Ohio: market forces lead the way

Ohio: market forces lead the way – Health Care Reform in the States

Anne Harcus

Ohioans turn to group purchasing, outcomes measurement, legislative reform and managed care to nudge health-care costs down.

Members of Cleveland’s business community take justifiable pride in their city’s decline. In six years, Cleveland has slipped from its No. 3 ranking among U.S. cities with the highest health-care costs, to No. 33. Throughout the state, employers have been using their purchasing clout to rein in health-care costs. Perhaps the best known of the private sector efforts is the Cleveland Health Quality Choice Program, which was founded in 1989 by CEOs from 50 large corporations, the Greater Cleveland Hospital Association and other area organizations to collect and evaluate data about the cost-effectiveness of local hospitals.

“That high cost in 1989 was a major deterrent to attracting large companies here,” recalls Dwain Harper, executive director of the Cleveland program. Using 1991 as a base year, estimates are that 140,000 days have been shaved from hospital lengths of stay by earlier discharge. “If we had announced that 140,000 days and $131 million had been saved, but without monitoring things like death rates and C-sections–whose rates are also down–people would be up in arms. But we can see that’s not the case,” he says.

Cleveland-area hospitals are evaluated for patient satisfaction with aspects such as nursing care and food quality as well as lengths of stay and mortality in intensive care units and for eight common surgical procedures and six medical diagnoses. Reports are issued twice a year–a public summary and a more detailed report to about 400 employers, hospital CEOs, managed care providers and health policy makers. The program is gathering case studies to show how hospitals have used the data. Although one 80-bed facility has closed and two others have merged since the reports have been issued, Harper maintains that’s because of other factors: “It’s never been our charge to close hospitals.” His group will take some credit, however, for changes in the marketplace: “Costs are coming down, and quality and patient satisfaction are improving.”

Other factors–including hospital mergers, reductions in duplication of services and administrative costs and the continued formation of health-care alliances–have had an impact on costs.

“Last year in Cincinnati, hospital prices rose by just 1.6 percent, which is incredible.” says Mary Yost, spokeswoman for the Ohio Hospital Association. “They’ve seen smaller increases every year for the past few years.” The trend extends to Ohio’s other large metropolitan areas–Toledo, Cleveland, Dayton, Akron, Youngstown and Columbus. “Virtually none has been untouched by mergers, acquisitions or affiliate activities,” she says. “More than a dozen of these have been announced in the past two years.” And the foray into the state by the giant hospital corporation HCA/Columbia has increased the number of for-profit hospitals from four to seven.

There’s still plenty of work for market forces to do. Ohio spends more of its gross state product on health care–14.2 percent–than 34 other states. Government officials are especially troubled by the fact that 1.23 million residents have no health insurance. On the bright side, though, about 90 percent of the 11 million population have some coverage.

Perhaps encouraged by Cleveland’s success, businesses elsewhere in Ohio have banded together to push for provider accountability and legislative reforms. Talk of a national health-care plan after Clinton took office also contributed to a flurry of reform proposals in the state. Some made it into law. But ever since the drive for national reform fizzled, there has been a sense at the state capitol, says one health official, that the pressure’s off. In recent months, legislation has been written to phase out the state’s certificate-of-need process; put the beleaguered workers’ compensation program under the governor’s control; and move more Medicaid recipients into managed care. At key points, however, legislators have backed away from using the full power of market forces and managed care.


Several of the state’s initiatives began in the early 1990s when national health-care reform seemed certain. In 1993, as part of a bipartisan effort that grew out of a state health department study, the governor and legislature appointed a 16-member Ohio Health Care Board. Comprising consumers, employers, providers and insurers, the board spent two years analyzing Ohio’s health-care financing and delivery system. A first report in 1994 indicated a clear preference for incremental reform toward a market-based system.

In March, the board delivered its final report to Republican Governor George V. Voinovich and his Republican-controlled legislature. Although the governor had supported financing the board until 1996, the legislature chose to let it die from lack of further funding. It’s unclear what legislators intend to do with the board’s recommendations. These included proposals to prevent health insurers from dumping beneficiaries because of serious illness or heavy utilization; require licensure of utilization review firms; and increase the number of primary care providers by creating incentives for them to practice in underserved rural areas. Other recommendations:

* Encourage the development of integrated managed care systems to maximize the value of the health-care dollar and minimize cost shifting among payers.

