At a health fair at Van High School in Boone County, W.Va., last April, students examined a 1-pound replica of human fat and imagined what it looked like in their bodies; they held plastic models of vegetables to understand more about average serving sizes, and they listened to 26-year-old community nutritionist Stephanie Vealey tell them that biscuits and gravy should be cut out of their daily breakfast diet. Boone County residents have the highest rate of obesity per capita in the United States, and Vealey is their first full-time nutritionist. But Vealey's position was created by a grant that has now expired, and her hospital, Boone County Memorial, cannot afford the extra cost of her salary. As a result, her future in Boone County depends on uncertain funding from other sources. "I understand, as far as money is concerned, that this is not a moneymaking service," says Vealey, "but it is a needed service."
Boone County Memorial is one of thousands of health care providers across the country that are scrambling to hold down costs as Washington struggles to craft a new health care system for the nation. The American Hospital Association reports that hospital costs per admission, adjusted for outpatient visits, grew just 4.8 percent in 1993, the smallest increase since the group started collecting data three decades ago. Modest price increases for health care are accompanying slower growth in provider costs. The Labor Department's index of medical price inflation has declined for three straight years, and in 1993 it registered its lowest rate of increase since the price control years of the early 1970s. The downward trend has continued in 1994.
Lower premiums. Less medical price inflation may mean that the rate of growth in health care expenditures is also decelerating. The Congressional Budget Office estimates that in 1993, the rate of increase in private health spending slowed to 7.7 percent, down from 9.5 percent in 1990. And a study by consultants at KPMG Peat Marwick found that the rate of increase in the premiums of three different types of insurance plans dropped from 1988 to 1993. Says health policy consultant Lynn Etheredge, who advised the White House on the development of President Clinton's Health Security Act: "While most of us remain skeptical and would like more than one or two data points, there are lower rates of [medical] inflation across the board."
Managed-care organizations in America have played a large role in braking health care costs and prices. The Congressional Budget Office recently reported that the most effective health maintenance organizations can lower a patient's use of services by 12 percent compared with non-managed-care plans. And Lewin VHI, a Washington, D.C.-based health care consulting group, found that the costs of Aetna's independent practice association, a type of HMO, were 23 percent lower than those of its traditional fee-for-service plans. Such aggressive cost containment efforts may be translating into lower premiums for HMO members. A 1992 survey by benefits consultant A. Foster Higgins found that managed-care premiums averaged 9 to 19 percent less than those of traditional plans. At Blue Cross of California, for example, the average small-group-plan premium dropped 3.3 percent last year.
The biggest savings for managed-care organizations have come from limiting the length of time a patient remains in the hospital. This effort, along with tighter controls on Medicare fees and new advances in medical technology, helped reduce the number of inpatient days by 26 percent from 1981 to 1993; outpatient visits climbed 76.5 percent during the same period. The subsequent impact on jobs and the organization of patient care in hospitals has been staggering. In Massachusetts, for example, where enrollment in HMOs has reached almost 35 percent of the population, 1,500 nurses have lost their jobs in the past two years. A recent study by the Massachusetts Governor's Council on Economic Growth and Technology predicts that some 30,000 hospital jobs will be lost in the state if the annual number of inpatient days per 100,000 population falls by 36 percent.
Although hospitals disagree, many health workers believe that care is suffering as the number of nurses per patient is reduced. Judith Shindul Rothschild, an assistant professor at the Boston College School of Nursing, has found that in some Massachusetts community hospitals, the ratio of nurses to patients in specialty areas such as intensive care has dropped from 1 to 2 to 1 to 4 over the past several years.
Drug companies have also been forced to change their pricing habits and lower costs. In 1990, for example, Merck pledged that it would peg drug price increases to the overall rate of inflation. Merck has since been joined by 18 other drug companies that have made similar public promises. Merck also proposed last spring that its pledge be written into contracts with the federal government. This movement seems to be showing up in government statistics: The prescription drug component of the medical care price index grew only 3.9 percent in 1993, down from 10 percent in 1990.
Crunching numbers. Many analysts, however, worry that government data on medical prices are misleading. The experts are also concerned that the industry is misusing the numbers to combat impending health care reforms that call for controls on insurance premiums and reviews of drug prices. Economist Burton Weisbrod of Northwestern University, for example, points out that government data on drug prices measure the rate of growth of those prices but provide no information about the actual price of a drug when it is introduced. A company could therefore bring a drug to market at a very high price level and then raise the price at a very low rate, yet government statistics would reflect only the lower rate of increase from the introductory price.
Other economists believe that declining medical inflation should be viewed in conjunction with the economy's overall price picture. Health care inflation in 1993 was the lowest in 20 years, but it was still 2.9 percentage points higher than total inflation, and the difference was greater than the 2.1 percentage point spread that existed between the two from 1967 to 1993.
A number of health care experts also question whether the downward trend in medical prices, costs and expenditures is permanent. Joshua Wiener of the Brookings Institution says that new medical technologies like bone marrow transplants, which are costly and help prolong lives, ultimately determine the rate of growth in health care costs. "Over the long run," explains Wiener, "technology will be the major cause of rising health care expenditures, and I don't see any major changes so far that would say there has been a real decline in technology."
Finally, the Congressional Budget Office suggests that because the slower rate of growth in HMO premiums has been at least partially offset by growth in out of-pocket expenses such as office visit copayments, the total health care costs for each plan enrollee may have grown more rapidly than is widely believed. In addition, releasing people early from hospitals means that patients -- rather than providers -- bear the costs. Says Boston College's Shindul-Rothschild: "There has been nothing to document the cost of shifting the burden of care to families and community-based services."
But the evidence does show that aggressive cost cutting by America's health care industry today may not keep medical inflation under control tomorrow. That's one reason why cost controls as part of health care reform have become so crucial in the minds of many policy makers.
