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The following interview with George Ross Fisher, M.D., is presented to give specific answers to questions relating to the organization of the Foundation for Medical Care which is being developed by the Pennsylvania Medical Society. Dr. Fisher is a member of the Medical Care Appraisal Committee of the Pennsylvania Medical Society.
Q. Why are Foundations for Medical Care called Foundations?
A. Well, you will recall that Henry Kaiser started a closed-panel salaried group practice which he called the Kaiser Foundation. When the doctors in California, who felt threatened y Kaiser, started a rival organization, they wanted to use the word foundation, too. So the term has stuck to most similar organizations, even though it is a little confusing.
Q. Does the foundation offer a tax shelter?
A. Not at all, and you will see that the team is difficult to understand. Some foundations are chartered as non-profit corporations, and others as ordinary corporations. The ordinary corporations avoid taxes by avoiding profits, so there isn't much difference except in state regulation. The Pennsylvania Medical Care Foundation is a non-profit corporation.
Q. Now, slow down and be a little clearer. Suppose you give a one-sentence statement definition of what a foundation does.
A. It takes two sentences. A medical care foundation is a sort of insurance company. And it's also an organization for medical peer review. You might not think these two functions should be fused, but it really does make sense to do so.
Q. You have the microphone make sense out of it.
A. The foundation offers the patient unlimited medical care for a fixed insurance premium. It offers the doctor unlimited income on a fee-for-service basis. Obviously, there has to be peer review to prevent bankruptcy, just as there has to be an insurance pool in the middle. Of course, there must be a qualifying phrase when you talk about "unlimited" care and "Unlimited" physician income: It's unlimited if it's "necessary and reasonable." It's also limited if you run out of money.
Q. That seems to be pretty clear, but how does it get mixed up with the Bennett Amendment?
A. The Senate Finance Committee was very impressed with the Sacramento, Peer Review Plan, and the Bennett Amendment would make a similar nationwide plan. Senator Bennett noticed that, while you can't have prepayment without peer review, you can have peer review without pre-payment. So the paradox: there might be a great many foundations which limited themselves to peer review.
Q.What are the plans of the Pennsylvania Foundation?
A. The Pennsylvania Foundation has to go through some procedural steps before it can do anything, and it will not be ready to operate until the October 1972 meeting of the House of Delegates of the Pennsylvania State Society. At about that time, it ought to be ready to respond to whatever legislation is passed, whatever peer review contracts the hospitals sign with Blue Cross, and whatever spontaneous demand there is for peer review.
Q. What about the prepayment function of the Foundation?
A. It seems likely that this aspect will be slower to develop, although you can't be sure. This is an election year, and the Democratic State administration in Harrisburg gives signs of developing legislation affecting health delivery system. Since the history of foundations has been that they are a defense of the private practice, it seems likely that they will flourish to whatever degree that private practice feels threatened. There are a number of closed-panel pre-payment groups trying to start up in Pennsylvania. Probably the private practitioners in their neighborhoods will be the ones most interested in the foundation approach. The legal and administrative mechanism will be available if they are wanted.
Q. If the various government authorities don't raise problems, will that end the insurance matter?
A. Possibly, You have to ask yourself how much the public wants pre-paid medical care. The argument goes like this: The average citizen may want to budget his health expenses, having them deducted from his health expenses, having them deducted from his pay-check or however another manner. A pre-paid comprehensive health program allows the subscriber to spend his residual income without worrying about a rainy day. No doubt this argument has some attractiveness to some average citizens, but whether it has enough clout to overcome suspicions and conservatism is open to question.
A more serious stimulus might just come from industry, as surprising as that may sound. You will recall that may sound. You will recall that Blue Cross got its big push during the wage freeze of World War II. The industry was not allowed to raise wages, so it gave fringe benefits. This was the wage equivalent of a black market when labor was scarce. Well, we have another wage freeze today, as of course, you know.
Q. Would it be fair to call the foundation a contingency plan?
A. It might be accurate, but it wouldn't be fair. It takes an enormous amount of time and money to get a foundation organized. You don't make that sort of investment in a solution unless you think there is a reasonable danger that you will develop the problem it would solve. Rightly or wrongly the people active in it really think the foundation may have to be used.
Q. Well, our discussion has given me a fair idea of what the Pennsylvania Foundation for Medical Care is trying to do, but I now have lots more questions.
A. So do we.
How do you know it will succeed?
