A monthly publication that provides analysis of important health care issues under consideration by the legislature, executive branch, and professional associations.

Written by Peter Pratt, Ph.D., Vice President and Senior Consultant for Health Care Policy; Martin Ackley, Consultant for Health Policy, and Christa A. Rosenberg, M.H.S., Senior Consultant for Health Policy, and Lisa D. Baragar, Consultant for Health Policy.

Speculation Surrounds Department of Community Health — January

January 1996

Speculation Surrounds Department of Community Health

by Martin Ackley, Consultant for Health Policy

Health care consumers and providers are eagerly awaiting details on the new Michigan Department of Community Health. Governor John Engler and his health care advisors are quietly reshaping and reforming the oversight and administration of state health programs and keeping an tight lid on their work.

Engler announced during his recent State of the State address that he will issue executive orders to merge the departments of Public Health and Mental Health into a new Michigan Department of Community Health (MDCH), and he will transfer to the new department administration of the state Medicaid program. It is a move that had been expected since summer (see July 1995 Health Policy Bulletin), when Engler gave the nod to the Mental Health director, James Haveman, to preside also over the Public Health department, as acting director.

Haveman presented a consolidation plan to Engler in mid‐​September, after consulting with consumer and provider groups and key department staff. Observers believe that plan is the framework from which the governor and his people are structuring the new department. It may take up to a month for that shoe to drop, which will be in the form of executive orders.

The governor’s recommendations for the fiscal year 1996 – 7 state budget, which he will present to the legislature on February 8, are not expected to reflect the new alignment. The decision to merge the two departments came shortly before the January 17 State of the State address, leaving too little time to revise the Executive Budget. The administration expects to have a revised Department of Community Health budget bill ready for the legislature by late March or early April. It will provide a more detailed outline of the new department, including

  • how the various bureaus will be streamlined,
  • what regulatory functions will be transferred to other departments,
  • the various program responsibilities that will remain with the state, be passed down to the local level, or privatized,
  • the level of decision making and funding that will be granted to the local human services collaborative bodies,
  • the reduction in the number of state employees, and
  • how Medicaid will be funded, provided, and administered.

Poring over the MDCH budget bill will be a new Senate Appropriations Subcommittee for Community Health, which will be chaired by Sen. Robert Geake (R‑Northville). Serving on the subcommittee will be senators John J.H. Schwarz (R‑Battle Creek), George McManus (R‑Traverse City), Joe Conroy (D‑Flint) and Alma Wheeler‐​Smith (R‑Ann Arbor). The House Appropriations Committee also is expected to name a new subcommittee, probably by the beginning of February.

Macro Management

The executive orders may be the easiest step in consolidating and streamlining the state community health system. They will offer only a general sketch of the new department’s landscape. The toughest tasks will be working out the details in the new program and service delivery systems. The goals of the consolidation, as outlined by Haveman, are services that are easier to access and delivery systems that are more user‐​friendly, more understandable, and less difficult to navigate.

“The approach we will use to structure this integrated system will include input from provider networks, consumers, and many others,” Haveman said in a letter to employees of the Mental Health and Public Health departments. “The core of this process begins with consumers and their needs, and builds a system around them.” That will take time if it is to be done right.

Haveman knows the mental health system and has been studying the state’s public health system for the past eight months. But as the governor noted in his State of the State address, health‐​related programs and services are scattered among fourteen departments of state government. Corralling and coordinating them all into one department will be a daunting undertaking, and his desire to move many of them to the local level will take no small amount of work and cooperative planning.

“There will be a lot more challenges focused at the local level,” said the Michigan Association of Local Public Health (MALPH) executive director, Mark Bertler. “How prepared are these communities? They may have to design and manage their own community health system, and I don’t know how prepared they are to do that. There’s a lot of opportunity and a lot of work to be done, and locals can have a strong role in putting this stuff together.”

The Michigan Association of Community Mental Health Boards executive director, Dave LaLumia, predicts that the enormity of the restructuring will dictate a deliberate pace for change. “We’ll probably see things remaining the same for awhile,” he said. “There’s going to be work done, but the system is so large that change will probably be incremental. It might take years.”

LaLumia welcomes the consolidated department, saying, “If you’re going to manage health care, it makes sense to have it under one single umbrella.” The regulation of the community mental health system is cumbersome and redundant, he added. One local CMH board told LaLumia that each year it goes through twenty‐​one separate federal, state, or local audits, many of which are examining the same things. For example, under the current system, group homes are licensed by the Department of Social Services, certified by the Department of Public Health, and inspected by the Department of Mental Health. Providers hope the new structure will unify the regulatory process.

Recipients of publicly funded health care also will benefit from services being consolidated and unified. There are separate entry points into the Medicaid, mental health, public health, substance abuse, and Children’s Special Health Care Services programs, and a separate application process is required for each. Observers expect this fragmentation to be remedied under the new department, making services more accessible to the consumer.

Other Expectations

Even though the governor is keeping his reorganization cards close to his chest, there are hints of what is in his hand. One card probably is privatization: He already has privatized mental health research (it was shifted from the now‐​closed Lafayette Clinic to Wayne State University), proposed privatizing the Macomb‐​Oakland Regional Center (a state agency that cares for 2,000 mental health clients), and has put into place a process to privatize the Biologic Products Division of the Department of Public Health. Speculation is that among other steps, he may

  • privatize the Medicaid program, contracting for capitated services with local heath plans and relegating the state to a role of contract management similar to that of the Health Care Financing Administration (HCFA),
  • transfer health‐​facility licensing and regulation to the new Department of Consumers and Industry (into which the governor plans to merge the departments of Commerce and Labor),
  • transfer health‐​related environmental regulatory enforcement activities to the Department of Environmental Quality,
  • transfer food‐​service regulatory functions to the Department of Agriculture, and
  • shift some of the health‐​services decision making and delivery to the local level, using the human services collaborative bodies recently formed in most communities across the state.

Bertler is concerned that the state also may privatize its reference laboratory, which tests blood and tissue samples from around the state; identifies viruses, chemical poisoning, and diseases; and conducts screening for tuberculosis, venereal disease, and genetic anomalies. Reference lab services are provided free to local health departments; if they have to pay a private organization for those services, the cost could be prohibitive for most.

