Indicates Matter Stricken
Indicates New Matter
The House assembled at 10:00 A.M.
Deliberations were opened with prayer by the Chaplain of the House of Representatives, the Rev. Dr. Alton C. Clark as follows:
O God, most gracious and merciful, we pause in this prayer to listen once again to Your still, small voice, to receive inspiration for this day, wisdom for our decisions, and peace for our hearts. We look to the hills of Your presence from whence comes our help, to receive strength for each task, forgiveness for every mistake, comfort for all sorrows, and charity for each person. As we face the duties of this day, we pray for motives purified, for ambitions refined, for minds cleansed and for hearts made fit for the indwelling of Your presence. And so shall we make our time good in its greatness and great in its goodness.
In our Master's good Name we pray. Amen.
After corrections to the Journal of the proceedings of Wednesday, the SPEAKER ordered it confirmed.
The following was received.
May 14, 1986
The Honorable Ramon Schwartz, Speaker
South Carolina House of Representatives
Columbia, SC 29201
Dear Mr. Speaker:
Part II, Section 19H, of Act 201 of 1985 directed the Joint Legislative Health Care Planning & Oversight Committee to convene a task force to study the development of a competitive model for the state health care system. Pursuant to these provisions, a task force was convened in October, 1985, with the purpose of studying incentives for health care competition, the consequences of competition, the need for consumer information in a competitive market, and regulatory barriers to competition.
After months of study and discussion, the task force has finally adopted a set of recommendations which would encourage competition in the health care system while maintaining some needed regulatory restraints. In accordance with the legislation establishing the task force, these recommendations are being submitted to the Governor and to the General Assembly. To make this information available to all members, I would appreciate your assistance in having this report printed in the Journal of the House.
I would like to take this opportunity to publicly thank members and staff of the task force for their willingness to address this complex issue. Due to the rapid changes occurring in the health care system, no one report or study can be considered the final word. However, these recommendations touch on key issues involving health care competition and merit further consideration.
Sincerely,
Robert L. Helmly
Enclosure
May 1986
Pursuant to Section H of the SC Medically Indigent Assistance Act, the Joint Legislative Health Care Planning & Oversight Committee convened a task force to study the development of a competitive model for the state's health care system. Members of the task force included representatives of health care provider groups, consumers and other purchasers, and state and local government. The task force focused on the following issues: incentives for health care competition, consequences of health care competition, consumer information needs in a competitive market, and regulatory barriers to health care competition.
Task force recommendations call for:
a) increased consumer education and information concerning health care services and health insurance alternatives (see Recommendations #1, #2, #3, #7, #8, #15, #18 - #21);
b) efforts to ensure the availability of and access to health care in a competitive environment (see Recommendations #11 - #17); and
c) the removal of some, but not all, regulatory barriers to competition (see Recommendations #4, #5, #6, #9, #10, #22 - #26).
In compliance with the legislative provisions establishing the task force, the report and recommendations have been submitted to the Governor and General Assembly. While the report reflects considerable examination of the relevant issues, rapid changes in the health care market will require constant re-examination of these and other issues yet to be identified.
CHAIRMAN: Representative Robert Helmly
Representatives from the following groups:
PAYORS/CONSUMERS
Francis Archibald/Kevin Gill, SC Chamber of Commerce
Thomas Faulds, SC Blue Cross & Blue Shield
Stuart Andrews, SC Legal Services Association
PROVIDERS
Ann Clark Lewis, SC Primary Care Association
Pete Reibold, SC Hospital Association
Bill Mahon, SC Medical Association
GOVERNMENT
Robert Jackson, Department of Health & Environmental Control
Dennis Caldwell, Health & Human Services Finance Commission
Clifford Mays, Statewide Health Coordinating Council
Sarah Shuptrine, Office of the Governor
Russell B. Shetterly, SC Association of Counties
Representative James Mattos
Senator John Hayes, III
Other interested groups were involved at the subcommittee level. Agency staff and university faculty were available as resource persons.
SECTION I. HEALTH CARE MARKETS.
