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Hospital Costs: Can the Inflationary Spiral Be Stopped?
Can the Inflationary Spiral
Photo by Joe McCaf)
Be Stopped? By BRUCE D. ROFFE and PETER P . LAMY
H
ealth care is America 's third largest industry. With expenditures of $139.3 billion in 1976, health care follows only the construction industry and agriculture .1
Bruce D. Roffe, MSc, was a pharmacy resident at the Johns Hopkins Hospital in Baltimore, Maryland, and a graduate student in institutional pharmacy programs at the University of Maryland in Baltimore when this article was written. Peter P. Lamy, PhD, Fep, is professor of pharmacy and director of institutional pharmacy programs at the University of Maryland School of Pharmacy, 636 West Lombard Street, Baltimore, Maryland 21201. For a copy of the authors' references, contact the editor of American Pharmacy.
16
Some basic statistics include the following: • In 1975, 4.8 million persons or 5 .1 percent of the national work force were active in the health care industry. 2 • In the same year, there was one practicing physician for every 570 citizens. • Since 1950, the Consumer Price Index (CPI) has climbed 136 percent, while the cost of an average hospital stay has risen from less than $300 in 1965 to more than $1,300 in 1977. In only a four-month period, from June to October 1977, the cost of a hospital stay increased $100 to $1,400 per patient stay.3 In 1976, federal, state and local
governments spent approximately $4 billion more for hospital care than in 1975 .1 In calendar year 1976, the cost of a hospital stay increased 2 1;2 times the six-percent increase in the CPI. 1 Hospital increases even outstripped increases in the cost of energy and food.
Causes of Hospital Inflation The health care industry comprises approximately 7,000 hospitals with a 1.5 million bed capacity, 23,000 skilled nursing homes with 1.2 million beds, thousands of laboratories, suppliers of drugs, medical equipment and other medical products. Health care is virtually a noncomAmerican Pharmacy Vol. NS18, No .10 Sept. 1978/ 536
petitive industry. The patient-consumer is likely to choose the family physician, but not the specialist, the hospital, nor the services which may be prescribed, including often expensive medical tests. Thus, among the basic reasons for the explosive cost spiral in the hospital industry are: • An almost complete lack of competition among physicians and among hospitals. • Little competition among trade name-patented pharmaceutical products or among laboratories. • The fact that hospitals are reimbursed by third party payors based on whatever price the hospital states a service costs. This poorly controlled reimbursement policy encourages hospitals to add expensive new facilities and equipment, and is probably the key explanation for runaway inflation in hospital costs. The largest single bill paid by the General Motors Corporation in 1975 was not for steel, but for health insurance, and health care added $119 to the cost of each new Ford automobile sold in 1975. During 1976, private insurance premiums increased 20 to 30 percent. 4
Hospital Wage Increases While hospital employees have been underpaid in the past, during the last 20 years the average annual earnings of hospital employees increased at a rate of 231 percent, climbing from $2,600 to $8,600. 5 By contrast, over the same period the average earnings of all nonfarm workers rose from $3,500 to $8,500 or 143 percent. s Feldstein and Taylor, 6 in a study prepared for the President's Council on Wage and Price Stability, showed that had hospital pay risen no faster than wages in general, the increase in the average cost per patient day over the 1955-1975 period would have been cut from 9 .9 percent to 8.8 percent. The study also indicates that hospital wages have continued to climb rapidly, even when they had passed the wages paid for similar jobs in other industries.
past few years costs for malpractice insurance have increased 10-fold, from $100 million to more than $1 billion today. However, these increasing premiums now seem to have reached a plateau because hospitals have absorbed most of the increases in insurance premiums. Several alternatives to the insurance premium spiral have emerged in New York and Virginia; these range from no-fault insurance to a system such as "channeling," through which funding of malpractice insurance is shifted from the physician to the hospita1. 7 The role of the physician in malpractice needs greater scrutiny, since 85 percent of all "loss dollars"paid are for claims rising from hospital practice, and 81 percent of such loss dollars are related to surgery and pre- or post-surgical care. 8 To limit these expenditures even further, many physicians and hospitals are avoiding costly coverage by self-insuring, or alternatively, by practicing without malpractice insurance altogether.