A. We were enormously impressed by a field trip to California Foundations. There are twenty-two of them, and the oldest has been running for 16 years. You never saw such enthusiastic cohesiveness among doctors as you find in the Stockton Medical Society for example.
Q. Maybe so, but how does the public react?
A. Public enthusiasm is what generates doctor enthusiasm out there, Over and over they proudly tell you of a recent subscription drive by Kaiser in the Foundation's area. Only 2% of the public signed up for Kaiser. The foundation approach is a way of presenting a legitimate alternative to closed panel threats to private practice, an alternative which the public usually prefers. The private practitioners have no need to form a union or to indulge in dubious competitive reactions.
Q. So, the foundation is a way of combating physician unions, too?
A. Let's get something straight. The foundation isn't against anybody. It merely seeks to provide an alternative for those who want an alternative. for those who want an alternative. Any doctor who wants to join the union is free to do so. We are talking about preserving legitimate options, with the faith that free competition will favor the best system. While we are on the subject of hostility, the foundation does not hamper group practice if the doctors want to practice that way within the foundation, nor does it hamper teaching hospital systems.
Q. It sounds that way to me.
A. Not at all. There is a portion of the public who wish to budget their health costs through payroll deductions or annual premiums. The Foundation sets up an insurance pool to make this possible. The foundation does not care whether the doctors are in group practices, medical schools, or solo private practice.
Q. If that's the case, what's all the fuss about?
A. There are probably only two principles on which the foundation must do or die. The first is that reimbursement is on the basis of fee-for-service at some point in the chain from subscribers to doctor. The Mayo Clinic, for example, collects fee-for-service from the patients and pays its doctors salaries. There is no objection to the doctors choosing to receive salaries as long as the payments mechanism has squeezed through the fee-for-service keyhole at some point. The second essential issue is physician domination of the foundation. We have no objection to competing with identical systems which are consumer domination, stockholder-dominated, or government-dominated. We merely wish to provide a physician-dominated alternative for those who wish to enjoy it. We have faith that a physician-dominated foundation will flourish in such open competition because we have faith that the premium will be wrong to offer the public a physician-dominated system without a free choice of systems with other types of domination. We are putting our faith in competition to achieve the greatest good for everyone, and since we are for competition, we have to have it.
Q. The foundation must have a competitor?
A. Certainly, and for a variety of reasons. First, to achieve the public image of being in favor of a free economy rather than, let us say, a non-free one. Secondly, the vulnerability of the premium. As everyone in Pennsylvania has come to realize, the insurance commissioner has to approve your premium or your request for premium increases. If you are running the most expensive system, you are apt to be badly squeezed. We are willing to risk the gamble that other plans will be more expensive. The exposure of being the only insurance scheme of this type is what is too dangerous to risk.
Q. All right, if you like the competitors so much, what's wrong with them?
A.Probably more through accident than design, the competitors have some features we would rather not embrace. Compulsory salaried practice, for example. As I mentioned, we have no objection to the group being paid fee-for-service and then paying salaries to their members. What seems objectionable to entrepreneur psychology is the use of compulsory salaries as a mechanism of cost control. Doctors on salary forgo the opportunity t work as hard as they please and thus, to make as much money as they can. Having less incentive to work, the salaried doctors have to be supervised, watched, suspected, threatened. Since most of the public receives salaries they see nothing abnormal about this, but most doctors selected medicine as a profession in order to escape it. So the entrepreneurial doctors have sort of a bargain with the public. They say they will work all kinds of ridiculous hours in return for being left alone. The converse of this is this is that universal doctor salaries lead to instant thirty-hour weeks. If you are already neglecting your family to work a sixty-hour week, you aren't very happy about the prospect of an instant doctor shortage.
Q. Why not build more medical schools?
A. Because the public won't adequately fund the schools we already have. And probably, it would be cheaper to have the doctors work longer hours than to build more schools. After all, a great deal of the overtime returns to the public as income taxes. But the foundation can't solve that issue, and we are talking about foundations.
Q. Sorry to digress. What's wrong with consumer-dominated plans?
A. From our point of view, there is nothing wrong, and I told you we need them as competitors. The flaw from the competitive point of view is that public-dominated plans are likely to be more expensive and to emphasize the wrong services. That is, they may well overspend on amenities and underspend on medical advances. It seems more likely that a doctor-dominated plan would recognize and drive toward new methods and new equipment, possibly sacrificing amenities to achieve it. It seems to me that this type of competitive tension is in the public interest.
