Senate Insurance Committee Informational Hearing

Current Healthcare Crisis Issues

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Current Healthcare Crisis Issues

  • Fiscal Solvency of Medical Groups:

Although the reports vary, there have been more than 100 medical groups that have gone bankrupt over the last two years. The FPA and MedPartners insolvency disrupted the lives of over 1 million Californians. Recently, the closure of KPC in Southern California affected over 240,000 enrollees. The CMA reported that every week since last June, another medical group was closing. And last month the contract dispute between Blue Cross and Sutter caused chaos and confusion for tens of thousands of patients in Northern California. Currently the Fiscal Solvency Standards Board is trying to develop regulations to stabilize medical groups. But many unresolved problems continue including developing plans to deal with the disruption of patient care when a group closes.

  • The Uninsured:

California has 2 million uninsured kids, and 75% of them could be covered by Medi-Cal and Healthy Families Program (838,000 eligible for Medi-Cal and 639,000 eligible for Healthy Families). As of December 2000, only 361, 259 were enrolled in Healthy Families. However, 72,000 children have disenrolled (22,000 failed the annual recertification and 25,000 failed to pay the monthly premiums). California also has 5 million uninsured adults. Studies have shown that the uninsured receive less preventive care and seek care for illness later resulting in higher morbidity and higher costs. And with premiums for health insurance now rising at double-digit rates and with energy costs rising, the numbers of uninsured may rise despite the attempts by the state to expand eligibility in Medi-Cal and Healthy Families.

  • Medical Errors:

The Institute of Medicine's recent report, 'To Err is Human, Building a Safer Health System,' estimated that medication errors occurring either in or out of the hospital account for over 7,000 deaths annually. Estimating that California contains 10% of the nation's population, an average of 700 California hospital patients die yearly from preventable medication errors. According to the Institute's study, about 2 out of every 100 hospital patients will die or be injured as a result of a preventable medication error. This Institute calculated that each of these medication errors increases the cost of a hospital stay an average of $4,700. With 472 hospitals in California, this translates into millions of wasted healthcare dollars each year. Because reporting is not mandatory, however, the actual magnitude of errors and the injury and costs from them is not known. The costs of errors extends to the individual beyond hospitalization to include the expenses of temporary or permanent disability. On a larger scale, spending healthcare dollars caring for patients who have experienced medication errors increases insurance costs and copayments. Errors are also costly in terms of patients' loss of trust and decreased satisfaction in a healthcare system that is not guarding their safety through protection from preventable accidental injury.

  • Emergency Room Closures:

Since 1990, 12% of the emergency departments in the state have closed, while in the remaining 355 emergency rooms patients wait longer and ambulances are forced by “diversion” to find another emergency room to take their patients. Fewer doctors, nurses and technicians are available to provide lifesaving care. The CMA reports that 80% of emergency rooms lost money in 1999, and more than 9 million patients were treated in emergency rooms at an average loss of $46 per visit. Hospitals lost $317 million and doctors lost $100 million. These losses are widespread, occurring in every area of the state, with 30% of those deficits occurring in Los Angeles County.

  • Privacy:

The sharing of patient information between doctors is necessary when caring for a patient. And patient information is also required by health insurance companies for authorization of procedures, for utilization review and for billing purposes. But as the healthcare industry expands through mergers, affiliations and the Internet, patient confidentiality needs to be protected. Some companies sell patient information to other companies for marketing purposes. For example, a woman who had a positive test for pregnancy had that information shared with another company that then sent the woman a box of infant formula, all without her knowledge or consent. When one company is merged with another company, does the new company have the right to see your medical information. For example, can a life insurance company which is a partner of a health insurance company look at your medical records without your knowledge in order to determine how much to charge you for your policy? And with the emergence of the Internet, the risks of hackers breaking into the system and stealing your private medical information is real.

