CS: If you track the trend line of health insurance premiums for family coverage for smaller businesses in our part of the state, and superimpose that line over the rate at which average wages are increasing in Pa., what you find is that, by about 2010, those two trend lines touch. That is just impossible. Health insurance costs right now are vaporizing profits, postponing capital investments, sucking up any productivity gains, eroding competitiveness for smaller enterprises both at home and around the world, retarding new hiring and forcing layoffs, cutting employee take-home pay, and crowding out other employee benefits. It’s an across-the-board disaster for effective small businesses. That’s why we say that health care costs are literally killing Pennsylvania businesses.

CS: The causes are in two categories. First, those causes that the business community has in common with society in general. We have an incrementally aging population, and the requirements of health care services among that population are increasing year-by-year. The progress of medical science and technology adds new costs each year. We obviously don’t want that progress to stop, but we need to recognize that at some point we reach that cliched Catch-22 in which the most perfect health care that can be invented becomes inaccessible and unaffordable to everybody who needs it. We have medical malpractice issues that distort the practice of medicine and the delivery of health care in a way that pushes expenses up. We have prescription drug costs, which are generally the fastest rising element within the firmament of health care costs, generally.

Second, smaller businesses have additional problems. In Pa. we have perhaps the worst, most counterproductive regulation of small business health insurance markets in the entire country. Pa. is one of the only states – the other is Hawaii – that allows for-profit health insurers to require, as a condition of receiving a quote, that small businesses and employees provide confidential medical information, which it uses to calculate affordable rates for employees who are relatively healthy and young, and to calculate an unaffordable rate for employees who are generally less healthy or less young. That practice is called medical underwriting. For the least desirable groups, from a risk standpoint, the quotes that are given can be $2,000, $3,000 or $4,000 a month per employee, compared to the lower end within the medically underwritten part of the marketplace, where it is not unusual to see family coverage quoted at $400, $500 or $600. In response to the proliferation of medical underwriting, Pa.’s Blues have persuaded the Pa. Insurance Dept. to approve their use of demographic rating – which leavens a community rating with employees’ age, primarily, and with type and location of business. Demographic rating has shifted extra costs on to companies that employ relatively older workers. The top end of demographically rated community pools is approaching $2,000 a month, and the low end is still around $500. Small business employees generally have somewhat less favorable risk characteristics than those of large companies – which typically have a four-or five-figure total population that reflects the characteristics of the population at large. Smaller businesses tend to employ people for a longer period of time and their employees are, on average, older. Many small businesses are sole proprietorships and involve people who are 50 or 60 years old. Small businesses also have a higher level of administrative cost per insured compared to large employers.

There’s a third factor that, frankly, I don’t think we’re in a position to know today, but one of the questions that has been raised recently is whether insurers themselves, in order to attract more profitable self-insured business – which includes most large employers – have structured their contracts with health care providers so as to have reimbursements lower for some of their preferred customers and perhaps higher for some of their less-favored customers. In my estimation, that would be small businesses.

CS: At the top of SMC’s list of things to do in Harrisburg is to engage in health insurance market reform. We would like to have medical underwriting prohibited or significantly circumscribed. That, in itself, wouldn’t reduce total health insurance costs, of course, but it would definitely spread cost out across the spectrum so as to make coverage affordable for more businesses. There is legislation to do this in both the Pa. House and Senate that we support. There is also legislation in the House that would limit demographic rating. The Pa. Insurance Dept., pressured by the Blues, has steadily widened the plus-or-minus effect of demographic rating over the past half-dozen years. We think demographic rating based on age factors has gotten out of proportion. We’d like to have demographic rating based on sex to be prohibited or severely circumscribed. The third thing we’d like is to have the Pa. Insurance Dept. finally make good on its promise to impose some upper limits on the Blue Cross Blue Shield affiliates’ reserves and surpluses. I think there is some truth to the premise that the Blues holding of excessive reserves, and the interest income that is derived from that, has a downward effect on premiums. I would submit that there is a countervailing point of view that such a downward effect on premiums is applied selectively, in the estimation of most Blue Cross Blue Shield customers. When companies like Highmark or Capital Blue Cross want to buy – literally – a segment of the marketplace, they are able to run losses with that segment of preferred business for pretty much as long as they need to. It is a very good question to ask whether the Blues would enjoy the kind of market domination they do in all four service territories of the state if they weren’t able to – and sometimes do – manipulate the market according to price. My answer is not that the Blues ought to divest the money into the ether. The people whose excess premium payments are directly or indirectly represented in these reserves and surpluses should have a formal role in deciding what happens to that money. It may very well be that Blues customers say that all excessive amounts of reserves and surpluses ought to be maintained in a discreet fund, the interest proceeds of which are used to underwrite premiums on a year-by-year basis. We’re going to be seeking, in the coming year, legislative action in Harrisburg that would stipulate to the Insurance Dept. that the fate of the amount ruled excessive could be decided by the purchasers – the customers of the Blue Cross Blue Shield affiliates.

