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Health care finance reform and market failure at King/Drew Medical Center, Los Angeles: An analysis of pediatric social outcomes in an urban public safety -net hospital

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Health care finance reform and market failure at King/Drew Medical Center, Los Angeles: An analysis of pediatric social outcomes in an urban public safety -net hospital

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Content Health Care Finance Reform and Market Failure at King/Drew Medical Center, Los Angeles An Analysis of Pediatric Social Outcomes in an Urban Public Safety-Net Hospital by' David Besong Tataw A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Political Science) May 2001 Copyright 2001 David Besong Tataw Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UMI Number: 3027787 Copyright 2001 by Tataw, David Besong All rights reserved. UMI' UMI Microform 3027787 Copyright 2002 by Bell & Howell Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. Bell & Howell Information and Learning Company 300 North Zeeb Road P.O. Box 1346 Ann Arbor, Ml 48106-1346 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UNIVERSITY OF SOUTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES. CALIFORNIA 90007 This dissertation, written by DeMVD 9»<ESo^GrT f v ^ y \ under the direction of h . . Dissertation Committee, and approved by a ll its members, has been presented to and accepted by The Graduate School in partial fulfillm ent of re quirements for the degree of DOCTOR OF PHILOSOPHY - Dean of Graduate Studies Date .............. DISSERTATION COMMITTEE Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. David Besong Tataw Harlan Hahn ABSTRACT Health Care Finance Reform and Market Failure at King/Drew Medical Center, Los Angeles. An Analysis of Pediatric Social Outcomes in an Urban Public Safety-Net Hospital. This study concerns the trade-off between efficiency- seeking approaches to public policy (represented by cost- cutting financing strategies) and equity- seeking strategies represented by the medical missions of safety-net health delivery systems and public financing programs designed to guarantee a floor of consumption for health services to disadvantaged populations. The study illuminates what happens when a society agrees collectively to pay for health care to those who cannot afford to buy it, without giving up the desire to achieve efficient allocation of society’s resources. This is an analysis of how the trade-off between efficiency and equity impacts the ability of children to access health care services at the King/Drew Medical Center of Los Angeles County in the past two decades. There is evidence that access to children health care services at the King/Drew Medical Center has been compromised due to reduction of entry 1 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. into, convenience in, and satisfaction with, the healthcare system. Access was undermined when the local government implemented cost-cutting policies in response to efficiency-seeking federal and state mandates. We are witnessing the cohabitation of market oriented financing models with safety-net health delivery systems. Hospitals that serve the poor were created because the people who lived in these poor communities, could not obtain adequate health services in a free market environment. Diminished access to pediatric health services is preliminary evidence that the re- introduction of market protocols in this environment might have generated a Second Market Failure at King/Drew Medical Center and other safety-net hospitals. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 2 DEDICATION This dissertation is dedicated to: My late mother and my first teacher, Cecilia Besong Tataw whose death from breast cancer in 1978 inspired my interest in health policy and management, and my two daughters, Besong and Ejah and my wife, Rose who are my role models. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Acknowledgements It is now time to thank all those who supported me during my doctoral studies. I will certainly miss some names but my gratitude is not diminished by such omissions. Many people in my USC family supported my efforts. I wish to thank my Committee Chairman, Professor Harlan Hahn and my Committee Members, Professors Anne Crigler and Bruce Janssen, for the unreserved support they gave me during this process. I also wish to thank Professors Preston and Kaminiecki, past and present Chairs of the Department of Political science for the financial support I received from the department throughout my stay at USC. Without their support, I would not have completed the PhD program. I must also thank the staff of the Department of Political Sciencg particularly, Jody and Mary, for their professional and cheerful support. I thank the many men and women at the King/Drew Medical Center who supported me in one way or another. I am particularly thankful to Dr. Frederick W. James, Chairman of the Department of Pediatrics and Mr. Randall Foster, Hospital Administrator, for providing me wife a^upportive and flexible work environment that made this dissertation possibles iii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. I also thank my co-worker Espie Pasigan for her moral support and for helping prepare this dissertation for the Editor. I am deeply grateful to my father who put significant pressure on me to complete the doctoral program. He was the most important human influence on me as I went through this process. I am also indebted to my siblings in the United States, Europe and Africa for their moral support. I must mention my eternal indebtedness to my daughters, Ejah and Besong and their mother, Rose, for being my source of inspiration and strength in all my undertakings. IV Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS Chapter Page 1. INTRODUCTION 1 2. KING/DREW MEDICAL CENTER AND THE NEW HEALTH FINANCING PARADIGM. 10 A. Safety-Net Health Systems and Teaching Hospitals B. The King/Drew Medical Center and the Children It Serves C. Evolution In U.S. Health Care Financing 3. FOUNDATIONS OF HEALTH FINANCE AND THE PROBLEM FACING PEDIATRIC SERVICES AT THE KING/DREW MEDICALCENTER 41 A. Efficiency and Equity Values in Health Care Policy B. Market Failure and Government Intervention C. The Problem of Policy and Method. D. Research Questions. E. Theoretical Proposition: The Second Market Failure. 4. RESEARCH DESIGN AND DATA COLLECTION 75 A. The Case Study Method B . Approaches C. Unit of Analysis: PROVIDER. D. Measurements: Pediatric Social Outcomes E. Data Collection/Sources/Evidence 5. DISCUSSION 89 A. Social Outcomes Data Trends B. Analysis 6. CONCLUSION 118 A. Efficiency Versus Equity Trade offs Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. B. Second Market Failure at KDMC C. Managerial Implications D. Policy Implications BIBLIOGRAPHY 130 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF TABLES AND FIGURES Table/Figure 1. Table 1 — LAC-DHS Implementation Timeline,Federal .State and Local Financing Strategies. 1982-1997 2. Table 2 — LAC-DHS Implementation of Internal Cost Saving policies. 1990-2000. 3. Table 3 — King/Drew Medical Center, Facility Wide Trends Selected Statistics. 1982-1999. 4. Table 4 — Expenditure on Physician and Nursing Services per encounter, Department of Pediatrics, KDMC.1992-1993. 5. Table 5 — King/Drew Medical Center, Pediatric Patient Encounter Per Staff, Licensed Nurse. 1996-1999. 6. Table 6 — Physician panel Levels, KDMC, Department of Pediatrics, 1970-2000 7. Figure 1 — Health Finance Reform and Health Access in Safety-Net Environments. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 1 INTRODUCTION This study concerns the trade-off between efficiency-seeking1 approaches to public policy (represented by cost-cutting financing strategies) and equity- seeking strategies2 represented by the medical missions of safety-net health delivery systems and public financing programs designed to guarantee a floor of consumption for health services to disadvantaged populations. The study illuminates what happens when a society agrees collectively to pay for health care to those who cannot afford to buy it, without giving up the desire to achieve the most efficient allocation of society’s resources. This is an analysis of how the trade-off between efficiency and equity impacts the ability of children to access health care services at the King/Drew Medical Center of Los Angeles County in the past two decades. A health delivery system could be evaluated by looking at health indicators such as life expectancy at birth and disease specific outcomes, or by looking at the performance outcomes of the health care delivery system itself such as physician-patient ratio, wait time at clinics, patient satisfaction and 1 Efficiency seeking approaches are those approaches that seek to reduce the cost of medical care either by direct budget cost or by introducing market competition. These approaches assume that the health care delivery system is too expensive because provider cost is too high. 1 Equity seeking policies are designed to make sure beneficiaries receive a minimum level of health care. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. appointment delay time (Henderson, 1999). In recent years, health care scholars have come to regard outcomes as part of access. Access therefore includes what happens to patients during and after their contact with the delivery system. Their health status is considered medical outcomes and their experiences in the delivery system are called social outcomes. Three social outcomes are usually identified: Institutional Outcomes refer to health care production activities and trends in the health care organization such as expenditure on medical professionals, occupancy rates, technology use etc. Patience Outcomes. How does what goes on in the health care institution affect the patients that visit the institution? This measure includes clinic wait times, appointment delays, time spent with physician’s etc. Community Outcomes focus on how the health institution affects the community it serves. Examples of community outcomes include immunization rates, knowledge of health prevention techniques etc. This study focuses on changes in institutional and patience outcomes. There is evidence that access to children healthcare services at the King/Drew Medical Center has been compromised due to reduction of entry into, convenience in, and satisfaction with the healthcare system. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. This study does not seek to indict the pursuit of efficiency in health delivery systems that serve the poor. It is not a discussion about efficiencies that individual organizations ought to pursue. It is rather an examination of the shift at the societal or policy level from a primary desire to provide a dignified level of care to a pursuit of the lowest level of expenditure for health care. In the latter part of the 20th century, health care policy has shifted from initiatives that expand access to strategies that seek to contract health care programs to vulnerable populations. The end of the Second World War saw the rapid expansion of government expenditures on health services by the enactment of Medicare and Medicaid. However, by the early seventies, rising costs forced the government to begin to revamp its financing strategies in order to control expenditures. Cost reduction efforts started with provider regulation in the form of Professional Standards Review Organizations (PROS) 3 and Certificate of Need (CON) 4 programs. The next important shift occurred in the eighties with the adoption of prospective payment systems and market strategies such as capitation5, medical cost reduction and managed competition6. 3 PSROS were established in 1971 under federal legislation to monitor quality while limiting utilization. They were replaced in 1984 by Peer Review Organizations (PRO) who monitor hospitals and other facilities that receive MEDICARE. 4 Certificate of Need (CON) These are regulations that attempt to avoid the costly duplication of services in the hospital industry. Providers are required to secure a certificate of need before undertaking a major expansion of facilities or services. 3 A payment method providing a fixed, per capita payment to providers for a specified medical benefits package. Providers are required to treat a wel l defined population for a fixed sum of money paid in advance without regard to the number and nature of the services provided to each person. This payment method is a characteristic ofhealth maintenance organizations and many preferred provider organizations. 6 A health care system whereby individuals are given a choice among competing health plans. A standard feature is the formation ofhealth insurance alliances to increase the bargaining power of insurance purchasers. The outcome of managed competition is usually lower health insurance premiums and lower reimbursement levels for providers. 3 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The most dramatic transformation in the cost reduction efforts is the expansion of market-oriented financing strategies to programs that predominantly serve the poor and other disadvantaged groups. These reforms have included the extension of market strategies to Medicaid, global budgets, prospective payment systems, public private partnerships and service reductions. The above financing strategies can find justification in economic and social justice theories and ideologies. The allocative efficiencies of Pareto and Adam Smith are aligned with the economic determinism and survival of the fittest ideology of Herbert Spencer and other Social Darwinists. Similarly, there is much in common between the social justice theory of John Rawls and the writings of Henry George as well as other opponents of Social Darwinism who advocated economic equality. In a way, the trade-offs between efficiency seeking policies and the values of redistributive equity are similar to the conflict between market economics and democratic values such as equality. If equity is the dominant goal of policy, some allocative inefficiency may be expected. If the bottom line of policy is the achievement of the most efficient allocation of resources, equity is bound to be compromised. Emerging models have combined the financing and delivery of health care. Hospitals that mainly serve the poor were created because the people who 4 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. lived in these poor communities, could not buy health care services either through their employer or by themselves through insurance premiums or direct payment to providers. The private market could not provide these communities with “ a reasonable floor of consumption” 7 of health services. Federal, state and local government programs pay for health care services in these underserved communities because the market has failed to provide medical care to these communities since there is no demand8. In the case of public hospitals like the King/Drew Medical Center, the local government owns and operates the facility. A part of the revenue comes from reimbursements from state and federal programs such as MediCal. The rest of the cost is covered by the county operating budget. The county of Los Angeles is seemingly embroiled in a conflict of interest when it assumes both the role of a cost-cutting financier as well as the guarantor of health services to low-income inhabitants. There is a return to the pre-government intervention9 culture of market economics in the financing of health services delivered by the King/Drew Medical Center. The re-introduction of market protocols in this environment that suffered from prior market failure has indeed generated a Second Market Failure evidenced by diminished access to pediatric health services. 7 This is a minimum level of care that can maintain the health of the citizens and meet public health goals such as the elimination of communicable diseases. 8 Demand here refers to effective demand. Need backed by the ability to pay. 8 This is before the government intervened in the healthcare markets by providing or paying for services to low-income communities. 5 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. This study is a story about the invasion of distributive equity by capitalist efficiency. It is also the story of the poor children who receive care at the King/Drew Medical Center and the commitment of the American political system to their care. A statement made by the health deputy of a Los Angles County Supervisor in a meeting I attended at the County Hall of Administration in March 2000 vividly illustrates the extent of this commitment. The deputy represented the Supervisor and chaired a planning meeting for a school-based health program for a low-income community. Her first and most important interest was to know the units of service at which the health program will break-even. She insisted that the Supervisor wants school-based programs to be self-sustaining. “ This cannot be a loss leader, ” she emphasized. Realize that the deputy is not interested in a floor of consumption of health services; she is interested in the financial bottom line. She did not inquire about the level of services the children receive. Her statements are representative of the extent to which the County of Los Angeles has become a reluctant sponsor of health services to the poor. The notion that a health program for poor children will need to break-even as required by the Supervisor’s deputy is the ultimate entry of a market culture into the safety-net health system and the exit of equity considerations. Some of the fundamental assumptions that guided the formulation of health finance programs for the disadvantaged appear to be taking a back seat to cost cutting strategies. Given this shift, how faithful are “ safety-net” health 6 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. delivery systems to the distributive and substantive objectives of providing a reasonable level of care to the populations they serve? Has the desire for cost reductions and return on investments overcome the desire to expand access to health services? With the financial bottom line now determining the floor of consumption of health care for vulnerable populations, what access challenges do children confront at the King/Drew Medical Center? A longitudinal case study based on the triangulation of methodology and data sources is best suited to this investigation because of the complexity of the context in which change occurs. There is a confluence of values (efficiency and equity), and of stakeholders: intergovernmental actors (federal, state and local), children, parents, physicians and nurses. To fully appreciate the issues involved, a review was conducted of the Office of Statewide Health Planning and Development (OSHPD) data, and archival and organization records at the King/Drew Medical Center. Questionnaires were also administered to 16 nurses and 21 physicians and interviews were conducted with 20 parents. The data shows that financial austerity at the Los Angeles County Department of Health Services (DHS) in the context of federal, state and local government policies that emphasized allocative efficiencies, compromised equity values by undermining pediatric health care access at the King/Drew Medical Center. This is demonstrated by reduced resource consumption, negative operational outputs such as decreased job 7 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. satisfaction and quality of care, and reduced service convenience and utilization. Figure one below illustrates the lines of association between efficiency-driven financial strategies and diminished access to pediatric services at King/Drew Medical. The experience in pediatric services is preliminary evidence that a second market failure was triggered at the King/Drew Medical Center when policy makers re-introduced market protocols in an environment where an earlier market failure prompted government intervention. To demonstrate the full extent of market failure, an analysis of all health services at the King/Drew Medical Center will be needed. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Figure One HEALTH FINANCE REFORM AND HEALTH CARE ACCESS IN SAFETY-NET ENVIRONMENTS. FREE MARKET NO GOVERNMENT PROGRAMS " ► EQUITY-DRIVEN PROGRAMS FEDERAL AND STATE GOVERNMENT FINANCING MEDICARE, MEDICAID/MEDICAL, DSH, CCS, CHOP, CHIPS/HEALTHY FAMILIES and OTHERS SAFETY-NET PROVIDER (KING/DREW MEDICAL CENTER) STAFFING, SUPPLIES, andSERVICES (PEDIATRIC HEALTH CARE ETC. ) -► EFFICIENCY-DRIVEN STRATEGIES MANDATED FEE SCHEDULES, CERTIFICATE OF NEED PROGRAMS, GLOBAL BUDGETS, RESOURCE RATIONING, PROSPECTIVE PAYMENTS SYSTEM, and, MARKET STRATEGIES LOCAL GO1 FERNMENT FINAP (L. A. C REIMBUR GENERA] and BLOC] ICING OUNTY) SEMENTS, L FUNDS, C GRANTS REDUCED FUNDING FROM REIMBURSEMENT, INCREASED SERVICE COSTS TO LOCAL GOVERNMENT, PROFIT MOTIVE, BUDGET CUTS, FREEZES, PUBLIC-PRIVATE PARTNERSHIPS, LAY OFFS, REINGINEERING, MARKET PERFORMANCE STANDARDS, and OTHER FINANCIAL AUSTERITY MEASURES. I REDUCED RESOURCE CONSUMPTION, NEGATIVE OPERATIONAL OUTPUTS, and DECREASED SERVICE CONVENIENCE. MARKET FAILURE GOVERNMENT SECOND MARKET INTERVENTION FAILURE NO GOVERNMENT. EXPANDED ACCESS TO HEALTH MARKET LIMITED HEALTH SERVICES. PROTOCOLS SERVICES. REINTRODUCED Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 2 KING/DREW MEDICAL CENTER AND THE NEW HEALTH FINANCING PARADIGM A. SAFETY-NET HEALTH SYSTEMS AND TEACHING HOSPITALS Trends in urban public safety-net hospitals and academic health centers show the pressures that these institutions face from financing strategies. If safety-net delivery systems are being transformed, the care that children receive in these systems may also be changing. A review of safety-net and academic health systems is warranted. The King/Drew Medical Center is both a public safety-net hospital and an academic medical center. While the entire United States health system is facing dramatic changes in financing and delivery, urban safety-net health systems are hardest hit by this revolution. These changes are particularly harsh for those safety-net institutions that rely heavily on federal, state and local governments for funding. Such systems face intensified pressure from a number of factors: growth in the uninsured population, reductions in Medicaid funding and local support, explosions in managed care, the need to provide public health and community wide services, inadequate governance and often cumbersome 10 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. political and bureaucratic obstacles, current caps in Medicaid disproportionate share hospital (DSH) payments and the 1996 welfare and immigration law (Sage, 1998). The US has long relied on institutional safety-net hospitals to fill gaps in the nation’s health system. Safety-net health systems meet the basic needs of the uninsured and underinsured. Prior to Medicare and Medicaid, safety-net hospitals functioned as charity hospitals for the poor (Star, 1982; Sage, 1998). Even with the growth of community hospitals following the Hill Burton Act after World War II, vulnerable patients continued to rely on urban public hospitals (Star, 1982). Also, many years after the enactment of Medicare and Medicaid, about 50 percent of the poor are still not insured (Sage, 1998). Besides serving the poor, urban public hospitals and health systems have contributed to medical education, the provision of high cost tertiary care, outpatient care, and other public health services that benefit entire communities. Public teaching hospitals are driven by distributive equity values. As the delivery system of last resort and often the only such system in the communities they serve, urban safety-net health systems help to guarantee a floor of health care consumption for the populations they serve. The public health functions of providing immunizations and health education as well as conducting medical research raise their services to a public good n Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. dimension1 0 . Because of these considerations, a shift in focus to cost reduction undermines patient care, educational, and public health missions. Safety-net systems differ widely across the nation. In the public sector, in addition to traditional city or county hospitals and health systems, the safety- net institutions include free standing authorities, districts and public benefit corporations, state hospitals (particularly state university health systems), public health departments and clinics, federally qualified community migrant and rural health centers (FQHCc), and a fairly wide range of federal facilities such as veterans hospitals and Indian health facilities. Historically, the safety-net health systems have also included private institutions that have been willing (or sometimes required by law, their enabling charter or their geographic location) to play the role of a safety-net health system by providing a certain level of charity care to vulnerable populations. There have been several efforts to quantify the number of hospital-based safety-net systems. The Georgetown Institute for Health Care Research and Policy estimated that there are 369 “urban- safety-net hospitals” in America using the statutory definition of Medicaid volume greater than 1 standard deviation above the mean (Gaskin, 1996). Alternatively, the Lewin Group has estimated that there are 696 hospitals nationally that meet the optional Medicaid statutory definitions of 25 percent “low income utilization rate” (or 1 0 The public good dimension of low income health care services will discussed in Chapter 3. 