to that played out inWashington, D.C., in the aftermath of the BBA andpassage of the BBRA.

15

The Annapolis Conference:Overall Perspectives

The April 27–28 Annapolis conference had threeprimary aims: (a) to put the BBA into context, particularlyrelative to Medicare’s role; (b) to explore the post-BBAimplications for hospital-based systems, and (c) to examineways of aligning public and private incentives in delivery andpayment of health services. The two days of briefings anddiscussions, focusing on the three case studies (Bon Secours,Henry Ford, and UW AMC), resulted in some concludingviews as well as some new questions, contributing to anagenda for future NHPF meetings and site visits.

Putting the BBA into Context,Particularly Relative to Medicare’s Role

�

The three driving forces for the BBAMedicare provisions were to reducegrowth in federal spending for healthservices, expand private options for benefi-ciaries, and eliminate cost-based reim-bursement by extending the Medicareprospective payment system (PPS) to addi-tional services.

When the bipartisan BBA was passed in 1997,achieving a balanced budget was a major concern. Medi-care budget outlays were increasing rapidly, with homehealth the fastest growing Medicare program of all.Another motivator was the desire to inject private marketincentives into the Medicare program: to offer beneficia-ries a choice of managed care services and to encouragehealth plans to compete to enroll them (ideally, with addedbenefits). This led to inclusion of Medicare+Choice in theBBA. A third impetus was to continue the move towardprospective payment of Medicare services by placinghome health, skilled-nursing, and rehabilitation services,as well as hospital outpatient care, under separatelydeveloped PPS arrangements.

�

The BBA was a broad-brush effort toreduce the growth of health costs relativeto those of other budget categories, recog-nize the importance of Medicare as aportion of the overall budget, and adjust thepayments for Medicare Part A services(paid from the payroll-tax-based Hospital

Insurance Trust Fund) relative to those forMedicare Part B services (paid from benefi-ciary premiums and general revenues).

In 1997, with discretionary federal funding alreadysqueezed and Social Security off limits, Medicare becamethe major target of federal budget cutters. Short of signifi-cant tax increases, the budget could not otherwise havebeen balanced, some federal participants pointed out.Moreover, the looming retirement of baby boomers putpressure on budgeteers. While lawmakers were reluctantto engage in Medicare reform, they could—and did—consider achieving budget savings by reducing providerpayment rates. At the same time, they deemed the programtoo important to impose cuts that might compromiseservices. Additionally, with the Medicare trust fundprojected (at the start of 1997) to start running out ofmoney in 2001, the drafters of the legislation were able toaddress the drain in part by moving most of home healthservices to Part B.

�

On the acute-care side, teaching and safety-net hospitals seem to be the providers mostaffected by BBA provisions, while on thepost-acute side, home health and SNFsappear to be receiving the most impact.

The BBA targeted certain hospitals and providers. Forinstance, in making reductions in the Medicare indirectmedical education (IME) adjustment and in Medicaredisproportionate-share hospital (DSH) payments, it moreheavily affected teaching hospitals and safety-net institu-tions, which are sometimes one and the same. But someparticipants indicated that the goal was to restrain Medicarespending relative to hospitals that they thought were over-paid (as reflected, in part, by operating margins), and theadditional payments resulting from the IME and DSHadjustments therefore became targets. In subjecting Medicarepost-acute and outpatient hospital care to PPS arrangements,the BBA also focused on the providers of those services,although full implementation had yet to be achieved at thetime of the site visits and the Annapolis meeting. Mainlybecause of the pre-PPS interim payment system establishedby the BBA, participants tended to think that home healthand SNFs received the hardest BBA post-acute “hit.”However, they disagreed about whether that entailed theweeding out of unnecessary, uncovered, or fraudulently

16

obtained care or the rationing of necessary, covered, andappropriate services.

�

In singling out individual components, theBBA swept into the “intricate webs ofinternal and external cross-subsidies thefederal government provides for care ofthe poor, teaching medical students, andconducting clinical research.”

Not only in its provisions (such as IME and DSH) butalso in its squeezing out of opportunities for cross-subsidies,the BBA affected the delicate balance upon which federalpayments to AMCs have depended over the years. Differentparticipants reached different conclusions about the value ofdoing this, based on whether they think the cross-subsidiessupport excessive payments or result in valued outcomes.