The Effect of Regulations As the demand placed on hospitals by federal, state and local agencies increases, the number of employees needed to respond to these demands also increases. The AHA estimates that New York hospitals are required to respond to 164 agencies and New Jersey hospitals to 119. Efforts are now underway to eliminate conflict-
ing and unnecessary regulations as well as to have all proposed regulations evaluated for their effects on hospital cost before instituting them.
Current Federal Programs In 1965, public law 89-97 was passed to finance health care for the aged. Known as Medicare (Title XVII!), the law provides medical and other health care for those over 65. As the geriatric population increases, Medicare undoubtedly will become more costly as the need for additional services to this patient population becomes clear. Admissions of the elderly to acute care hospitals have increased 62 percent in persons 65 and older. s Subsequent studies have shown that the geriatric patient requires more nursing attention than younger patients, a factor which also will tend to increase hospital costs. 9 Also in 1965, Medicaid (Title XIX) was enacted to provide medical and health care benefits to patients of all ages who meet program requirements. IO Each stat~ was initially given the responsibility to select and coordinate a combination of services and individual eligibility requirements, as long as the recipients were guaranteed five basic health services: II • Inpatient and outpatient hospital care; • Physician services; • Laboratory services; • X-ray services; and • Skilled nursing facilities. Medicaid was designed to comple-
Soaring Malpractice Rates The American Hospital Association (AHA) eshmates that over the American Pharmacy Vol. NS18, No.10 Sept . 1978/ 537
Ph o to by Ma rk Farris
17
ment Medicare. The Department of Health, Education, and Welfare (HEW) projected a first year cost for Medicaid of $238 million. The cost of the program escalated from that 1965 projection to a 1976 figure of $13.98 billion. 12 In 1978, provider payments are projected to cost $19.79 billion, which excludes administrative costs of $5.5 million.1 2 At the start of the Medicaid program, it was estimated that 10 million people would ultimately use the system. This estimate proved unrealistic as 21.1 million people were recipients in 1974 and 23.2 million in 1976. The largest single cost component of Medicaid provider payments is still inpatient hospital care, although there has been some decline since 1967.1 2 Concomitant decreases have also been noted in nursing home care cost and intermediate care facilities cost. In . order to keep costs under control, Medicaid has resorted to cutbacks, ceilings, eligibility reductions, elimina tion of services and new reimbursement policies. It is generally agreed that Medicaid funds now provide up to SO percent and more of a hospital's income. Even though there is an increasing demand for justification of services offered to Medicaid patients, and an increasing demand for vastly expanded record-keeping, hospitals continue to acquiesce to these demands to remain eligible for reimbursement. This situation is exemplified by the fact that most hospitals comply with the voluntary accreditation by the Joint Commission on Accreditation of Hospitals OCAH), as loss of accreditation means loss of Medicaid money.
Increased Number of Hospital Beds A major study13 performed in short-term hospitals explored the question of hospital bed capacity. Capacity was defined as the number of hospital beds and the services needed to support them, such as plant assets, labor and service equipment. The study concluded that excess hospital capacity "contributes significantly to medical cost escalation .... The paper further noted that hospital bed capacity could be reduced by /I
18
at least 20 percent without impairing the health of the American people. The report suggests potential savings of several billion dollars annually if these recommendations are implemented.