Commenting generally, Bertler said, “The state is interested in cutting costs and streamlining, and the local communities are interested in the services that are important to their constituents and in having services that promote and protect health continue to occur. It doesn’t make any difference how [the department] is organized. [The state] just needs to be there.”

Copyright © 1996

Patient Bill of Rights Activates Talk of Health Care Reform — February

February 1996

Patient Bill of Rights Activates Talk of Health Care Reform

by Martin Ackley, Consultant for Health Policy

Whether it’s called the “Patient Bill of Rights” or the “Patient Protection Act” package, House Bills 5570 – 4 are stirring up emotional discussions of health care reform.

The five‐​bill package, sponsored by 44 lawmakers from both parties and spearheaded by Rep. John Jamian (R‑Bloomfield Hills), chair of the House Health Policy Committee, offers consumer health care protections by requiring insurers, Blue Cross and Blue Shield of Michigan (BCBSM), and health maintenance organizations (HMOs) to give members easy‐​to‐​understand information about plan services, plan coverage, the insurer or plan’s financial arrangements with providers, and each physician’s professional history.

The bills also prohibit coverage exclusions lasting longer than six months for preexisting medical conditions (pregnancy is the exception — the exclusion may extend to nine months) and allow more liberal access to hospital emergency rooms for people enrolled in managed care plans.

Some of the consumer‐​protection features of the package blend in physician access and protection. Examples are provisions that will

  • require HMOs to open their panels (lists of approved providers) at least every two years to other providers who wish to apply; if a provider is not chosen, the HMO must tell the applicant why, in writing, and the reason must be based on standards on file with the insurance commissioner;
  • require insurers, BCBSM, and HMOs to indemnify treating physicians in liability cases where medical services or treatment was limited or denied, against the physician’s advice, by the health insurance plan;
  • prohibit BCBSM and HMOs from using financial incentives to encourage or discourage referrals to other medical providers.
  • require BCBSM to reimburse services provided by a licensed, nationally accredited, freestanding ambulatory surgical facility (often owned and operated by physicians or physician groups); and
  • require prudent purchaser organizations and HMOs to reimburse all providers, regardless of setting or provider relationships, the same amount for any given medical service; the fee shall be based on reasonable and customary charges in that geographic area.

Greg Aronin, manager of government relations at the Michigan State Medical Society, reports that many of the changes are in response to consumer complaints that they lose access to their physician when their employer changes health plans. The physician‐​related sections of the bills are aimed at preserving patients’ relationships with their doctors, he said.

“There has been some problem with the physician‐​patient relationship being abruptly interrupted as a result of arbitrary deselection and changes in health panels, as well as some of the policies’ provisions on preexisting conditions,” Aronin said. “Requiring that physicians have the opportunity to apply [to managed care panels] and show they are qualified providers lessens the problem of individuals losing access to their provider.”

The consumer information provisions in the package are of concern, especially for HMOs, but they are not so great that they cannot be worked out. “We have to give [consumers] a list of our providers; it’s in the law now,” said Gene Farnum from the Association of HMOs of Michigan. “We have to tell them what our service area is, we have to tell them what our benefits are, we have to tell them what our limitations are, we have to tell them what the emergency care coverage is.

“We give a lot of information to people now, more than they ever read. I don’t know how much more you give them. If there’s anything we can do to improve the consumer’s understanding of their health care, we’ll be happy to do it. We’d love to have them read all the books and understand what they’re doing. That’d be great. We encourage that.”


The primary areas of disagreement are with the reimbursement and physician‐​access provisions. Some characterize the bills as “any‐​willing‐​provider” legislation, meaning that all doctors and facilities can be reimbursed for services provided, regardless of whether they are on an HMO’s preselected panel of providers. This is the kiss of death to managed care, because it takes away the plans’ ability to keep costs down by negotiating fees and rates and reining in consumers who overuse emergency rooms and specialists.

In fact, this legislation is not an any‐​willing‐​provider package, even though a few sections in the legislation have that tone. Representative Jamian has assured some concerned lobbyists that to remove any doubt, any unclear language will be cleaned up.

“[Representative Jamian] has made a good‐​faith effort to make sure that what he’s doing is guaranteeing due process for providers who want to be considered in the formulation of a panel, without saying that they have to be included in the panel,” said Nancy McKeague, vice president for human resources at the Michigan Chamber of Commerce. “So it stops short, in general, of being an any‐​willing‐​provider piece.”

Still, the Chamber of Commerce and the HMOs find plenty in the legislation to be anxious about. “We have trouble with the parts that want to restrict how we do business,” Farnum said. “We don’t mind the patient part, it’s the physician part we have problems with. We know from experience that the effect of many of these things is increasing [health care] costs, and the general position of business and the State of Michigan has been not to increase the cost of health care.”

McKeague likewise sees the damage these bills can do to the managed care system and employer health care costs. “Managed care, which covers some 60 percent of employer health care in the nation, is the first mechanism that employers have found to stem the growth of health costs, and, in some cases, reduce them,” she said.

Tracy Baker, manager of state executive relations at BCBSM, says the changes proposed for managed care “will cause us fits and our customers fits. Three of our top five customers are General Motors, Ford, and Chrysler. What we’re hearing from them is how they want to lower their health care costs. If these bills pass, it would prevent them from lowering their costs. This would be devastating to managed care.”

Oops, There Goes the Budget

Slower increases in Gov. John Engler’s $5.8‑billion state Medigrant (Medicaid) budget for fiscal year 1997 are predicated not only on enrolling all of the 1.1 million state Medigrant recipients in managed care, but in moving toward a capitated program. The current state Medicaid program has 61 percent of its managed care recipients in the Physician Sponsor Plan (a fee‐​for‐​service arrangement), 33 percent in HMOs, and 5 percent in a clinic plan. But with the proposed move toward capitation, any legislation to dilute the managed care market, as HBs 5570 – 4 have been characterized, could reduce the effect of Medigrant cost containment.

“One of the things about managed care is that it’s gone beyond being an employer/​employee issue to affecting state government and local units of government,” McKeague noted, “and the sections that deal with prudent purchaser agreements and financial incentives and a required fee schedule based on reasonable and customary charges have the potential to increase costs for state government as dramatically as it does for an employer.”

Aronin countered that any effort to portray these bills as a dismantling of managed care is “a very inaccurate conclusion. We have seen in other states, where they’ve passed variations of this legislation, that health care costs have not increased at all.” He said the legislation was developed and is supported by some patient groups across the state that want to guard their relationships with their doctors.