12 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the combination of Medicaid revenues and direct local subsidies as a proportion of total net revenues) (Shields and Alexis, 1996). Whatever the precise definition, urban safety-nets still constitute less than 10 percent of the hospitals in America. The following are the vulnerable groups that are served in urban public teaching hospitals: 1. The uninsured/underinsured. • Working poor with no employer-provided coverage • Non-Medicaid unemployed poor (including single nonpregnant adults, childless couples, and poor families above certain income levels). • Uninsurables (people with high-cost illness who are denied coverage such as HIV/Aids patients) • Children who are not included in parents’ coverage. • Young single middle and upper class adults (they become ineligible for parents policy and do not have employer-provided coverage • Employed people who choose not to purchase employer sponsored coverage. 2. Legal and undocumented immigrants 3. Minorities 13 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 4. Homeless 6. High-risk mothers and infants 7. Victims of violence 8. Mentally disabled 9. Substance abusers 10. Persons with communicable diseases including HIV and Tuberculosis 11. Border babies (babies whose parents live in a foreign country but specifically come to the United States in order to deliver the babies) 12. Migrant farm workers 13. Prisoners 14. Persons with limited or no English speaking abilities. 15. Noncompliant managed care enrollees (individuals who seek care outside of the managed care organization provider network, often due to the inaccessibility of network providers). (Savage, 1998, p. 129) Urban safety-net hospitals see more patients than their private counterparts. They also have a high proportion of Medicaid patients and incur high levels of bad debt and uncompensated care. In a 1994 comparison with private counterparts, safety-net systems reported 30 percent more admissions, 39 percent more inpatient days and an average occupancy rate of 75 percent, i.e. 11 percentage points higher than their private counterparts (Savage, 1998, p. 132). Seventy to ninety percent of patients are Medicaid patients (Sage, 1998, p. 133). 14 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. In 1995, safety-net hospitals incurred 20 percent of all the bad debt. Uncompensated care as a percentage of gross charges grew from 26 percent in 1990 to 27.7 percent in 1995 for 33 hospitals for which data were available (Sage, 1998, p. 134). Unlike most community hospitals that cross-subsidize1 1 uncompensated care with commercial insurance, safety-net hospitals rely on Medicaid, Medicare and state and local subsidies to pay for uncompensated care. Market strategies and prospective payment regimes reduce the opportunity to cross-subsidize uncompensated care because reimbursement levels for compensated care have been reduced. State and local subsidies cover about half the cost of uncompensated care in safety-net hospitals. The difference is made up through Medicaid Disproportionate Share Hospital (DSH) payments (40 percent) and Medicare DSH payments (9 percent). The Medicaid DSH program was originally established in 1981 as a means of assisting hospitals providing large volumes of care to low-income and Medicaid patients. In the rush to expand allocative efficiencies via prospective payment systems and market strategies to programs that serve low-income populations, little effort is made to protect the unique characteristics of safety-net systems. The result has been a fall in resource consumption in 1 1 Traditionally hospitals will charge paying patients at a higher level than they consider fair. The difference between a normal price and the assessed price is used to cover the cost of services to non-paying patients. 15 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. these delivery systems and an increase in service inconvenience as disadvantaged populations access services in these delivery systems. The advent of TennCare nearly destroyed the Regional Medical Center at Memphis as a safety-net system for low-income patients from a three state region. Managed care also severely damaged the Mehary Medical College and a range of other providers (Blumenthal and Meyer, 1996). The Texas state comptroller estimated that the Harris County Hospital District could lose between $72.3 million to $196.2 million in Medicaid funds over the next several years. This loss is ascribed to a proposed managed care program in Texas, which would lower reimbursement levels (Sorelle, 1995). ACADEMIC HEALTH CENTERS Academic medicine is being transformed as it responds to changes in the financing of patient care. Rabkin (1998) points out that as academic medical centers respond to current financing reforms, the core mission of patient care, education and research are threatened by fiscal challenges. Academic health centers are the cornerstone of the US health care delivery system. Teaching hospitals provide 75 percent of the nation’s doctors, 44 percent of the indigent care, and they perform most medical research (Association of American Medical Colleges, April 1999). Most academic medical centers, which tend to be located in urban centers, are public institutions that care predominantly for the poor. All but two academic health 16 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. centers are located in urban centers. Forty-four percent are publicly owned. They are often the major source of care in their communities (Reuters and Gaskin, 1998, p. 153). Based on the American Hospital Association annual survey of hospitals, academic health centers account for 37 percent of uncompensated care and 31 percent of Medicaid, even though they only comprise 16 percent of total beds. They are also 29 percent more costly than non-teaching hospitals (Reuters and Gaskin, 1998, p. 153) Public teaching hospitals finance indigent care via an ill-defined system of subsidies from revenues earned through paying patients. Like other safety- net hospitals, publicly owned academic centers also draw from state and local subsidies that provide funds for specific programs as well as general operating support. As managed care penetration increases, academic health centers will lose revenues from privately insured patients because the rate of HMO penetration reduces the rate of hospital cost inflation (Gaskin and Hadley, 1996). As a result, there are fewer revenues to subsidize non-paying patients. Efficiencies based on commercial health delivery models do not fit the cost realities and the health delivery infrastructure of public teaching hospitals. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. B. THE KING/DREW MEDICAL CENTER AND THE CHILDREN IT SERVES The King/Drew Medical Center is of particular significance in that it is an example of government intervention in medical markets when the free market fails to equitably distribute health care resources. Under the free market, the impoverished residents of South Central Los Angeles barely had access to health care. Government intervention to correct the failures of the free market health care system by establishing a public hospital in South Central Los Angeles significantly increased health care access for the residents. The King/Drew Medical Center is also an academic health center and therefore has cost structures and missions that are different from most of the mainstream health care industry. The hospital and its community clinics grew out of the Watts riots of 1965. The Macone Commission formed after the riot identified inadequate access to healthcare as a major cause of the violence. The Los Angeles County Board of Supervisors recognized the urgency of establishing a medical facility to serve the health needs of this community. A Watts Health Advisory Committee recommended that health services be provided under the direct control of the then county Department of Hospitals. It also supported the creation of a new postgraduate medical school under the direction of the Drew Medical Society and the University of Southern 18 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. California School of Medicine (King/Drew Medical Center, 1998 Annual Report). A Southeast General Hospital Commission was established to assume the responsibility of funding and constructing a general hospital. The Martin Luther King Jr. General Hospital, opened on March 27, 1972, was the third teaching hospital in the County of Los Angeles. The Hospital was to be affiliated with the newly created Charles R. Drew Postgraduate Medical School. On April 1, 1983, the name of the hospital was changed from Martin Luther King Jr. General Hospital to Martin Luther King Jr. /Charles R. Drew Medical Center. Currently, the medical center is a county-operated facility with 513 licensed beds, over 300 physicians in training, and 14 clinical residency training programs (King/Drew Medical Center, 1998 Annual Report) The Department of Pediatrics The Department of Pediatrics is a unit of the King/Drew Medical Center and the College of Medicine at Charles R. Drew University of Medicine and Science. The Department’s faculty is the clinical staff at the King/Drew Medical Center, which is the primary site for the education and training of residents and students as well as the delivery of health and medical care to 19 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. patients. The Department is the regional pediatric sub-specialists panel in its catchment area and the only tertiary inpatient services for pediatric patients. The hospital serves five communities in the South Region of the Service Planning Area (SPA 6) of Los Angeles County including the communities of Compton, Crenshaw, Lynwood, Paramount, South Central Los Angeles, and University areas. Most children in the community, who do not come to the King/Drew Medical Center, will have to go without sub-specialty care or tertiary inpatient services. The children who live in the Los Angeles county SPA 6 region have King/Drew Medical Center as their hospital. They are among the poorest in the nation. Without government intervention, they might never receive health care. These kids seldom are considered by major debates in public policy and political science. They are not part of William Domhoffs (1990) power elite, or Robert Dahl’s (1971) pluralist factions. They are not part of David Easton’s (1965, 1967) decision-making process or Skocpol’s (1994) institutional systems. Their parents are at the very bottom of Schattschneider’s (1988) fifty million disenchanted Americans who do not attempt to influence policy even by voting. They are William Julius Wilson’s (1980) urban underclass, the sector of America even Alan Greenspan, “ the guardian of American capitalism”, acknowledged in 1999 as not benefiting from the longest period of economic growth in American history. 20 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The service area covers 124.2 square miles with an estimated population of 1.5 million. The ethnic characteristics are: 11.5 percent white, 23. 3 percent African American, 59. 7 percent Hispanic, and 5. 4 percent Asian/Other (LAC/DHS, 1995). In the SPA 6 area, approximately 40 percent of the population lives in poverty as opposed to 22 percent for the county as a whole. Seventy-one percent are renting their primary residence, 50 percent have not completed high school (LA County, DHS 1995, Socio-Demographics of the King/Drew Area 1998). The children have the lowest scores in the Los Angeles County on the Stanford test, and SAT scores are below the district average (Los Angeles County, prop 10 Commission, 2000). Infant deaths per 1000 are 7. 4 compared to the 5.8 for Los Angeles County as a whole (United Way data, 1998). Minority communities have been left behind in the great health strides made by the United States in the 20th Century. The greatest achievement in this era has been the steep decline in infant mortality. There has been a drop from 29.2 infant deaths per 1000 live births in 1950 to 10.1 in 1987. Yet the mortality rates for blacks in 1987 was two times more than whites. The rates 21 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. for Puerto Ricans and Native Americans were also considerably higher (Healthy People 2000 p. 10) National epidemiological data shows that health problems are usually about two times greater in minority and low-income populations (Healthy People 2000). Recent studies show significant health access needs in the SPA 6 area. The multiethnic children score card prepared by the United Way (1999) shows that only 55 percent of African American children and 60 percent of Hispanic children are immunized by age 2 with only 60 percent of all children in the SPA 6 area immunized by age 2. These data also revealed that 27 percent of the parents of insured children 0-17 years of age in the SPA 6 area have problems with transportation to health care providers. Eleven percent have not seen a physician in 6 months, compared to the Los Angeles County average of 9 percent. In addition, 33 percent of the children are uninsured compared to the county’s 25 percent. A 1997 Los Angeles County health needs survey, disclosed that 125, 000 children were 200 percent below the poverty rate. They tended to be uninsured, and 60 percent of the uninsured have problems obtaining medical care. Since disadvantaged children are most at risk of current health threats, a study of access issues in the health system should be a high health care research priority. Such a research focus is particularly important because child welfare researchers and professionals have demonstrated that health care and health status of infants, children and adolescents are 22 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. related to development and learning abilities (Perrin and Gerrity, 1984; Grissler et at., 1998). Learning ability will ultimately determine a child’s chance to participate in the economic, political and social life of the society. If health and health care are very important to a child’s ability to participate in society, then a democratic society ought to guarantee a minimum level of health care access. Perrin and Gerrity (1984) posit that the process of development depends on repeated and varied interactions between the growing child and his or her environment. The child influences his or her environment and vice versa. A child’s physical health, interacting with environmental variables such as teachers, parents, peers or the school system may modify the expected developmental progression. Because of the complex interactions of various factors, many argue that the developmental success of the child is best achieved through a collaborative effort among different disciplines and sectors of the society. The agenda of healthy people 2000 points out that the complex problems affecting children call for interventions from different sectors of the society including primary health providers, social service professionals, health educators, housing officials, and community groups. All other partners in the child’s developmental environment have a much lower chance of success if the health component is undermined. Researchers in Finland (Grissler et al., 1998) have been able to link health status to learning abilities by studying health access, health status and the 23 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. educational performance of children from birth until age seven years. A 1998 Los Angeles Unified School District analysis related the health status of children to their performance in the classroom. SAT scores tend to be lower in communities where health access problems are higher. Also, within schools, students with physical and mental health problems have more performance difficulties. These findings led the Jordan/Locke cluster of Los Angeles Unified School District (LAUSD) to forge relationships with the King/Drew Medical Center and other safety-net health systems to provide school linked health care programs. This effort is seriously limited because of its inability to be self-sustaining due to low reimbursement levels from federal and state programs. It is also affected by shrinking health care budgets from the Los Angeles County Department of Health Services. In order to understand the history of financial hardship in public teaching hospitals such as the King/Drew Medical Center, we need to understand the evolution of United States health care financing policy in the second half of the 20th century. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. C. EVOLUTION OF US HEALTHCARE FINANCING PROGRAMS In the second half of the 20th century, perceptions of provider capacity and the desire to balance the triad of cost, access, and quality have been the major impetus for reform in health care finance. Federal, state and local health initiatives have shifted from policies that expanded access in the 1960s to policies intended to reduce cost after 1970. From 1960 to 1970, the national mood shifted from a preference for government expansion to a desire for a contraction in government programs. In the 1960s, many social critics believed that a long list of social needs were not being adequately addressed by government. From 1964 to 1968, the Kennedy and Johnson administrations passed the policies of the great society with the cooperation of the Democratic Congress. By the 1970s, a new public philosophy was espoused. The conservatives claim that the United States was suffering from excess government. They desire to reduce government-sponsored health care delivery systems (Brown, 1983). While health economists might disagree on the definition of excess capacity, they generally agree that health-financing strategies in the second half of the 20th century were driven by the public’s perception of excess capacity. The method of reimbursement, or the extent to which the public buyer of health care regulated delivery mechanisms, has always been shaped by whether or not the government believed provider behavior would result in an acceptable 25 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. or affordable capacity. The new cost-cutting strategies are intended to move institutional providers to the appropriate and affordable capacity for low- income health care (Madden, 1999; Friedman, 1999) I. Policies that enhance access: Major public programs that have enhanced access to health care focus on vulnerable populations: the poor, the elderly, military, veterans, disabled people and those with certain chronic conditions. Medicare was enacted in 1965 to cover medical care for the adult population over the age 65. This group consists of 12.6 percent of the population, it accounts for 22 percent of personal health care, 28 percent of total health care, 20 percent of physician spending as well as the vast majority of spending for home health care, hospice services, renal dialysis and nursing home care (Henderson, 1999 p. 417). The group tends to be politically active, consisting of over 33 million voters who pressure policy-makers on issues that affect their well being. Medicaid covers medical care for the poor. This program was passed in the same legislative package with the federal Medicare program. It is a means tested entitlement program administered by the states and financed jointly with the federal government. There are federally mandated benefits but states have flexibility in designing additional programs beyond the federal mandates. As a result, eligibility standards vary from state to state. 