Q. What's wrong with leaving things the way they are?
A. Not much, and it seems very likely the public will be very slow to enroll in any prepayment scheme. The public now has the choice of Blue Cross plus Blue Shield as a prepayment scheme, as well as self-insurance. By self-insurance is meant you save your money and pay your bills when they are due. A few people do what I do, which is to skip the Blues and buy a major medical plan with a low deductible.
Q. How does the foundation differ from the Blues?
A. In two ways. The first is to offer comprehensive ambulatory coverage, which includes everything done in a doctor's office, including routine check-ups. The second is to try to include the Blue Cross coverage under the umbrella of risk.
Q. Why include Blue Cross?
A. You have now touched on the most difficult issue of all. Everyone recognizes that public concern is aroused by the disproportionate rise in hospital costs. If we didn't have a cost-plus situation with Blue Cross and the Hospitals, we probably wouldn't be worried about delivery systems. By including the hospital cost in the package, we hope to provide an incentive for the doctors to reduce hospital utilization.
At the same time, it is important to recognize that the cost-plus feature of Blue Cross created some very important advantages. The first was that expensive medical advantages could be buried in the budget for later reimbursement by Blue Cross. You didn't have to fight with the insurance commissioner every time a new drug came along, or a new x-ray machine. Blue Cross completely ignored the hospital bill and paid actual costs. It was a free ticket for waste, but it was also a way of keeping up with progress.
Now, there was a second advantage to the system. It paid for expensive features which one hospital provided and another hospital didn't, but which the community in general needed. A good example would be nursing schools. If hospital A had a school and hospital B didn't, in effect hospital A was training nurses for both of them. And the cost was shared by all subscribers in their premiums, regardless of where they were hospitalized or even if they were never hospitalized or even if they were never hospitalized. You hear it said that it is unfair to make the sick patient pay for nursing education, but that isn't what happens. All subscribers pay for it in their premium, and Blue Cross distributes the money where it is spent.
Q. Yes, I just recently learned that Blue Cross does not pay hospital charges, but rather on some cost formula of its own. But why is this a problem for the foundation?
A. Because it leads to a vast difference in costs, they will very likely destroy the teaching hospitals and community hospitals. If you give the doctors an incentive to reduce hospital costs, they will very likely destroy the teaching hospitals by shifting their patients to cheaper institutions. The Pennsylvania Hospital has already announced the closing of its nursing school, and no doubt others will have to. In five years this sort of thing would totally disrupt medicine.
Q. Shouldn't the government pay for these things?
A. The nursing schools happen to be a discrete component of what we call quality medicine; no doubt you could isolate them and get federal funds even in an era of serious federal deficits. But how are we to pay for cardiac surgery? The prospect of total federal involvement in all expensive medical advances is too hideous to contemplate. There is an appalling serenity to the way a great many people are talking about this. For an era that has become alarmed about disturbing the forces of nature, this would be major pollution of medical ecology.
Q. What's to be done about it? No one wants to destroy teaching hospitals.
A. Unless you simply exclude hospital costs from the foundation package (as HIP in New York has done), two major strategies seem available. They are complicated to explain.
Q.OK, go ahead.
A. The first approach would be to recognize that a certain portion of the premium dollar isn't insurance at all, but a donation. That proportion could be put into an Education and Development Fund, which would be distributed for the purposes we mentioned, and which when exhausted could not invade the remainder of the pool for health care insurance. You still have the battle with the Insurance Commissioner when an unbudgeted medical advance appears, but at least everyone knows what is under discussion. And there is no scapegoat to hang it on.
Now, the second approach is experience rating. That's a fancy insurance term for saying that the premium will be less if all your subscribers, through experience, cost less than the standard plan. An underwriter is a person who pockets the profits in return for the risk that he will have to pay for deficits. Perhaps you begin to see that a consumer-dominated plan means that the consumer is the underwriter. And why, we believe, the physician-dominated plans will turn out to be cheaper. Because doctors are in a much better position to hold costs down.
Q. But if the doctors are the underwriters for the Blue Cross experience rating, don't they continue to have an incentive to shift their patients out of teaching hospital?
A. Yes, indeed. Although, if you isolate the education and development costs into a fund, it might not be entirely a bad thing to put pressure on the teaching hospitals to get their straight patient-care into line.