* Phase in a standard benefits package to which all Ohioans would have access.

* Reform the state Medicaid program through OhioCare, an ambitious managed care plan that would cover all residents at or below the federal poverty level (an income of $14,800 per year for a family of four). The board projects that OhioCare would reduce the ranks of the uninsured by more than 375,000. The total would be 500,000 with the addition of many residents who are typically without coverage for less than a year. That includes an average 86,000 Ohioans who lose coverage monthly due to unemployment, switching jobs, change in Medicaid status or coverage cancellation by the individual, employer or insurer. In addition, there are 882,000 residents without coverage for a year or more who are above the poverty level.


Ohio is one of the states that sought a Medicaid waiver from the federal government in order to replace the current system of some 36,000 providers, most of them fee-for-service, with a network of managed care programs financed by current-level state and federal appropriations.

Although OhioCare won federal approval in January after 15 months of negotiation, its financing remains in limbo while Congress debates cuts in Medicare and Medicaid. Those tracking health-care issues in the state say the original vision of OhioCare is dead. In other words, the temporarily uninsured are out–at least until the feds determine what Ohio’s share of the cost would be. Meanwhile, a truncated version–the mandatory enrollment of almost half of all current Medicaid recipients into health maintenance organizations-is slated to begin next summer.

Mandatory HMO enrollment has been ongoing in Montgomery County (Dayton) for five years with “no significant problems,” says Bill Ryan, deputy director of Medicaid for Ohio’s Department of Human Services. But an investigative report in the Cleveland Plain Dealer in June said that instead of the promised $15 million, three-year savings, the Montgomery plan had cost the state millions. Cost-saving preventive measures like immunizations, prenatal care and annual checkups for kids have not increased under the new system, the newspaper reported, causing some lawmakers to question the wisdom of expanding OhioCare.

About 216,000 Medicaid recipients in the Aid to Families with Dependent Children program are currently in HMOs, Ryan says. Enrollees are offered a choice of three plans; all contain a standard Medicaid benefits package though other benefits may differ. For example, if an HMO achieves savings in one area, it may offer dental services as an extra benefit. Enrollees who fail to select a plan are randomly assigned one. “Our goal is to hold the rate of growth in medical costs down to 4 percent,” Ryan says.

Enrollees will still be able to choose from among various managed care plans. “We’re concerned about having a real competitive environment and tying it to quality. When folks have a choice, it gets attention–especially from for-profit HMOs.” With that goal in mind, any managed care organization that meets state standards can enroll OhioCare recipients. An added benefit, Ryan says, is that “no one plan can hold the state hostage.”

Mandatory enrollment has begun in Hamilton County (Cincinnati) and will soon begin in counties surrounding the state’s largest cities–Cleveland, Akron, Toledo, Columbus and Youngstown. Other counties will follow over the next two years, increasing OhioCare enrollment to 600,000, or half of the state’s 1.2 million Medicaid population. The target is 100 percent enrollment of the poor by the year 2000, but Ryan admits this will be hard to accomplish in rural areas. Moreover, those numbers don’t include extended care for Ohio’s 400,000 elderly and disabled Medicaid recipients. “We haven’t yet found an HMO model that can serve this population,” he says.

Getting more people covered was also the intent of a package of insurance reforms passed in 1993, including expanded small-group insurance coverage, rate controls and some insurance portability. The measures also prohibited “cherry picking” (insurance carriers either had to select or reject an entire group), created a 100 percent state tax deduction for individual health policies, gave special tax exemptions to small employer alliances and let them form health-care purchasing pools. There are now 11 such alliances in the state, says David Randall, deputy director for the Ohio Department of Insurance, and an estimated 400,000 lives insured through them. “The alliances have reported that between 20 and 25 percent are people who did not previously have coverage offered to them by their employers,” he says.

The insurance reforms were all welcome changes, says Scott Lyon, director of group benefits for the Greater Cleveland Growth Association’s Council of Smaller Enterprises. COSE, founded in 1972, has more than 15,000 member businesses representing 200,000 covered lives. It is the country’s largest locally based organization providing group-rated benefit programs to small companies. Two-thirds of its member companies have chosen managed care programs from an array of options that includes 13 Blue Cross and two Kaiser-Permanente plans.