26 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The Medicaid program was originally designed to provide basic medical benefits, including hospital and physician services for those who were receiving cash assistance through state welfare programs. Today, over 70 percent of total outlays cover nursing home care and home health care, primarily for Medicare eligible population. The breakdown of beneficiaries is as follows: 17 million children 8 million unwed mothers 4 million seniors 6 million disabled or blind. (Henderson, 1999 p. 435) Medicaid and Medicare programs are fundamentally unequal. The two systems were created in the same legislation but the system designed for the voting middle class (Medicare) had better benefits. Even the Medicaid program intended for the poor spends more on seniors. Medicare and Medicaid programs illuminate the longstanding lack of commitment to an equitable distribution of health services by the American political system. Fee-For-Service (FFS) insurance culture: Federal government policies that promoted access to health care were enhanced by insurance that routinely shielded consumers from directly paying for their own services. Only about 3 cents of the dollar spend on hospital services and 20 cents out of every dollar paid for physician services come directly from patients out-of-pocket spending. Third parties, primarily health insurance companies and 27 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. government, pay the rest. The behavior of third party payers primarily influences the health care markets. Payers include the federal, state and local governments. Fee-for-service is the traditional payment method for medical care in which a provider bills for each episode of care. A system financed through retrospective fee-for-service insurance reimbursement is open-ended. Providers are able to pass through all their costs to the third party payer. The system can be described as a cost-plus pricing system (Goodman and Musgrave, 1992) or a pricing scheme where a percentage profit is added to average cost. In a cost-plus environment, physicians are rewarded for offering more services at higher prices, passing additional cost to the third party. This is contrary to competitive markets where providers would be theoretically rewarded for reducing cost and increasing quality. In the 1980s, policy makers and planners began taking steps to curb cost. The first focus was on reimbursement strategies and restrictions on access to services. The pendulum was swinging to efficiency-seeking strategies that placed the financial bottom line higher than the need to provide a reasonable level of care for all members of the society. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. II. Policies to Contain Cost: Policies enacted to contain cost have included mandated fee schedules, global budgets, resource rationing, certificate of need programs, and market strategies. From 1965 to the1970s, as healthcare cost rose from 5.1 percent of GDP to 7.1 percent (Madden, 1999 p. 1657), a narrow perspective of capacity developed. The state and federal government initiated regulatory policies to counteract the increased demand that may have been promoted by the policies of the 50s and 60s. Professional Standard Review Organizations (PSRO) were created to monitor the hospital admission and length of stay decisions of physicians. Hospital rate setting bodies reviewed and approved hospital budgets and rates in nine states. Certificate of Need (CON) programs were established to constrain the capital expenditures of hospitals and nursing homes. The National Health Planning and Resources Development Act (NHPRDA) of 1974 provided incentives for state health planning programs and CON Laws. Certificate of Need (Con) Laws required hospitals to secure approval from government planning agencies before adding new capacity or investing in expensive equipment. CON legislation seeks to eliminate the duplication of costly programs within the service area. This is part of 29 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the trend towards reduced capacity. Cost was factored into the reimbursement system. More capacity means more cost to the payers. Price Controls: Global budgets, mandated fee schedules and resource rationing are all considered price controls by market economists (Henderson, 1999). Global budgets are normally caps on spending by health care providers during a specified time period. All medically-necessary care must be provided to all eligible patients within the limits placed on the provider by the fixed budget. Institutions are provided with set amounts to be used for services. Some services may be delayed and fewer resources are available for patient care. Resource Rationing comes in different forms but usually targets high- cost hospital and specialty sectors. It usually begins with the promotion of primary and preventive care and the ultimate creation of a “ gatekeeper” system. Mandated Fee Schedules are commonly negotiated between government and representatives of the medical community. Sometimes prices are determined through a relative value schema that places a value on services according to a comparative scale. Very often this scale measures the political influence of various specialties and not relative resource use (Folland et al., 1997). 30 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Prospective Payment Systems The eighties saw the beginning of prospective payments, in 1983, Diagnostic Related Groups were adopted as a reimbursement basis for Medicare. Hospital average length of stay fell from 7.6 days in 1980 to 7.1 in 1986 and occupancy rates fell from 75 percent in 1980 to 65 percent in 1986 (Madden, 1999, p. 1659). Until 1983, Medicare reimbursement was on a cost-plus basis and payment was determined retrospectively. Prospective payments were intended to create operational efficiencies. Payments took the form of flat-rate reimbursement for hospitals based on the principal diagnosis of patients plus a number of adjustments. Payments were no longer on a per item or per service basis but on a per case basis. Based on a point system and determined by a reimbursement rate that is set for each case-weighted point, the relative weights are set nationally and adjusted for rural or urban location, the number of residents or interns per bed for teaching hospitals and the number of low income patients treated by the hospital. Resource-Based Relative Value Scale (RBRVS) also set physician services prospectively. Introduced in 1986, a relative value scale is an index of the relative levels of resource use when physicians produce services or procedures. Although the relative value scale is denominated on non-monetary units, the logical extension translates into a fee schedule. To establish a fee-schedule based on RBRVS, relative 31 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. values had to be multiplied by monetary conversion factor (dollars per unit) to get dollar cost per service or procedure. The move to prospective payment systems creates incentives on the supply side to limit care. The desires of the patients become a secondary consideration, subordinated to the provider’s desire to control cost. Market Mechanisms: The nineteen-nineties is an era of competition. There was widespread purchaser-inspired price competition among providers and insurance companies. A competitive health care policy is one that relies primarily on financial incentives rather than controls to achieve goals. The theoretical underpinnings of this approach assume that market participants respond to changes in prices in a predictable and substantial way. Under the competitive model, many forms of government interventions such as CON laws, utilization review and mandated benefits are considered anticompetitive because they compel. From the competitive perspective, the insured are largely seen as having insufficient income to purchase insurance. Their situation is worsened by mandated benefits and other requirements that drive up insurance prices. A competitive solution is to subsidize purchases of insurance for low-income uninsured through tax credits, and to deregulate insurers so that lower-priced options become available (Folland et at., 1997). 32 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The challenge of a competitive model for a safety-net environment is that the failure to mandate benefits undermines the ability of society to guarantee a minimum level of health care for members of society. Secondly, tax incentives are not useful to people who have little or no income. The poor often do not file tax returns. Managed Care Strategies: Insurance coverage generally leads to over consumption of health care by the insured individual (Folland et al., 1997). When purchasing health care the insured generally only considers the out-of-pocket cost of care and not bear the full cost at the point of service. The out-of-pocket cost is usually a very small portion of the full cost of care. Over consumption here means that the insured person purchased health care beyond the point where the marginal benefit equals the full marginal cost. Managed care imposes cost control incentives and even under consumption incentives to reduce over consumption (Folland et al., 1997) Many forms of managed care have evolved since the 1970s as a hybrid of traditional insurance companies and HMOs. Managed care plans adopt cost saving strategies developed by HMOs (Gapenski, 1993; Duncan, 1995; Hoffmeyer and McCarthy, 1994). The primary vehicle for the managed care revolution has been the Health Maintenance Organization (Henderson, 1999). Of all managed 33 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. care models, HMOs receive the widest coverage in scholarly research, policy and management discussions (Folland et al., 1997). HMOs are based on the premise that fee-for-service (FFS) models of heath care delivery create perverse incentives which reward providers for treating patients’ illness while offering few or no incentives for prevention and rehabilitation services. HMOs, at least theoretically, have as strong an incentive to prevent illness as to treat them. They apply a variety of methods to control cost including limiting patients to particular providers, using gatekeeper physicians who must authorize specialized services. Utilization reviews are performed to insure that services rendered are appropriate, and discounted rate schedules are extracted from providers (Gapenski, 1993; Duncan, 1995). Despite their varied forms, all HMOs provide a pre-defined comprehensive set of health services to a voluntarily enrolled population within a specified geographical area. Providers are typically reimbursed on a capitated basis or through some other ‘risk’ arrangement. These arrangements differ from traditional fee-for-service (FFS) because the physician is put at risk for the utilization of health services by the patients. Under fee-for-service, the physician is reimbursed for all services provided at cost. Under a capitation arrangement, the primary care physician is given a predetermined fixed dollar amount per member on his or her list each month. If the cost of services provided to the 34 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. patients is higher than the fixed amounts received by the physicians, they suffer a financial loss. If the patient requires specialty care or hospitalization, the payment is made out of the capitated amounts up to some loss limit or out of a set aside risk-pool of money. Thus, the physician must consider both the costs and benefits of providing care to the patients (Hoffmeyer and McCarthy, 1994) Prepaid plans existed since 1929. The Elk City, Oklahoma plan was formed by Dr. Michael Garfield in 1929. Kaiser Permanente started later. However, prepaid groups did not have cost containment plans. Cost containment started in 1973 with the introduction of the HMO model (Henderson, 1999). Research by Interstudy a research and policy institute headed by Paul M. Ellwood proposed Health Maintenance Strategy based on the health maintenance organization as an alternative to traditional FFS medicine. Allain Enthoven proposed the managed competition model that finally found its way into the HMO policy of 1973 (Henderson, 1999 p. 268) The 1973 HMO policy provided grants and loans to develop new HMOs. Businesses with more than twenty-five employees had to offer at least one qualifying HMO as an alternative to conventional health insurance as part of their benefit plans, if there were a qualifying HMO in the 35 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. vicinity. To qualify for federal assistance, an HMO had to offer some basic services required by the federal government. The adoption of the HMO strategy as federal policy was the climax of a paradigm shift in the health care policy from equity-seeking to efficiency-seeking values. Health policy changed in three fundamental ways: First, there was a shift from policy that encouraged growth without controlling delivery to a policy focus intended to change the way care is delivered. Secondly, there was a shift from cost-based reimbursement, to reliance on prepayment arrangements as the overarching strategy of health policy. Thirdly, the 1973 HMO policy involved an enterprise in which government was assuming a unique role, namely, the creation of new private businesses that ultimately must succeed or fail by their own capitalistic devices (Iglehart, 1981). This was in contrast to the usual social undertakings of the Health Education and Welfare (HEW) Department which include: administering income transfer payments to eligible individuals, financing medical care for eligible elderly and poor people, and awarding grants to nonprofit organizations that are engaged in activities deemed worthy of public support. This type of support for private enterprises that would succeed or fail in a market economy reflected the broader policy shift from equity driven policies that sought to guarantee a certain floor of consumption of medical services to 36 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. market-driven policies that emphasized allocative and technical efficiency. Risk-sharing mechanisms via managed care were introduced to address frustration with cost, access, quality and co-ordination problems in the Fee-For-Service model (GAO, 1993). States generally reimburse managed care services at 90-95 percent of the regional FFS. Current reimbursement rates are at about 50-70 percent of commercial rates (Kongsvedt, 1997). The infiltration of public programs by managed care coupled with local government budget cuts might have reduced costs, but access concerns (level and quality of services) in the public safety- net systems have been compromised. Managed Care Medicaid penetration of health care markets has been phenomenal in the 1990s. Nationwide penetration grew from 9.5 percent in 1991 to 54.1 percent in 1998. The Medicaid program enrollment dropped as managed care penetration increased. Medicaid enrollment dropped from 36, 200, 000 nationwide in 1995 to 30, 896, 635 in 1998. Managed care penetration for same years rose from 29.4 percent to 54.1 percent. Benefits payments more than tripled from 1980 to 1990 and began a gradual annual growth of 5 percent from 1994 to 1998. In California, MediCal enrollment dropped from 5, 415, 207 enrollees in 1996 to 4, 938, 832 in 1998. California managed care MediCal penetration doubled from 23.12 percent in 1996 to 48.77 37 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. percent in 1988(HCFA, 1998). Managed care strategies have reduced Medicaid enrollment and expenditures. Reimbursement for care is mostly through a capitated system. It covers all personal health services excluding long-term care. Some states use either DRG or Per Diem payments to restrict cost liability for inpatient services under FFS. Under managed care, unrestricted inpatient services might be required by federal regulations. III. Financing Children’s Healthcare. Traditionally, public hospitals have been reimbursed for children’s health care services through Medicaid or Medicare. In California, reimbursement via public health financing programs has taken the form of MediCal, Medicare, Child Health and Disability Prevention Program (CHDP), California Children Services (CCS), and Disproportionate Share Hospital payments. CHDP and CCS are an extension of MEDICAL and are based on preset-fee schedules on a per case basis. The changes that have taken place in the way health programs for poor children are financed have had the effect of reducing the expenditures on children health care services at the King/Drew Medical Center. These reductions have erected barriers to hospital services for the children of Los Angeles County SPA 6 region. 38 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The greatest development in the health care of children in recent years is the Children’s Health Insurance Program (CHIP). The State Children’s Health Insurance Program (CHIP), enacted as part of the Balanced Budget Act of 1997, make available nearly 24 billion federal dollars over five years to cover between two and five million previously uninsured children (Lubinsky, 1998) More radical in this financing strategy is the implementing statute, Title XXI of the United States Code. This provision probably represents the boldest new federal health initiative since Medicare and Medicaid in 1965, providing states with flexibility and doing away with the restrictions and guarantees of Medicaid. In California, this approach has meant increased penetration of managed care into the programs that finance health care for poor children. The California Children’s Services program is currently being piloted as a managed care product. The CHIP was introduced as a managed care product. The stream of new dollars is also designed to lure competitors who traditionally do not pay attention to the uninsured. Commercial operators capture all revenue streams. This will mean a threat to a traditional revenue source of safety-nets because private providers will siphon off paying patients from safety-net health providers and increase the burden of uninsured patients. Also, CHIP could motivate premature reductions in safety-net provider funding from local governments. 39 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. As the state becomes increasingly aggressive about the expansion of competitive models in financing children’s health care, the need to study the impact of this new paradigm on vulnerable children has become urgent and compelling. Otherwise, the cost structures that have guaranteed a health care floor of consumption for the vulnerable population served by urban public teaching hospitals may not be taken into consideration. 40 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 3 FOUNDATIONS QF HEALTH FINANCE POLICY AND THE PROBLEM FACING PEDIATRIC SERVICES AT THE KING/DREW MEDICAL CENTER A. Efficiency and Equity Values in Health Car© Policy Economic theories and political philosophies form the basis for the issues analyzed in this study. There are conflicting values that underlay different arguments related to the way in which social welfare should be organized. Among these normative approaches are the market-oriented and efficiency-seeking on the one hand, and the distributive equity perspectives on the other. The debates have implications for the role of competition and efficiency in a society that seeks to provide a reasonable level of care for those who are too poor to afford many health services. Beyond these debates is the need to determine the level of efficiency that ought to be tolerated by a society that also seeks equitable distribution of resources. I. Allocative Efficiency and Distributive Equity Following the traditions of Adam Smith and the classical economists, the fundamental tenets of modern economic theory assume idealized 41 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. behavior of profit-maximizing firms and utility-maximizing consumers. Under certain assumptions, the self-motivating behaviors of these economic actors lead to patterns of production and consumption that are efficient and in equilibrium. Hence, it would not be possible to change these patterns so as to make some person better off without making some other person worse off. This is generally referred to as the Pareto principle. Basic competitive models assume a Pareto efficient allocation of goods. This is a stage in which the maximizing behavior of economic actors will, through the “invisible hand”, distribute goods in a such way that no one could be better off without making some one else worse-off. Modern-day economists evaluate markets according to criteria of equity and efficiency (Henderson, 1999). Efficiency has two aspects, allocative efficiency and technical efficiency. Allocative efficiency occurs when producers make goods and services that consumers desire. For each item, the marginal efficiency refers to efficiency in production or cost efficiency. In perfectly competitive markets, producers must minimize cost to maximize resources. Theoretically, perfect competition guarantees both allocative and technical efficiencies. Cost-containment policies in health care are intended to achieve allocative efficiencies at the policy level and technical efficiencies at the provider level. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Distributional and substantive values are distinct goals in comparison with Pareto efficiency. Substantive and distributional values seek to preserve human dignity, maintain equality of opportunity, guarantee floors of consumption, and increase equality of outcomes. While equity considerations are based on some level of fairness, ideological differences dictate whether the standard is defined in terms of outcomes or opportunities. Health care access has evolved from the perspective of opportunity to outcomes. An outcomes orientation would regard the death rate between blacks and whites as an access issue while an opportunity orientation will tie death rates to demographics, income, social status etc. (Henderson, 1999). Because survival depends upon the consumption of at least some private goods (food and protection from exposure), we might find a Pareto efficient allocation that results in the premature deaths of some people. Charities are generally founded to mitigate such dire consequences. Concern that charity may not adequately reach vulnerable population serves as a widely accepted rationale for public assistance (Weimer and Vining, 1992). In the case of safety-net health care systems, need and need-based distributions are especially important. Safety-net health systems and the programs that finance them have been created because efficient allocation of health care resources might not ensure an equitable 43 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. distribution of health services. The needs of some segments of society might not be adequately met. Health care needs for the disadvantaged might be defined minimally or maximally. Jeffers et al. (1971) define maximal health care need as: “ That quantity of medical services which expert medical opinion believes ought to be consumed over a relevant period of time in order for its members to remain or become as “healthy” as is permitted by existing medical knowledge” (pp. 46-47). Common understanding of need often implies minimal requirement or standard of adequacy. Health planning efforts of the 1970s took a minimalist conception of need and sought to control cost by reducing the perceived proliferation of health care. Health care needs ought to be defined in the context of society’s goals for a population’s health status as well as the context of other goals such as education and defense. A society might always choose a heath status goal lower than what is maximal (Folland et al, 1997). Sometime, society might choose not to define need. Los Angeles County hospitals including the King/Drew Medical Center, do not define what need is or what minimal health care services should be. The focus in the past two decades has been on cost reduction, or a return on local government investments. This attitude is consistent with policy makers’ view of provider capacity and the general retreat from government 44 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. expansion since the 1970s. The political process will ultimately identify what trade-offs the society is willing to incur to attain any given health care goal for the disadvantaged. The needs of the more influential groups will be fulfilled closer to the technical maximum. Middle and upper class seniors represented by the American Association for Retired Persons (AARP), with its 33 million voters will continue to have their health needs closer to what is possible within existing medical knowledge and technology. As policy continues to focus on cost reduction, the state of health care access for children at the King/Drew Medical Center has been declining to an unacceptable level. Wilfred Pareto first defined the concepts of efficiency as most economists would today. Folland et al. (1997) take Pareto’s concept of efficiency a step further in their first and second economic theorem. The first fundamental economic theorem demonstrates that the perfectly competitive market is Pareto efficient. Yet, as mentioned earlier, a Pareto efficient outcome could be viewed by many in the society as inequitable. The second theorem believes competitive markets could still help society achieve desired outcomes provided that the initial endowment for all members is changed. Redistribution alongside competitive markets generates an outcome that is both efficient and equitable (Folland et al., 1997). 