However, hospital cost accounting is so difficult that the teaching or metropolitan hospital is probably always going to cost more. A plausible solution would seem to be to divorce experience-rating from dollars and put it on a point-system of relative values. In the simplest possible terms, a ten percent reduction in patient days would result in a ten percent experience rating in dollars.
Q. How could the Blue Cross cope with a situation where there were more points than dollars? Where would the dollars come from?
A. You are assuming that the teaching hospitals are infinitely elastic and that every patient prefers them. On the contrary, the big move is from the city to the suburbs. Since the teaching beds are fixed, for every foundation patient into one of them there would have to be a non-foundation patient out of them. In the rather unlikely event that there was a net movement of all patients into teaching hospitals, only one solution is possible. The higher total cost of medical care to the community would have to be paid for by a Blue Cross premium increase. We've had them before. In this case, however, the public would be asked to pay for something it was asking for.
Q. Who asked for the recent 40% rise in Philadelphia Blue Cross premium?
A. I'm afraid we are wandering off the subject of foundations again, but let me make an example of that. Since 70% of hospital costs are personnel costs, we have to ask whether it is likely that either salary rates or the number of employees increased by 40% in two years. Since that obviously isn't the case, the Philadelphia Blue Cross situation has something special about it. That special thing was an extension of benefits to outpatients. The idea was that paying for x-rays and lab for outpatients would reduce the incentive to hospitalize. There was in fact no subsequent decrease in hospital admissions, and the out-patient benefits killed the Blue Cross finances. This experiment was mandated by the Insurance Commissioner of Pennsylvania two years earlier (Mr. Denenberg predecessor).
The whole thing illustrates the pollution-of-the-ecology theme. We are all in the medical space-capsule together, and we must all involve ourselves in disturbances of the environment by anybody. There is nothing for anybody to gain by slandering the closed-panel groups, the teaching hospitals, the full-time doctors, or the American Hospital Association. To the degree that we get polarized, we are going to lose the atmosphere of goodwill which is essential for everyone's survival.
Q. That sounds like a good curtain speech to me, but I have some more questions.
A. I can take it if you can.
Q. You haven't' talked much about peer review.
A. . Maybe not, but perhaps you can see why effective peer review is absolutely essential to the financial survival of the foundation, and the public will like that. Conversely, the risk feature of the insurance plan is a big help to peer review. One of the great surprises of the visit to California was to find how little friction the peer review system generated among the doctors subject to review. They had a very good reason to want effective peer review (on others, of course) and so they acquiesced to it for themselves. After all, the best way you have of knowing that the others are under control is to see how review touches your own practice.
Doctors commonly share the suspicion that, while their own practices are clean, there are a lot of other guys who may be abusing things. I happen to believe that there is a very minor degree of conscious abuse at the present time in Pennsylvania and that an effective peer review mechanism will prove it. If the reviewer isn't finding much abuse, he has to be quite an egomaniac to create much friction. We have a few doctors of that variety, of course, but we can cope with them. What we can't cope with is an enormous book of rules and regulations formulated by people remote from the problems. The methods and procedures of peer review can change with the times, but they need to meet only one standard: keep the premium cheaper than Kaiser. If the salaried systems, with their rulebooks and time clocks, can't keep their costs under control, you have demonstrated all that the public wants to know. Everybody in the foundation then gets a year-end bonus, and please keep out of our hair.
Q. Are the . unions going to let you get away with this?
A.You seem to need to learn what Mr. McGovern discovered: organized labor has become pretty conservative lately. Surprisingly, one needs to be a little concerned about big corporations. When a company gets bigger than a certain size it is run by managers, not entrepreneurs. Many of them had Mr. Kenneth Galbraith as a stimulating teacher. My hunch is that the fear of higher taxes is what will make friends of the corporation managers, not a commitment to free competition. The unions are beginning to see that closed panel groups have some of the features of a company store.
Q. What future would you personally like to see?
A. Like every other doctor, I wish the whole problem would go away and let me tend to my patients. Maybe the international money crisis will divert the government to other concerns. But very likely the pre-payment idea will slowly gather a small constituency, and I believe the public is entitled to choose pre-payment if it likes. I would hope that we could depolarize the consumer-dominated and doctor-dominated plans. Since you are entitled to dominate to the extent that you are at risk, I would hope that we can devise intermediate situations between all-or-none. (Again, allowing for the free option of all-or-none for those who want all, or none.)