Along with the insurance reforms of 1993, Ohio took steps to reform its much-criticized Bureau of Workers’ Compensation (BWC).


“Our workers’ compensation insurance premiums are very high compared to other states–probably eight to nine times higher than Indiana,” says David Scheffier, a CPA in Lancaster and past president of the Ohio Small Business Council. “Many states have private workers’ compensation. Ohio’s state-run program is the largest, single-line insurance organization in the world. One of the biggest drawbacks to attracting businesses to Ohio is the cost of workers’ compensation.” The governor has labeled workers’ comp a “silent killer” of jobs in the state.

At the center of the 1993 BWC reform package is a managed care system for injured workers. Labor unions, business groups and BWC officials squabbled over how the system should be run, and at one point the UAW and AFL-CIO even pushed for repeal. Ultimately, employers, providers and unions hammered out a compromise called the Health Partnership Program. “No one was forcing anything down another’s throat,” says Jon Allison, director of labor relations for the Ohio Chamber of Commerce in Columbus. “It’s a quality-based, comprehensive program to efficiently get injured workers back to work.”

Under the scheme, injured workers can use health-care providers in or out of network, as long as the provider is certified by the BWC. The BWC will even pay for an injured worker’s initial visit to a physician who is not on the panel. “This is a system unlike any other managed care system in the country in terms of the ability to go out of network,” says Allison. Political appeasement over the issue of provider choice was evidently part of the settlement. “Employers didn’t want the deal to fall apart. So now the hope is that, as managed care networks are put together, using them will become more commonplace among workers.”

Jady DeGiralomo, president of the Ohio HMO Association, is not surprised that the Health Partnership Program bears little resemblance to managed care. She says the structure is “basically an any-willing-provider program for workers’ compensation. There’s no incentive for a doctor to join an HMO network because he gets paid either way.” Managed care organizations were not invited to help shape the plan, she adds: “There were one or two people at the table from health-care service companies, or third-party administrators, but not from HMOs,” whose representatives were asked to leave the meetings because of their supposed self-interest. A parallel system–the Qualified Health Plan–is being developed, under which eligible employers can contract directly with a managed care organization for medical management and cost-containment services. Still, participating employers would be required to let any dissatisfied workers transfer to a Health Partnership network.

Many small businesses, however, have jumped for the savings they can achieve right now. “Some of the reforms have allowed groups of smaller employers to take on the discounted group rating for workers’ compensation,” Scott Lyon says. In fact, 4,200 COSE participants (companies with one to 150 employees) have reduced their combined workers’ comp premiums from $40 million to $12 million–an average projected savings of 70 percent this year compared with non-participants. Office work firms can project savings of 90 percent. Construction companies will have savings that are smaller in percentage terms but larger in actual dollars, says Lyon since their premiums were higher before group rating.

Other improvements being pursued include fraud-control measures, fee schedules, claims management, accident prevention and other procedures insurance companies typically use to control costs, says spokesperson Brenda Proctor. Progress has not been fast enough to satisfy the governor. This May, Voinovich, with the backing of business, won legislative approval to take over administration of the BWC, which has operated at a $2 billion deficit. The appointment of a new agency director is the first step in his plan to shape up the BWC before returning it to a board of directors in 1998.

Critics of the BWC, which has been operated by a 10-member board made up of big business and union representatives but no small employers, say it’s mismanaged and incapable of processing claims. Says Scheffler: “You can never get a case solved or get benefits without the help of an attorney or your legislator.”

Though the foundation of the injured-worker plan has been laid, the real construction is yet to come. “They’ve only signed off on the architecture,” says Allison. Among the unresolved specifics, he adds, are such basics as how managed care organizations are to be paid for the administrative tasks they perform, fee schedules and payment mechanisms for providers, and an adjudication process for disputed claims.


A more level playing field is what hospitals throughout the state are hoping for with the phase-out of Ohio’s certificate-of-need (CON) law, begun last April and scheduled for completion in 1997. Previously, “hospitals had to jump through hoops,” says the hospital association’s Mary Yost. “If a hospital wanted to build a facility, it had to have a CON. Yet a group of doctors wanting to build the same thing didn’t have to.”