Representative Jamian is planning to convene work groups and public hearings, beginning in March, to discuss these five bills, and he also expects to introduce another bill, to require utilization reviews on patient appeals to be handled by an appropriate medical specialist. This process won’t be quick, and it won’t be easy to bring around the opposition. “Our concerns about the potential cost implications will absolutely have to be addressed before we’ll support this package,” McKeague declared.

Copyright © 1996

Blue Cross Trims Hospital Capital Payments — March

March 1996

Blue Cross Trims Hospital Capital Payments

by Martin Ackley, Consultant for Health Policy

Contrary to some published reports, capital reimbursements to hospitals only will be trimmed, not scalped, by Blue Cross and Blue Shield of Michigan (BCBSM) beginning July 1. The result is expected to bring about health care cost savings for the state’s three largest employers and reduce a perceived overgrowth of capital projects in Michigan.

In paying hospitals, BCBSM reimburses for the medical service plus capital expenditures the hospital incurs. The capital reimbursement rate is based on the percentage of hospital patients that are BCBSM subscribers and the cost of projects.

The method of reimbursing hospitals for new equipment and construction (capital projects) will change, from a cost pass‐​through system based on the cost of a project, to a price‐​based system determined by BCBSM and similar to a diagnosis‐​related group (DRG). In other words, instead of a hospital adding $1‑million worth of improvements and expecting full payment from BCBSM, the insurer is going to set the amount it will reimburse for that type of improvement and cap it there. The Blues expect to see a five percent reduction in capital reimbursement payments in the first year. (BCBSM estimates that in 1996 it will spend $160 – 178 million for capital reimbursement.)

“We’re changing methods, from one that is totally unlimited to one with limits,” says BCBSM spokesman Rudolph Difazio. “It will be a fixed‐​level reimbursement instead of one where we have no input. It will be based on data and needs, and the hospitals will know what those limits are.”

The component of the new policy that deals with inpatient services and reimbursement will be phased in over eight years. For outpatient laboratory, radiology, and office space procedures, the reimbursement will be at the same level as physician‐​office reimbursement. For outpatient, hospital‐​based surgeries, capital reimbursement will be an add‐​on to established prices.

This new policy is not expected to affect projects that already are approved or “in the pipeline.” The Blues’ commitments to existing projects will be honored, according to Difazio, “at close to the old formula. However, we will be working with a fixed money pool, so there may be some factors involved where we may reimburse a little less.”

Corporate Perceptions

The change, which was prompted by BCBSM’s three largest customers — General Motors, Ford, and Chrysler — follows a year of discussion and negotiation between BCBSM and hospitals. The automakers asked BCBSM in March 1995 to eliminate all further capital reimbursements to hospitals, saying such an unlimited system creates an incentive for over‐​investment. The final agreement, adopted by the BCBSM board in February 1996, limits, but does not do away with, the capital reimbursement program.

“For what we spend on hospital care, capital reimbursement is an issue,” said Kevin Anderson, director of Health Care Initiatives at General Motors. “The 100‐​percent pass‐​through system was risk free for the institutions. This is a bona fide good first step.”

Anderson says the Big Three auto companies believe there is over capacity in the hospital industry, and making hospitals bear more of the financial risk will lead to more conservative building decisions. “Our expectation is that as capitalization becomes more risky, the hospital industry will view future capital expenditures with a more critical eye. It will be incumbent upon hospitals to only invest in what is needed from a price standpoint and a quality standpoint.”

BCBSM official agree that this is significant not only to the Big Three but to all of its customers. “Right now, if hospitals make good capital investments, they get reimbursed. If they make bad capital investments, they get reimbursed. But putting reimbursement on a price‐​based system, we’ll be promoting more prudent capital investments,” states Kevin Seitz, director of policy and planning for BCBSM. “We’re changing the incentive for investment, which also will have a positive effect on the operational costs of a hospital.”

Effect on Hospitals

To the hospital industry, this reform is just another target put on the backs of providers. They maintain that when purchasers look for health care costs savings, they put the cross hairs on the provider community.

“The [BCBSM] customers have this perception that if there’s excess capacity, they should reduce capital expenditures [to discourage further building],” explains Chuck Ellstein, group vice president for policy at the Michigan Health & Hospital Association. “But I don’t know if they understand that if you spend money to reduce capacity, that’s a capital expenditure too. Our capital expenditures include remodeling inpatient space for outpatient services; modernizing our facilities to comply with new fire codes; and equipment replacement.”

Most hospitals expected BCBSM eventually to move toward price‐​based capital payments when they went to DRGs, according to Ellstein, and the effect on capital investment by hospitals will be marginal and vary among hospitals. Facilities still contract separately with BCBSM, and hospitals (or hospital systems) that have a large share of the BCBSM market in a given area still may have sufficient leverage to enhance their capital reimbursement rates. This probably won’t be the case, however, for others: Hospitals that have high capital‐​investment needs and are situated in highly competitive health care markets will not have the muscle to escape the new policy.

However, the influence BCBSM capital reimbursements has on hospital construction projects may be overstated. Hospitals don’t make capital investment decisions solely on that reimbursement policy. “Statewide, Blue Cross represents somewhere between 20 and 23 percent of hospital revenues,” Ellstein, said. “But let’s say it’s as much as one‐​third. I don’t think [hospitals] make capital investments because one‐​third of their costs are being reimbursed, and they’re still liable and at risk for the other two‐​thirds. That doesn’t make sense, financially.”


This policy change is an example of incremental health care reform. “This is only one piece of the pie,” Anderson remarked, describing this single policy change, “but it should impact overall costs favorably. It’s not a big‐​hitter home run, but costs are eventually going to fall.”

Bit by bit, health care is changing in Michigan. This particular change will go unnoticed to most people outside the offices of hospital administrators and corporate benefit managers. Another small change will come, and then another. Five years from now, health care will have evolved without much fanfare. This journey of 1,000 miles is occurring one step after another; providers pray it doesn’t end for them with death from 1,000 cuts.

Copyright © 1996

Michigan HMOs under the Microscope — April

April 1996

Michigan HMOs under the Microscope

by Martin Ackley, Consultant for Health Policy

Health maintenance organizations (HMOs) in Michigan must be doing something right if so many people are paying so much attention to them.