Traditional analysis of most consumer markets focuses on the transactions between the consumer and the provider of services. However, the American health care market is more complex due to the presence of two financial intermediaries: employers and health plan financers (primarily insurers). Therefore, an analysis of competition in the health care markets must focus on the financial transactions between all four parties: consumers, providers, employers, and plan financers. Also, the analysis must examine the consequences of health care competition on public policy goals.
Market #1. Individual consumers purchase services from health care providers. A consumer must decide whether to seek health services, and if so, which provider to see and what health services to receive (subject to the advice of the provider and cost to the consumer). In order to make the informed decisions which are necessary for competition to work, consumers need information to determine their need for professional help, and the cost and quality associated with various providers and their health services. (Cost and quality information issues are discussed in Section III of this report.)
Research indicates that a majority of physicians believe that at a significant percentage of their consultants were for conditions that people could treat themselves. The use of consumer self-care to reduce the number of medical visits could be an attractive "demand side" component in controlling health costs. Evaluation of educational programs emphasizing self-care suggests that utilization and medical care costs can be reduced.
RECOMMENDATION #1: The Department of Health & Environmental Control should research and develop a comprehensive self-care education program. This program should be implemented on a pilot basis to evaluate its cost effectiveness and impact on personal health. Special care should be taken to measure differences in effectiveness and impact on persons with low income or limited formal education. The Department shall evaluate the success of the pilot program and report the outcome to the Health Care Planning & Oversight Committee.
Market #2. Individual consumers select/purchase coverage from health plan financers. If there is a choice among health plans, consumers must decide which health plan to select, considering the cost to the individual and the value of each plan. To make an informed choice among plans, a consumer must have accurate, comparable information on the cost to the consumer and value of each plan.
RECOMMENDATION #2: All employers offering a choice of health plans to their employees should develop and distribute a shopper's guide which provides comparable information on the following aspects of each plan:
a) costs to the consumer (premium, deductibles, coinsurance)
b) value to the consumer (comprehensiveness of coverage, limits on choice of providers, location of providers, other restrictions or benefits).
To assist in the development of these shopper's guides (using the authority granted to it in Article 13 of Chapter 35 of Title 38 of the 1976 Code concerning the standardization and simplification of terms and coverages) the State Department of Insurance should work with employers and health plan financers to develop a standard format for reporting comparable health insurance policy information. The State Employee Health Insurance Benefits Section should work with health plan financers to develop a shopper's guide for state employees.
Market #3. Employers purchase coverage from health plan financers. Employers must decide how many plans to offer their employees, what type of plans to offer, and which plans to offer. Employers evaluate plans differently than individual consumers. An employer picks the best plan for a large group of people; employees with a choice will select the plan best suited to their own families' needs. Accordingly, an employer must consider the costs and benefits to both the employer and employee of offering multiple plans. Because competition among plans creates pressure for each to improve, employers should make health plans compete on the basis of price and value to be offered to their employees. All consumers are best served by having several conventional plans as well as alternative plans all competing for the membership of premium paying consumers.
RECOMMENDATION #3: The State Employee Health Insurance Benefits Section should study the costs and benefits of offering multiple health plans to employees, and report the results of this study to the Health Care Planning & Oversight Committee.
Market #4. Health plan financers purchase services from health care providers. Financers attempt to minimize the amount they must pay for health services, while maintaining a certain level of coverage and quality of service. In traditional fee-for-service plans, financers use utilization controls directed at consumers and providers to control costs. Alternative health plans place restrictions on consumer's choice of providers in an attempt to limit costs:
a) In preferred provider organizations (PPOs), financers negotiate a discounted fee-for-service price with certain providers and provide incentives for consumers to use these providers.
b) In health maintenance organizations (HMOs), health financing and services are more closely integrated, with both the financer and provider sharing risks. Two basis types of HMOs are:
- Individual practice associations (IPAs), where the financer contracts with a relatively large number of independent physicians for services. The contract usually specifies fee schedules and the degree of risk sharing by physicians.
