Changes in Health Care Hit : Cutting Costs by Hiking Competition Criticized

Times Medical Writer

The only consumer representative invited to attend a government-sponsored conference on the future of Medicare and Medicaid was highly critical Wednesday of government attempts to control spiraling health care costs by encouraging more competition in the health marketplace.

Vita Ostrander, president of the 19 million-member American Assn. of Retired Persons, told the audience of mostly health care providers that “unbounded competition” for patients by doctors and hospitals could deteriorate the quality of care for everybody but especially for the poor, the old and the sick.

The announced purpose of the three-day conference was to introduce the audience to federal, state and private initiatives of competition in the health care field. The meeting, which celebrates the 20th anniversary of Medicare and Medicaid (Medi-Cal in California), is being sponsored by the federal Health Care Finance Administration and the California Health and Welfare Agency.

While agreeing that competition is a partial solution to the health cost dilemma, it is not the complete answer, Ostrander said. “Not only does the health care marketplace resist the normal forces of supply and demand (but), the consumer information necessary to judge the effectiveness, cost and quality of services is just not currently available,” she told the opening session of the conference at the Bonaventure.


Heightened competition among health care providers is a relatively recent phenomenon, most often centered around hospitals offering special services such as clinics to treat drug dependencies, eating disorders or sports injuries.

This year the Reagan Administration opened the doors to a whole new area of competition when it said that Medicare patients could join a health maintenance organization, which can provide services that traditionally have not been available to them.

While Ostrander raised objections to the new competitive climate in health care, other speakers on a panel representing the federal and California governments and the for-profit hospital industry spoke more positively of it.

Ostrander was added to the program only after critics complained that no one representing the 50 million beneficiaries of the two programs was a speaker, and that stiff registration fees ranging from $475 to $600 prevented many people from even attending the conference.


Sponsors subsequently agreed to a special $50 fee for the elderly, students and the handicapped that did not cover meals or coffee breaks. Although officials had hoped to attract as many as 2,000 attendees, only 825 had registered by Wednesday noon.

The switch from government regulation to free marketplace competition as a method of controlling health care costs began with the Reagan Administration.

Under one program, a hospital is paid a flat fee for a Medicare patient according to his diagnosis and regardless of how long the patient must be hospitalized. Under the previous system, hospitals were paid according to their costs of caring for Medicare patients. The new system, consequently, gives hospitals an incentive to treat patients as quickly as possible in order to reduce their expenses.

The incentive to discharge patients quickly has caused critics to claim that some patients are being released prematurely, thus impairing quality of medical care.


Charles Baker, undersecretary of the U.S. Department of Health and Human Services, said the new system of paying a flat fee for hospitalized Medicare patients--in effect for only 18 months at some hospitals--already has decreased the average length of stay from 10 days to nine days and is largely responsible for the growing solvency of the Medicare fund to pay hospital bills.

‘Have Seen No Decline’

“We have seen no decline in quality or morbidity (illness rates) or other indicators of quality,” said Baker, who spoke in place of Margaret M. Heckler, secretary of the Department of Health and Human Services, who was not able to attend.

By 1995, said John O’Shaughnessy, assistant secretary of management and budgets, the flat fee system, known as Diagnostic Related Groups, or DRGs, will save the Medicare program $3 billion.


Along with what competition is doing to hospitals, it is also affecting physicians. A growing number are losing patients to health maintenance organizations or through cutbacks in programs such a Medi-Cal. And with the number of doctors in most communities growing rapidly, government experts expect that the competition for patients will increase.

The morning panel’s most enthusiastic advocate of competition was Samuel H. Howard, president-elect of the American Federation of Hospitals, the organization of for-profit hospitals that is a leading exponent of competition in health care.

The old-style government regulation, he said, stifles innovation, protects inefficient providers from going bankrupt and limits availability of services to patients.

But competition, he said, provides the environment for doctors and hospitals to challenge one another, and gives success “to those who meet the needs of patients.” Competition, he said, will produce a health care system that is “profoundly different” from what has existed.


In a competitive situation, Howard said, providers respond to what patients want, rather than to the “clumsy workings of government” regulations “which can never know the infinite variety of patient” needs.