Thursday, January 20, 2000 Older Editions

Unpaid bills

By Rebecca Lipchitz

When the ailing Harvard Pilgrim health plan showed up in the state of Massachusetts' financial emergency room, area hospital administrators started worrying that they were going to be victims of a financial flu as well.

Because while the state decides if -- and if so, how -- the plan should be saved, experts say financial ills may be infecting more than just one Massachusetts health plan. If they're right, that could mean trouble for hospitals and doctor groups as well, since they are owed much of the money the health plans can't pay.

Already, area hospital leaders are concerned that millions of dollars owed to them by Harvard Pilgrim may not be paid.

In a meeting Monday, Jan. 3, Harvard Pilgrim's chief financial officer delivered the news to CEO Charles D. Baker that losses for 1999 amounted to more than $177 million, $50 million to $70 million more than originally reported.

Harvard Pilgrim was placed in receivership by the state, under the State Division of Insurance.

Andover area hospital administrators joined state and Harvard Pilgrim officials to tell the plan's members that they will not be denied care.

But they do worry that their institutions may be denied money. According to local hospital CEOs, Harvard Pilgrim owes Methuen's Holy Family Hospital $785,000; Lawrence General $800,000, Winchester Hospital $1.3 million. While it is paying current bills to the Lahey Clinic, it owes $14 million in past-due accounts.

Lahey reported a loss of $10 million this year, the first loss in more than six years, according to Lahey Clinic CEO Dr. David M. Barrett, of Andover.

Dr. Dale M. Lodge, CEO of Winchester Hospital, says the hospital is now paying some bills through its reserves, but the money won't last forever, and many hospitals don't have reserves.

One of hospitals' worst fears is that debt will be written off, or that some bills will be paid while others won't, similar to the a 1992 closing of Bay State health care.

"We think there should be a pecking order," if some debts are paid and some aren't, says Lodge.

Pull the plug or operate?

State officials are now considering several options, ranging from selling the plan to a for-profit company to liquidating it.

Andover resident Dr. Manuel Tsing Lowenhaupt, of Deliotte Consulting in Boston, makes his living advising hospitals and other health care institutions on how to operate in the black. He says possible scenarios for Harvard Pilgrim are that it would continue as an insurer with some kind of subsidy, probably from the state, or quietly disappear.

He says it's unlikely that another insurer would buy Harvard Pilgrim, given the fact that even now it is not clear exactly how deeply in debt the plan is.

"Why would I want to buy an HMO when I don't even know what their obligations are," Lowenhaupt says.

In some cases, insurance companies buy subscribers from other health plans, but if Harvard Pilgrim fails, its subscribers will be "scattered to the wind," and likely be coming to insurers at no additional cost, he says, so it makes no sense to pay for them.

Other insurers are more likely to wait on the sidelines to see what will happen, he says.

He also says that if the state decides to bail out Harvard Pilgrim, the precedent could mean trouble if other plans fail.

"Why single out one (plan?) For the state, that's a pretty high-risk move. That gets to be a very scary fiduciary responsibility," Lowenhaupt says.

Lodge says the fear is that Harvard Pilgrim is just the first in a line -- that managed care's financial woes are just beginning.

"We are concerned that Tufts (Health Plan) is headed in the same direction," he says.

Bill Lane, President and CEO of Holy Family Hospital and 28-year Andover resident, says both Tufts and Fallon are being formally watched by government agencies for signs of financial distress, and Tufts has entered receivership in New Hampshire.

To date, Tufts owes Winchester Hospital $2.5 million, and the amount owed by the plan between 1998 and 1999 increased by 120 percent, according to Winchester Hospital documents.

"We need to be paid in full. Hospitals cannot accept the burden," Lodge says.

Where does it hurt?

The cause of all this financial distress is coming from a number of directions, experts say.

Hospitals are being paid less to provide the same amount of care, trained nurses are becoming scarce, technology is more expensive, and smaller hospitals are closing, sending more and more patients to the open hospitals.

"It's a multi-faceted issue. All these plans have been selling the product (to subscribers) at less than the cost," Lodge says. HMOs charge subscribers less than the cost of service, and in turn pay hospitals less than what they charge for service.

Health insurance is not bound by insolvency laws like other branches of the insurance industry, Lodge says.

Some argue that encouraging competition among health insurers as if it were operating in a free market has put undue stress on the system.

Alan Sager, professor at the Boston University School of Public Health, says competition in such a forum will only lead to doctors being forced to withhold care to save money.