Authorized by state law back in 1978, HMOs in Michigan annually have filed financial and benefit information reports the size of bed sheets. No one other than the state Insurance Bureau seemed to pay much attention. Now, however, it seems you can’t swing a stethoscope without hitting a new survey, report card, or evaluation of the HMOs in Michigan.

Most of this new‐​found attention evolves from the success HMOs have had in the past five years (the Insurance Bureau reports that the HMO share of the Michigan health‐​care market has expanded from about 16 to 28 percent) and the emergence of managed care as the market’s preference for health care reform.

Because the growth of these managed‐​care plans, health care in Michigan (and across the United States) has become less provider‐​driven and more purchaser‐​driven. Doctors and hospitals have less say than before in which procedures are performed, how many tests may be done, and how many office visits or hospital days a patient may have. If they are participating providers with one or more HMOs, which is the case with more and more doctors and nearly all hospitals, the HMOs steer the health‐​delivery decisions. Clearly, power has shifted, and the providers are looking for ways to bring the scales back into balance.

Four Reports

Armed with the assurance that knowledge is power, the Michigan State Medical Society (MSMS) and the Michigan Health & Hospital Association (MHA) separately have studied and published evaluations of and trend data about HMOs in Michigan. With this knowledge, providers hope to empower themselves and their patients when dealing with HMOs.

After evaluating the needs of its members, the MSMS concluded that there was little health‐​care information broadly available to physicians and patients. The purpose of the MSMS report, in part, is to help its members decide which plans to participate with. “A lot of times physicians sign up because they fear they’ll lose all their patients if they don’t,” said Mary Anne Ford, manager of the Department of Medical Economics and Health Care Delivery at MSMS. “Like any other decision, [physicians] need to go through some sort of due diligence to make those decisions. The report was also done, in part, as a tool for helping [physicians’] patients through the [HMO] system.”

The MHA plans to follow its report with a detailed data book on HMO medical use rates and benchmarks that can be used by its members and HMOs as well. “This will not be a consumer report card,” said Peter Schonfeld, vice president of the Health Care Futures Division at MHA. “This will be a document to allow people in the business to improve their performance and have another tool to measure with.”

Schonfeld said the MHA’s decision to study HMO data resulted from the association’s transformation from the Michigan Hospital Association to the Michigan Health & Hospital Association. “We recognized that our members are not just hospitals anymore, they’re integrating into networks with other health providers, and some are owners and partners with HMOs,” he said. “We see the influence of managed care in the coordination of care and its significance to where care is provided and how.”

In addition to the provider‐​generated reports, there are two other resources that appraise various aspects of HMOs and managed‐​care plans. One is a consumer survey about managed care, conducted by the Institute for Public Policy & Social Research at Michigan State University. The other is the Consumers’ Guide to Health Plans, published by the Washington, D.C. – based Center for the Study of Services, which offers a state‐​by‐​state report card on HMOs as well as advice on choosing a health plan, finding a good doctor, and getting good care in any plan.

“I think everybody has the right to all the information that’s there,” said Gene Farnum, executive director of the Association of HMOs in Michigan. “… I hope they base some of their decisions on information; there certainly has been enough misinformation about how we operate out there.”

Survey Says!

The MSU survey (of 1,000+ Michigan residents) found that managed‐​care (not strictly HMO) enrollees are slightly less satisfied with their ability to get health care than are people in traditional fee‐​for‐​service plans. Of managed care enrollees, only 53 percent reported being “very satisfied” with their health plan, compared to 63 percent of those in traditional plans. The survey report states that among the dissatisfied, people in managed‐​care plans complain most often about waiting for appointments and restricted provider choice, while those in traditional plans complain most often about the cost of care.

The Consumers’ Guide to Health Plans studied 12 of the 16 HMOs in Michigan during 1994. The four that chose not to have their members surveyed are listed in an appendix that tells consumers that the decision of these HMOs not to cooperate “should raise concerns for you.” The survey of 3,835 Michigan HMO enrollees, equally representative of the 12 plans, gathered opinions on many personal health‐​care issues including plan coverage, availability of doctors, quality of care, waiting time in doctor’s office, access to specialty care, and whether doctors listen and spend time with their patients and offer prevention advice.

All 12 surveyed HMOs score better than 80 percent on the overall‐​satisfaction rating scale, with five plans faring better than 90 percent: Care Choices of Ann Arbor (95 percent); Care Choices of Grand Rapids/​Muskegon (94 percent); Physicians Health Plan (94 percent); Medical Value Plan of Lenawee and Monroe counties (94 percent); and MCare (93 percent).

The MSMS and MHA reports are more quantitative in nature, studying the numbers gleaned from private and government sources, including the Insurance Bureau. The MHA report does give some analysis of the data collected and makes comparisons with national HMO trends. It reveals tremendous HMO expansion into outstate Michigan — in 1993 HMOs were in 40 of the 83 counties; by 1995 they were in 71 counties — and growth in the number of individual practice association (IPA) model HMOs in the rural and nonurban markets. The MHA predicts that HMO enrollment will continue to grow, accompanied by premium‐​growth decreases.

The Association of HMOs in Michigan is rather pleased with the outcome of all this provider scrutiny. Farnum said that the MHA report is honest and straightforward and that the MSMS evaluation shows that many of the problems HMOs are perceived to have elsewhere in the country are not occurring in Michigan.

“[The MSMS evaluation] pointed out that we don’t have any gag clauses in Michigan,” Farnum said. “They discovered that all our contracts and advertising are run through the Insurance Bureau to make sure it’s not misleading. They show that [the percentage of] our premium dollar that’s spent on health care exceeds the national average … that we are financially strong and have good reserves … that we have good growth in members and expect continued growth … and that we involve physicians in our utilization review and quality‐​assurance programs very heavily.”

Ford said, “One thing we will be able to do in our second iteration of this is have more direct dialogue with the plans themselves. I think many of them anticipated that we were out to get them, and that is not the case at all. We wanted to collect and share information, and that’s what we’ve done, so I think we’ll have a more productive dialogue in the next go‐round.”

Copyright © 1996

Health Care Savings through Wellness Programs — May

May 1996

Health Care Savings through Wellness Programs

by Martin Ackley, Consultant for Health Policy

Michigan companies are finding that work‐​site wellness programs for their employees are an important ingredient in a strategy to limit the growth of health‐​care costs. Whether initiated through a state‐​funded program (discussed below) or through programs they launch themselves, employers are using health promotion to leverage lower premiums from health insurers.