Exploring the Post-BBA Implications forHospital-Based Systems

The definition of the Medicare home health benefit isunclear, while that of the Medicare SNF benefit is clearand has standards. Participants agreed that the home healthbenefit differs significantly from the SNF benefit, which iswell-defined in law, carefully monitored, and subject toconditions of participation that have been revised over theyears. The home health benefit, on the other hand, is“fuzzily defined,” difficult to supervise because it takesplace in patients’ homes, and not subject to a comparablelevel of standards.

�

There is disagreement over the effects ofthe BBA on discharges from acute-caresettings and on referrals for services.

While 38 percent of the BBA reductions in Medicarecame from hospitals, participants were unsure of the effectson those institutions. One theory is that the BBA is increas-ing discharges. Another is that it is resulting in patients’staying in acute beds longer because of greater diffi-culty—particularly for more complex patients—in referringthem to BBA-affected post-acute settings. While there isanecdotal evidence from providers and some studies—forexample, conflicting results from the General AccountingOffice and Center for Health Policy and Research on accessto home health care—the debate continues.

�

Policymakers and providers alike aresorting out BBA effects (as well as the

ameliorating effects of the BBRA) and thecontinued rollout of additional BBA policychanges over time.

It is difficult to assess the impact of the BBA becauseof the transitional implementation of some BBA changes,provision for shifts in payment systems (in the case ofhome health, for instance, from an interim payment systemto a PPS), and amendment of some of the BBA provisionsby the BBRA.

�

Policymakers and providers also are sort-ing out BBA-BBRA effects relative toMedicaid, particularly in terms of theimpact of changes in Medicare on theMedicaid market.

It was brought out that a reduction in Medicaid paymentrates in some states (such as Michigan)—occurring at thesame time as Medicare BBA changes—complicated pro-vider efforts to adjust. While policymakers have been moreconcerned about the impact of changes in welfare law uponthe Medicaid program, they would do well to look atMedicare-Medicaid interactions, as well as the effects ondual Medicare-Medicaid eligibles and on persons “on theedge” (relative to their becoming eligible for Medicaid or ofneeding indigent care).

�

Policymakers and providers additionallyare sorting out BBA-BBRA effects relativeto those that resulted from changes in theprivate health marketplace.

Rapid changes in the health marketplace—for exam-ple, mergers and acquisitions, managed care fiscal arrange-ments, and adoption of care management programs—makeit difficult to separate the impacts of legislative andregulatory changes from those of plan and payer actions.

�

For organizations that lobbied forchanges to the BBA, the BBRA is just adown payment.

Providers who participated in the Annapolis confer-ence saw the estimated $16 billion in BBRA Medicaresavings over five years to be retained by the industry as afirst step in reversing BBA provisions. Some of the federalparticipants, on the other hand, indicated that, in the wordsof one participant, “the feds were rolled.” All of thehospital systems provided data on the potential impact ofvarious provisions in the BBA (and the ameliorating

17

effects of the BBRA). Some federal participants, question-ing the methodologies suggested by provider lobbyinggroups and the validity of studies conducted by contractresearch organizations for such groups, seemed doubtful.All seemed to agree on the importance of and the need forgetting good predictive and impact data.

�

While the industry charge that the BBAhas given the wrong message to efficientand innovative providers draws somefederal adherents, it distresses others.

Provider participants and some of the federal attendeescontended that provisions in the BBA give the wrongmessage to providers, particularly efficient ones that areharder hit than inefficient or new providers because ofbaselines and certain other factors. For example, they saidthe “caps” on medical rehabilitation services in the BBA(revised by the BBRA) and the expansion of PPS to post-acute services emphasize cost over quality of care. Otherparticipants, mainly federal, indicated that the BBAchanges bring cost to bear as a positive factor in whetherand how care should be delivered and actually provideincentives for efficient providers. On a related point, someproviders charged that the BBA is having an adverseimpact on providers’ willingness and capacity to inno-vate—that providers and plans that play it safe do betterthan those that try or adopt new approaches. They cited theblow to newly thriving rehabilitation firms because of thephysical therapy, occupational therapy, and speech-hearing-language pathology provisions in the BBA. Theymentioned health plans’ difficulty with the Medicare+Choice program, as it was mandated by the BBA. Theybrought up prominent progressive AMCs that havesuffered well-publicized setbacks. Other participantschallenged the bases for such claims. They indicated thatthe providers’ strategies may have been rash or not thoughtout or that the organizations may have been victimized bymarket forces unrelated to legislative actions.

�

In assessing BBA-BBRA as well as mar-ket changes, it is important to look at thesignificance of the growth of pharma-ceuticals.