- Prepaid group practices, where the financer either contracts with members of a medical group of groups, or employs the physicians directly. Providers are usually paid a base rate rather than a fee-for-service basis.
Negotiations between financers and providers should be encouraged, and should not be artificially restricted. Providers should be free to negotiate prices. Cost shifting, to the extent it occurs as a result of such negotiated agreements, serves as an incentive for other financers to negotiate discounts of their own.
RECOMMENDATION #4: Since preferred provider organizations are not defined or regulated in current S.C. law, the State Department of Insurance shall study the issues related to PPOs, particularly cost containment, and recommend to the Health Care Planning & Oversight Committee and the Insurance Laws Study Committee a legal definition of PPOs and what, if any, regulation is needed.
RECOMMENDATION #5: Current S.C. law (Section 38-35-60) restricts the ability of hospitals to negotiate discounts with insurance companies. This restriction does not apply to other plan financers, placing the insurance company at a competitive disadvantage. To achieve health care competition, this law should be repealed.
SECTION II. CONSEQUENCES OF COMPETITION ON PUBLIC POLICY GOALS
If employees have a choice between health plans, they may anticipate their use of covered services and select plans accordingly. For example, healthy persons may choose to buy minimal coverage. This disrupts the normal spread of risk that health plans generally rely upon, with the result that low risk persons pay lower premiums and high risk persons pay high premiums. The reduction of risk sharing within a group imposes the costs of illness and injury more heavily on the persons who are ill or injured. A certain degree of risk sharing is desirable both for health plan financers and for social policy. However, this risk sharing should not insulate persons who choose unhealth lifestyles from the financial consequences of their actions.
RECOMMENDATION #6: To ensure an equitable level of risk sharing and adequate coverage, South Carolina should establish basic standards which plans must meet in order to be sold or offered as health plans. Section 38-35-1240 grants the State Department of Insurance the authority to establish minimum standards for benefits for several categories of coverage. The Department should convene a special committee to determine basic standards for the different types of health plans sold or offered in the state. The committee should represent consumers, business, health care providers, health plan financers, and government. The committee should report its findings to the Department by January 1, 1987.
RECOMMENDATION #7: Article 13 of Chapter 35 of Title 38 of the 1976 Code (Sections 38-35-1210 through 38-35-1270) concerning the standardization and simplification of terms and coverages should be amended to apply to alternative health plans (PPOs, HMOs) as well as conventional health plans.
RECOMMENDATION #8: The State Employee Health Insurance Benefits Section should structure premium schedules to reflect increased risks due to lifestyle factors under the control of the individual.
Most health plans, including commercial insurer plans and Blue Cross/Blue Shield plans, are affected by South Carolina's mandated benefits statutes. Only self-insured employers and HMOs are exempt from such statutes. Current mandated benefits are piecemeal: some concern the eligibility of health care providers to be reimbursed. Many concerns have been expressed about the effect of mandated benefits on costs and utilization. Mandated benefits that are perceived to be unreasonable may encourage employers to self-insure to escape such requirements.
RECOMMENDATION #9: Mandated benefits concerning the eligibility of health care providers (Section 38-35-90) should be repealed.
As the health care market becomes more competitive and prices are subject to negotiation, it is possible for one of the four actors in market to become too powerful. As in any other market, excessive concentration of power on one side or another can have anti-competitive effects.
RECOMMENDATION #10: The Department of Insurance, with the cooperation of the Department of Consumer Affairs, and the Attorney General's Office, should closely monitor competition in the health care market.
Competition may reduce access to care through financial barriers. Since the costs of uncompensated care are generally passed on to paying customers, as price competition increases there will be greater pressure for providers to reduce the amount of charity care they deliver. The best solution is to ensure that at least the costs of indigent care are paid for, thereby allowing providers of indigent care to remain price competitive. The major methods of paying for health care in the U.S. are Medicare, Medicaid, and employee health insurance. If funding is not available to cover all costs of indigent care, an alternative solution is to distribute the cost of uncompensated care evenly among providers, preventing providers of indigent care from being placed at an economic disadvantage.
