N.Y. Community Creates Remedy for Health Care Ills


In almost any other city in the United States, Terrence Ricci, 39, would have lost his access to affordable medical care soon after he suffered three strokes late last year.

Unable to work and no longer eligible for health insurance at a group rate, he would have been caught between two impossible alternatives: purchasing a high-priced individual health insurance policy or paying for his expensive therapy and medicine from his own pocket.

But because Ricci lives here in Rochester, a community whose 1 million residents pride themselves on having what is perhaps the most accessible and efficient health care system in the country, he has continued to receive treatment under Blue Cross at the same rate he had been paying before he fell ill.

"I was amazed by it," admitted Ricci, whose intensive therapy has enabled him to recover his speech and motor skills. "I'm lucky I live here in Rochester and not somewhere else. If my insurance had been canceled, I wouldn't have gotten the therapy I needed."

At a time when the nation is struggling to tame an unruly health care system plagued by increasing costs and millions of uninsured people, Rochester stands out as unique. Through a cooperative effort, the city's employers, insurers and medical providers were able to create a plan that has become a model for the Washington policy-makers trying to reform the nation's health care system.

Here, health care costs are about a third less than the national average, and 94% of the citizens have health insurance coverage--a figure well above the rest of the nation. All residents may purchase coverage at the same rate, regardless of where they work or their medical history.

Local employers seldom complain about health insurance costs. Hospitals do not compete by acquiring unnecessary technology. Physicians' fees are among the lowest in the nation. And, according to a recent poll, patient satisfaction exceeds the national norm.

Long before such terms as "global budgeting," "community rating" and "managed competition" were discussed at the White House, these new health care management concepts were being tested and refined in Rochester.

Indeed, this city's health care system is so exemplary that it has been praised numerous times by President Clinton, and local leaders are regularly invited to give advice to health officials in other parts of the nation.

"Rochester has succeeded in keeping health care costs lower than costs in other communities without sacrificing its residents' access to care," the federal General Accounting Office concluded in a newly published report to Congress. ". . . Rochester's experience provides important insights for other communities trying to gain control over rising health care costs and diminished access."

Of course, as good as the Rochester health care system is considered to be, it is not without flaws. Experts have observed that by making health care so accessible, Rochester has created a sense of entitlement among patients, inadvertently encouraging them to go to their doctors more often than may be necessary.

In addition, some doctors complain that their pay is too low to maintain a good practice and that insurers sometimes refuse to pay for the best care. Likewise, hospitals often have trouble luring specialists to the area, and they never seem to have enough money for major capital improvements.

"The system isn't perfect, it isn't unflawed," conceded Blue Cross President Howard Berman. "Those who think there is a health care system out there where everything works perfectly and no one complains is living in another world."

Nevertheless, many of the best elements of the Rochester system are certain to be part of the health care reform plan the President is scheduled to unveil in May.

Perhaps the central lesson to be learned from the system in Rochester is the value of "community rating," a system in which insurers charge the same rates to everyone who chooses a particular insurance benefits package, regardless of age, occupation or medical history.

As is true for the rest of the nation, a variety of benefits packages are available under the Rochester system, ranging from a basic plan to more comprehensive coverage.

Furthermore, while it is standard wisdom among employers that insurance costs are cheaper if non-employees are excluded from their risk pool, in Rochester, where community rating is the norm, employers pay much less than employers around the nation.

Last year, Rochester's employers paid an average of $2,378 to provide health coverage for each employee, compared to an average of $3,573 nationally and $4,366 in New York state.

It was Rochester's system of community rating that allowed Ricci to move from a group to an individual policy without any increased cost. Likewise, local residents can walk into Blue Cross headquarters at any time and sign up for a policy at the same rate paid by the city's biggest companies.

The results in Rochester are good news for Clinton Administration officials, who hope to provide health insurance to all Americans at rates that are not affected by age, medical history or other personal factors.

Another lesson to be drawn from Rochester's experience, according to local officials, is that an efficient health care system requires close cooperation and planning by the employers, hospitals, doctors and insurers.