While pharmaceuticals’ increasing share of the healthcare dollar was not related directly to BBA or BBRAprovisions, numerous participants found it worth noting. Inexamining various BBA provisions—relative to theircompound effects on hospitals and health plans—variousparticipants noted the importance of taking pharmaceuticalcosts into account. That is, such costs have exacerbated the

impact on facilities and therefore should be given attentionin any future determinations policymakers make relative tothe delivery and payment of health services.

�

The BBA forged some new federal-statelinkages that bear examination and evalu-ation.

This point received little discussion and may, in fact,belong to the conference’s research agenda. Nonetheless,it highlighted the growing influence of Medicaid on themanaged care marketplace, the Child Health InsuranceProgram that was enacted by the BBA, the impact ofwelfare changes, the state and regional differences inhealth plan acceptance of Medicare+Choice, the failure ofprovider-sponsored organizations as authorized by theBBA, and other initiatives.

Aligning Public and Private Incentives inDelivery and Payment of Health Services

�

There are various views of the process ofchange, as initiated by the BBA: (a)change does not happen until it has to, (b)change is occurring in every direction (forexample, inpatient, outpatient, and post-acute), (c) change is very difficult to copewith, and (d) change can force a reevalua-tion of operational and managerial prac-tice, leading to a stronger organization.

Participants expressed these concepts of changeduring the two-day Annapolis conference. Overall, theyimplied that policymakers seem to be pushing change andproviders and plans are resisting it. Moreover, in the viewof some, the current unrest over the sweeping BBAlegislation is due to the field’s experiencing too manychanges (for example, the fallout of merger and consolida-tion activity, hospital purchase of physician practices, andheightened government anti-fraud and -abuse initiatives).

�

Policymakers are concerned about theimpact of multiple changes (for example,in Medicare, Medicaid, welfare, and anti-fraud and -abuse initiatives) as well asabout their combined effects upon provid-ers and patients.

A lot of policy changes occurred around the sametime, as Congress and the president strove to reduce healthcare outlays in Medicare and Medicaid and provide a

18

transition for Aid to Families with Dependent Children(AFDC) recipients to enter workfare programs and cut theAFDC-Medicaid link. Moreover, with stepped up funds,the DHHS inspector general, in coordination with theDepartment of Justice, intensified efforts to attack fraudand abuse in federal health programs. The multipleprogram changes, combined with the anti-fraud and -abuseefforts (and their chilling effect), have had a strong impactupon providers and the patients they serve.

�

A complex data problem is apparent: theBBA projections demonstrate difficulty inmaking estimates and projections, insorting out costs and revenues, and intaking into account the interaction offederal and state programs.

While some participants pointed to inadequate dataand others to wrong data, all agreed that lack of accuratedata is a major shortfall in understanding the BBA and isa major pitfall in health policy. “There’s no point at whichdata are stable,” one participant said, noting the absence ofrealistic baselines upon which determinations can be made.Another participant stressed the importance of independentdata, contending that studies contracted for by interestgroups tend to be biased. Still another indicated that“pulling numbers out of the air is scary”—that more needsto be done to get good data and to facilitate judgmentsabout connections and interactions.

�

Regional differences get too little attentionin the formulation and implementation ofMedicare policy.

Various participants—from both the provider and thefederal sectors—underlined the importance of regionaldifferences in the delivery of health services and the needfor recognition of these differences in payment policy.They stressed that BBA-BBRA provisions are affectingdifferent parts of the country unevenly, due to practicepatterns, demographics, and other factors. While healthplan acceptance (or the lack thereof) of Medicare+Choicemay be the most obvious example, the inclusion of outpa-tient services in PPS and the challenges of providing homehealth services drew attention as well. A key question washow to differentiate the unique needs of each market.Another was whether or not the federal government shouldadopt such a strategy at all. For instance, when do Medi-care reimbursement policies seriously jeopardize access tocare for beneficiaries and under what circumstances shouldthe Medicare program consider modifying its reimburse-ment policies in certain markets? Another was how to

analyze the impact on payment rates of federal and stateinteractions.

�

A major policy question is whether or notthere should be a common denominatorfor the public contributions to AMC ser-vice, teaching, and research missions—ifthe policy goal should be to seek an aver-age in the level of facilities, provision ofcare, training of students, and conduct ofresearch.