RECOMMENDATION #11: The Medicaid program should be expanded to include as many persons as possible. The state should develop improved programs to provide access to primary health care services for these lower income persons not eligible for Medicaid.
RECOMMENDATION #12: Medicaid reimbursement schedules should ensure that providers are reimbursed the reasonable costs of providing necessary care to Medicaid patients. The use of alternative reimbursement mechanisms which encourage cost effective, quality health care should continue to be explored.
RECOMMENDATION #13: As a condition of issuing a renewal license, the Department of Health & Environmental Control shall ensure that a hospital has met its Hill-Burton obligations (if applicable).
RECOMMENDATION #14: The S.C. Medical Association and the State Health & Human Services Finance Commission shall continue their efforts to increase the participation of physicians in the Medicaid program. Results of these efforts shall be reported annually to the Health Care Planning & Oversight Committee:
RECOMMENDATION #15: The Department of Insurance should develop an educational program for employees concerning the costs and benefits of paying for dependent coverage.
RECOMMENDATION #16: The Department of Insurance should develop recommendations on the role that the state needs to play in making low cost health insurance available to small employers, employers in service industries, and other employers who do not offer health care plans to their employees.
Competition may also reduce access to care through geographic barriers. As they become more involved in closed panel plans (where patients are limited to certain providers), providers will be less likely to serve unsponsored patients. In areas with a limited number of providers, unsponsored patients may have some difficulty in obtaining care locally. With the advent of strong price competition, some hospitals may be forced to close. This may leave some areas without a local hospital, and the physicians generally associated with hospitals.
RECOMMENDATION #17: Public transportation services are not available in all areas of the state, particularly those areas which might have limited access to health care providers. Legislative action to coordinate transportation services is required. The Joint Legislative Committee on Transportation should develop the legislation and policies needed to implement a comprehensive, coordinated transportation system.
SECTION III. HEALTH CARE CONSUMER INFORMATION
A competitive market is characterized by a large number of well-informed buyers and sellers exchanging identical products. To be well-informed, consumers (buyers) need provider (seller) specific and diagnosis specific data on the cost of health services (products). The Medically Indigent Assistance Act mandates the implementation of a uniform system for the collection, analysis, and distribution of health care cost data. After receiving this report, the Health Care Planning & Oversight Committee will recommend to the Division of Research and Statistical Services:
1. The data elements to be collected and analyzed;
2. The format in which the data may be released to the public; and
3. The frequency with which the data should be collected and released on a routine basis.
While it is possible to give information to consumers that would enable them to make economic decisions with regards to their health, it is also important, though difficult, to provide information concerning the quality of health care services.
RECOMMENDATION #18: Policy recommendations concerning the collection, analysis, and dissemination of all data collected will be made to the Health Care Planning & Oversight Committee by a Health Care Information Committee. This committee will be appointed by the HCP&O Committee and shall include representatives from business and industry, health related state agencies, health systems agencies, hospitals and other health care providers, consumers, and purchasers of health care. A majority of the Health Care Information Committee should not be health care providers, rather a majority should represent business and industry, consumers, and major purchasers of health care.
RECOMMENDATION #19: The development of a system to collect, analyze, and disseminate health care information should be viewed as a dynamic process. The Health Care Information Committee shall consider further development of the system to include hospital and non-hospital data not currently collected, and data related to quality of care concerns. Data elements to be collected by the Division concerning hospital services shall include, but are not limited to: patient age, sex, zip code, third party coverage, date of admission, date of principal procedure, date of discharge, principal and other diagnoses, principal and other procedures, total charges and major components of those charges, and hospital identification number.
RECOMMENDATION #20: The Division shall collect data quarterly and publish reports on no less than a semi-annual basis. To the extent feasible, the Division shall schedule the release of its reports to benefit major purchasers of health services.