A unique effort in east central Michigan will allow small businesses to reap the benefits of health promotion and wellness programs. The newly created Health Care Alliance Pool (HCAP) will offer health benefit plans for employers in the 14‐​county region, emphasizing wellness and prevention.

“Our philosophy is that you indeed can affect premium cost through health promotion and wellness programs,” says HCAP President Randolph Flechsig. “As our May 1996 survey of the region’s businesses illustrates, small businesses cannot afford their own individual health‐​promotion programs. They do, however, recognize the value of such programs. The new HCAP ACCESS insurance plans will go hand in hand with the development of region‐​wide wellness programs that will improve employees’ health status and therefore lower premiums. This all can be done with community‐​based programs, in which providers and employers work together.”

The 1996 survey of employers in east central Michigan finds that 80 percent of the respondents believe work‐​site wellness programs can lower health‐​care costs and improve employee morale and productivity. Eighteen percent of the respondents (including almost half of the companies having more than 100 employees and a tenth of those with fewer than 25 employees) actually have such programs.

Steelcase Proves It

HCAP is using the results of a 10‐​year wellness study at Steelcase, Inc., in Grand Rapids as the foundation for its program. The study, which compares health risk and lifestyle assessments with medical claims costs, was conducted by the University of Michigan Fitness Research Center. In an internal report to employees, Steelcase reports that if all high‐​risk employees practiced low‐​risk lifestyles, “the savings could amount to roughly $20 million over three years.”

The Steelcase study demonstrates that high‐​risk employees who engaged in low‐​risk behaviors from 1985 to 1990 lowered their average annual health care claims by $618 — from $1,155 in 1985 – 87 to $537 in 1988 – 90; high‐​risk workers who did not change their lifestyles had an average increase of $122.

A confidential health risk assessment engaged in voluntarily by Steelcase employees permits U‑M’s Fitness Research Center to measure the effects of 14 risk behaviors that include smoking, failing to exercise, consuming more than 14 alcoholic drinks per week, having high blood pressure, having 240+ cholesterol level, suffering high stress, rarely using seat belts, feeling dissatisfaction with life and job, taking more than five sick days a year, and being more than 20 percent overweight. High‐​risk employees are categorized as those having 2 or more of the 14 risk behaviors. According to the center’s director, Dr. Dee Edington, health care costs begin to rise significantly when employees have 4 – 6 risk factors.

Flechsig points out that this is the first time there have been data that actually show the relationship between behavior and health costs and present proof that healthy behavior saves money in the workplace. “[The Steelcase study] clearly demonstrates that with a work‐​site wellness program, over a decade a business can lower the rate of increase in its health care costs.”

Work‐​site wellness programs generally focus on improving the health of high‐​risk workers, but the Steelcase study reveals that keeping low‐​risk employees healthy is just as important to keeping a company’s health‐​care costs down: Low‐​risk employees with healthy lifestyles saw a marginal reduction in their average annual medical claims, from $655 to $638, in the study period. Low‐​risk employees, however, who lapsed into unhealthy behavior saw their medical claims soar, from $655 to $1,513. When one considers that most companies have many more low‐ than high‐​risk employees, the value of efforts to keep low‐​risk workers healthy is even more obvious.

The Steelcase study also finds that when employees with two or more risky behaviors are compared to those with fewer, the former have average medical costs 75 percent higher; in addition, 10 percent of its workforce is responsible for 80 percent of the company’s annual health‐​care costs.

The result of wellness programs will vary according to the composition of a firm’s work force. Seventy‐​seven percent of the Steelcase employees are males averaging 44 years of age; companies with younger and more female personnel will have different outcomes. Level of education is also a factor: People with post‐​secondary schooling, on average, have fewer health‐​risk behaviors than others.

The table presents 10 tips offered by Pamela Witting, Steelcase’s manager of wellness and health services, for businesses with limited resources wishing to embark on an employee wellness program.

Help for Small Companies

Flechsig says the HCAP ACCESS program has two goals: to (1) save on health care costs, and (2) help smaller employers to generate work‐​site wellness programs. “Unlike large employers with large resources, the small employer has difficulty connecting with wellness programs,” he says. “Our hospitals have been developing wellness programs over the years, and we want to develop programs that small operations can benefit from.”

A state‐​funded resource small companies may tap is the Worksite and Community Health Promotion (WCHP) Program, operated by the Michigan Department of Community Health (MDCH). Some 850 grants totaling $1.8 million are awarded annually, providing health risk assessments and prevention programs for about 43,000 employees; the services funded by the grants include heart‐​healthy screening, fitness assessments, and a one‐​year followup with high‐​risk employees.

Over 6,000 work‐​site wellness grants have been awarded during the past 8 years, with 80 percent accorded to employers having fewer than 200 workers. In 1994 (latest data available), private‐​sector work sites, including manufacturing, retail, and service‐​related businesses, received 68 percent of the grants; the balance went to public sector employers, e.g., schools and local governments. Special consideration is given to applicants that typically have employees at high risk; examples are companies with a high proportion of low‐​wage workers and racial and ethnic minorities, no health insurance, and/​or no wellness activities in place.

The grants average $2,200, and most recipient companies continue the wellness programs after the first year, according to George Lafka, chief of the Community Health Unit at the MDCH. The grant program focuses on preventing cardiovascular disease (CVD), the leading cause of death in Michigan.

How to Begin an Employee Wellness Program on a Shoestring

  1. Establish a data management system
  2. Track medical expenses of your company
  3. Conduct a health‐​risk appraisal: Survey your employees confidentially
  4. Contract for nutrition advice from a registered dietitian
  5. If your company offers food, include healthy choices
  6. Eliminate smoking in the work setting
  7. Ask for a corporate discount from area health clubs
  8. Publish an employee health newsletter
  9. Concentrate on one or two areas of wellness
  10. When possible, include family members and retirees in wellness program instruction

SOURCE: Pamela Witting, manager of Wellness and Health Services, Steelcase North America, Grand Rapids

Copyright © 1996

Community Health Department Taking Shape — June

June 1996

Community Health Department Taking Shape

by Martin Ackley, Consultant for Health Policy

The Michigan Department of Community Health (MDCH), which is a consolidation of the former departments of public health and mental health, the Medical Services Administration, and the Office of Drug Control Policy, is taking shape after five months of planning and maneuvering. No new faces have yet emerged, but as the organization chart indicates, the blueprint for restructuring the new department is complete; it went into effect on June 10.