45 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The two theorems indicate that efficiency cannot exist side by side with equity without initial redistribution. In order to bring market competition to all sectors of the health care industry, an initial redistribution of endowments must encompass health status, economic status, transportation and funding to purchase insurance at equitably fair actuarial levels. It even points to the need for a single payer system, so that there will be competition at the provider level, except that you have a dominant buyer (Folland et al., 1997). The second theorem underscores why efficiency strategies applied to other parts of the health care industry do not fit the safety-net environment. Without redistribution of endowments, we have a huge problem of equivalence between the mainstream health care industry and the safety-net environment in terms of health status, economic status, infrastructure, facility resources and others. II. Social Justice Theories and Political Ideology The extent to which a society’s health care for the poor is closer to equity or maximal need standard of adequacy will depend on the predominant social justice values of policy makers. Social theories that affect the definition of need can be separated into two categories: those that support the primacy of allocative efficiency and economic 46 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. determinism in policy making and those, that call for equity and economic equality. Utilitarianism became prominent in the 19th century and can be understood as an interpretation of the social optimum that choices provide the greatest good for the greatest number. In Jeremy Bentham’s form of utilitarianism, the utilitarian ethic was conceived as a maximization of society’s satisfaction level. In this light, a society may choose to accept some harm for a few members in return for a greater good for many. Hence, health care cannot be maximized for everyone in the society. The notion of a floor of consumption will not hold here and different need levels might even be established for different income levels. The utilitarian perspective can mean the sacrifice of health care access for safety-net populations in order to achieve allocative and technical efficiencies in the society as a whole. Robert Noziek (1974) offers a view similar to utilitarianism in his entitlement theory. He posits a conception of justice that assumes a libertarian constraint imposed by nature. He argues that any system of social organization should prohibit the coercion of others. Property rights are acknowledged and people are entitled to keep any goods and services received through a voluntary transaction. From this principle, Nozick develops a justification for the minimal state. In this situation, 47 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. any social programs of government that offers services beyond minimal functions such as police protection are unwarranted. In the context of Nozick’s entitlement theory, the health care needs of one person cannot place a greater obligation on any other person than they are willing to accept. In this context, it is impossible to deal with externalities, the public good and merit good dimensions of health care to the poor. Payments for these programs are collective and mandated through taxation. They are inconsistent with Nozick’s entitlement theory. Other conceptual frameworks seem to support increased equality of outcomes as an important social value. Rawls (1971,1985) argues that policies should provide the “greatest benefit to the least advantaged members of society. ” If we acted without knowledge of our self-interest or position in society, people would make decisions that favor the most disadvantaged members of the society. Under this veil, most would agree to the Rawlsian maxim in principle. Supposedly, people would reason that they could be the person who is worst off and hence, they would make decisions that consider the needs of the worst off as a priority. In a Rawlsian society, the needs of disadvantaged populations would define health care policy. There would be a floor of consumption defined for all people. The United States would not have separate and 48 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. unequal plans such as Medicare and Medicaid. There will just be one plan for all. All policies will seek to bring parity to the health care services for all members of society, rich or poor. The conflict between market economies and redistributive justice is also illuminated by the writings of 19th century social Darwinists such as Herbert Spencer and William Graham Summer, and their challengers led by Henry George and Edward Bellany. Nozick and the utilitarians would support pareto efficient health financing policies. Like Rawls, the dissenters led by Henry George would support equity seeking policies that expand access to health care providing maximal services for the most needy in the society. Herbert Spencer (1820-1903) popularized Darwin’s evolutionary theory in America. Where as Darwin emphasized natural selection, Spencer emphasized the “ survival of the fittest. ” Spencer brought back the notion of laissez-faire expounded in English classical economics. He drew upon Malthus and Ricardo to exalt laissez-faire as the instrument of progressive development and the means prescribed by nature to realize the “survival of the fittest” (Bertzinger, 1972). Herbert Spencer influenced William Graham Summer (1840-1910). Summer's major essays included What Social Classes Owe to Each Other (1883) and Folkways. He believed in economic determinism and saw inequality as a condition of liberty and progress. In Folkways. 49 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Summer emphasized cultural determinism and insists that state ways cannot be used to change folkways (culturally evolved traditions). Generally, social Darwinist saw the state as playing a secondary role by protecting nature’s law of competition. They favored property rights over human rights. They also favored limited government, competition, and opposed redistributive justice. The thesis that folkways took precedence over law meant that political change to alleviate the condition of the less fortunate members of the society could not occur in Social Darwinism. Henry George (1839-1897) led the challenges against this laissez-faire ideology. He asserted the subordination of economics to ethics and the principle of laissez-faire (competition) to the principle of the common good (co-operation). In his book Progress and Poverty (1879), George attacked America’s plutocratic society and the “Gospel of Wealth.” He proposed a remedy to dissolve the social contradictions which saw poverty increase alongside technological progress. He traced poverty to injustice and society’s failure to equitably distribute God’s bounty. Edward Bellany (1850-1898) proposed a system where each person contributed according to his or her ability and each was rewarded according to his or her need. He argued that the right to life, liberty and the pursuit of happiness talked of in the Declaration of Independence has no real meaning if not implemented in economic equality. Economic 50 of the copyright owner. Further reproduction prohibited without permission. equality leads to the democratic idea! of human dignity. He argued for extension of equality to the economic realm. George, Bellany, and other dissenters of latter-day laissez-faire ideology stressed the need for economic equality, if political equality were to be realized. Contrary to the individualistic Social Darwinists, the sphere of economics is not autonomous but subject to the strictures of morality. Survival of the community is more important than survival of the fittest (Beitzinger, 1974). The laissez-faire ideologists would place Pareto efficiency before the equitable distribution of resources. Hence, public policy would provide little support for safety-net health systems. They certainly reinforce the trend towards cost-cutting. They would disagree with the redistributive tenets of the safety-net systems and the programs that pay for them. The dissenters would support a substantial redistribution of endowments driven by equality of outcomes with maximal need as the floor of consumption. They would support universal and uniform health coverage for all members of society. B. Market Failure Efficiency is a popular standard for evaluating the desirability of economic allocations. Economists also commonly discuss market 51 permission of the copyright owner. Further reproduction prohibited without permission. failures by situations that violate the assumptions of an idealized competitive economy. When the underlying assumptions in competitive markets are not met, the markets fail to deliver at socially optimum levels. Market failures provide the rationale for policies that provide goods and regulate markets. Some major topics of market failures relevant to urban public teaching hospitals are: public goods, externalities, and merit goods (Weimer and Vining 1992; Henderson, 1999). I. Externalities An externality is a cost or benefit that spills over to parties not directly involved in the actual transactions and thus ignored by the buyer or seller (Henderson, 1999). Individual or collective actions can have either positive or negative externalities. Immunizations have a positive externality because they prevent the spread of contagious diseases in society . Cigarette smoking is a negative externality because it causes harm to non-smokers. Teaching hospitals provide services such as immunizations to advance positive externalities and anti-smoking education to reduce negative externalities. The fact that society does not exclude people from emergency care makes such care a public good. Therefore, it ought to be collectively provided. 52 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Social or philanthropic externalities are associated with medical goods. The healthy and economically well to do derive satisfaction from knowing that the sick and indigent also receive medical care. Charities thus fund organizations that will guarantee care to the needy. Given the nature of externality, even those who refuse to contribute enjoy the benefits of knowing that there are cures to certain diseases and that certain medical services are available for those who cannot afford to pay for them. Externalities affect economic efficiency. Normal market mechanisms cannot account for externalities. Economic decision-makers have no way of capturing positive externalities, and they are not required to absorb the cost of negative externalities (Henderson, 1999). II. Public Goods Goods that are non-excludable and non-rival are called public goods. Non-excludable goods exist in a situation where it is difficult to limit access to a good or service to a specific group of consumers. If the item is available to anyone; it is available to everyone (Henderson, 1999; Folland et al., 1997). An example usually cited is the defense system. Once a strategic defense system is operational, there is no way of excluding any individual from its protective umbrella or potential threat simply because they refuse to pay their prorate share of costs. Non-rival goods occur in a situation where the consumption of a good or service 53 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. by one individual does not limit the amount available to anyone else. For example, after the Amy Corps of Engineers build a levy, any number of houses may be build in the flood plain without increasing the marginal cost of flood control. Public goods are a special kind of positive externality. Private markets cannot provide them efficiently. Market failures arise because only a small quantity of public goods will be provided inefficiently in private markets. Many people will become free riders because they cannot be excluded from consuming the commodity. The potential undersupply of public goods in private markets has led many to conclude that the government should provide these goods. The public good dimension of health care services is not immediately obvious. Health care services provided to an individual are not at the same time consumed by others because they are delivered by physicians. Also, those who cannot pay can be excluded from receiving services. In this sense, health care services are private goods even though they may involve public provisions (e.g. through the veterans administration, local governments), or public financing (e.g. through Medicare and Medicaid). Health Information can be considered an economic good with publicness (Folland et al., 1997). Although consumers can be excluded, the cost of providing information to another individual is usually marginal. It might 54 permission of the copyright owner. Further reproduction prohibited without permission. cost too much to exclude others from using health information. Also, information is a non-rival good because one individual’s consumption does not reduce the information available to another person. Information, could therefore, be underproduced in private hands. Government intervention is needed to increase its availability. Government can and has either directly participated in or subsidized private efforts in the dissemination of health information and the conduct of scientific research. Voluntary giving also has a public good dimension. Donations raise lower-income persons levels of consumption of health care. Because individual contributions often have little impact on aggregate expenses, individuals often become free riders. Mandatory programs are also needed to help offset the undersupply of voluntary giving. In this context therefore, health services to low income populations have a public good dimension. They ought to be provided collectively. III. Merit Good This is a good whose benefit is not fully appreciated by the average consumer. Thus it should be provided collectively. Individuals lacking the ability to appreciate the importance of primary and preventive care will under-consume this valuable commodity(Henderson, 1999). perhaps Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. society should provide such merit goods. Examples are preventive health care such as immunizations and physical exams. Since the benefits are not always obvious, people with limited incomes would easily forego the service for another good such as a family vacation. IV. Incomplete Markets Incomplete markets are situations in which the private market fails to meet existing needs. Insurance markets for people with cancer, aids, or pre existing conditions who seek new insurance are sometimes suggested as examples of incomplete markets because the patients will not be able to buy insurance at any price. Others argue that there is not enough demand to command supply at actuarially fair prices. People in this category who need insurance might not be able to afford actuarially sound prices. They might need subsidies. In safety-net environments, many people cannot afford health insurance at any price nor can they pay for health services by themselves. The market is incomplete because there is no demand. Local government safety-net health providers and public financing programs that support them, are intended to guarantee a floor of consumption in health care services for low income people who cannot afford insurance coverage at what would be actuarially sound prices. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Because of many market failures that prevent the equitable distribution of resources, the government has historically intervened in medical markets in order to reduce distributional inequities. C. Government Intervention in Medical Markets Government involvement in medical markets is extensive. The involvement includes financing, direct provision, regulation and subsidization. Forty-five percent of health care in the United States is publicly funded (Henderson, 1999). The following are some interventions that have financial and access implications for children who receive hospital based services at the King/Drew Medical Center. I. Financing This has mostly taken the form of health insurance, particularly Medicare and Medicaid. Other health benefits financed by the government are Civilian Health and Medical Programs for Uniformed Services (CHAMPUS) and the Federal Employees Health Benefit Program. Other financing is devoted to facility development such as the 1946 Hill Burton Act, which provided funds for capital expenditure development. II. Direct Provision of Services The government often addresses inequitable distribution of health services by direct provision of health services. Public hospitals have been a very 57 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. important vehicle for direct service provision policies. The modern hospital emerged after major 19th century improvements in anesthesia, antiseptics, and x-rays. Prior to that, hospitals were more or less municipal almshouses funded by taxes and voluntary contributions intended to take care of the old, the poor or medically or psychologically deviant (Folland et al., 1997). Public support of hospitals was based on a redistributive intent to deal with externalities associated with the insane, and persons harboring communicable diseases such as tuberculosis. As physicians’ abilities to diagnose and to treat patients surgically emerged in the early 20t h century, public hospitals have continued to care for the poor and, to an extent, the expanding middle class. Today, state, county and municipal hospitals account for 20 percent of hospital beds in the US (Folland et al., 1997, p. 442). Other areas of direct provision of care include Veterans Administration hospitals. When government decides to remedy market failures via direct production of goods or services, the issue of government failure arises. The concept of government failure provides a rival explanation to the thesis of this investigation. Some would argue that urban public hospital systems are undermined by the problems of bureaucratic supply (the production and distribution of goods by government agencies). 58 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. III. Problems in Bureaucratic Supplies Publicly funded organizations are often created to deal with perceived market failures. Armies, court systems, and a variety of other agencies provide public goods that might be undersupplied by private markets. Like private firms, they use labor and other factors of production to produce goods or services. Unlike private firms, however, they need not pass a market test to survive (Weimer and Vining, 1992). The extent to which agencies contribute to aggregate social welfare depends on the diligence and motivations of the officials who determine their budget and oversee their operations. Monitoring is, however, difficult, and inefficiencies are likely. There is, primarily, the “principal-agent” problem. Are the actions of public agencies (employees) compatible with the goals and objectives of the public (employers) ? The cost of undesirable behavior by agents and of the activity undertaken by the principal to control them is called agency loss. Three factors typically make agency loss a more serious problem for public bureaus than for privately owned firms: the difficulty of placing a value on public outputs (and therefore performance), the lack of competition among bureaus, and the inflexibility of civil service systems (Weimer and Vining, 1992). Bureaucratic failures have been blamed for access problems in urban public hospitals. However, the weaknesses of bureaucratic supply are inherent in 59 permission of the copyright owner. Further reproduction prohibited without permission. all publicly delivered services. Therefore, bureaucratic supply could not be blamed for access barriers in public hospitals including King/Drew Medical Center. Bureaucratic supply and government failure is a constant. Weaknesses in bureaucratic supply existed before and after financing paradigms shifted. D. The Policy and Method Problem The problem in this study has both policy and method dimensions. There is a policy dimension that comes from the implementation of market-driven and efficiency seeking financing strategies in health systems that were designed to overcome the failure of the free market to provide adequate health care to disadvantaged populations. A second level is the failure of traditional social science approaches to answer questions raised by the policy problem. Both safety-net health delivery systems and programs that finance health care for the disadvantaged had their roots in social welfare policies designed to correct market failures. Safety-nets and the financing programs that funded them were created as public goods and based on the value of human dignity. There is a need to provide a dignified level of health care services to every member of the society. The new financing models such as managed competition, prospective payments, local government budget cuts and public private partnerships are intended to improve the allocative efficiency of resources. This study 60 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. illuminates what happens to distributive objectives of social insurance programs and safety-net delivery systems when the protocols of the market are reintroduced in sectors of the health care industry where market economics has failed in the past. We know the effects in at least one safety- net environment, the King/Drew Medical Center pediatric services. The results of this study should begin to contribute towards our understanding of the phenomenon referred to in this study as the second market failure in public teaching hospitals. The focus on cost reduction is further complicated by the fact that the new strategies integrate the financing and delivery systems. Gold (1998) indicates that financing and delivery