The National Catholic Review
An Interview With Henry A. Foley

Henry A. Foley, currently chief operating officer of the Menlo Health Alliance in Menlo Park, Calif., and former director of other medical groups in the state, has also been director of Behavioral Health Services for Hawaii and a deputy director and planning chief at the National Institute of Mental Health, 1971-75. The interviewer is James S. Torrens, S.J., a former associate editor of America.

What is happening to health care now in California?

Health care in California is in crisis. Throughout the 1980’s and early 90’s, businesses and the government reduced whatever fat there was in the health care system. Now it has gotten to a point where the health premiums are not paying for the actual cost of services, which have been rising thanks to the new drugs coming onto the market, increased labor costs and new technologies.

Patients expect the same quality services they have been used to for the last 15 or 20 years. In fact, they expect better. But people in the middle class are finding that their insurance policies do not cover all the services they expect to obtain, leaving them no alternative but to pay for them out of pocket. Some seniors are in health plans that have decided to drop them. Throughout this year, large H.M.O.’s quit Medicare and patients have been cut adrift to seek either an alternative H.M.O. plan for Medicare or a return to the regular fee-for-service Medicare program.

Individuals have been losing their hospital connections too. Recently in this mid-peninsula area of Northern California, a hospital-affiliated clinic was cut away by Catholic Healthcare West because it was losing money. Some of the doctors continued to see patients, some did not. This occurs around the state regularly.

When you look at Medi-Calthe Federal/state program that in other states is called Medicaidyou find that there have been no rate increases in the past several years to cover the cost of care. As a consequence, some providers no longer take Medi-Cal patients, because the cost of providing service is greater than the reimbursement. In some cases the paperwork is more costly than the actual delivery of the services.

A lot of anger is building up toward H.M.O.’s, health plans and/or physician groups. Although medical education puts more and more emphasis on the psycho-social aspects of health care, which require more time, economics pushes the doctors and other providers to give less time and attention to each patient. This disturbs the patients and their doctors.

What is the government doing in response?

The politicians, who listen to their constituents, have hearings, deliberate and impose more laws and regulations, trying to balance the economical use of government money and their concern for open access to health care. They require more documentation from the providers, which adds more cost for new reporting systems and administrative overhead.

Doesn’t a strong economy provide some reserve to draw on?

In California, paradoxically, the robust economy means that many in the health care field, such as radiologists and lab technicians, have become harder to recruit because they can get into other fields and make more money. In Silicon Valley, what appear to be good salary levels in the health care fields turn out, when compared with other fields like high technology, to be less attractive. So the numbers in trainingnot so much doctors as all othershave not kept pace with the demand. People have an impression that doctors earn big salaries. Some do, but most physicians here have been taking income reductions.

The H.M.O. phenomenon and marketplace competition were supposed to bring costs down and increase the options. Is this happening?

Where a population is poor, or has less insurance, or has more restrictive insurance policies, or where a health plan’s bureaucratic superstructure directs their care, the marketplace does not act as a corrective, certainly not in the short run, when the patient needs the care. Our experience in the 90’s has taught us that the marketplace does not do well in the distribution of health care services.

Our goals of economy and quality are in conflict. You have employers wanting to pay less for their employees’ health care benefits, so they tend to buy the cheapest product they can. That may not be adequate for their employees. In the state, business groups and the California Public Employees Retirement System (Calpers) have claimed that they would reward physicians and health care providers on the quality of their outcomes. If you are going to reward on the basis of good patient outcomes, however, you are in conflict with buying the cheapest product regardless of outcome. After five years, discussion of outcome management, there is no evidence that employers are contracting on that basis.

Recently Calpers has announced that it will be accepting a 9.75 percent increase in premium from the health plans for their retirees and others in the Calpers system. Calpers is the bellwether in the state of California for the payment of health insurance premiums. The irony is that this increase falls short in certain health care sectors, such as drugs, where the cost has been rising 15 to 20 percent per year. The premium increase will pertain not just to drugs but to other services, where there may well be economies, although that is not certain either. The increase comes a little late for the two largest publicly traded companies in the state, which bought up medical practices when payment was not profitable and then had to go into bankruptcy.

Where does all this leave the uninsured?