Overutilization and Duplicate Services Americans enter hospitals more often than necessary and stay longer
than is medically justified. To support this contention, one can cite the fact that prepaid health plansHealth Maintenance Organizations (HMOs)-usually show half the rate of hospitalization 12 as do fee-for-service plans, probably because strong economic incentives exist to avoid overu tiliza tion of ,services, especially hospitalization. Moreover, overuse of hospitals has been documented based on the wide variations in length of stay for the same diagnosis. This variation may well be due to the fact that physicians feel more comfortable with their patients in the hospital, since it is more convenient and easier to perform diagnostic tests. They may also view treatment in the hospital as a more controlled process. Finally, physicians' training orients them toward hospitalization rather than ambulatory treatment . One other consideration may be the lack of adequate nursing home care. Whatever the issue, however, some form of length-of-stay criteria has not been established except for the Professional Standards Review Organization (PSRO) regulations which are only applicable to federal patients. The lack of such criteria continues to contribute to increased hospital cost . Administrative pressures to keep occupancy rates high contribute to the overuse of hospital beds. Though this point is strongly disputed, pressure probably exists in some form and consequently results in increased hospital cost.
Increased Level of Care Medical care has reached a height of performance previously unknown. Unfortunately, the most expensive is often considered the best form of treatment although documentation for this assumption does not exist. An example of this concept is the rapid spread of the very expensive Computerized Axial Tomography Scanning unit (CAT), a sophisticated X-ray and computerized diagnostic tool. Since 1975, 488 scanners have been sold in the United States, of which 246 are already in use. 4 Not only could the overall bill for scanning increase within the next
American Pharmacy Vol. NS18, No .10 Sept. 1978/538
few years, but there has been little noticeable change in the care of patients since the unit's introduction to the American market. There are now enough CATs in southern California to serve the entire western U.5., but CAts continue to be bought and installed in southern California. 4
Federally Funded Programs Concentrated efforts by the federal government to provide mechanisms for review of federally funded programs or subsidized health care services have been made through public law 92-603, which established the Professional Standards Review Organization (PSRO).31 Composed of local physicians and patient review coordinators (registered nurses with at least five years of clinical experience), PSRO functions to evaluate the appropriateness, quality and necessity of medical care given to Medicare, Medicaid and Child Health patients (Title V). Ultimately, it is hoped that all patients will become subject to this type of medical audit because compensation could then be denied to providers who provide services without adequate justification. Preliminary results on the effects of the PSRO program appear promising. Blue Cross estimates that PSRO review decreased an average patient stay from 7.5 days in 1972 to 7.03 days in 1976,32 even though the elderly population-which tends to have longer medical stays33-has increased. Recently proposed federal legislation which could affect health care if it becomes law is the Hospital Cost Containment Act of 1977. 34 The major objective of this act is to curb increased acute care hospital cost by Hospitals, like other institutions, must comply with an increasing number of federal regulations, and the cost of complying contributes to the inflationary spiral. Here Rep. George Mahon (0- TX), at right, and Sen. Robert Dole (R-KS) look at stacks of federal regulations (not just medical) showing how their numbers have grown in recent years. The books used are from 1977 and 1976, and not the actual years they were printed. AP photo
American Pharmacy Vol. NS18, No.1 0 Sept. 1978/539
limiting increases in inpatient revenues to nine percent.