can no longer be viewed as separate under managed care and other prospective payment systems. Hybrid models of care among providers follow product proliferation among managed care organizations. The layering of risks and the locus of responsibility have become murky. It has become difficult to assign accountability-clinical or financial to a single entity. The strategies adopted by payers quickly transform the tactics of providers seeking to conform. Furthermore, safety-nets often belong to local government systems, which finance some of the care from general funds. Local government becomes both a payer and provider. When cost reductions and efficiencies become the dominant value in health financing, the goals of the delivery system 61 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. seem to become conflicted as the local government struggles to reduce cost and to guarantee a floor of health care consumption to the poor. Some research and scholarship is not conclusive as to the impact of market oriented reforms and other cost cutting measures on access to health care. However, many studies on the impact of efficiency driven reforms on safety- nets show disturbing patterns (Miller, 1998; Hillman, 1998), Some scholars believe that, theoretically, changes through managed care or prospective payment systems as a whole can improve care by reducing cost thereby freeing more resources for increased quality and expansion of access (Rowland, 1993). Some argue that the shift of Medicaid programs to managed care could generate problems. Poorly designed and ill-financed systems generate capitation incentives that undermine quality by rewarding providers for underutilization (U. S. General Accounting Office, 1993). Fishman and Bently (1997) point to spillover effects, such as reduction of cross-subsidies on which safety-net providers typically rely in order to finance care for the indigent. Managed care affects the flow of patients to safety-net providers, and limits payments to federally qualified health centers, academic medical centers, and public hospitals. Many recent studies on managed care and other cost-cutting strategies reveal mixed results regarding the impact of financing policies on outcomes. Oleske et al. (1998) studied pregnancy outcomes in the California Medicaid Managed Care program. The study revealed that the likelihood of low birth 62 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. weight was lower in the capitated payment group than in the fee-for-service payment group. There was no difference in either adequacy of prenatal care, the Cesarean birthrate, or the likelihood of adverse pregnancy outcomes. (Nelson et al. 1999) studied the utilization patterns of patients with chronic diseases, comparing prepaid and fee-for-service patients. Higher utilization was found for FFS patients. Low utilization levels in capitated populations indicate access problems but a more comprehensive study including service convenience and institutional resource consumption patterns would yield more answers. This study presents a comprehensive analysis of pediatric social outcomes in order to tell a more complete story of the type of services pediatric patients receive at the King/Drew Medical Center and the environment in which the services are delivered. Other studies indicate potentially severe consequences of managed care for safety-net systems. Dranove and William (1998), studied California private hospitals with a higher than average MediCal populations from 1983 to 1992. The median reimbursement levels for private hospitals fell from 78 to 59 percent for the Medicaid patients. Cost shifting for providers became rare and difficult. These hospitals reduced services for MediCal recipients relative to other patients. It is not clear if fewer services due to cost cutting led to poorer clinical outcomes . However, fewer services mean less access. The impact of such cut-backs could be severe for public hospitals such as 63 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. King/Drew Medical Center. About 65 percent of pediatric reimbursements at King/Drew Medical Center are MediCal payments (King/Drew Medical Center, Financial Data, 1997). Some studies avoid the question of the effects of cost reductions. A Los Angeles County Department of Health Services/UCLA Patient Assessment Survey (Diamant et al., 1999) revealed significant information on barriers and treatment protocols for common diseases but failed to ask important questions. Their methodologies also were limited. The survey relied exclusively on self-report and did not measure the impact of cost reductions on health care outcomes. Since the health care delivery agenda of the County of Los Angeles in the past five years has been dominated by aggressive plans to reduce the cost of health care delivery to the low income population of the County, assessments of the health care system should not ignore the impact of these cuts, ft is hard to understand how any study can ignore the cost cutting escalations of 1995 and 1997, relating to facility closures, employee reductions and imposition of global budgets. The patient assessment survey focused exclusively on outpatient services. Furthermore, by stratifying by facility type (hospital, health center, public private partnership etc. ) rather than by facility, the study was not sensitive to the population diversity and uniqueness of the service planning areas of the different facilities. The data are unclear about whether attributes are more prevalent and significant in the King/Drew Medical Center, Olive View, 64 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. or Harbor UCLA. Almost 50 percent of patients surveyed reported a clinic wait time of one hour or more but there is no information about whether these situation varied by facility or service areas. Readers also do not know if the conditions improved or deteriorated over time. Surprisingly, patients who had to wait that long to see a Doctor rated their satisfaction with the system very high. They may have felt intimidated or they have been used to very low standards for so long that their expectations were also very low. To better link financing strategies and the behavior of institutional providers to changes in access, one must ask different questions, analyze different units, and explore different methodologies including case studies. We must continue to probe beyond the boundaries of current methodologies. Some research points to dire consequences for safety-net providers when cost reductions occur. E. Research Questions Some common weaknesses of previous studies include focus on narrow initiatives such as capitation or managed care and the use of single variables. Single initiatives do not always identify major shifts in policy. Also one-shot, single variable studies cannot answer questions from different perspectives of a complex issue over time. When studies have investigated issues across data points, the relationship of the results to cost reductions has not been pursued and the methodology has not reflected the complexity of the issues (Diamant et al., 1999). 65 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The research questions in this study focus on the impact of fundamental health financing policy shifts. The analysis addresses critical issues arising from changes in health financing and delivery to a population for which health care is a public good (market distribution is not possible because there is almost no demand). The questions in this research also focus on the implications for decision-makers at both the policy and service delivery level: 1. What is the impact of efficiency-driven financing policies on standards of equity in urban public safety-net hospitals? 2. How has access to children’s health services at the King/Drew Medical Center been affected by cost reduction policies of federal, state and local governments?. 3. What are the implications for safety-net hospital administrators? 4. What are the implications for the health policy community? These questions are important for two reasons: First, child welfare research and practice indicates a link between heath care and the learning abilities of children. A child’s learning ability may determine the chances of participating in the economic, political and social life of the society particularly as the emerging economy and culture requires higher skills and more education. Secondly, public policy in the past five years has gravitated towards the dismantling of entitlement social welfare programs. Of particularly interest to 66 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. low income children are the intensified efforts at the federal, state and local levels to reduce government obligations for the health care of disadvantaged populations. In the past five years, health services researchers have began to reflect on the impact of market-oriented reforms as well as their long-term effect on vulnerable populations. Issues considered include the framework within which research questions are posed and the necessary methodological framework that would yield appropriate answers. Fraser (1997) reflecting on the research agenda for managed care, concludes that changes in the means by which health care is financed and delivered have transformed or are transforming purchasers, consumers, providers and regulators. This transformation should shift the research paradigm if scholarship is to remain relevant to the industry. She poses questions that address policy and managerial implications of the new financing shifts in health care. Specifically relevant to this study are questions about the impact of policy on social outcomes at the provider level. The “ so what?” questions seek to relate events and trends in the financing and delivery of health care to outcomes such as access (cost and quality included). This study focuses on two social outcomes: ■ institutional outcomes (resource consumption and operational outputs) ■ and patient service outcomes (service convenience and service utilization). 67 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The specific question for the King/Drew Medical Center is, what is the impact of changes in health care financing and delivery on pediatric social outcomes? Changes in social outcome shed light on access issues. Access measures such as service convenience or resource consumption are indicators of distributive equity, which Can be defined as a floor of consumption that protects human dignity. An important part of the “ so what” question is the consequence of emerging market configurations on public goods. Emphasis will focus particularly on the potential disruption of mechanisms that have worked to provide these goods-access to health care for the poor, clinical training, the conduct of clinical research, and the provision of certain high-cost services such as trauma care. As a new market configuration emerges around health care for low-income children in America, the provider’s focus might shift from truly meeting the health care needs of children to providing the levels of care that the new market reality can permit. Given that the new financing strategies might not always accommodate the cost structures of public teaching hospitals, are the outcomes the same? What managerial and policy issues ought to be confronted, and how should they be addressed? Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. F. Theoretical Proposition THE SECOND MARKET FAILURE IN URBAN PUBLIC TEACHING HOSPITALS Current trends in urban public teaching hospitals can be analyzed in the context of a market failure. The health care access problems experienced by children at the King/Medical Center in the past two decades can be characterized as a second market failure. A second market failure phenomenon is the proposed framework of analysis in this study. Three stages are identified in this phenomenon: • The free market and pre-government intervention status of the community, • The post-market and government- intervention stage • And the market simulation stage or market re-entry stage. In the free market stage, little or no health services are available to the community because there is a market failure. The market, in pursuit of allocative efficiency, fails to provide adequate health services to a low- income community. In the government intervention phase, health care services are provided through public support. Next is the market simulation stage, where access to health services is undermined by policy initiatives that pursue allocative efficiency by implementing cost-cutting strategies. A second market failure occurs because we begin to erode the gains that the government-intervention phase has made in areas such as access to care. 69 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Stag© One: Community before government intervention (Market Failure) A predominantly private health care industry dominates the United States. However, certain parts of the population have severe health care needs. There is an incomplete market because there is no effective demand. Without buyers, there is almost no supply of health care services or health insurance products in the community. The health status of such populations is usually low because of the lack of individual or institutional providers in their geographic areas. It is common to find high mortality and morbidity rates as well as long term disability due to lack of timely treatment of diseases. Immunization levels are usually low, and the disease burden is higher than average in the nation. Communities with high health care needs are characterized by a large population of low income, high unemployment, and often a high minority population. Despite the need, there is no demand for health care because residents cannot afford health insurance either through employment or through private purchase. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Stage Two: Equity driven government intervention At this stage, the government intervenes to guarantee a floor of consumption for health care services. This phase is also marked by the emergence of public supported institutional providers such as urban public teaching hospitals that provide services predominantly to the underserved populations. These providers usually have a three-prong mission including research, patient care for a defined population, and medical education. Public programs finance personal health services within the cost structures of a low-income population and the social mission of public teaching hospitals. Equity dimensions are emphasized. The primary goal of policy is to maintain human dignity through the provision of health care. Stage Three: Efficiency driven paradigm via market Simulation (Second Market Failure). This stage is characterized by cost-reduction policies through market strategies, global budgets and prospective payment systems. There is an emphasis on efficiency. Equity dimensions are de-emphasized. As efficiency becomes the dominant value driving the financing of health care to vulnerable populations, urban public teaching hospitals adapt their operations to the new paradigm. This strategy ultimately undermines the 71 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. access of disadvantaged communities to health care through resource reductions. Service to patients is delayed, denied, or diminished. The state and federal government reduce their reimbursements for services provided by local governments. The local government’s subsidies of the public health delivery systems increases. The local government then initiates budget controls to restrain the capacity for care in public hospitals. As prospective payment systems and budget reduction activities reduce revenue flows from local governments to safety-net institutional providers, the reaction is to reduce resource consumption and erect barriers to health care access. Resource consumption such as supplies and nursing or physician services fall. As some specialties are not funded and clinical services are reduced, service utilization and patient convenience also drops. A less satisfactory work environment due to unbearable workload and limited resources leads to a drop in employee morale and quality of service. Hypothesis: There is a negative correlation between efficiency-seeking financing policies and pediatric social outcomes at the King/Drew Medical Center. Lopsided pursuit of cost reductions negatively impacts institutional and patient social outcomes in vulnerable communities such as the one served by the King/Drew Medical Center. It was predicted that the data will show the following: • A worsening of equity dimensions. The general level of health care services to children will be lower. There will be a reduction in 72 permission of the copyright owner. Further reproduction prohibited without permission. expenditures and service utilization. Patient satisfaction with the services will decline and morale among providers will be lower. • A reduction in resource consumption. There will be fewer physicians and nurses as a ratio of encounters. • A decrease in service convenience. Patients will have to wait longer to make clinic appointments and to see doctors when they visit clinics. • A reduction in service utilization. Patients will spend less time in the wards. Doctors will spend less time with patients when they visit the clinics or are admitted into the ward. Independent Variable: Financing measures expressed in policy shifts in programs such as Medicare and Medicaid and in strategies such as FFS, prospective payment systems, and market strategies. Dependent Variables: Pediatric Health social outcomes: Resource Consumption Operation outputs Service convenience Service utilization Rival Explanation: Some would argue that government failure in safety-net systems has been responsible for worsening pediatric social outcomes in urban public hospital systems in general and the King/ Drew Medical Center in particular. The perception is that there is excess capacity in urban public 73 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. hospital systems. The appropriate capacity could be reached by simulating the market through cost reductions and competition. This explanation fails to take into consideration the unique health status of urban low-income patients and the market configurations that have made the delivery of care to this population possible. Also, government failure and bureaucratic supply does not explain changes in institutional and patient outcomes because weaknesses in bureaucratic supply systems have been part of the public safety-net system before financing strategies shifted. Government delivery of these services is the only way the distributional and substantive objectives of safety-nets could be met. The private market could not provide care to these vulnerable populations. Also, the academic and public health missions of public teaching hospitals subject them to cost structures that are significantly different from those of facilities which only provide care. One other rival explanation is the issue of income status and health status. While there is significant research linking poverty and health status, these two variables do not usually impact the social outcomes analyzed in this study. Social outcomes as defined in this study, are generally, dependent on the action of providers or payers. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 4 RESEARCH DESIGN AND DATA COLLECTION The new market configurations in safety-net health systems call for unique investigative approaches. Traditional social science approaches are failing to bring answers (Fraser, 1997). Scholars are beginning to seek new or different paradigms in researching the long-term impacts of health financing changes. Since there is diversity in the scope and form of the safety-net health systems across communities, impact studies can be used as a vehicle for determining the actual transformation that occurs as a consequence of an initiative (Shorten and Richardson, 1978; Veney and Kaluzmy, 1984). Some questions call for impact studies e. g., what is the impact of an initiative on people such as the uninsured or safety-net providers? Such questions are critical when cost savings and budget pressures are the impetus for such initiatives. For certain kinds of questions, the most appropriate methodology may be the use of qualitative research drawing on well executed case studies, or of a combination of qualitative and quantitative methods. Gold (1999), after an extensive review of Medicaid Managed Care programs in seven states, concluded that health care services for low income populations are rapidly changing. Much of this shift might be traced to the movement to integrate 75 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. managed care into Medicaid programs. Well designed case studies can provide valuable insights that can lead to policy actionable advice. The questions raised in this study call for a case study method because the issues involve policy impacts over time. They are best answered by analyzing the effect of a variety of forces that influenced both the expansion and contraction of health financing programs. A. The Case Study Method This is a single embedded case design with multiple units of analysis. This method allows for the comprehensive analysis of the experience of the King/Drew Medical Center. The case study obtains a complete picture by capturing multiple reality (GAO, 1991; Ristl981, 1982; Yin, 1995). A single case study permits the investigator to look at different data types and to use a variety of methodologies The multiple units (inpatient and outpatient services) align the case design to the operational structure of hospital-based health services. The study examines the transforming environment of a safety-net hospital in the face of changing financing strategies. It looks at inpatient and outpatient service by reviewing institutional and patient service outcomes. Institutional outcomes are related to resource consumption and operational outputs. Patient service outcomes include service utilization and service convenience. 