Rochester's Industrial Management Council, which represents local business leaders, has played a key role in designing and monitoring the local health care system. In addition, administrators of the city's seven hospitals meet weekly to coordinate their work, sometimes testing the limits of the antitrust laws.

Such community-wide cooperation is at the heart of the managed competition model that the President is expected to use to reform the nation's health care system.

"Our view is that we are in this together--employers, insurers and providers," Berman said. "That doesn't mean there are not points of contention. But the character of the debate has always been: 'How do we do what's good for the community?' What makes this work is that the community has wanted it to work."

Berman and most health care experts here say they believe that other communities with a similar commitment could match Rochester's success in the health care field. But David E. Edwards, benefits director for Eastman Kodak Co., cautions that Rochester's health care system itself is not "a template that can be laid over every other community."

One reason the Rochester system could not easily be re-created elsewhere is that few cities have such a rich history of community leadership and social innovation.

Scott Norris, spokesman for the Rochester Area Hospitals Corp., noted that local business leaders such as Kodak founder George Eastman long ago fostered a "paternalistic culture" that still exists in Rochester.

Unlike most cities in the Northeast, Rochester also has an enduring manufacturing base dominated by a few big employers, Kodak, Xerox Corp. and Bausch & Lomb. In addition, one insurer, Blue Cross, dominates the market by writing 70% of the health insurance here.

Working together, the big companies and Blue Cross have engineered the local health care system--a task that would be much more difficult in a community with many employers and insurers.

Beginning in the 1960s, when other big employers around the nation were using their economic muscle to negotiate low-priced group insurance rates for their own employees, Rochester's companies stubbornly clung to the old-fashioned notion that everyone in town deserved the same deal.

At the same time, recognizing that their insurance costs were dependent on health care spending for the entire community, the big employers also felt obliged to use their influence on doctors and hospitals to keep costs down.

Among other things, they insisted that hospitals must get the approval of a local planning agency before they invest in new technology. They also prevented a major increase in the number of available hospital beds.

During the 1980s, when health care costs were soaring elsewhere, Rochester hospitals experimented with a system of "global budgeting" that strictly limited annual increases in revenues. The Clinton Administration has been toying with the concept of global budgeting as part of its reform package.

"We learned that we could live within a global budget," said Paul F. Griner, chief executive of Strong Memorial Hospital. "We found we were spending more time managing our affairs, instead of worrying about expanding our market share."

Although the budgeting experiment ended in 1987, it succeeded in drawing the hospitals into a permanent cohesive group. To avoid duplication of services, each hospital agreed to specialize. Two hospitals now specialize in pediatrics, for example, and two others perform open heart surgery.

What has resulted from all these cooperative efforts is an unusually integrated system of health care that not only succeeds in cutting costs for the employers but also yields enough profit to subsidize an array of medical services for the poor, including a network of health clinics and a special $65-a-month insurance policy for families that do not qualify for Medicaid.

The goal of the system, which reaches into the rural areas around Rochester, is to provide affordable health care for everyone. At present, only 6% of the community's population--mostly young, employed people in low-wage jobs--do not take advantage of the opportunity to buy insurance. And employers are not required to provide it, although many do.

While almost everyone in town seems to be generally satisfied with the system, none have benefited more than the employers.

Arthur E. Aspengren, president of the Industrial Management Council, said lower health insurance costs here have enabled local firms to be more competitive and also have attracted new business investment to the Rochester area.

A few smaller companies have abandoned community rating in search of bigger savings, but the big employers are still holding firm, despite some misgivings. Edwards said Kodak could save millions of dollars over the next few years by negotiating a special group insurance rate for its 39,600 local employees, but the company is convinced that community rating is cheaper in the long run.

In Edwards view, community rating saves employers money in three ways: It spreads the risk and the administrative costs of insurance over a larger population; it limits the amount of the unpaid bills that hospitals have to write off as a result of treating uninsured patients; and it promotes community cooperation to control costs.

As for the hospitals in Rochester, all are operating at nearly full capacity with no need to compete for patients. Griner said Strong Memorial Hospital's employees find the efficiency of the local health care system makes it "a lovely system to be able to work in."

But Griner acknowledged there are drawbacks to running a hospital under such strict fiscal discipline. At Strong, for example, the hospital lacks the necessary capital to update a 50-year-old psychiatric wing, where patients suffer each summer without air conditioning.