James Haveman, Jr., will continue as director of the department and also carry the business‐​like title of chief operating officer. The “business” bent to the restructuring also is evident in the titles of the three next‐​highest‐​ranking positions in the department: The heads of the agencies of Community Public Health, Medical Services, and Behavioral Health all will be chief executive officers. This business tone started with Doug Rothwell being named the chief executive officer of the Michigan Jobs Commission, and it is sending a message about how state government perceives itself and its “customers” — once called clients, constituents, or recipients.

Haveman has said the intention of this mass departmental merger is to provide services that are easier to access and delivery systems that are more user‐​friendly, more understandable, and less difficult to navigate. The aim is to create one‐​stop shopping for publicly funded health services, based at the community level, with fewer aisles to get lost in and greater customer satisfaction.

More to Come

This is just the first step; more changes are expected. “For the initial restructuring, we tried to minimize administrative disruption,” says MDCH Coordinator of Special Projects Anne Armstrong. “Over the next year to 18 months, we’ll be continuing to consolidate like functions. To make the transition as transparent as possible to clients, consumers, customers and to allow employees to continue to function in their jobs, we’ve kept the structure pretty similar to the four separate entities that have been brought together.

“You’ll see the most change in some of the administrative functions. For example, finance and budget and personnel have changed significantly. As we develop the Medicaid reforms, as we look at the direction that the department and the governor want to go in terms of child and family services and how they relate to how we’re restructuring and refinancing the delivery of health services, we will determine how we can best develop a structure that will be responsive.”

Three of the key positions, the heads of Medical Services, Community Public Health, and Drug Control Policy, have interim directors. The department is hoping to fill these and the two vacant positions within the next month to six weeks through the state civil service system, but it may advertise the Community Public Health position nationally.

Who Goes Where?

One result of the restructuring has been the shift of Vern Smith from Medical Services director to senior advisor for federal policy, a new position. He will be based in Lansing but will do a lot of work in Washington, D.C., according to Armstrong. “Very few people have his depth of knowledge in Medicaid and also his credibility in Washington and across the states. He will be working a lot, as we to continue to work for reform in Medicaid, with the block grants. And he’ll be working on a variety of other projects for [Haveman] related to Medicaid.”

The new Medical Services Agency will be run by Bob Smedes, director of Special Projects, on an interim basis. Medical Services will administer the state’s Medicaid program and help develop and implement the new Medicaid capitated managed‐​care system. It also will manage integrated health care policy and promote managed‐​care initiatives in long‐​term care for the elderly and disabled, children’s special health care (Crippled Children’s Program), comprehensive Medicaid program, and mental health and substance abuse services. Denise Holmes, acting chief of Health Plan Development in Medicaid, will help direct these new initiatives.

Mark Miller, former deputy director of administration, will be acting head of the Community Public Health Agency; he will carry out the administrative functions of the former public health department. Dr. David Johnson, M.D., will remain chief medical executive and assume responsibility for such medical affairs of the department as HIV/​AIDS programming, laboratories, epidemiology, health promotion and disease prevention, child and family services, substance abuse services, and immunizations.

Bill Allen, former mental health chief deputy director, is the new chief executive officer for Behavioral Health. He will manage community‐​related health services and oversee state mental health services and facilities. Tom Ginster will remain interim director of the Office of Drug Control Policy, which has been moved from the Department of Management and Budget but remains a Type I agency.

Director and Chief Operating Officer James Haveman, Jr.
Senior Advisor for Federal Policy Vernon Smith, Ph.D.
Chief Executive Officer, Behavioral Health William Allen
Chief Executive Officer, Medical Services Agency Robert Smedes (interim)
Chief Executive Officer, Community Public Health Agency Mark Miller (interim)
Health Legislation and Policy Development (vacant)
Deputy for Budget and Finance (vacant)
Director, Office of Drug Control Policy Thomas Ginster (interim)

Copyright © 1996

Genetics is No Longer Tomorrow’s Health Issue — July

July 1996

Genetics Is No Longer Tomorrow’s Health Issue

by Martin Ackley, Consultant for Health Policy

Genetic therapy and genetic engineering have far‐​reaching effects, and the time at which they will be felt on state health care policy and economics is not far away. Technology has advanced to the point where once‐​hypothetical questions now are practical quandaries. Genetic testing and profiling now can decipher whether a person — or an embryo — has the encoded characteristics of a debilitating or fatal disease.

Should doctors be allowed to genetically alter a fertilized egg that has been determined to have the characteristics of any number of diseases? Should parents be able to use this information in deciding whether such a fetus should be carried to full term? Would knowing that you are genetically determined to suffer from a disease such as Huntington’s Cholera change the way in which you live your life? Would society put a lesser value on your life and health care if it knew you eventually will get muscular dystrophy? Should parents be permitted to engineer a “perfect” child? These are some of the ethical, legal, and social questions that soon will be on the agenda of legislatures and public policymakers in Michigan and throughout the nation. They have been on the radar screen of the Michigan‐​based Council on Genetics and Society for nearly five years.

“It’s all these issues that society and research institutes are going to have to struggle with,” says Bob Ortwein, executive assistant to the president at Ferris State University and a member of the Council on Genetics and Society (CGS). “My primary idea is to get across the point to policymakers and public policy thinkers that this council exists and has a variety of people that wrestle with a lot of these issues. Our emphasis is on surfacing knowledge and being a repository of information.”

The 50‐​member council represents four state universities, genetics experts, philosophers, attorneys, researchers, ethicists, theologians, and the general public. Originating as the Genome Ethics Committee five years ago, the organization educates local groups and organizations, government and professional organizations, and health institutions about genetic issues; the council also conducts research.

“We’ve had increasing interest from policymakers in issues dealing with privacy/​confidentiality and the use of genetic information in the insurance area,” says CGS chair Toby Citrin, professor of health management and policy at the University of Michigan School of Public Health. He says the council’s role is to “pull together material on articles written and on what other states have done and to promote dialogue in which we will help illuminate the policy issues that are on the agenda of legislative organizations.”