In California a fifth of the population, about seven million people, are uninsured. Public health programs, such as county hospitals and county clinics, are functioning with strict budget limitations. As long as private providers have enough payment coming in to cover their costs for services to insured populations, they have some flexibility and discretionary time for those with more limited resources. But once the payments tightened for insured patients, doctors lost their discretion because their profit margins narrowed. Only a few doctors in private practice can now afford to provide charity care.

That takes all the generosity out of medical service.

When I talk to the providers who used to offer free or discounted service to the uninsured, they reply that you can’t rob your insured patients for the sake of others. If physicians are risking their solvency, then taking on an additional population that cannot pay for services seems unwise.

Are most of the doctors in the state in physician groups?

Yes. To stay in solo practice deprives you of the crucial economies of scale. Information requirements and billing responsibilities require a support staff of employees or that you contract out to outside agencies.

Can what is happening in California be generalized? What about other states?

These problems are occurring in Colorado and in Massachusetts. Their payment pressures are squeezing, as they did for the second half of the 80’s and the first part of the 90’s in California. Health plans in other sections of the country have what we call a per member per month payment for care three times higher than we experience in California. The insurers and the employers who pay premiums to them are paying at a higher level than on the West Coast. Parts of the Midwest and East do not even know what we are talking about. Their insurance rates are still adequate to cover the cost of services. That will change, and this should cause concern for everyone.

Has the level of premiums, then, been too low in California?

Yes. A recent chart of what Calpers has been paying per premium each year shows that in the early 90’s it paid generously. Then it cut back. To get market share and many more enrollees, health plans lowballed their premiums. What happened? Some huge deficits. Recently, the Kaiser Health Plan was running a deficit of $250 million to $300 million a year. Kaiser had bought market share but could not control its costs for the delivery of services; premiums were not keeping up to the costs. Catholic Healthcare West has announced an operating loss of up to $225 million for the fiscal year, up from $32 million last year. Most of the losses are attributed to inadequate payment to its physician groups from H.M.O.’s. Health plans on another modelthe Healthnets, Blue Cross, Blue Shield, Pacific Caremade the physicians, and to some extent the hospitals, absorb the deficit by cutting their payments or by not increasing the payments sufficiently. The early 90’s allowed providers some margin to cut; now there are no margins. Most medical groups here are suffering financially.

What will be the impact of high premiums in other parts of the country?

Where there are large employers and a large population base they run the risk of following California’s example. Small employers, on the other hand, tend to feel squeezed and often drop coverage for their employees. Where premium costs have gone up, employers cut back on benefits or just drop coverage completely. The State of California has tried to mitigate this result by sponsoring risk pools for small employers.

Health care reform failed at the start of the Clinton Administration. Can this topic re-enter the political arena any time soon?

Glimpses of reform may be seen in the ongoing debate around Medicare reform. We have seen such grass-roots effort as the development of parish nurses to provide basic levels of care. I am afraid that the only way the American public will come to decide for insured access to a basic level of health care for all is through crisis. It won’t happen through reasoned debate. The country bought time in the early 90’s, when health care reform did not pass because the economy was doing so well; it became less of an issue for many. Managed care did check the previous rate of inflation in health care, but at the price of restricted access for patients and disillusionment among physicians. If the economy turns negative, then there will be a public demand by consumers, doctors, hospitals and elected officials for some form of basic national health insurance.

What specifically needs changing?

Right now the pressure is building on government to mandate a basic benefit structure to which everyone is entitled. Not even the British can afford total access to health care; theirs is a tiered system. Our basic benefit may be guaranteed by Federal and state funds, by a requirement of employers to pool, or by a requirement for people to participate up to a certain level of insurance. Those wanting more would buy beyond a basic benefit structure. A basic benefit structure is integral to the health of health care in our country. As you can see, in California this is yet to occur. Our affluence obscures the cracks in our health system. The marketplace exacerbates those cracks. An economic crisis may crash our system open and force us to be more creative in providing financial access to basic care.

James S. Torrens, S.J., a former associate editor of America.

Comments

Martina Nicholson, M.D. | 1/17/2007 - 10:56am
The interview with Henry Foley by James S. Torrens, S.J., (1/1) was superb. Glumly, I read his cogently written analysis of the Gordian knot that is holding me and every other doctor in California in bondage to the insurance giants and to the rapidly changing financial management edifice. I see H.M.O. medicine as a way of “rationing” health care, probably more rationally than has ever previously been done. We are trying to deliver truly “comprehensive” care at cut-rate prices.