76 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The information involved is complex and thus includes the need to probe beyond the boundaries of sample surveys. The dividing point between the financing and delivery systems in the present health care environment is not clear. Local governments both deliver and finance health care services for the poor. In HMO models, financial decisions influence treatment protocols. The population is vulnerable, traditionally underserved, and not often reached by free market health care services. There is also an interrelatedness of large patterns of events. A confluence of many forces interacting in complex ways at the federal, state and local government levels brought about transformations in health care financing and delivery for underserved populations. A social rebellion in the 1960s led to the creation of a general hospital and an academic medical center with the support of federal, state and local governments. Later, due to political, economic and social factors, the different levels of government reduced their financial commitment but kept the social mission of the facility. This study fulfills the four aspects of design quality as follows: Construct Validity is achieved by reliance on multiple sources of evidence. Data collected are archival data, organizational reports and questionnaires to parents, nurses and physicians. These different data 77 permission of the copyright owner. Further reproduction prohibited without permission. sources reveal institutional performance as well as the experiences of parents and medical professionals. Internal Validity is achieved through pattern matching and time-series analysis. Time-series analysis reveal changes in quantitative data and perceptions during a 20-year period . Pattern matching reveals tendencies across operational units and data sources. External Validity. Since this is a case study, generalization is at the analytic level. The data supports the second market failure phenomenon, which is introduced in this study. Reliability. This is achieved by the case study data base at the data collection level. Data is organized in Microsoft Access, Microsoft Excel and SPSS data bases. A database allows for independent verification of the findings of the study (Yin, 1995). B. Approaches The design of this study adopts longitudinal strategies and triangulation. A longitudinal strategy fits the subject matter. A one shot, single decision point look at the policy change and impact would not reveal the complex and underlying factors and ramifications of incremental policy change on children’s health services at King/Drew Medical Center. Since this is a single case study, long term trends help to establish causality. 78 of the copyright owner. Further reproduction prohibited without permission. This study also focuses on institutional and patient service outcomes. Wall (1997) argues that outcomes studies should take a longitudinal approach. They involve the comparison of data from different time periods and the documentation of variation over time. The investigator illuminates the significance or magnitude of change. Its impact is viewed within a long-term rather than a short term context. Through triangulation, issues can be examined from a variety of perspectives. Palvik and Szanto (1994) indicate that each methodological approach is limited by the assumptions and biases of that approach. Validation is achievable via a multimethod strategy. This approach raises the study above the biases and weaknesses of individual methods. Multimethods also increase the generalizability and credibility of findings. This research includes secondary data analysis (archival data from KDMC and OSHPD) and primary survey data analysis (analysis of perceptions from nurses, physicians and parents). Hence, this is both a qualitative and quantitative analysis. C. Unit of Analysis Current changes in the health care industry call for a focus on different units of analysis. Rather than studying powerful leaders and interests, the context of change requires an analysis of the impact of policy change on vulnerable groups. These segments of society are largely left outside 79 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the policy making process. They are the level where such changes finally play out. There is also a need to look at the provider level of individual hospitals, clinics and physician groups. This is where the different financing and delivery transformations ultimately can be detected. King/Drew Medical Center is a public hospital that is a provider of children’s health services and is also part of a local government that finances health care for poor children. The focus of this study is the performance of King/Drew Medical Center as an institutional provider of health care to children. Analytic models in political science tend to focus on the policy-making entity to the exclusion of the target population. Elite-centered models such as power elite theories (Domhoff, 1990) and pluralists (Dahl, 1971; Laswell et al., 1971; Bachrach, 1971; Wolin, 1967) are limited because they focus on elite dominance and neglect the context in which policy is implemented. State-centered models such as instrumental Marxism (Laski, 1921; Miliband, 1969), state autonomy proponents (Krasner, 1978) and structural analysts (Magdoff, 1969;0’connor 1972; Poulantzas, 1969) make a distinction between the state and the society. Like elite- centered models, state centered models do not analyze the policy target. This study transcends state-centered models by recognizing the recipients of policy action as an analytic entity that is separate from, but examined in relation to, state action and societal factors. This approach 80 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. is especially compelling in the analysis of safety-net hospitals because the recipients are vulnerable. They often do not participate at all in the policy-making process. D. Measurement Outcomes measurement is an evolving area in health care practice and research. Practitioners and analyst usually separate clinical from social outcomes such as patient convenience, timeliness, and other service aspects of health care (Gold and Stevens, 1998). Generally, social outcomes illuminate access issues and allow the analyst to conceptualize health care as a social construct. Social outcomes include institutional outcomes, community outcomes, and patient service outcomes. Schlenker et al. (1997) considered outcomes measurements to service utilization (e.g. length of stay and resource consumption-wages, supplies, nursing hours, ancillary hours etc.). Clinicians focus mostly on clinical outcomes in their perspective of access, while patients also care about convenience, timeliness, and other service aspects of care (Gold and Stevens, 1998) Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The social outcomes to be measured in this study include institutional and patient service outcomes. Institutional Outcomes include: Resource Consumption: This includes capacity, expenditures on pediatric medical and nursing services, supplies and equipment, and actual staffing numbers. Operational Outputs: Occupancy rate1 2 employee satisfaction, patient satisfaction, and improving organization performance committee problems. Patient service outcomes include the following: Service Utilization: Average Length of Stay and Length of Visits1 3 , Service Convenience: Appointment delay and clinic wait time. The evolving view of access is the most dynamic influence on the measurement of outcomes in the health care industry. Access has now gone beyond entrance into the health systems to include ability to navigate the system and level of satisfaction with the system. The new view expands the 1993 institute of medicine’s definition “ the timely use of personal health services to achieve the best possible health outcomes” to encompass individual and community access as well as primary and secondary access (Gold & Stevens, 1998; Lurie, 1999). Barriers to access have traditionally 1 2 Occupancy rate measures the extent of utilization of hospital beds, and hence, the use of fixed assets. Since overhead costs are incurred on all assets, whether they are used or not, higher occupancy spreads fixed costs over more patients, and thus increases per patient profitability. 1 3 The average length of stay is the number of days that a patient is hospitalized with each admission. 82 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. been financial and geographic (proximity to providers). Today we also consider effectiveness, value of services and appropriateness of care. Now that outcomes and effectiveness of care are considered part of access, there is a link of access to cost, quality and consumer satisfaction. Lairson et al. (1997) analyzed community-oriented care and managed care and attempt an integrated model. They identified three important social outcomes measurement dimensions: equity, effectiveness and efficiency. This study will review the efficiency and equity dimensions and the trade offs that occur as financing strategies shift to efficiency-oriented paradigms. Equity is concerned with the fair distribution of the benefits and burdens of medical care among groups of individuals. A variety of criteria are often used to assess equity including maximizing of consumer choice; nondiscrimination on the basis of such factors as age, sex, race, or ability to pay; and assuring some minimum standard of care for everyone. In this study, equity is regarded mostly as the need to assure some minimum standard or level of care for everyone. Equity-related outcomes examined in this study include resource consumption, range of services and quality indicators such as quality improvement problems identified in internal review reports, appointment wait time, wait time in clinics, provider satisfaction and patient satisfaction. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Efficiency includes cost containment, production, and allocation efficiency. The following outcome measures are efficiency indicators: length of stay, occupancy rate and FTE (full time equivalent) per encounter. E. Data Collection Methods. Data were collected for the period 1980 to 1999. There were two overriding principles in the collection of data: multiple sources of evidence, and the development of a case study database. The first principle increases construct validity and the second principle increases reliability. Primary and secondary data were collected. 1. Primary data were obtained from a questionnaire to nurses and physicians of pediatric services as well as interviews with parents of children receiving care at King/ Drew Medical Center. The goal of the questionnaires is to capture employee and customer experience of changes in social outcomes. Questionnaires were administered to 25 physicians and 20 nurses on the 20th and 21s t of November, 2000. Twenty-one physician questionnaires and sixteen nursing questionnaires were returned. Questionnaires eliminate some biases that are possible in personal interviews. There is greater anonymity, and there is more time for a considered answer that might require consultation with documents. Though there was no opportunity to probe as one would in personal interviews, 84 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. open-ended questions provided the opportunity for answers beyond the structured responses on the questionnaire. For a period of nine hours each day on November 21 and 22, 2000, twenty parents whose children attend the outpatient clinics or were admitted to the wards were interviewed. Eight of the parents interviewed are residents of Imperial Courts, a low income housing project two miles from King/Drew Medical Center. Twelve parents were interviewed at two shopping centers in the catchment area of the King/Drew Medical Center. Participants were not preselected. Each day, residents were screened as they went about their daily businesses in the shops and eating houses in the two Plazas. In each location the first three persons who met the following conditions were interviewed: • had at least one child who has attended the King/Drew Medical Center in the past year, • had at least one child who has been going to King/Drew Medical Center for no less than four years, • they were willing to talk The parents at Imperial Courts were selected in a similar way. Parents were screened as they came to fetch their mail at 4 P. M. The first four who met the above conditions were interviewed. This selection process reduced 85 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. some biases found in convenient samples by giving an equal opportunity for parents who shopped at the two plazas or lived at imperial Courts to be selected. Also, talking to the parents outside the hospital eliminated any fear that a critical statement about the hospital might negatively affect the health care of their children. The participants were very forthcoming. Interviews made it possible to reach a broader spectrum of people because some parents might have valuable information for the study but would not be able to complete a questionnaire independently because they are not literate. The parent sample was made up of 14 African Americans and 6 Hispanics. Ten have had dependents attending the King/Drew Medical Center for more than 10 years and the other ten for less than 10 years. Only physicians who were on campus at the time of the survey were administered questionnaires. Nine of the physicians surveyed worked in the outpatient area most of the time. Seven were mostly in the inpatient area and 5 worked in both areas. Only nurses in the pediatric acute wards and the primary care and hospital based subspecialty clinics were surveyed. The neonatal units and clinics were not included. This is because the quantitative data does not include newborn. There was almost a fifty-fifty representation from inpatient and outpatient nurses. Most of the respondents have been with King/Drew Medical Center for 10 years or less. That may bias the responses because 86 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. most people answering do not know how it was two decades ago. This possibility is mitigated by the fact that the most dramatic cost cutting actions taken by Los Angeles County took place in 1995 and 1997. Questionnaires to nurses and physicians were administered directly at the job side. 2. Secondary data. The secondary data reviewed include archival data and institutional and industry reports. Archival records contain the following: utilization and financial data in electronic and physical archives at the King/Drew medical center and OSHPD. Financial data was converted into constant dollars using the Los Angeles, Orange and Inland Counties CPI provided by the US Bureau of Labor Statistics. Organizational reports include patient flow analysis, appointment delay reports, improving organizational committee reports, strategic plans and historical staffing rosters. WEAKNESSES The design and data collection have some weaknesses. The document review has problems of irretrievability, incompleteness of data, and limited access. Even though the information is public information and written authorization was secured from the Los Angeles County, Department of Health Services (LAC-DHS) Southwest Area Administrator to collect data needed for this study, the data is stored in formats that are not easily retrievable and civil servants tend to protect information jealously. 87 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Sometimes, there was outright opposition to the study. Far too many at the King/Drew Medical Center were convinced information would be used to portray the facility unfairly in a negative light. Also, because data came from a variety of sources, incompleteness of data in one source was complemented by completeness in another source. The deficiencies in secondary data are made up by primary data and the fact that the data are from a variety of sources. Since patterns are consistent within multiple sources of data, conclusions can be considered reliable. Another issue is lack of empirical generalizability of the findings of this study to other urban public hospital populations. However, approaches employed here could be replicated, and, if findings are similar, empirical generalizability becomes possible. Also, this study will give insight into a unique environment and can begin to provide some empirical support to the notion of a “second market failure phenomenon. ” Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 5 DISCUSSION The data was analyzed using extensive analysis and analysis via triangulation. Extensive analysis involves the analysis of multiple data sources through observation of the data patterns over time (GAO, 1991). Time series analysis is used through the analysis of chronological events. Empirical time series is compared with predicted time series. Analysis via triangulation involving pattern matching among the following: • non-equivalent dependent variables such as service convenience, service utilization, resource consumption and operational output. • the experiences of nurses, physicians and parents. • outpatient service patterns will be matched with patterns in inpatient services. • structured versus unstructured questions • quantitative versus qualitative data • patterns in this study and other studies. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. A. Social Outcomes Trends The data in this study is best understood if patterns at three levels of policy implementation are reviewed: The Los Angeles County Department of Health Services (the agency that manages hospitals for the County of Los Angeles); facility level trends at the King/Drew Medical Center; and, finally and more comprehensively; trends at the Department of Pediatrics at King/Drew Medical Center. Trends at the first two levels will reinforce, explain, and supplement available pediatric service data. A recap of national trends puts the trends at the King/Drew Medical Center and Los Angeles County DHS in perspective (See figure one for an illustration of national trends and lines of association). At the national level, the impact of cost-cutting policies is more dramatic when we take a long-term look at the growth of public funding of health care and the corresponding cost-cutting actions of institutional providers. In the fifteen years between 1965 and 1980, the government’s contributions to health care grew 17. 4 percent, but in the 14 years between 1982 and 1996, the government’s share of health care expenditure only grew 5 percent. Responding to the national trends, hospital capacity in California reduced by almost 1/3 from 1971 to 1995. In 1965 the government paid for 25 percent of health care as compared to 42.4 percent in 1980. The government share dropped to 41.7 in 1982, with a gradual increase of no more than one percentage point a year to 46.7 percent in 1996 (HCFA, 90 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1998). In California, average beds per thousand fell from 3.73 in 1971 to 2.37 in 1995 and occupancy dropped from 70 percent to 60 percent (AHA, 1972, 1997). I. Trends At Los Angeles County Department Of Health Services (LAC- DHS). The following is a table of LAC-DHS’ implementation dates for various federal, state and local financing strategies in the past two decades: Table 1. LAC-DHS Implementation Timeline. Federal. State and Local Financing Strategies (1982-1997) DATES PROGRAMS 1982 MEDICAL CONTRACTS 1984 MEDICARE IMPATIENT DRG 1991 MEDICAL DSH 1997 MEDICAL MANAGED CARE TWO PLAN MODEL (Source: Los Angeles County Department of Health Services Program (LAC DHS) Reimbursement Unit, 2000) Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The following are internal LAC- DHS Cost Saving Programs in response to federal, state and Los Angeles County cost cutting policies : Table 2. LAC-DHS Implementation of Internal Cost Saving Policies 11990-2000) DATES PROGRAM DETAILS 1990 to 1999 Reduced DHS budgeted positions by 9.6 percent; other County Departments increased by 17.9 percent. 1995: The Great Cascades Reduced expenditures through personnel reductions Public private partnerships in outpatient clinics Threat to sell or close inefficient hospitals. Largest hospital, County-USC, was almost closed down. 1997: Reenaineerina Mandated 8 percent reductions in personnel and supplies cost 2000: 2000 to 2005 Strategic Plan Six Main Strateaies: Reduce cost and increase efficiencies Reconfigure and/or reduce specific services Outsource selected services Increase state and federal revenues Reduce demand through improved health KEY IMPLEMENTATION ACTIONS Average 2 percent reductions per year in budgeted positions in the next five years Close inefficient health centers and transfer more county provided primary care visits to public/private partnerships. SOURCE: LAC-DHS 2000 -2005 STRATEGIC PLAN Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The DHS strategic plan and its cost cutting actions since 1995 make the agency look like a profit making entity. If the organization were not identified on the strategic plan, you would think LAC-DHS is a for-profit hospital-led health delivery system. From 1982 to present, DHS organizational behavior has reflected and responded to efficiency seeking trends in federal and state governments: cost reductions, reduced health care demand (a euphemism for denying health care), and increased revenues. The bottom line is cost reductions or receiving an acceptable return on the county’s investments. There is no attempt to define a floor of consumption for health services. In short, the County of Los Angeles and the Department of Health Services is treating health service delivery to the poor as an enterprise that should yield as much profit as possible or suffer as small a loss as possible. Services will be reduced, farmed out in public-private partnerships, or eliminated to meet the technical efficiency goals of the enterprise. II. King/Drew Medical Center Facilitv-Wide Trends In the past two decades, King/Drew Medical Center has progressively reduced its capacity, thereby limiting the health care services available for the residents of the Los Angeles County SPA 6 region. This trend persisted even though revenues as a percentage of expenditures in both the outpatient and inpatient areas continuously increased. The revenues overcame expenditures in the mid 1990s. 93 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The data examined in this study shows a consistent effort on the part of King/Drew Medical Center to reduce the number of beds available to patients in the past two decades. Also, while local government subsidies to the King/Drew Medical Center declined in the past two decades, expenditures in constant dollars continued to rise. Financial austerity measures continue at the facility, even when revenues exceeded expenditures (See Table 3 below). The hospital capacity has increased from 480 beds in 1982-83 to 513 beds in 1998-99. The available beds have decreased from a high of 445 in the 80s to a low of 372 in the 1990s. Revenue as a percentage of expenditure has steadily increased in the past two decades in both the inpatient and outpatient areas. The ratio in the inpatient area rose from 42 percent in 1982-83 to a high of 146 percent in 1995-96. In the outpatient area it rose from 52 percent to 107 percent. Total revenues as a percentage of expenditures rose from 45 percent to 131 percent. As revenues rose, so did expenditures per encounter. Expenditures per discharge in constant dollars rose by 48 percent, from 4, 395 in 1982-83 to 6,494 in 1998-99. Expenditures per visit in constant dollars rose by 280 percent from 69 in 1982-83 to 262 in 1998-99. (Table 3) Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 3 KING/DREW MEDICAL CENTER, FACILITY W1DIE TRENDS INS ELECTED STATISTICS 1982-1999 Year Licensed Beds Avail. beds Percentage Inpatient Revenue/ Expenditure Percentage Outpatient Revenue/ Expenditure Inpatient Expenditure Per Discharge Constant dollars Outpatient Expenditure Per V isit Constant dollars Total Expenditure Constant dollars Percentage Total Revenue/ Expenditure 82/83 480 427 44 52 4395 69 90, 127, 474 45 83/84 480 337 45 18 4567 104 103, 089, 151 41 84/85 480 431 43 36 3313 172 96, 800, 025 41 85/86 480 445 59 42 3352 193 111, 056, 898 54 86/87 480 445 63 58 3676 160 118, 672, 306 62 87/88 N/A N/A 54 69 3223 123 116,299,667 58 88/89 480 444 52 69 4064 193 119, 723, 690 56 89/90 480 444 65 88 4660 149 133, 780, 407 71 90/91 N/A N/A N/A N/A N/A N/A N/A N/A 91/92 480 396 55 52 5042 218 151,824,653 54 92/93 480 403 86 51 4217 181 146, 938, 412 76 93/94 513 444 121 92 5394 293 172, 892, 565 109 94/95 N/A N/A N/A N/A N/A N/A N/A N/A 95/96 513 372 146 107 6042 259 160, 811, 433 131 96/97 513 403 114 86 6494 262 166,718, 036 103 97/98 N/A N/A N/A N/A N/A N/A N/A N/A 98/99 513 395 Source: Raw data from OSHPD, Individual Hospital Utilization and Financial Data Constant dollars based on Los Angeles County CP11982-1984 from U. S. Bureau of Labor Statistics III. Pediatric Trends 1. Institutional Outcomes Resource consumption: There has been a drop in resource consumption evidenced by reductions in expenditures on medical and nursing staff, reductions in the size and diversity of the pediatric physician panel, and an increase in the number of encounters per a licensed nurse. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Physician wages per visit in constant dollars dropped by 20 percent from 70 dollars in 1992-1993 to 58 dollars in 1997-99. Nursing wages per outpatient visit in constant dollars were reduced by 28 percent from 29 dollars in 1992-93 to 23 dollars in 1998-99. Nursing wages per inpatient discharge in constant dollars were also reduced by 20 percent from 776 in 92-93 to 642 in 1998-99 (See Table 6 below). The pediatric physician panel has diminished in the past two decades even as the pediatric outpatient encounters grew from 25, 000 in 1992-93 to 33, 000 in 1998-99. Generally, between 1970 and 2000, pediatrics suffered a 46 percent reduction in the subspecialty panel. Pediatric genetics, hematology and gaestroenterology have been discontinued. In hematology, genetics and endocrinology, there were reductions of 50 to 75 percent from 1970s to 80s and of 100 to 75 percent from the 1980s to 2000. Other specialties stayed the same or suffered smaller reductions even as patient encounters increased. In the 1970s there were 3 endocrinologists, that number dropped to 1 in the 80s and 90s and to half time from 1996. Geneticists have dropped from 3 in 1970s to 1 in the 90s and none after 93. Gaestroenterologists have also reduced from 2 in early 90s to half time in 98-mid 2000. Currently there is no gaestroenterologist. There were 3 hematologists on the panel in the 70s, 2 in the 80s to 95 and 96 permission of the copyright owner. Further reproduction prohibited without permission. half time from 1998 to mid 2000. Currently there are no hematologists on the panel (See Table four below). The Pediatric sub-specialty panel at the King/Drew Medical Center is the regional pediatric sub-specialty panel in its catchment area. The current penetration is estimated at 9 percent (Department of Pediatrics Business Plan 2000). This implies that 91 percent of children who need pediatric services will either go outside the service area or go without subspecialty services. The limited penetration is partly due to the size of the panel. There has also been a reduction in the size of the licensed nursing staff relative to pediatric encounters in both the inpatient and outpatient areas. Data on the actual number and level of pediatric nurses is only available for the last five years. From 1996 to 1999, the number of discharges per a registered nurse increased by 37 percent. On the outpatient side, the number of visits per registered nurse increased by 50 percent from 4, 403 in 1996 to 6, 630 in 1999. Even when we include lower skilled nurses such as Licensed Vocational Nurses (LVNs) in this computation, the trends are the same in the inpatient areas. The ratio of discharges per a licensed nurse rose by 37 percent from 54 in 1996 to 74 in 1999. When LVNs 97 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. are included in the equation, visits per licensed nurse increase slightly by 3 percent from 2, 933 to 3, 014 (See Table 5 below). Historical data on pediatric beds are not available. Based on King/Drew Medical Center 1997-98-workload data, the pediatric intensive care unit is staffed at 50 percent capacity and the acute units are staffed at less than 50 percent capacity. The critical care unit is licensed for 6 beds, but it is staffed at 3 beds. A 1999 analysis of community needs by the department of pediatrics indicate that there is a need for a pediatric critical care unit of 8 beds or more. The general acute units are licensed for 54 beds but only 27 beds are available. The Unit is staffed for 16 beds. Occupancy rate for the pediatric critical care unit is 50 for licensed beds and 75 for budgeted beds (King/Drew Medical Center, Inpatient and Outpatient Workload Data 1997/98). Physicians and nurses who responded to the open ended questions overwhelmingly identified resource shortages as a condition that has worsened for pediatric services since they started working at King/Drew Medical Center. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The following is a sample of physician and nursing responses to open-ended questions that highlight resource reduction. Physicians: • Not enough medical/nursing staff for the amount of patients. • The faculty attrition has been terrible in the past five years. • Decreased level of nursing staff (less RNs) available for patient care. • Inadequate funding and support for pediatric services from the government and hospital management. • Loss of faculty devoted to teaching and the facility. • Reductions in medical and nursing staff. • Lack of administrative support to appropriate and adequate essential systems for delivering health care. • Worsening of resources-nurses, physician specialists and ancillary staff to support clinical and research activities have diminished substantially. • Lack of sub-specialty physicians in pediatrics. 99 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. • Slow progress in updating equipment, i. e. use of computers etc. and other medical equipment. • Government does not want to provide the finances to improve services. • We have big plans but no funding. Nurses: • Too many patients for 1 nurse. Float too much. • As in the past, not enough staff. ® The nurse ratio has gotten worse. We have fewer nurses now than in the past and it gets stressful. It’s hard to give good patient care when you have 2 nurses at times Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 4 Expenditure on Physician and Nursing Services per Encounter, Department of Pediatrics, KDMC (1992-1999) Year inpatient Nursing /Diseh. In Constant Dollars Outpatient Nursing /Visit Constant Dollars Physician Expenditure/ visit Visits Discharges Patient Days Average length of Stay Average Length of Stay 92/93 776.4 28.95 70.17 24594 2362 13626 5.77 5.77 93/94 864.55 21.07 58.4 33356 2028 10666 5.26 5.26 94/95 N/A N/A N/A 34308 1734 9462 5.46 5.46 95/96 N/A N/A N/A 35225 1665 8345 5.01 5.01 96/97 702.63 34.51 46.47 34853 1855 7625 4.11 4.11 97/98 N/A N/A N/A 30231 1899 7534 3.97 3.97 98/99 642.34 22.59 58.36 33152 2004 7605 3.79 3.79 Data does not include nursery and physician service expenditures on the Neonatal Intensive Care Unit Source: King/Drew Medical Center, Cost Accounting Unit. Table 5 King/Drew Medical Center. Pediatric Patient Encounters Per Staff. Licensed Nurses 1996-1999 YEAR Visits per RN Visits per LVN All Lie Nurses Discharge perRN Discharge per LVN All Licensed Nurses 1996 4403 8806 2933 69 238 54 1997 4979 6971 2904 77 309 62 1998 5039 6046 2748 86 271 65 1999 6630 5528 3014 95 334 74 Source: King/Drew Medical Center, Nursing Administration Staff Roster and Workload Data Reports, 2000 Table 6 Physician Panel Levels, KDMC, Department of Pediatrics (1!970 to 2000] DIVISIONS 79-79 80-89 90-99 2000 Hematology 3 2 0 0 Genetics 3 1 0 0 Endocrinology 4 2 0.5 0.75 Gaestroenterology 0 0 0.5 0 Cardiology 2 2 2 2 Child Development 4 4 2 2 Neurology 1 0 1 0 Immunology 2 2 2 2 Nephrology 0 1 1 1 Infectious disease 0 1 1 1 Critical Care 0 0 2 2 Adolescent 0 0 2 2 Primary Care 7 8 4 4 TOTAL 26 23 18 16.75 Source: King/Drew Medical Center, Department of Pediatrics Faculty Historical Roster 101 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Production Outputs Survey results and analysis of organizational reports reveal an unfavorable trend in employee satisfaction and quality of care indicators. Medical and nursing staff report low levels of job satisfaction. Only 30 percent of physicians surveyed reported that they are more satisfied with their job today than they were when they started working at the King/Drew Medical Center. Fifty-five percent report that their job satisfaction has decreased while 15 percent report it has stayed the same. Sixty percent of physicians surveyed reported that their ability to make patient care decisions independent of financial and administrative control has decreased since they started working at the King/Drew Medical Center. About 43 percent report that the problem with pediatric services at the King/Drew Medical Center is too much emphasis on making and saving money. Twenty-eight percent reported the civil service status of employees was the main problem with pediatric services at King/Drew Medical Center. Less than 30 percent reported that their research effectiveness has improved. About Seventy percent said it has decreased or stayed the same. The physicians reported that they were doing better in teaching than in research. Fifty-two percent 102 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. believe their teaching effectiveness has improved, and 14 percent think it has stayed the same. Though nurses seemed more satisfied with their jobs than physicians, only 38 percent of these nurses stated that their job satisfaction has increased since they started working at the King/Drew Medical Center. Sixty-two percent report decreased or unchanged job satisfaction. Thirty-six percent report that their ability to make patient care decisions independent of financial and administrative controls has decreased. Approximately 82 percent believe that the problem with pediatric services at King/Drew Medical Center is too much emphasis on making and saving money. Nurses and physicians report different perspectives of quality of care from parents as evidenced by reports on clinical mistakes, premature discharges or relationship with patients. However, internal quality assurance reports reveal a pattern of budget-related patient care problems since 1995. The difference between parents and clinical staff perceptions of quality of care might be explained by the fact that parents are affected most by quality of care issues that are related to resource reductions. Poor care might be the result of inadequate resources rather than medical or nursing staff behavior. Also, physicians and nurses might rate their own individual and professional class performance higher than they rate the organization 103 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. as a whole because of potential malpractice complaints. There is certainly a reluctance to link any poor quality of care to physician or nursing behavior. Fifty percent of parents interviewed believe that clinical mistakes have increased since their dependents started receiving care at King/Drew Medical Center, while fifteen percent think there has been no change in the number of clinical mistakes. Sixty percent of the parents interviewed believe that it is more probable today for a child to be sent home before they are well enough to go home than in the past. Eighty-three percent of physicians believe that clinical mistakes in the pediatric services have stayed the same or are reducing since they started working at the King/Drew Medical Center. About 61 percent of physicians also believe the number of sick children prematurely sent home from the pediatric wards has not increased since they started working at King/Drew Medical Center and about 90 percent believe that their relationship with their patients has either improved or remained the same. Fifty- three percent of Nurses surveyed believe that there are less clinical mistakes today than they use to be in the past. Sixty-six percent report that the number of children prematurely sent home from 104 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the wards has either decreased or remained the same and 73 percent report that their relationship with their patients has improved. In their responses to open-ended questions, providers identified the lack of collaboration among clinical staff and the exclusion of clinical staff from decisions related to patient care as some of the things that have gotten worse since they started working at King/Drew Medical Center. Here are some sample responses: • Uncritical adoption of managed care philosophies. • Nurses and Physicians do not work as a team. • Nurses and doctors do not communicate well. • Administrative decisions are made independent of input from physicians. • Major decisions about patient care are not communicated to us by our administration. Tied to management issues are responses that identify low morale and cultural competence as areas that have deteriorated since they started working at King/Drew Medical Center. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Here are sample responses: • The faculty experience unequal distribution of workload. • Most of us have no administrative support nor do we have support from the Department Chair in our clinical and other responsibilities. • Morale and communication among the faculty has deteriorated. • Staff morale has decreased considerably. Sense of colloquium has become non-existent. • The Chairman openly demonstrates favoritism for certain people and disdain to others. The department is run by fiat and most faculty members are not involved in decisions made by the Chairman which may directly affect their medical practice. • Low faculty moral due to having no say in how the hospital is run and unable to deliver optimum health care when compared to peers, very frustrating. • A lot of inefficiency. Nurses: • No one seems to care about employees’ mental and physical well being. • Lack of appreciation of staff other than doctors, supervisory staff and nurses. • Poor recognition of KDMC’s ability in and toward the many miracles seen here: news media, newspaper. 106 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. • Nurses are required to do more paperwork and less pt hands on care. Also more emphasis is placed on money and not learning. • Employees only care about if they are doing more than the next person. The Department of Pediatrics improving organizational performance committee routinely reviews quality of care. When problems are identified corrective action is initiated with hospital management. Each year, the committee identifies the top 6 problems for the year and prepares an annual report. A review of the top 6 problems identified in the annual reports of the IOP committee for pediatrics from 1995 to 1999, reveal that at least 4 to 6 out of the 6 top problems for each year were directly related to budget problems. These included lack of staff to transport lab or x-ray results in a timely manner to the appropriate clinical decision maker or lack of critical medical supplies or equipment needed for nursing or physician caregiving. Some of the problems persisted for more than three years before they were resolved. Staff and medical supply shortages are directly related to budgets. This trend coincides with the most aggressive resource reduction activities by the Department of Health Services in the past two decades (1995 great cascades and 1997 re-engineering). 107 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 2. Patient Service Outcomes include the following: Service Utilization The data from the survey conducted for this study and organization reports show a general reduction in service utilization by pediatric patients at the King/Drew Medical Center (See Table 4 above). Average Length of Stay Pediatrics Average Length of Stay (ALOS) for pediatric patients has dropped from 5.58 in 1980-81 to 3.79 in 1998-99. ALOS trends have been uneven until 1995/96 when length of stay dropped steadily from 5.26 to 3.79. This drop coincides with the massive LAC DHS reductions of 1995 and the reengineering cuts of 1997. (See Table 4 above) Time spent with Clinical Staff Parents, nurses and physicians surveyed for this study generally report that physicians spend less time with patients today than they did in the past. Parents interviewed believe clinical staff spends less time with their dependents than they did before. Sixty percent report that nurses spend less time with their dependents, while 70 percent report that doctors spend less time with their dependents. Fifty-seven percent of Physicians report that the time they spend with patients has decreased since they started working with the 108 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. King/Drew Medical Center. Sixty-four percent of nurses also report that the time they spend with patients has decreased. Service Convenience The data available shows that patient convenience revealed by clinic wait time and appointment delays has either stayed poor or gotten worse. Clinic wait time While the parents, physicians and nurses might read trends in clinic wait time differently, a substantial proportion of each group reports clinic wait time of 1 hr or more in the past as well as in the present. This information corresponds with the results of other surveys conducted in the outpatient clinics (King/Drew Medical Center patient flow analysis, 1997; Diamant et al., 1999). Eighty percent of the parents interviewed in this survey reported that their wait time in the clinics has been increasing since they started coming to the facility. Fifty percent reported that the wait time in the past was 1 hour or more and 60 percent indicate that the wait time now is 1 hour or more. Contrary to the views of parents, more than 41 percent of physicians believe that clinic wait time has decreased since they started working at the King/Drew Medical Center, and only 12 percent think 109 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. it has increased. Ninety-two percent of physicians report that pediatric clinic patients waited 1 hour or more to see a doctor in the past where as 77 percent report that clinic patients now wait 1 hour or more to see a doctor. Forty-one percent of nurses report that pediatric patient wait time at clinics has decreased since they started working at the King/Drew Medical Center. Fifty-four percent report that the wait time has either increased or stayed the same. Fifty percent believe that patients waited 1 hour or more to see a doctor in the past, and the same proportion believe patients waited 1 hour or more to see a doctor today. Two other studies show similar wait times. A 1997 County of Los Angeles patient flow analysis in outpatient clinics placed the average wait time in pediatric clinics at 89 minutes. In a patient assessment study commissioned by the County of Los Angeles (Diamant et al., 1999), about 50 percent of outpatient clinic patients indicated that their wait time ranged from one to four hours. Appointment delay Nurses and parents report an increase in appointment delay. Physicians say there is a decrease in appointment delay time. However, a substantial proportion of each group report delays of 3 no Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. months or more, now and in the past. Seventy percent of parents interviewed report that the time required to obtain a clinic appointment increased since they started bringing their dependents to the King/Drew Medical Center. Eighty-six percent report that it took more than 3 months to make a clinic appointment in the past, while 89 percent report that it takes more than 3 months to make a clinic appointment now. The actual delay time reported by all three groups is confirmed by information in the appointment logs at King/Drew Medical Center. Physicians claim that it takes less time to have an appointment today than it did when they started working at King/Drew Medical Center. Sixty-one percent believe it takes less or equal time to have an appointment today than it did in the past. Forty-one percent believe it took 3 months or more to have an appointment earlier where as 39 percent think it takes three months or more to have an appointment today. Fifty percent of nurses reported that it takes more time for a pediatric patient to have a clinic appointment now than it did in the past. However, only 20 percent say pediatric patients waited 3 months or more to have an appointment in the past and the same percentage assert that pediatric patients wait 3 months or more for a clinic appointment today. in Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. These appointment delay time correspond to the data from 1999 King/Drew Medical center appointment logs that show an average backlog of 3 to 6 months. In their response to the open-ended question, many physicians and nurses stated that the quality of patient care has deteriorated since they started working at the king/Drew Medical Center. Their claims are bolstered by the anger and bitterness in some of the parents interviewed for this study who reported many quality issues. Physician responses: • Goals-physician directed, not patient, not community-they are fodder for physician career development. Direction-secretive. • Poor communication skills between employees and patients with little accountability. • Quality of patient care has deteriorated. Administration is not responsive to the need to improve the quality of patient care • Contracting out of allied medical services producing delays in diagnosis and management. • A shift in trainee staff from domestic to FMGs resulting in decreased cultural competence, sensitivity and community empowerment. 112 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. • More pediatric patients are seen in the adult ER and diverted from pediatrics which hinders care. Nurse responses: • No compassion toward pt care or clients in hospital Parent responses: • We wait too long to see a nurse or doctor. • I have been going there for 12 years, they seem too busy these days. • Much better place today. Twenty years ago I waited 48 hrs in the emergency room to see a doctor with my daughter. Today I wait only 16 hours in the emergency room to see a doctor with my grand daughter. • You wait too long for a doctor to see you. • They do not take proper care. • They make too many mistakes. They burned my baby’s hand with IV. • I spent 4 hrs before I could see a doctor with my son who had 105 temperature. They did not seem too care, too busy. • We wait too long for appointments. • Not enough walk-ins. • Pregnancy service was better than children services. 