Community Dialogue to Drive Public Policy

With a grant from the National Institutes on Health, the council is establishing dialogues in seven Michigan communities: Detroit, Ann Arbor, Kalamazoo, Grand Rapids, Holland, Lansing, and Saginaw/​Bay City. In these discussions, which begin this fall, participants will reflect on social genetic issues with the hope of reaching a concerted philosophy on how public policymakers in Michigan should best address them. Advisory boards in the communities are inviting a broad range of social, ethnic, business, religious, health, and interest‐​group leaders to participate in the local dialogues. Among the objectives of the project are to

  • determine the moral and social values that each community sees at stake by advances in genetic information and technology,
  • judge whether genetics is a matter of reproductive liberty and private choice that should be beyond public and professional regulation and control,
  • decide whether important social values should constrain some of these personal choices, and
  • determine the extent to which we have or could create, through rational dialogue, sufficient social consensus to shape feasible and fair social policies that balance differing values.

In each community there will be five dialogue sessions this fall; topics will range from personal and premarital genetic testing to embryonic testing and genetic justice. “The objective … is to come to a more refined, carefully analyzed, moral and political judgement in regard to genetics and reproductive decision‐​making,” says community‐​dialogue organizer Leonard Fleck, Ph.D., professor of philosophy and medical ethics at the Center for Ethics and Humanities in the Life Sciences at Michigan State University. In the spring there will be six more sessions, “to determine to what extent genetics policy should be addressed by government or professional associations, like the medical society or hospitals.”

Fleck and Citrin say the participants in the community dialogues will be a true cross section of each community and will include representatives of interest groups that intrinsically oppose tampering with natural life. “Relatively conservative or religious organizations certainly will want to make sure that the ‘voice’ of their interest is heard, and it ought to be,” Citrin notes. “The whole idea of the dialogues is to enable those voices to dialogue with other voices, in a framework that is not as divisive and confrontational as is usually the case once we’re further along in the policy process.”

A Kinder, Gentler Debate

Because the community dialogues are taking place before the issue of genetic therapy and engineering hits the front burner in the legislature, the Council on Genetics and Society hopes the discussions will elicit a calm and rational look at the matter. Citrin explains that this is part of a national movement (sometimes referred to as public judgment or rational deliberative democracy) that tries to get people at the grass roots level to wrestle with the complex issues being addressed by policymakers but to do so with dialogue rather than through interest groups battling it out in the legislative setting.

“People at the grass roots level can connect, learn the basic complexities of the issues, apply their values, understand where each other is coming from, and come up with a reasonable accommodation to each other that results in a set of policies that they feel will maximize values and minimize harm,” Citrin says.

“If we can advance the policy‐​making process into a little more rational mode of dealing with issues like this, we’ll consider [our effort] a success. It’s not going to be ideal, and it won’t be perfect. But we think it’s going to be an improvement over the way we’ve been making policy in such areas.”

He said the council is particularly interested in helping policymakers look “around the corner”— at research going on in areas in which the technology has yet to emerge. This will allow people to start considering the policy implications before interest groups and private industry become invested with the technology to the point where there is incentive to use it regardless of the social or ethical ramifications.

The community groups naturally will have a vested interest in the policies that come out of the process, and the council hopes the interest will be sufficiently strong to motivate the groups to advocate those policies to legislators and professional and institutional organizations.

These community dialogues will be an intriguing test of whether neighbors holding diverse beliefs, values, and morals can sit down, consider one another’s point of view, and come to consensus on policy direction. In the best of all worlds, the legislature will accept this consensus as the will and wisdom of the people of the state and put aside the sanctimonious and noisy pressures of the horde of interest groups that will be championing their own viewpoint.

Copyright © 1996

Clinton Signs Kennedy‐​Kassebaum Health Care Legislation — August

August 1996

Clinton Signs Kennedy‐​Kassebaum Health Care Legislation

by Lisa D. Baragar, Consultant for Public Policy

On August 21 President Clinton signed groundbreaking health care legislation into law. HR 3103, the Health Insurance Portability and Accountability Act (HIPAA) of 1996, may be the closest thing to real health care reform that we will see for some time.

Most opposition to medical savings accounts (MSAs), portability, and preexisting‐​condition exclusions was resolved in conference committee, after the House and Senate had failed to agree on separate versions of the bill. The conference committee completely removed one contentious provision of the legislation — mental health parity. The committee report was adopted in early August with a unanimous vote in the Senate and only two dissenting votes in the House.

Sponsors of the original legislation, senators Nancy Kassebaum (R‑Kan.) and Edward M. Kennedy (D‑Mass.), agree that the final version of the conference report was a “historic step forward.”

In Michigan, the Small Business Association of Michigan (SBAM), Blue Cross and Blue Shield of Michigan (BCBSM), and AFL‐​CIO all support the bill (the latter, however, does have one reservation — officials believe the legislation mostly serves to help people already benefitting from the current health care system). SBAM officials observe that most provisions place mandates on health insurers rather than employers, and BCBSM officials suggest while the legislation will bring about significant change in some states, it will have a negligible effect in Michigan.

Medical Savings Accounts

One of the legislation’s most important reforms is the establishment of medical savings accounts (MSAs). A pilot program will begin in early 1997 and end in 2000, during which a total of 750,000 tax‐​exempt MSAs will be allowed. The MSAs may be sponsored by small employers (2 – 50 employees) or self‐​employed individuals. To be eligible, a worker must be covered under a high‐​deductible health plan and, with a few exceptions, not be covered under any other health plans. If employers contribute to the MSAs, their contributions must be in equal amounts for all workers. Individuals who contribute to MSAs may deduct their annual expenses or $2,000, whichever is less; for families, the deduction limit is $4,000.

SBAM officials believe that MSAs are a good start on the road to health reform, but they caution that employers must be aware of certain potential outcomes. Barry Cargill, vice president of governmental relations, explains: “MSAs are an attractive option for young, healthy individuals. Now they can save in an IRA‐​style plan, get tax advantages, and have access to a catastrophic health care plan. MSAs will not likely be the answer for individuals who incur a lot of health expenses — for them there is more security in group health plans.” He points out that as the number of low‐​risk individuals opting for MSAs rises, the ratio of high‐ to low‐​risk participants in group plans could go up as well, and the result could be that group coverage will become more expensive.