"They've been intoning the mantra 'free market,' instead of trying to save themselves in the phony market that has them by the throat. There are no villains. Hospitals are not the villain, and they may say the devil made me do it, but after a while, they'll have to blow the whistle on the devil," Sager says.

Experts say health care does not operate in a "free" market because no matter the cost, hospitals must continue to provide health care, regardless of the market.

Joseph McManus, CEO of Lawrence General Hospital, where nearly 1,000 Andover residents sought inpatient care last year, says Massachusetts' HMOs first problem is that they are not big enough.

If the same system were on a national scale, the structure could support the costs in Massachusetts, he says.

What is the cost of health care?

A combination of factors has increased the cost of health care, experts say, from an aging population who lives longer, to more expensive technology, to drug prices, malpractice, to harsh New England winters.

Hospital CEOs say the state's Balanced Budget Act (BBA) has not helped them cope with the fact that their cost of delivering health care goes up each year, but their revenues go down.

Barrett says the BBA has caused a budget of deprivation.

"Our businesses are pretty lean and mean, now," he says, but adds that "massive layoffs is not something Lahey is doing."

Federal Medicare and Medicaid programs, which once accounted for large subsidies in health care costs, are no longer available, and HMOs are paying less.

Experts say Massachusetts has the best and most sophisticated health care delivery system in the world, but it must come with a price.

For example, some Massachusetts patients, depending on their health insurance, have the option of getting an appendectomy at their local community hospital for one price, or at a teaching hospital with top reputation for twice the price.

Lane says that while Massachusetts community hospitals cost about the same as community hospitals across the country, and Massachusetts teaching hospitals cost about the same as other teaching hospitals across the country, the total price of health care in Massachusetts is higher, simply because there are more teaching hospitals in the state.

But many say its worth the investment.

"It's an industry we would do well as a society to protect," Lane says. In addition to the quality of health care, the teaching hospitals have drawn industry to Massachusetts such as biomedical research firms and computer companies along Route 128.

Lowenhaupt says that the advanced medical community in Massachusetts also contributes to a "more intense" style of practice, where doctors are more likely to order a battery of tests than take a "wait and see" approach.

Can it work?

McManus describes managed care, which was first introduced in the 1970s, as "an American medical experiment."

Experts also agree that the key to financial success in managed care is walking the fine line between "managed" and "care."

Under managed care, a few percentage points difference in financial calculations can quickly turn into hundreds of millions of dollars.

One way to control costs is to adopt established scientific standards in medical care.

"I have every reason to believe that physicians, in their hearts, are uncomfortable being told what to do. We value their autonomy," he says of a culture that tends to practice medicine based on 40 percent science and 60 percent art.

"Most doctors are considered more of a lone ranger or a fighter pilot than a person who has to refer to a book.

Sager says doctors have to accept responsibility for spending money carefully, and renounce HMOs attempts to bribe them to give less care."Doctors have to accept caps on their income in exchange for clinical freedom to spend carefully. And they'd probably make more money," Sager says.

Dr. Roger Jenkins, a life-long Andover resident and liver specialist, left Beth Israel Deaconess Medical Center after 22 years this past June to move to Lahey, taking his team of specialists with him.

Unlike working on a fee-for-service base at some hospitals, doctors at Lahey Clinic are salaried. The crisis at Harvard Pilgrim has Jenkins more worried about the health of the clinic than for his own livelihood.

"Now more than ever it's a team effort. There really has to be a give and take between hospitals and physicians," Jenkins says.

While he could be very careful about how he spends money, his careful considerations don't matter as much if he can't get timely information from an x-ray or get a service billed properly, he says.

"For years physicians and hospitals at odds, and doctors could do pretty much what they wanted. Now we all have to worry about it," he says.

The most vehemently rejected option to save Harvard Pilgrim has been the plan to sell the company to a for-profit health care company.

"That is probably the single worst idea," Sager says, adding that a for-profit company is designed to extract revenue for stockholders.

"Our goal is to make sure everyone in this state gets high quality, affordable health care. At $38 billion a year, the challenge is to spend the money carefully," Sager says.

He recommends to patients that they call their local congressmen and tell them to make health care a priority.

"I think (Harvard Pilgrim's) receivership is really a warning bell, but it's not yet the complete meltdown we're going to suffer. We still have time. Call your state representative or senator and say the governor has to wake up and put its arms around the health problem. Appoint good people in the administration to tackle health care. Don't focus on Jane Swift's helicopter," Sager says.