Answers to Increased Hospital Costs One promising way to reduce hospital admissions is by single-day surgery; the patient enters in the morning for minor surgery and leaves the same afternoon. It is estimated that 1,500 hospitals now provide this type of surgery, and privately owned "surgicenters" are slowly spreading. Early patient discharge-with remaining care provided in the home by visiting nurses and therapists-is cited as another way of saving costs. Estimates point out that from six to 25 percent of those patients now in hospitals could be discharged earlier,
if adequate home care was tailored to their needs. Currently, home care is offered in 54 Blue Cross plans and 450 hospitals (listed by the AHA). However, one must consider that hospital cost per patient day may actually increase if patients are discharged to lowercost care centers. Hospitals will then deal only with the most severely ill and the usual cost reduction antici-
pated during recovery will not be realized by the hospital. Institutions such as chronic care hospitals, hospitals less than two years old, and HMOs are not included in this legislation. In addition, hospitals in states which have strict cost containment programs can be excluded from this coverage. This legislation-considered a transitional step -sets dollar limits annually on new capital expenditures allocated to states. In areas with surplus hospital
beds, increasing the number of beds would be banned ou trigh t. Fundamental reform of the methods by which hospitals are reimbursed and in the supply and distribution of health care services is essential, regardless of future prospects for enacting na tional heal th insurance. '. Drug utilization review is another way of controlling soaring health care cost ( see below). Such reviews, along with state formularies, repre-
sent specific efforts to keep costs down in the area of prescription drugs. State Programs State governments have approached cost control in health care with various philosophies. In New York, for instance where the most dramatic governmental cost control effort has been made to date, the governor has been empowered by the state legislature to slow down
Drugs and the High Cost of Health Care Tradition ally, drug 'distribution systems in hospitals have lacked adequate controls . A variety of personnel have been responsible for the purchasing, storage, preparation and distribution of biological products. As hospitals developed multiple dose type systems, the pharmacist began to acquire, but was not in sured, control of medications on a dose by dose basis. Once, transcription of orders was the general practice. However, medication errors and adverse drug reactions increased at a . high rate.
also indicated a decrease in med ication was te and pilferage . In addition, unit dose systems have allowed technicians to assume the traditional dispensing duties which, in turn, permits pharmacists to develop and build clinical services and drug utilization and information systems, providing a broader scope of patient care services . To offset the large developmental cost of computerized services, many hospital pharmacies are contemplating t he use of minicomputers .
Unit Dose Dispensing
Rising prescription drug prices have greatly contributed to the cost of providing prescription drug benefits under Medicare and Medicaid . In order to improve the cost effectiveness of existing reimbursement mechanisms, the Department of Health, Education and Welfare (HEW) secretary announced in 1973 proposed regulations to limit drug reimbursements under programs administered by the department to the lowest cost at which the drug is generally available unless there is a demonstrated difference in therapeutic effect."35 Maximum Allowable Cost (MAC) regulations were subsequently published. The program consists of three parts which are designed to obtain quality drug products at reasonable costS. 36 State Formularies
To control these problems, unit dose dispensing systems were created and are seemingly supported by the lCAH. 14,15 Taking varied forms (centralized versus decentralized, computerized versus manual), unit dose systems were initially designed . to allow the pharmacist to exert greater control over medication distribution. 16-18 Computer advances have aided the development of unit dose systems,19-26 but initial costs of soft- and hardware or development of in-house computer systems are high.27 Several studies 21- 23 indicate that pharmacy personnel and distribution costs increase when unit dose systems are established. However, corresponding reductions were demonstrated in nurse medication related activities, as was increased control of drug distr~bution. These studies ~ave
20
High Prescription Prices
1/
In an effort to reduce drug expen-
ditures, several st ates h ave · implemented formulary systems. The Drug Formulary Commission in Massachusetts estimates a poten t ial savings of $10 million in its first ' year. 40 In Tennessee, annual savings are estimated to be $400,000 .41 Other formulary systems h ave been planned or will be instituted in Pennsylvania, Maryland, Florida and New York with this same concept in m ind. Savings of 21.19 percent have been estimated if the least costly generically equivalent drugs were always purchased. 42 This study does not take the bidding system or volume purchases into account; both tend to lower acquisition cost even further. Drug Utilization Review Health care administrators have become intrigued with drug utilization review (OUR) as a means of controlling inflationary t rends and improving the quality of care. Initially introduced in 1968,44 the concept of OUR was defined as a "dynamic process aimed first at rational prescribing and the consequent improvement in the quality of health care, and second at minimizing needless expenditures." In 1972, Brodie 45 stated that "The goal of drug u tiliza tion review is to improve the quality of patient care .through the prescription and the use of appropriate drugs in conditions for which their use, based on sound medical judgment, is indicated and at
American Pharmacy Vol. NS18, No .10 Sept. 1978/ 540
Photo by Joe McCaf)
Be Stopped? By BRUCE D. ROFFE and PETER P . LAMY
H
ealth care is America 's third largest industry. With expenditures of $139.3 billion in 1976, health care follows only the construction industry and agriculture .1
Bruce D. Roffe, MSc, was a pharmacy resident at the Johns Hopkins Hospital in Baltimore, Maryland, and a graduate student in institutional pharmacy programs at the University of Maryland in Baltimore when this article was written. Peter P. Lamy, PhD, Fep, is professor of pharmacy and director of institutional pharmacy programs at the University of Maryland School of Pharmacy, 636 West Lombard Street, Baltimore, Maryland 21201. For a copy of the authors' references, contact the editor of American Pharmacy.