RECOMMENDATION #21: Reports shall be compiled and disseminated by the Division comparing, by hospital, average total charges and length of stay on diagnosis-specific and procedure-specific cases. In comparing data on total charges, the Division shall consider size of diagnosis and procedure groupings in order to control for small number bias. At the direction of the Health Care Planning & Oversight Committee, the Division will determine appropriate ways of displaying provider-specific data taking into account differences in bed size, market area, type services, and case mix. Prior to the release of these reports, the respective provider shall have an opportunity to verify the accuracy of any information relating to that provider. Corrections, with supporting evidence, must be submitted to the Division within three weeks.
SECTION IV. REGULATORY BARRIERS TO HEALTH CARE COMPETITION
As the health care market has evolved during the twentieth century, public policy has been established to regulate this market in order to protect the public from unnecessary costs and inferior services. Rapid growth in technology, large capital investments, and a relatively uninformed consumer acted together with special interest groups to create a highly regulated market place. The rapid rise of health care costs over the past two decades is now providing the impetus for policy makers to re-examine these barriers to determine their impact and continuing need. Three types of barriers can be identified: certificate of need programs, occupational/professional licensing laws, and institutional licensing laws.
A 'free market' allows demand to determine the amount of need for a service or product. Because of the rapid escalation of costs in the health care market, in the mid-1960s the government began to regulate the determination of need through certificate of need (CON) programs. South Carolina enacted a CON program in 1971 and began participation in the federal program in 1979. Empirical studies on the effectiveness of CON are inconclusive but generally indicate a greater impact on controlling the number of hospitals, beds, and projects with high capital costs than on the distribution of services or quality of care.
RECOMMENDATION #22: A certificate of need program should continue to be operated in South Carolina. Local community input into health planning and certificate of need, through health systems agencies, should continue. The state agency operating the certificate of need program should give substantial consideration to local recommendations.
Modern professional licensing laws began to be enacted in the late nineteenth century paralleling the growth of scientific medicine. Providers of health care sought to insure that only qualified practitioners were allowed to practice. There is also evidence to indicate that part of the impetus behind licensing laws resulted from the desire to limit competition and increase support for the profession. Generally, the literature reveals that licensing laws restrict freedom of choice or providers, increase and costs and do not necessarily improve the quality of care. However, the presumption for the need to regulate the competency of providers remains strong.
RECOMMENDATION #23: The Health Care Planning & Oversight Committee should actively work for the passage of S.373 and H.2564, so-called "Sunrise" legislation. These bills would require a study by the State Reorganization Commission of any occupational group seeking statutory licensing. The study would be reported as a non-binding recommendation to the legislative standing committee with jurisdiction of the licensing legislation.
RECOMMENDATION #24: The Health Care Planning & Oversight Committee should continually review the health care practice acts to identify and eliminate unnecessary barriers to competition.
RECOMMENDATION #25: The Health Care Planning & Oversight Committee, in conjunction with the State Reorganization Commission, should study the issues of consumer representation on health care professional licensing boards, licensing requirements, and reciprocity standards. If any unnecessary or unfair requirements or standards exist, they should be eliminated.
The State has adopted the policy of regulating hospitals, nursing homes and other health care facilities in order to guarantee some level of health and safety standards for the public's protection. This government intervention in the market is based on a perceived information disparity, that is, the consumer has insufficient information to make such a determination for himself.
RECOMMENDATION #26: The Health Care Planning & Oversight Committee should sponsor legislation to amend the Administrative Procedures Act to require that any agency promulgating regulations shall provide the best possible estimate of the increase in costs attributable to the regulatory change. Policy makers should have adequate information to weight the competing values of costs and benefits.
Received as information.
The following Bill was taken up, read the second time, and ordered to a third reading:
H. 3914 -- Rep. J. Anderson: A BILL TO AMEND ACT 571 OF 1967, RELATING TO THE CREATION OF THE EDGEFIELD COUNTY WATER AND SEWER AUTHORITY, SO AS TO AUTHORIZE THE MEMBERS OF THE AUTHORITY TO RECEIVE MILEAGE, WHILE TRAVELING ON NECESSARY OFFICIAL BUSINESS, AND PER DIEM.
At 10:15 A.M. the House in accordance with the ruling of the SPEAKER adjourned to meet at 12:00 Noon on Tuesday.
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