When they invented Medicare rates, they didn’t take into consideration our “real” differences in malpractice insurance costs, as well as practice overheads. Most of us always thought of Medicare as token reimbursement for charity care—meant to help keep docs in business—not to “price-set” the true cost of what we do. But the insurance companies are not paying us enough to make ends meet—and there is no more fat to cut—we are down to bones and flesh.

With capitation, they are forcing us to compete against each other to lower costs. The idea of increasing quality for lower costs just cannot be sustained. At this time, we are losing our optimism, stamina and desire for the common good. We are starting to become fearful, resistant, self-preserving at the expense of the common good. I hope the religious community will provide more retreats for helping to deal with physician burnout and keep trying to help advocate for insuring the uninsured, as well as paying physicians a living wage.

Jerry W. Brown, R.N. | 1/17/2007 - 9:24am
Re the interview with Henry A. Foley on health care in California (1/1):

I would like to underscore his comments. As a registered nurse working for the past 10 years during the decline of California’s health system, I believe it must be stated clearly that simple greed is the underlying reason for the decline.

My nurse colleagues and I watched helplessly as one after another strategy was imposed upon us, all designed to enhance our position in the marketplace, but with the net result of eroding patient care. Mr. Foley did not mention the erosion of patient care as a factor in the decline; but now that the physician groups and H.M.O. administrators are feeling the financial pinch, people are paying attention.

Sadly, over the past decade previously wonderfully equipped and staffed units in hospitals have become “bedlam” as the all-powerful marketplace and its spokespersons relegated health care professionals, as well as unhappy patients who had the misfortune to be caught in today’s health care system, to the status of “whining malcontents.” I believe Mr. Foley is correct in his assessment that it will take “an economic crisis” to cause us to do something to fix the health care mess, because clearly the destruction of patient care has not.

Martina Nicholson, M.D. | 1/17/2007 - 10:56am
The interview with Henry Foley by James S. Torrens, S.J., (1/1) was superb. Glumly, I read his cogently written analysis of the Gordian knot that is holding me and every other doctor in California in bondage to the insurance giants and to the rapidly changing financial management edifice. I see H.M.O. medicine as a way of “rationing” health care, probably more rationally than has ever previously been done. We are trying to deliver truly “comprehensive” care at cut-rate prices.

When they invented Medicare rates, they didn’t take into consideration our “real” differences in malpractice insurance costs, as well as practice overheads. Most of us always thought of Medicare as token reimbursement for charity care—meant to help keep docs in business—not to “price-set” the true cost of what we do. But the insurance companies are not paying us enough to make ends meet—and there is no more fat to cut—we are down to bones and flesh.

With capitation, they are forcing us to compete against each other to lower costs. The idea of increasing quality for lower costs just cannot be sustained. At this time, we are losing our optimism, stamina and desire for the common good. We are starting to become fearful, resistant, self-preserving at the expense of the common good. I hope the religious community will provide more retreats for helping to deal with physician burnout and keep trying to help advocate for insuring the uninsured, as well as paying physicians a living wage.

Jerry W. Brown, R.N. | 1/17/2007 - 9:24am
Re the interview with Henry A. Foley on health care in California (1/1):

I would like to underscore his comments. As a registered nurse working for the past 10 years during the decline of California’s health system, I believe it must be stated clearly that simple greed is the underlying reason for the decline.

My nurse colleagues and I watched helplessly as one after another strategy was imposed upon us, all designed to enhance our position in the marketplace, but with the net result of eroding patient care. Mr. Foley did not mention the erosion of patient care as a factor in the decline; but now that the physician groups and H.M.O. administrators are feeling the financial pinch, people are paying attention.

Sadly, over the past decade previously wonderfully equipped and staffed units in hospitals have become “bedlam” as the all-powerful marketplace and its spokespersons relegated health care professionals, as well as unhappy patients who had the misfortune to be caught in today’s health care system, to the status of “whining malcontents.” I believe Mr. Foley is correct in his assessment that it will take “an economic crisis” to cause us to do something to fix the health care mess, because clearly the destruction of patient care has not.