16
Some basic statistics include the following: • In 1975, 4.8 million persons or 5 .1 percent of the national work force were active in the health care industry. 2 • In the same year, there was one practicing physician for every 570 citizens. • Since 1950, the Consumer Price Index (CPI) has climbed 136 percent, while the cost of an average hospital stay has risen from less than $300 in 1965 to more than $1,300 in 1977. In only a four-month period, from June to October 1977, the cost of a hospital stay increased $100 to $1,400 per patient stay.3 In 1976, federal, state and local
governments spent approximately $4 billion more for hospital care than in 1975 .1 In calendar year 1976, the cost of a hospital stay increased 2 1;2 times the six-percent increase in the CPI. 1 Hospital increases even outstripped increases in the cost of energy and food.
Causes of Hospital Inflation The health care industry comprises approximately 7,000 hospitals with a 1.5 million bed capacity, 23,000 skilled nursing homes with 1.2 million beds, thousands of laboratories, suppliers of drugs, medical equipment and other medical products. Health care is virtually a noncomAmerican Pharmacy Vol. NS18, No .10 Sept. 1978/ 536
petitive industry. The patient-consumer is likely to choose the family physician, but not the specialist, the hospital, nor the services which may be prescribed, including often expensive medical tests. Thus, among the basic reasons for the explosive cost spiral in the hospital industry are: • An almost complete lack of competition among physicians and among hospitals. • Little competition among trade name-patented pharmaceutical products or among laboratories. • The fact that hospitals are reimbursed by third party payors based on whatever price the hospital states a service costs. This poorly controlled reimbursement policy encourages hospitals to add expensive new facilities and equipment, and is probably the key explanation for runaway inflation in hospital costs. The largest single bill paid by the General Motors Corporation in 1975 was not for steel, but for health insurance, and health care added $119 to the cost of each new Ford automobile sold in 1975. During 1976, private insurance premiums increased 20 to 30 percent. 4
Hospital Wage Increases While hospital employees have been underpaid in the past, during the last 20 years the average annual earnings of hospital employees increased at a rate of 231 percent, climbing from $2,600 to $8,600. 5 By contrast, over the same period the average earnings of all nonfarm workers rose from $3,500 to $8,500 or 143 percent. s Feldstein and Taylor, 6 in a study prepared for the President's Council on Wage and Price Stability, showed that had hospital pay risen no faster than wages in general, the increase in the average cost per patient day over the 1955-1975 period would have been cut from 9 .9 percent to 8.8 percent. The study also indicates that hospital wages have continued to climb rapidly, even when they had passed the wages paid for similar jobs in other industries.
past few years costs for malpractice insurance have increased 10-fold, from $100 million to more than $1 billion today. However, these increasing premiums now seem to have reached a plateau because hospitals have absorbed most of the increases in insurance premiums. Several alternatives to the insurance premium spiral have emerged in New York and Virginia; these range from no-fault insurance to a system such as "channeling," through which funding of malpractice insurance is shifted from the physician to the hospita1. 7 The role of the physician in malpractice needs greater scrutiny, since 85 percent of all "loss dollars"paid are for claims rising from hospital practice, and 81 percent of such loss dollars are related to surgery and pre- or post-surgical care. 8 To limit these expenditures even further, many physicians and hospitals are avoiding costly coverage by self-insuring, or alternatively, by practicing without malpractice insurance altogether.