This question arose during discussion of the UW AMCcase study and focused on the use of federal governmentresources to help support AMCs. Given a limited pot ofhealth service, health professions education, and researchdollars, should the funding be divided among variousinstitutions or targeted to those that have demonstrated thebest quality or highest success? In other words, with certaingeographic and other considerations, should the center-of-excellence concept apply to AMCs? Should an AMC berewarded for drawing resources from other public as well asprivate sources, offering top-notch clinical and educationalservices as well as pursuing various lines of research, andotherwise acting like “the best”? Or does that put it in a “no-win” position as far as federal policymakers are concerned?Should National Institutes of Health funds, for instance, beconcentrated among a small percentage of AMCs, as they arenow, or spread out more equally among those that haveresearch programs? All of this centers on the question of“averaging” in the distribution of federal funds, invitingfuture debate.

�

HCFA needs to undertake aggressive andproactive development and monitoringactivity, using diverse indicators, to deter-mine the area impacts of its policies.

Because the traditional data sources are unreliable orlag behind developments in the field, one participant saidthat HCFA is trying new outlets and is seeking others. Forexample, by looking at employment trends in the industry,carrier and fiscal intermediary daily reports on providers,regional office information, and other data, HCFA mightbe able to get a better idea of the effects of its policies onproviders and plans. As private data resources dwindle (forexample, the American Hospital Association has droppedits monthly panel survey of community hospitals and theAmerican Medical Association is cutting back on its datainitiatives), participants indicated that HCFA needs to domore in developing existing data sources and creating newmonitoring mechanisms.

19

�

The BBA and BBRA renewed the debateabout medical education issues, such aswhich providers should be recognized,whether there should be a proxy for casemix and severity of illness, and how ex-plicit definitions should be relative tosocial goods.

Renewing an old debate about the federal role inmedical education, participants looked at whether patientservices should be subsidized by medical education pay-ments. They also explored whether the IME is an appropriateproxy for teaching hospitals’ greater case mix of complexpatients requiring more intensity of care, and what thetradeoffs (relative to safety-net patients) are between the IMEand DSH adjustments. For example, the same institutionscommonly have received both adjustments, with the resi-dents upon which the IME formula is based tending to be theproviders of services to the low-income patients upon whichthe Medicare DSH adjustment is defined.

�

The BBA and BBRA also highlighted theneed for appropriate measures of riskadjustment, severity of illness, and inten-sity of services and the usefulness of mor-bidity, co-morbidity, and mortality data indeveloping policy, devising payment strate-gies, and assessing quality of care.

Participants acknowledged that the health industry isstill grappling with the need for adequate measures todifferentiate among providers and patients and that it is stillarguing about the effectiveness of the measures that it has.

�

Growth of the uninsured needs to be takeninto account in aligning and assessingincentives for delivery and payment ofservices for publicly (and privately) in-sured patients.

With the uninsured having reached 44 million personsin a robust economy, a few participants raised the subjectof the role of social goods in health policy. HFHS Presi-dent Warden addressed the cumulative effects of reduc-tions in DSH payments, slim hospital margins, and otherfactors on community-based programs, health promotionand preventive care, AIDS and other specialty clinics,innovations in long-term care, and other programs. Callingthe growth in uninsured “a ticking time bomb,” he andothers raised the question of what happens if the economydeclines.

�

The BBA has forced providers to paycloser attention to their management andbusiness practices.

Impelled by provisions in the BBA to take a prospectiveposition relative to the continuum of services they provide,providers have had to focus on the business aspects ofdelivery and payment. In other words, as home health, SNF,rehabilitation, and hospital outpatient PPS strategies areadded, providers have to think PPS rather than cost-basedreimbursement. As providers compete based on pricingsystems—indeed, different pricing systems—their degree ofacumen becomes even more important. According to oneprovider, as a result, “patient satisfaction ratings are higherthan they have ever been. We’ll come out stronger as anorganization. But it has been painful.”

�

The BBA-BBRA changes raise workforceissues, such as the use and shortage ofnursing and service personnel in healthcare settings and the roles of formal ver-sus informal caregivers.

Participants noted that health industry studies documenta shortage of both licensed registered and practical nursesand other personnel and a decline in those being trained. Forexample, the average age of nurses is over 40, and the vastmajority of nurses are women with growing employmentopportunities in this strong economy that offer more incomeand less strain. Some participants blamed the BBA forincreasing the stress on workers in already over-stressedhealth care organizations, especially hospitals. Providers onthe site visits and at the Annapolis conference complainedmost about the problem of getting lower-income workers,those who do service jobs in both acute and post-acutesettings. This gave rise to discussions of caregiving, particu-larly in terms of training family members (informal care-givers) to do some of the housekeeping and patient care taskspreviously done by aides and support personnel.