Those three recommendations are particular to small businesses. After that, we’d like to address some overarching issues that are driving health care costs. Among those is medical malpractice. Our view is that further concentration of resources on the quest to gain approval of medical malpractice lawsuit caps for pain and suffering is not warranted. We think the health care providers and health care industry itself, plus business allies, have basically broken their pick in Pa. on this issue for some years now, and we are arguably no further along than we were three years ago. The way we calculate it, once the approval process for caps were to start to grind forward, it would be at minimum a four-year process. We don’t think that businesses, the physicians, and the health care industry generally, can wait that long for some progress on medical malpractice. All of this sidesteps the question of whether caps on noneconomic damages will have a measurable, salutary effect on medical malpractice costs themselves. What we would propose to do instead is to implement some reforms that are not structured around the war between trial lawyers and the health care industry, but rather focus on improving patient safety. It takes, on average, six years from the time a lawsuit is filed until an injured patient collects anything. According to a study in the June issue of Harvard Business Review, less than 30 cents on the dollar of medical malpractice premiums are paid out eventually to a patient or a family of a deceased patient. Everybody knows that there are unnecessary costs and waste that are insinuated into the delivery of health care simply as a matter of practicing defensive medicine. We know that there are some frivolous lawsuits. But against that backdrop, we also know that a couple of hundred thousand Pennsylvanians suffer serious preventable injuries in the course of receiving health care each year, and that virtually none of them ever even thinks about filing a lawsuit. Current medical malpractice law, and the way it’s administered in Pa., not only doesn’t help those people, it actually insures that the kinds of errors and mistakes that injured them occur over and over again because of the punishment that accrues to those who acknowledge problems and try to fix them.

CS: I would think that everyone associated with the Patient Safety Authority would agree that it is proceeding at a very deliberate pace and that there is perhaps nothing of consequence that it has accomplished that has affected the rate at which Pa. patients are injured or the rate at which unnecessary costs are proliferating in the delivery of health care. The Pennsylvania Health Care Cost Containment Council has now received for two quarters data from hospitals as to hospital-acquired infections. The billing records that are submitted by Pa. hospitals indicate that something in the vicinity of 108,000 preventable hospital-acquired infections have occurred during the first two quarters of 2004. The new reports that the hospitals are submitting would have us believe that 2,000 or 3,000 hospital-acquired infections occurred. I submit that the difference between what billing information shows and what hospitals are reporting to the PHC4 shows the root of the problem: there is fear about legal liability, about individual blame that is retarding acknowledgement of the problem of hospital-acquired infections. There are cultural issues within hospitals that make it impossible, for instance, that physicians wash their hands before and after seeing patients; that prevent hospital administrators and chief financial officers from understanding, in general, that hospital-acquired infections are not only gigantically expensive for the people who pay for care, but also a financial hemorrhage for individual health care institutions.

CS: What can we do to protect patients? I think that significant limitations are needed on legal liability for health care providers who acknowledge unexpected outcomes and mistakes immediately, generally no more than 24 hours. I think legal liability also ought to depend on the affected health care provider being demonstrably engaged in sustained, effective activity to ensure that the kind of mistake or unexpected outcome that occurred doesn’t repeat itself. There are places where alternative dispute resolution that has been applied to medical malpractice cases has produced pretty good results, like the mediation program at Drexel University College of Medicine in Philadelphia. If we mandate alternative dispute resolution within the first six or 12 months of the aftermath of a patient wanting to pursue a claim, I think you’ll adjudicate these matters a lot faster, you’ll shine light on where problems are so that you can get after them, and patients will find it a lot more attractive for settlements for appropriate amounts early on. Professional medical organizations need to devote additional energy on education and outreach to physicians to help them understand the connection between reacting, as they have in the past, and taking a different tack with patients and their families in the wake of something unexpected happening. All of the material that I read says that what patients who have filed lawsuits were saying in the aftermath, pretty consistently, is that they could not get any information from the doctor or hospital, that the bond of trust between them and the doctor had been broken, and they felt that to get to the bottom of what happened and to ensure that it wouldn’t be repeated, they needed to go to court in order to get satisfaction. So, we support alternative dispute resolution mechanisms, limits on legal liability for health care providers who are "doing the right thing," and caps on attorney fees. To have 70-plus cents on the dollar of medical malpractice premiums end up in transaction costs – and the lion’s share are fees that are paid to attorneys – that’s lunacy. That absolutely exposes the myth and the lie that our medical malpractice laws are about helping patients. Patients are not made safer by medical malpractice lawsuits and patients receive only a small fraction of the money that runs through the medical malpractice lawsuit industry.

There is one other thing that is indirectly related to medical malpractice, and that is pay-for-performance. At the very least, there is a short list of things that payors of health care ought not to be paying a nickel for. Medication errors should not occur. Bloodstream infections after the fourth day in a hospital should not occur, not if things are done properly; that’s been demonstrated. Staph infections should not occur when proper precautions are taken. Undertaking that kind of initiative by health insurance purchasers would have a salutary effect upon the cultures within the health care industry and would also start down the path of something that is very badly needed, which is to make the financial incentives in health care be about providing quality care, and not be about providing just a whole lot of activity. Health insurers would make those "premium" payments for best care based, first, on a stimulus from health insurance customers and secondly, based on some interaction that includes the purchasers of health insurance with the health care industry itself. You go into a hospital for a $5,000 procedure and the hospital gets $200 out of it – that’s a pretty thin profit margin. If you get that procedure and preventable complications occur, you get a staph infection, and you’re discharged to a nursing home 30 days later with a $150,000 bill – our current payment system in health care is literally incenting bad care. We pay way extra for it – not only for the original care that was not delivered properly, we then pay many multiples of that original bill in order to correct the problem.

CS: We want to call public attention to the issues in a variety of ways. We recently had a meeting with a group of state legislators – the whole southwestern Pa. delegation. We’ll be going to Harrisburg and Washington D.C. to do the same thing. We will begin some advertising. We’re going to try to sensitize, not only our members, but a larger swath of the purchaser community to where the current trends are taking us if we don’t get something done soon. We’ve had conversations with groups such as the Manufacturers Association in Erie, the Pennsylvania Builders Association, Pennsylvania AFL-CIO affiliates and other associations in Harrisburg. We won’t work together on every issue, but we’ve got to get some significant things done within the coming months.