The Effect of Regulations As the demand placed on hospitals by federal, state and local agencies increases, the number of employees needed to respond to these demands also increases. The AHA estimates that New York hospitals are required to respond to 164 agencies and New Jersey hospitals to 119. Efforts are now underway to eliminate conflict-
ing and unnecessary regulations as well as to have all proposed regulations evaluated for their effects on hospital cost before instituting them.
Current Federal Programs In 1965, public law 89-97 was passed to finance health care for the aged. Known as Medicare (Title XVII!), the law provides medical and other health care for those over 65. As the geriatric population increases, Medicare undoubtedly will become more costly as the need for additional services to this patient population becomes clear. Admissions of the elderly to acute care hospitals have increased 62 percent in persons 65 and older. s Subsequent studies have shown that the geriatric patient requires more nursing attention than younger patients, a factor which also will tend to increase hospital costs. 9 Also in 1965, Medicaid (Title XIX) was enacted to provide medical and health care benefits to patients of all ages who meet program requirements. IO Each stat~ was initially given the responsibility to select and coordinate a combination of services and individual eligibility requirements, as long as the recipients were guaranteed five basic health services: II • Inpatient and outpatient hospital care; • Physician services; • Laboratory services; • X-ray services; and • Skilled nursing facilities. Medicaid was designed to comple-
Soaring Malpractice Rates The American Hospital Association (AHA) eshmates that over the American Pharmacy Vol. NS18, No.10 Sept . 1978/ 537
Ph o to by Ma rk Farris
17
ment Medicare. The Department of Health, Education, and Welfare (HEW) projected a first year cost for Medicaid of $238 million. The cost of the program escalated from that 1965 projection to a 1976 figure of $13.98 billion. 12 In 1978, provider payments are projected to cost $19.79 billion, which excludes administrative costs of $5.5 million.1 2 At the start of the Medicaid program, it was estimated that 10 million people would ultimately use the system. This estimate proved unrealistic as 21.1 million people were recipients in 1974 and 23.2 million in 1976. The largest single cost component of Medicaid provider payments is still inpatient hospital care, although there has been some decline since 1967.1 2 Concomitant decreases have also been noted in nursing home care cost and intermediate care facilities cost. In . order to keep costs under control, Medicaid has resorted to cutbacks, ceilings, eligibility reductions, elimina tion of services and new reimbursement policies. It is generally agreed that Medicaid funds now provide up to SO percent and more of a hospital's income. Even though there is an increasing demand for justification of services offered to Medicaid patients, and an increasing demand for vastly expanded record-keeping, hospitals continue to acquiesce to these demands to remain eligible for reimbursement. This situation is exemplified by the fact that most hospitals comply with the voluntary accreditation by the Joint Commission on Accreditation of Hospitals OCAH), as loss of accreditation means loss of Medicaid money.
Increased Number of Hospital Beds A major study13 performed in short-term hospitals explored the question of hospital bed capacity. Capacity was defined as the number of hospital beds and the services needed to support them, such as plant assets, labor and service equipment. The study concluded that excess hospital capacity "contributes significantly to medical cost escalation .... The paper further noted that hospital bed capacity could be reduced by /I
18
at least 20 percent without impairing the health of the American people. The report suggests potential savings of several billion dollars annually if these recommendations are implemented.