�

While continuity of care is given a lot oflip service, it is not a reality.

Although continuity of care seems to have become a“buzz term,” it means little, participants concluded. In thefragmented U.S. system, it remains a goal yet to be definedand reached. For instance, some participants assumed thatit means the range of services, from preventive andprimary through quaternary, offered by paid providers.Others implied that it means the scope of services, frompreventive through palliative, provided by both formal

20

health care workers and informal caregivers. However, inthe review of the UW case study, it was pointed out thatUW is one of six schools in the nation with a requiredchronic-care clerkship. UW officials contended that itsdiverse offerings provide medical students ample exposureto the full continuum of services.

�

Ultimately, revisiting the BBA and BBRAcomes down to what kind of system publicpolicy people can negotiate with providersand plans in order to provide quality care.

Quality of care was a byword of the Annapolisconference rather than a major theme. While it came upoften relative to the three systems’ efforts to serve theirpatients, adverse effects due to BBA cutbacks, and thedifficulty of assessing the delivery of services in varioussettings, no conclusions were reached. Federal and pro-vider participants seemed to look to public-private negotia-tions to ascertain what services consumers want and howthey can be delivered and financed.

21

A Research Agenda

� To explore federal agencies’ needs for data and toestimate the funding they would need in order toobtain them.

� To gain a better understanding of the interface be-tween AMCs and the private health marketplace.

� To examine regional differences in home health caredelivery in order to better understand “appropriate”home health services for various conditions.

� To make acute-care length-of-stay comparisons pre-BBA and post-BBA.

� To study trends (positive or negative) in horizontaland vertical integration of health systems.

� To examine tax-based funding of health services.

� To look at the interactions between Medicaid andMedicare relative to payment.

� To explore the future of Medicare funding.

� To examine ways of funding GME.

� To revisit the policy of devolution of Medicaid to thestates.

� To look at ways of supporting health systems whereinnovation is taking place and the safety net is assured.

� To consider the growing problem of the uninsured.

� In Medicare payments, to develop ways of accountingfor acuity of illness and intensity of services.

� In both entitlement and appropriated spending (withparticular reference to AMCs’ service, education, andresearch missions), to look at the concept of “averag-ing” versus promotion of centers of excellence.

� To conduct research on formal versus informal care-giving along a care continuum relative to both servicesand payment (or the lack thereof).

22

Selected Comments fromAnnapolis Participants

� “It is clear from the three cases and the views of theBeltway folks that there is a huge disconnect betweenreality and D.C. We need to bridge this gap. Addition-ally, there is an amazing lack of trust between the twoparties. The people providing health care question theD.C. ethics and motives, while the D.C. folks don’tbelieve (to the point of pushing fraud and abuseactions) the people providing health care.”

� “[We need to look at] the outcome consequences forthe BBA and other federal policy changes.”

� “[There needs to be follow-up on] measures, data oninteractions, and more.”

� “Try to continue the case study approach. It forcesfederal staff to justify thinking with real applications.Similarly, political interventions would not be needed iffederal policy were more directed by actual examples.”

� “Is there a way to have the same type of discussion witha full standing of providers? (For example, home healthagencies, physician groups, hospitals—providers fromthe same market, working together or not workingtogether.)”

� “After the actual issues are distilled out from thediscussions, further programming [should] attempt todrill down to obtain a better understanding of thecontributing factors. For example, what makes certainsystems efficient? What is the character of the actualimpact on ‘safety net’ providers from the BBA? Canincentives be tailored to geographic areas?”

� “What are the effects of market segmentation? Rural,handle with care.”

� “East Coast is always a problem for West Coast people.”

� “Felt we made progress in breaking through prejudicesand policy biases derived from 30,000-feet analysis.”

� “Should have invited a ‘failed’ system leader, forexample, purchased hospital in Hampton [Roads]/Richmond, Detroit Medical Center [to balance] HenryFord, and Providence in Seattle.”

� “The disparate pieces of information are difficult topull together to inform my work, but that is probablythe nature of the beast, why this work is so interestingand hard.”

National Health Policy Forum2131 K Street, NW, Suite 500Washington, DC 20052-0067

202/872-1390Fax 202/862-9837

www.nhpf.org