“Certificate-of-need is no longer a useful cost-containment measure,” observes Timothy Maglione, director of legislation for the Ohio State Medical Association (OSMA). “The marketplace will now determine whether a health-care facility will be built,” but the state will not be out of the picture completely.

The new law will replace the CON with a system of mandatory, standardized data reporting by providers, subject to state audits. By next May the director of the health department–working with provider and legislative committees–must propose rules establishing safety standards, quality standards and data-reporting requirements for health-care facilities. The rules will cover such diverse areas as cardiac catheterization, obstetric and newborn care, bone marrow transplants and experimental technology. If he meets the deadline and the new rules are adopted before May 1997, CON reviews for those activities will end one year after they take effect. If the director fails to propose the new rules on time, then CON review ends on May 1, 1997. The director must also recommend legislation to ensure health-care access, quality and cost containment, possibly by imposing outcomes-based reporting, accreditation and licensure requirements on providers.

In return, the scrutiny of big facility changes is scheduled to end on Dec. 31, 1995 in metropolitan areas and on May 1, 1997 elsewhere in the state. That includes reviews of proposals for development of any new facility, relocation of a hospital, most changes in bed capacity and replacement of a long-term-care facility, hospital obstetrics or newborn-care unit or freestanding birthing center. By May 1997, CON review of acquisition of medical equipment costing $2 million or more will end as well. CON reviews will apply only to long-term care facilities.

Almost as soon as the deregulation law passed, however, it was back before the legislature for corrections. One extends CON review to construction of new hospitals and relocation of existing hospitals until May 1, 1997, along with the replacement or renovation of existing hospitals costing $5 million or more.

The $5 million threshold, although temporary, doesn’t sit well with Yost’s membership. “It’s a situation, again, where there’s an unlevel playing field for hospitals and other providers,” she says. In its argument against the requirement, she says, the association reviewed 10 years’ worth of CON applications. Only 134 exceeded the $5 million threshold–and all were eventually approved. All the CON process did in those cases, the hospital association maintains, was increase costs by delaying projects and imposing fees.


More compromises like those that reined in free market forces in workers’ comp and CON reform are possible as Ohio moves ahead. For instance, a managed care coalition of 72 businesses and unions is preparing to wage war on proposed “any willing pharmacist” and “any willing provider” bills.

These threats against managed care have created an unusual alliance between unions and employers, says Lisa Bateson, director of government relations for one of Ohio’s largest insurers, Community Mutual Insurance Company. Besides the insurance company, members of the Coalition for Managed Care include the AFL-CIO, the Ohio Education Association, Procter & Gamble, Goodyear, General Motors and the Ohio State Business and Construction Trades Council.

The Ohio State Medical Association is ready to enter the fray. “Managed care and insurance companies are eroding doctors’ autonomy,” says Maglione. “We don’t want to stop managed care; we want to ensure a fair system.” Even so, says DeGiralomo of the HMO association, “OSMA’s positions are not as extreme as they’ once were. As the number of doctors increases, they’re having more of a voice.” However, free markets are noisy, and it will take a very strong voice to drown out the clamor for change in Ohio.

Ohio reform at a glance

Medicaid–Waiver from federal government to put some 1.23 million Medicaid recipients into mandatory managed care program, OhioCare. Beginning next summer, the plan is set to proceed in stages, with a goal of 100 percent enrollment by the year 2000. Less than one-quarter are enrolled now.

Deregulation–Termination of the state’s Certificate-of-Need law, scheduled to be phased out in two-step program that began in May. By 1997, the CON program will regulate only long-term care activities. For hospitals and most other freestanding health-care facilities (but not physician and dentist offices), CON is being replaced by a system of mandatory, standardized data reporting on the quality of care delivered by providers.

Insurance Reforms–Expanded small-group insurance coverage, some insurance portability, specific rate bands prohibiting premium increases greater than 35 percent, certification of small employer health-care purchasing pools for groups of 150 or less and minimum of 2,500 covered lives, expanded open enrollment for indemnity carriers, 100 percent state tax deduction for individual health-care policies. Workers’ Compensations Control of the state’s beleaguered Bureau of Workers’ Compensation shifted from its own board to the governor for two years. Reforms in 1993 put cost-containment measures in place and initiated the development of a managed care system for injured workers.


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