"The downside is that none of the hospitals is very strong financially," Griner said. "We never have enough surplus to address our capital needs. We find ourselves falling behind in providing unique services, which inhibits our ability to attract faculty."

Likewise, physicians in Rochester are relatively satisfied, according to officials of the local medical society, even though their fees are below the national average.

Medical school graduates seeking to strike it rich do not settle in Rochester. "We have relatively few doctors who are fundamentally greedy," Griner said.

Most local physicians are graduates of the University of Rochester, where they are taught to base their diagnosis of patients mostly on medical history and physical examination--not on expensive laboratory tests. They also are under strong pressure from insurers to avoid expensive procedures.

But lower physicians' fees also make it more difficult to lure specialists into the area, according to officials. One hospital is still searching for someone to replace a cardio-thoracic surgeon who died last year.

Nor do the doctors have as free a hand in prescribing treatments as they would like. Philip P. Bonanni, an internist and president of the Monroe County Medical Society, said Blue Cross often insists that patients consult local specialists, even if they could get better treatment elsewhere.

"I have one patient with a brain cyst who may be required to go to a Blue Cross surgeon," he complained. "If she went to a specialist outside the city, her prognosis would be better."

However, patients here seem generally satisfied with their care. A poll by Louis Harris & Associates found 84% of local residents are at least somewhat satisfied, compared to 71% nationally. Forty-two percent said they were very satisfied, compared to 30% nationally.

Under the standard local health insurance policy, patients pay $5 from their own pockets each time they visit a doctor. The patients may view that as a good deal, but health care experts see it as one of the biggest flaws in the system because it does not discourage unnecessary visits to the doctor.

Bonanni said Rochester residents have come to view a visit to the doctor as their right. "They don't think: 'The more times I go to the doctor, the more money it's going to cost,' " he said. "They think: 'The more I go the doctor, the more I'm going to get out of it.' "

The problem Bonanni cites could be eliminated simply by charging patients a higher fee, according to health care experts.

But for all of their success, those who fund health care in Rochester say they are still fearful that their model system could be in jeopardy.

While they have succeeded in halting the proliferation of high-cost technology in hospitals, they have not contained the competition among physicians to acquire high-tech equipment. In addition, Blue Cross officials see pressure building among some employers to abandon community rating.

A special committee of the Industrial Management Council has been meeting regularly for the past two years in an effort to combat these trends.

"I would hate to have anybody think that Rochester has all the answers," Aspengren said. "But we are working hard on it."

A Health Care Battle Plan

Rochester, N.Y., has created what many experts consider to be the nation's premier health care system, one that could figure prominently in President Clinton's plans for health care reform. Here are its key elements:

Community rating--The city's insurers charge all people in the community the same rate for a particular health care plan, without regard to gender, age, occupation, medical history or other personal considerations weighed by companies in most other cities.

Regional planning--All hospitals must get approval from a regional planning agency before they may add services or facilities. They also keep data on the nature of the region's health care problems so they may fashion improvements and changes in facilities around those needs. In addition, they divide specialties among themselves to lessen duplication of services.

Cooperation among employers, insurers and providers--Representatives of employers, insurers, hospitals, doctors and other professionals meet regularly under the auspices of an Industrial Management Council to discuss how they can best work together to keep health care costs under control and what steps may be necessary to accomplish the goal.

A single dominant provider--While several insurers operate in Rochester, Blue Cross is the largest provider, writing 70% of the coverage. Its dominance tends to reduce paperwork and administrative costs.

How the Plan Pays Off

The Rochester, N.Y., health care system stands out for its success in limiting costs to patients and employers. Here's the approximate average cost of a basic pediatric office visit for a new patient: Rochester: $39 Mid-Atlantic states: $71 National average: $61

A Major Employer's Savings

Here is what it costs Eastman Kodak Co. to cover an employee in Rochester compared to what it costs at Kodak facilities located elsewhere:

1989 1990 1991 Kodak in Rochester $1,404 $1,718 $1,915 Kodak outside Rochester $2,147 $2,620 $2,826

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