113 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The data shows persistent resource reduction that leads to lower provider job satisfaction that in turn contributes to denied, delayed or poor care. Bad trends stay the same or get worse. B. Analysis The data support the hypothesis of this study. There is a negative association between efficiency-seeking financing policies and pediatric social outcomes at the King /Drew Medical Center. There is some preliminary evidence that lopsided pursuit of cost reductions at the federal, state and local level can unfavorably impact institutional, and patient social outcomes in vulnerable communities such as the neighborhood served by the King Drew Medical Center. The discussion of the data patterns shows a worsening of equity dimensions, a reduction in resource consumption, a worsening of service convenience and a decrease in service utilization. There is also a convergence of trends in data from a variety of sources. Examining consistency of evidence across different types of data is similar to verification in traditional social science research designs (Yin, 1995, GAO, 1991, Bailey, 1994). There is agreement of outpatient and inpatient trends, between structured and unstructured questions, between quantitative and qualitative data. Parents, nurses and physicians generally concur on the persistent or increasing inconvenience or quality of pediatric care. Data from OSHPD, internal 114 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. organizational reports and two different surveys conducted in 1997 and 1999 show similar patterns of diminishing or persistently low equity dimensions. Chronological trends at the federal, state, county and facility level show a relationship between financing strategies at the policy level and pediatric social outcomes at the King/Drew Medical Center. Outcomes at the King/ Drew Medical Center as a whole and the Department of Pediatrics in particular, can be linked to financing strategies adopted by the federal, state and local governments. As the federal and state governments adopted prospective payment systems in the early 80s, Los Angeles county held down its contributions to indigent health care. Over the last 20 years, the county contributions to DHS operations declined from 28.5 percent to 6.4 percent in Fiscal Year 1999-2000. This level of contributions is expected to increase beginning Fiscal Year 2000/2001 (Los Angeles County Department of Health Services, Strategic Plan, 2000 to 2005). This positive cash flow trends were maintained through continuous cost reductions at provider institutions such as the King/Drew Medical Center including the reductions of 1995 and the reengineering cuts of 4 1997. Budgeted positions for the Department of Health Services have reduced while there is an increase in all other County Departments. Financial trends at the King/Drew Medical Center reflect county-wide 115 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. trends but with better revenue performance. Revenue as a percentage of expenditure at the King/Drew Medical Center has grown from 45 percent in 1982-83 to a high of 131 percent in 1995- 96. Revenue-expenditure ratios in outpatient and inpatient areas reflect the same patterns. However, absolute expenditures in constant dollars at King/Drew Medical Center have increased from 90 million dollars in 1983-84 to 167 million dollars in 1996-97. Even when the revenue picture is improving, the county continued to maintain financial austerity at the King/Drew Medical Center because they are spending more for indigent care each year. This policy demonstrates a steadfast commitment to cost reductions. Trends in pediatric social outcomes correlate very closely to county cost reductions. The physician panel has continued to diminish since the 1980s as part of the general trend at the facility and county level to reduce expenditure in relation to revenues. The county implemented two major cost reduction strategies in the 1990s. In 1995, there were massive cost reductions that included drastic staff reductions, a retreat from community health centers through public/private partnerships and threats to close down or sell off hospitals that were not profitable. The county has not published any information on the extend of staff lay offs during the 1995 reductions, but this period is generally referred to at the King/Drew 116 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Medical Center as the great cascades because of unprecedented number of demotions and job eliminations. In 1997, there was also the implementation of reengineering processes that mandated 8 percent reductions in pediatric service cost. There was a reduction in expenditures for physicians and nursing hours as a percentage of patient encounters at both the inpatient and outpatient areas from 1992-1993 Fiscal Year to 1998-99 Fiscal Year. From 1996 to 2000, the number of patient encounters per licensed nurse correspondingly increased. The outcome data trends similarly show that the rival explanation of bureaucratic supply is unlikely. The improving organizational performance (IOP) committee data that links more than 75 percent of quality assurance issues directly to budget reductions reveals that barriers to health care access for pediatric patients at the King/Drew Medical Center are more likely to come from budget cuts than from the alleged incompetence of civil service employees. IOP trends are one of the strongest indicators of a relationship between financing strategies and access to pediatric services. Also, most physicians and nurses surveyed did not identify bureaucratic supply as a source of negative social outcomes. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 6 CONCLUSION A. Efficiency Versus Equity Trade-Offs Trends in pediatric institutional and service outcomes at the King/Drew Medical Center support the proposition that an unbalanced pursuit of allocative efficiencies can lead to the compromise of the equity-driven traditions of safety-net health care systems. In the past two decades, Los Angeles County, the King/Drew Medical Center, and the Department of Pediatrics at the King/Drew Medical Center have done well in efficiency indicators. Revenue as a percentage of expenditure in the King/Medical Center has been increasing. The hospital capacity in terms of available and staffed beds has reduced. Average length of stay has decreased thereby reducing the cost per discharge. Resource consumption in general has declined. During the same time, equity indicators are down. Clinic wait time and appointment delay have deteriorated. Physician panel and nursing staff levels have been reduced relative to pediatric patient encounters. Quality has decreased as demonstrated by low employee job satisfaction, budget related negative results in internal quality reviews, and children’s clinic closures. The race to the bottom line has pushed down the floor of health care consumption for pediatric patients. 118 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The data also show that local government policies towards safety-nets, at least in the case of King/Drew Medical Center, are tied to a political philosophy that pays only limited attention to those who are economically and politically weak. The implementation of policies that seek to maximize allocative and technical efficiencies is driven by a desire to get more outputs from less inputs. The county’s pursuit of financial austerity in the face of increasing revenue at the King/Drew Medical Center can be explained by the desire of the county policy makers to not only reduce their contributions to indigent health care but also to transform the safety-net provider institutions into fishing-nets. The County is aware that the current revenue surplus is short lived and deficits will come again so cuts must continue. Basically, the county regards these institutions as enterprise accounts. Policy makers are asking them to pass a market test to avoid elimination. With a twenty percent uninsured population in the SPA 6 region and the increasing inability of public hospitals to cross-subsidize patients, the only way to transform King/Drew Medical center into a source of revenue with a long-term positive cash flow is to reduce resource consumption to levels that significantly undermine access to care. There is certainly a diminishing commitment to programs that serve the economically and politically weak. DHS health services patrons are predominantly low income, minority and immigrant. Therefore, while budgeted positions for other county departments have increased on the 119 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. average by 17 percent in the past decade, the DHS budgeted positions are reduced by 9 percent. These appear to be a veiled form of “ survival of the fittest” ideology espoused by latter-day laissez-faire ideologists. At the King/Drew Medical Center pediatric clinics have been closed down while women’s and other adult clinics are being expanded. So age equity is itself an issue. Children do not vote and do not make campaign contributions. The Board of Supervisors has nothing to fear from them, particularly low- income children. B. Second Market Failure at the King/Drew Medical Center The data show some evidence of a second market failure at the King/Drew Medical Center. As allocative efficiencies replaced equity values at the federal, state and local government levels in the past two decades, resource consumption in the Department of Pediatrics at King/Drew Medical center fell. As a result of reduced resources, skill levels and numbers of nursing and medical staff have been reduced in relation to patient encounters, clinical loads have increased and reductions in pertinent medical supplies and equipment have been implemented. As a consequence, the job satisfaction of clinical staff has dropped. Reductions in resource consumption accompanied by negative operational outputs led to a decrease in patient service convenience and utilization. 120 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Drops in patient service convenience are evidenced by increasing clinic waits, appointment delays, and diminishing quality of patient care. Reductions in service utilizations are evidenced by the elimination of subspecialty panels, closure of clinics, falling average length of hospital stays and decreasing length of visits. For the child in South Central Los Angeles who relies on pediatric sub specialty services and hospital services at the King/Drew Medical Center, his or her condition might be only days away from the experiences of his parents or grand parents before the 1965 Watts riots. If they needed services in pediatric hematogy, gastroenterology and genetics, they cannot have them in their community. They will have to go out of the catchment area or stay without the services. For the 20 percent of the population without transportation, it probably means staying without the services. If they needed endocrinology or nephrology services or any other pediatric sub specialty service, they have to wait more than 3 months and very often more than 9 months for an appointment. For these children, service is denied, delayed or poorly delivered because of financing strategies that put efficiency above equity and reintroduce market protocols in an environment where the market has failed before. The resurrection of market protocols in this environment has ushered in healthcare issues that are beginning to be comparable to the pre- King/Drew Medical Center era. The McCone commission cited barriers to health care access as a major cause of the 121 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1965 Watts riots. It is on the basis of this finding that the King/Drew Medical Center and the Charles R. Drew University were born. C. Managerial Implications Many managerial issues are closely tied to the overall thrust towards cost reductions. Managerial issues arising from the policy of the past two decades include employee morale, cultural competence, interdisciplinary communication, and leadership culture. Employee satisfaction is a significant managerial issue that is tied to the changing state of pediatric health care at King/Drew Medical Center. Resource reductions certainly led to high clinical work loads and perceptions of favoritism. As resources diminish, there is a potential for managers to unevenly distribute rewards to employees, there-by generating perceptions of favoritism. Some staff express their dissatisfaction by leaving the facility. This is reflected by the high physician attrition rate reported in the survey. Employee preparedness to serve the patient population is another significant management issue. As the demographics of patients and providers change, the need for cultural competence increases. Yet the providers and managers at the King/Drew Medical Center do not receive training in cultural competence. 122 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Cultural incompetence leads to perceptions of community disempowerment. Cultural competence training is very critical if providers and managers are to relate to the community they serve. Perceptions of community disempowerment are very dangerous. This is a very important issue because feelings of disempowerment could lead to irrational and destabilizing behavior from members of the community that might feel alienated from the system. More investigation of the extent of this perceptions of community disempowerment would seem warranted so that relevant corrective action can be taken expeditiously. There also seems to be insufficient inter- and intra-disciplinary communication between nursing and medical staff. When job satisfaction is low, employees easily find fault with each other. The lack of meaningful work relationships is reinforced by the feeling among physicians that they are being excluded from important health care delivery decisions. An important source of this feeling of powerlessness is the greater emphasis being placed on cost reductions relative to disease reduction as administrators uncritically implement cost-reduction policies. The fragmented nature of responsibilities and power relationships in a hospital environment calls for intense interdisciplinary collaboration. Lack of interdisciplinary collaboration needs immediate attention. When members of the care delivery group are not a team, service integration in particular and patient care in general is bound to suffer. 123 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The resolution of these issues is beyond the scope of this study but they certainly need to be addressed by the management of King/Drew Medical Center, the policy makers at LAC DHS and the County Board of Supervisors. The issues seem to call for a new leadership direction at the king/Drew Medical center. The emerging leadership must consider the following : • recognize that there is a link between policy decisions and managerial outcomes at the health care delivery level • promote an organizational culture that sees children behind programs and budgets. ® show sensitivity to the needs of the community that receives health care from the facility. • take employee morale seriously. • define a floor of consumption for children’s health services at King/Drew Medical Center and adopt an advocacy position for the patients in LAC- DHS and other policy circles. • move beyond the implementation of mandates from LAC- DHS and the board of supervisors to the education of policy makers and the public on the needs of the community and the managerial implications of policies. • seek legitimacy through a network of relationships with the community that it serves. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. D. Policy Implications The behavior of the County of Los Angeles in the past two decades, and directional statements in the strategic plan of LAC-DHS, demonstrate an entrenched and intensifying commitment to cost-reduction. There is little regard for health services to poor residents of the SPA 6 region of Los Angeles County. Instead, the safety-net facility is considered as an enterprise that should pass a market test by generating positive cash flows. The negative impact of this trend on the children of the SPA 6 region can only be reversed by implementing policies that promote equity over efficiency at the local, state, and national level. An equity driven health care policy agenda for King/Drew Medical Center and other urban public safety-net systems should have the following objectives: • Equality of health care outcomes for all people. • A floor of consumption maximally defined and based on disease burdens to the community as well as the available technology and science. • Equality of access to health care achieved through a uniform payment system and parity in health delivery infrastructure between urban public systems that serve the poor and the mainstream health care industry. permission of the copyright owner. Further reproduction prohibited without permission. The following are policy recommendations for an equity-driven health delivery system: 1. Define a Floor of Consumption: Public health values should drive the delivery of care to the poor children who come to the King/Drew Medical Center and other urban public teaching hospitals. There should be a clear articulation of a floor of consumption for health care services needed by poor children of Los Angeles County. The floor of consumption might be based on maximal need derived from the disease and infrastructure burdens of the community as well as what is possible, given available technology and science. What kind of diseases should be eliminated or reduced? What kind of clinical and social outcomes should a health delivery system for the poor be expected to achieve? What, for instance should be the conditions of service delivery? What should be acceptable clinic wait times? How long should people wait for sub-specialty appointments? What is the acceptable size and diversity of the pediatric panels relative to the population served and disease burden of the catchment area? 2. Uniform Health Insurance and Infrastructure Coverage: The passage at a national or state level of a uniform and universal health care program is critical if these three policy objectives are to be realized. A uniform and universal health care insurance and infrastructure program will address the need for immediate payment for service by providing universal 126 permission of the copyright owner. Further reproduction prohibited without permission. coverage and the need for an infrastructure endowment to eliminate current disparities in health status and delivery infrastructure. Many initiatives today only call for universal coverage. A uniform health insurance and delivery infrastructure system will eliminate rather than built on the current separate and unequal system. Such a policy would eliminate differential treatment of the poor. A system of uniform health insurance and delivery infrastructure will guarantee payment for health services as well as address access issues that are not related to service reimbursements. Such access issues include transportation, health education, health facilities upgrade and construction, and low income health management training programs. 3. Redefine the role of the County in health care financing and delivery: The county of Los Angeles and other local governments which provide and finance health care must surrender one of their conflicting roles as both a health care financier seeking the reduction of health care cost and the guarantor of care to the poor. This is necessary if the local government’s role as a provider is to be taken seriously. Activists in the children’s health policy community will be instrumental in asking the county to give up one of these roles. Citizens cannot trust a cost-cutting bureaucracy with the responsibility to guarantee health care access. 4. Actuariallv sound reimbursements: Local government providers should seek uniform and actuarially sound reimbursements for services 127 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. provided to the poor. Reimbursements should consider the cost realities of the patients in the safety-net and academic medicine environment. This may require MEDICAL contracts and managed care contracts to better reflect the realities of public teaching hospitals and safety-net patients. With uniform coverage, there will be one payer source and the same level of service for everyone. 5. Reexamine Local Government spending priorities; A review of countywide expenditures on children and a reordering of spending priorities is needed. Important investigations also might look at expenditures on law enforcement activities such as the incarceration of minors and parents with children. There may be low cost alternative sentencing options that could free money for health care services. Also, parents in alternative sentencing systems who are not incarcerated will be available to support the child in the pursuit of a healthy lifestyle and health care services. 6. Community Involvement: There is a need for community activism that will not just bring these problems to the attention of the Board of Supervisors but will also avoid the deterioration of conditions to the level of 1965 riots. Community organizations that care about children can join to illuminate the barriers to health care created by efficiency-seeking policies. Community groups located in the catchment area of the SPA 6 region should unite with groups in the diaspora (e.g. Hispanics and 128 permission of the copyright owner. Further reproduction prohibited without permission. Blacks living outside the inner cities) to bring the issues raised in this study to the attention of local, state, and federal officials. This strategy should include the emerging Latino leadership in Los Angeles County and California. Sixty percent of the population seen at King/Drew Medical Center is Hispanic. 7. Independent tracking of Performance: An independent tracking system is central to the ability of the community to continuously evaluate the performance of health delivery systems and the impact of financing regimes on the performance of these systems. The creation of pediatric service evaluation guidelines for safety-net providers will help in the evaluation of policy actions on the care received by poor children in public delivery systems. There needs to also be a database run by a community consortium. Community storage of data can permit the independent evaluation of performance and ease public access to performance data. 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Creator Tataw, David Besong (author)

Core Title Health care finance reform and market failure at King/Drew Medical Center, Los Angeles: An analysis of pediatric social outcomes in an urban public safety -net hospital

School Graduate School

Degree Doctor of Philosophy

Degree Program Political Science

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, Finance,health sciences, health care management,health sciences, public health,OAI-PMH Harvest,Political Science, public administration

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Hahn, Harlan (committee chair), Crigler, Ann (committee member), Janssen, Bruce (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-111520

Unique identifier UC11338204

Identifier 3027787.pdf (filename),usctheses-c16-111520 (legacy record id)

Legacy Identifier 3027787.pdf

Dmrecord 111520

Document Type Dissertation

Rights Tataw, David Besong

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

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