Overutilization and Duplicate Services Americans enter hospitals more often than necessary and stay longer
than is medically justified. To support this contention, one can cite the fact that prepaid health plansHealth Maintenance Organizations (HMOs)-usually show half the rate of hospitalization 12 as do fee-for-service plans, probably because strong economic incentives exist to avoid overu tiliza tion of ,services, especially hospitalization. Moreover, overuse of hospitals has been documented based on the wide variations in length of stay for the same diagnosis. This variation may well be due to the fact that physicians feel more comfortable with their patients in the hospital, since it is more convenient and easier to perform diagnostic tests. They may also view treatment in the hospital as a more controlled process. Finally, physicians' training orients them toward hospitalization rather than ambulatory treatment . One other consideration may be the lack of adequate nursing home care. Whatever the issue, however, some form of length-of-stay criteria has not been established except for the Professional Standards Review Organization (PSRO) regulations which are only applicable to federal patients. The lack of such criteria continues to contribute to increased hospital cost . Administrative pressures to keep occupancy rates high contribute to the overuse of hospital beds. Though this point is strongly disputed, pressure probably exists in some form and consequently results in increased hospital cost.
Increased Level of Care Medical care has reached a height of performance previously unknown. Unfortunately, the most expensive is often considered the best form of treatment although documentation for this assumption does not exist. An example of this concept is the rapid spread of the very expensive Computerized Axial Tomography Scanning unit (CAT), a sophisticated X-ray and computerized diagnostic tool. Since 1975, 488 scanners have been sold in the United States, of which 246 are already in use. 4 Not only could the overall bill for scanning increase within the next
American Pharmacy Vol. NS18, No .10 Sept. 1978/538
few years, but there has been little noticeable change in the care of patients since the unit's introduction to the American market. There are now enough CATs in southern California to serve the entire western U.5., but CAts continue to be bought and installed in southern California. 4
Federally Funded Programs Concentrated efforts by the federal government to provide mechanisms for review of federally funded programs or subsidized health care services have been made through public law 92-603, which established the Professional Standards Review Organization (PSRO).31 Composed of local physicians and patient review coordinators (registered nurses with at least five years of clinical experience), PSRO functions to evaluate the appropriateness, quality and necessity of medical care given to Medicare, Medicaid and Child Health patients (Title V). Ultimately, it is hoped that all patients will become subject to this type of medical audit because compensation could then be denied to providers who provide services without adequate justification. Preliminary results on the effects of the PSRO program appear promising. Blue Cross estimates that PSRO review decreased an average patient stay from 7.5 days in 1972 to 7.03 days in 1976,32 even though the elderly population-which tends to have longer medical stays33-has increased. Recently proposed federal legislation which could affect health care if it becomes law is the Hospital Cost Containment Act of 1977. 34 The major objective of this act is to curb increased acute care hospital cost by Hospitals, like other institutions, must comply with an increasing number of federal regulations, and the cost of complying contributes to the inflationary spiral. Here Rep. George Mahon (0- TX), at right, and Sen. Robert Dole (R-KS) look at stacks of federal regulations (not just medical) showing how their numbers have grown in recent years. The books used are from 1977 and 1976, and not the actual years they were printed. AP photo
American Pharmacy Vol. NS18, No.1 0 Sept. 1978/539
limiting increases in inpatient revenues to nine percent.