  • Affordable Prescriptions:

Prescription medications are the fastest growing cost component in health care. A recent report by the Kaiser Family Foundation states the average cost increase of prescriptions has been 7% annually from 1991 to 1998, compared to only a 2.6% annual increase of the Consumer Price Index. And the cost of prescriptions rose 20% last year in California. Medication prices in the U.S. can be compared with six countries in Western Europe and Canada for the year 1998. Using all patented medication products and using Canadian prices as the baseline at 100%, the average price of all patented medication products in Italy was 85.3%, in France 91.5%, in the U.K. 106.8%, in Sweden 108.1%, in Germany 108.5%, in Switzerland 118.3%, and in the U.S. 159.9%. Managed Care for seniors provided them with prescriptions coverage. Initially, most kinds of pills were covered and the co-payment was zero or minimal, often only $5. But now the prescription benefits have progressively been reduced. The single-tier copayment changed to a double-tier copayment wherein the brand name pill copayment was higher than the generic pill copayment. Then a triple tier system was introduced which required an even higher copayment for "non-preferred" brand name pills, as high as $90 per prescription. HMOs introduced limits (caps) on how much money the HMO would pay annually for pills. Then some HMOs began charging monthly premiums for the senior HMO products.

  • Seismic Retrofit of Hospitals:

Existing law requires hospital owners to repair, rebuild or remove from service, hospital buildings that either pose a significant risk of collapse and danger to the public (by January 1, 2008) or would not be repairable or functional following strong ground motion (by January 1, 2030). The California Healthcare estimates that at minimum, a majority of California hospitals will need to rebuild or retrofitted at a cost of $24 billion in order to meet compliance deadlines. This estimated cost exceeds the total assessed valuation of hospital property in California. At a time when medical groups and emergency rooms are going bankrupt and California has one of the worst uninsured rates in the nation, hospitals may not be able to afford to retrofit and still remain open.

  • Nursing Shortage:

Nurses are a critical component in guaranteeing patient safety and quality of health care. Over the past several years many hospitals, in response to managed care reimbursement contracts, have cut costs by reducing their licensed nursing staff. But now there is a nursing shortage. Numerous studies have documented that patients in hospitals today are sicker and require more intensive nursing care than patients of several years ago. And yet the nurses are very important providers. They are the ones who actually carry out the orders and as such are the last people to be able to catch errors and protect patients. They are the ones who actually nurse and care for patients. Medical groups are closing, emergency rooms are closing, hospitals are unable to afford seismic retrofit, doctors are leaving the state. Who will care for us if there are no nurses?

  • HIPAA Compliance:

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 reforms the healthcare system with provisions that: a) improve portability and continuity of health insurance coverage for groups and individuals; b) combat waste, fraud and abuse in health insurance and healthcare delivery; and c) simplify the administration of health insurance. Although HIPAA calls for administrative simplification, the process to get there is very complex and costly. There are 9 categories of administrative simplification with compliance required 24 months after each Final Rule becomes effective. The first Final Rule was for “transactions and code sets” and was effective 8/17/2000 with the compliance date of 10/16/2002. The other 8 Final Rules will probably be effective by the end of 2001. The impact could be significant cost savings for providers, but service delivery could suffer interruptions as businesses that deal with health insurance will require technical re-engineering. HIPAA compliance will require system-wide reassessments and workforce education and state regulations may need to change. The costs to comply with HIPAA have been estimated to be 4 times as costly as the recent Y2K compliance. Currently there is no state-wide plan for HIPAA compliance and the federal penalties for non-compliance are significant.

  • Mandates:

Because of the recent backlash against HMOs, the Legislature has passed many laws to reform healthcare and health insurance in California. Laws were passed to guarantee care for patients for several conditions including diabetes, mental health, contraception, childbirth, and mammography. However, most of “mandate” legislation affects the medical groups and hospitals rather than the HMOs because of the “delegated model” of healthcare in California. The delegated model means that the HMO has transferred the financial risk to the medical groups. The result of a mandate is that medical groups must provide more services to enrollees, but still at the same capitation rate. This has little impact on the HMO, but severe financial impact on the medical groups which are already in financial crisis.

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