Answers to Increased Hospital Costs One promising way to reduce hospital admissions is by single-day surgery; the patient enters in the morning for minor surgery and leaves the same afternoon. It is estimated that 1,500 hospitals now provide this type of surgery, and privately owned "surgicenters" are slowly spreading. Early patient discharge-with remaining care provided in the home by visiting nurses and therapists-is cited as another way of saving costs. Estimates point out that from six to 25 percent of those patients now in hospitals could be discharged earlier,
if adequate home care was tailored to their needs. Currently, home care is offered in 54 Blue Cross plans and 450 hospitals (listed by the AHA). However, one must consider that hospital cost per patient day may actually increase if patients are discharged to lowercost care centers. Hospitals will then deal only with the most severely ill and the usual cost reduction antici-
pated during recovery will not be realized by the hospital. Institutions such as chronic care hospitals, hospitals less than two years old, and HMOs are not included in this legislation. In addition, hospitals in states which have strict cost containment programs can be excluded from this coverage. This legislation-considered a transitional step -sets dollar limits annually on new capital expenditures allocated to states. In areas with surplus hospital
beds, increasing the number of beds would be banned ou trigh t. Fundamental reform of the methods by which hospitals are reimbursed and in the supply and distribution of health care services is essential, regardless of future prospects for enacting na tional heal th insurance. '. Drug utilization review is another way of controlling soaring health care cost ( see below). Such reviews, along with state formularies, repre-
sent specific efforts to keep costs down in the area of prescription drugs. State Programs State governments have approached cost control in health care with various philosophies. In New York, for instance where the most dramatic governmental cost control effort has been made to date, the governor has been empowered by the state legislature to slow down
Drugs and the High Cost of Health Care Tradition ally, drug 'distribution systems in hospitals have lacked adequate controls . A variety of personnel have been responsible for the purchasing, storage, preparation and distribution of biological products. As hospitals developed multiple dose type systems, the pharmacist began to acquire, but was not in sured, control of medications on a dose by dose basis. Once, transcription of orders was the general practice. However, medication errors and adverse drug reactions increased at a . high rate.
also indicated a decrease in med ication was te and pilferage . In addition, unit dose systems have allowed technicians to assume the traditional dispensing duties which, in turn, permits pharmacists to develop and build clinical services and drug utilization and information systems, providing a broader scope of patient care services . To offset the large developmental cost of computerized services, many hospital pharmacies are contemplating t he use of minicomputers .
Unit Dose Dispensing
Rising prescription drug prices have greatly contributed to the cost of providing prescription drug benefits under Medicare and Medicaid . In order to improve the cost effectiveness of existing reimbursement mechanisms, the Department of Health, Education and Welfare (HEW) secretary announced in 1973 proposed regulations to limit drug reimbursements under programs administered by the department to the lowest cost at which the drug is generally available unless there is a demonstrated difference in therapeutic effect."35 Maximum Allowable Cost (MAC) regulations were subsequently published. The program consists of three parts which are designed to obtain quality drug products at reasonable costS. 36 State Formularies
To control these problems, unit dose dispensing systems were created and are seemingly supported by the lCAH. 14,15 Taking varied forms (centralized versus decentralized, computerized versus manual), unit dose systems were initially designed . to allow the pharmacist to exert greater control over medication distribution. 16-18 Computer advances have aided the development of unit dose systems,19-26 but initial costs of soft- and hardware or development of in-house computer systems are high.27 Several studies 21- 23 indicate that pharmacy personnel and distribution costs increase when unit dose systems are established. However, corresponding reductions were demonstrated in nurse medication related activities, as was increased control of drug distr~bution. These studies ~ave
20
High Prescription Prices
1/
In an effort to reduce drug expen-
ditures, several st ates h ave · implemented formulary systems. The Drug Formulary Commission in Massachusetts estimates a poten t ial savings of $10 million in its first ' year. 40 In Tennessee, annual savings are estimated to be $400,000 .41 Other formulary systems h ave been planned or will be instituted in Pennsylvania, Maryland, Florida and New York with this same concept in m ind. Savings of 21.19 percent have been estimated if the least costly generically equivalent drugs were always purchased. 42 This study does not take the bidding system or volume purchases into account; both tend to lower acquisition cost even further. Drug Utilization Review Health care administrators have become intrigued with drug utilization review (OUR) as a means of controlling inflationary t rends and improving the quality of care. Initially introduced in 1968,44 the concept of OUR was defined as a "dynamic process aimed first at rational prescribing and the consequent improvement in the quality of health care, and second at minimizing needless expenditures." In 1972, Brodie 45 stated that "The goal of drug u tiliza tion review is to improve the quality of patient care .through the prescription and the use of appropriate drugs in conditions for which their use, based on sound medical judgment, is indicated and at
American Pharmacy Vol. NS18, No .10 Sept. 1978/ 540