Group Health Plan Portability

Portability addresses workers’ fear that if they lose or leave their job, they will be left without coverage during the employment transition. The HIPAA ensures that workers and their dependents can receive medical coverage when they experience a break or change in employment. These provisions apply, however, only to people who have maintained continuous private coverage for 18 months prior to enrollment and exhausted their COBRA benefits; insurers are not required to provide new coverage if there is a coverage lapse of more than 63 days beyond the 18‐​month COBRA allowance. Waiting periods required after enrollment do not count as a break in coverage.

Cargill contends that portability provisions will help employees and small proprietors who often face “job lock.” He says, “Portability makes it easier for employees to move from one job to the next.”

Mary Faroni, federal advisor for BCBSM, agrees with Cargill that the legislation is a step in the right direction. Nevertheless, she maintains that it “… will not have a dramatic effect on Michigan. The state already comes close to complying with a majority of the bill’s provisions and has been out in front as far as portability and preexisting‐​condition exclusions go.” Faroni points out that Michigan’s mandatory group conversion coverage was adopted approximately ten years ago, allowing individuals to assume full payment of their health premiums in order to keep the coverage they had under their previous employer; workers may choose this option regardless of whether they are eligible for COBRA.

Preexisting‐​Condition Exlusions

The HIPAA has several provisions regarding preexisting conditions. It prohibits insurers from denying coverage or imposing preexisting‐​condition exclusions for more than 12 months for any condition diagnosed or treated in the preceding six months. The 12‐​month waiting period is a lifetime limit, however; an insurer cannot impose a waiting period on a person ever again unless the individual has allowed coverage to lapse for more than 63 days.

Employer‐​based health plans cannot deny coverage to workers who are disabled, in poor health, have filed numerous claims in the past, have been victims of domestic violence, or have genetic conditions.

In addition, preexisting‐​condition exclusions cannot be imposed on newborns, adopted children, or pregnant women, but the children must be covered within 30 days of birth or adoption, and no coverage can have lapsed for more than 63 days.

A plan cannot be intentionally designed to exclude workers or their dependents on the basis of their health status, and no employee or self‐​employed person can be subjected to higher rates or denied coverage enjoyed by all others in his/​her group. The legislation does not restrict, however, what an insurer may charge an employer for group coverage, and insurers are not prevented from charging an entire group more than other groups for its coverage.


The HIPAA addresses many issues other than MSAs, portability, and preexisting‐​condition exclusions. The act (1) deals with claims fraud and makes appropriations to increase investigation of false claims; (2) phases in, from 1997 to 2006, a hike from 30 to 80 percent in self‐​employed insurance deductions; (3) guarantees coverage renewal, as long as individuals make their premium payments and are not involved in claims fraud; (4) seeks to expand Department of Health and Human Services inspector general offices to all 50 states; (5) prohibits health insurers and group plan providers from denying coverage to businesses with 2 – 50 employees; (6) provides tax incentives allowing the chronically ill to deduct on their federal return up to $175 per day for the cost of long‐​term care benefits; and (7) maintains state regulation of Multi‐​Employer Welfare Arrangements (MEWAs consist of five or more employers that finance health and other benefits).


With all of its provisions, the final version of HR 3103 is a big step toward genuine health care reform. However, as Senate Minority Leader Tom Daschle (D‑S.Dak.) stated, “This bill is to health care as one event is to the Olympics.”

Although HR 3031 is not all‐​encompassing, it does make one thing clear: Health care reform will take time, and consensus will remain hard to achieve. The Kennedy‐​Kassebaum legislation is historic, however, in that it is the first successful effort by policymakers to reach accord and effect significant change in the U.S. health care system.

Copyright © 1996

Patient Bill of Rights Clears First Hurdle — September

September 1996

Patient Bill of Rights Clears First Hurdle

by Martin Ackley, Consultant for Health Policy

Following on the heels of the Kennedy‐​Kassebaum federal health insurance portability law, the Michigan House of Representatives likewise has passed a very significant consumer health care package. The House unanimously approved the so‐​called Patient Bill of Rights (House Bills 5570 – 4), which was sponsored by both Republicans and Democrats but spearheaded by the Republican chairman of the House Committee on Health Policy, John Jamian (R‑Bloomfield Hills).

The passage surprised some in the health care community because the package had been contested when introduced in February. Health care plans and purchasers initially were anxious about the legislation because they perceived it to have “any willing provider” implications and other provisions that they felt would undermine managed care and increase the cost of health coverage in Michigan.

Gene Farnum, of the Association of HMOs in Michigan, had told Health Policy Bulletin in February that “We have trouble with the parts that want to restrict how we do business.” He went on to say “We know from experience that the effect of many of these things is increasing [health care] costs, and the general position of business and the State of Michigan has been not to increase the cost of health care.”

Representative Jamian was sensitive to such concerns yet insisted on the importance of this legislation. He brought together the various factions, held committee hearings throughout the state, and forged a compromise that the state’s health care community now stands behind, including the HMOs, Blue Cross and Blue Shield of Michigan (BCBSM), and the Economic Alliance of Michigan, which represents the major employers and labor unions in the state.

“This was a vision of mine four years ago,” Jamian said of the Patient Bill of Rights, “and for those who know me, I like to work in a slow way. Trying to work with [the House] leadership and convince them that this is a package that Michigan needs to enact was a long process.

“I don’t want to say I’m shocked [by the legislation’s unanimous passage] — I guess I was extremely gratified. When it is such a large and comprehensive package, [the unanimous vote] demonstrates to the citizens of Michigan that the bill’s sponsors were able to come together in a bipartisan fashion, throughout the summer, and prepare these bills for a vote.”

No Longer Willing

The provisions that some construed as being “any willing provider” language were removed from the legislation, as were some other sections that purchasers deemed as too beneficial to health care providers.

The House‐​passed revised bills no longer have language that would have (1) prohibited health plans from using financial incentives to encourage or discourage referrals, (2) required BCBSM to reimburse freestanding ambulatory surgical facilities, (3) required insurers and health plans to indemnify physicians for any liability caused by payers’ medical decisions, (4) allowed determinations for emergency room use to be made by “a prudent layperson” and not the payer, and (5) required payers to reimburse all contracted providers the same “reasonable and customary charge” for that specific geographic area.

The Michigan State Medical Society (MSMS) has strongly supported the Patient Bill of Rights since its introduction and continues to do so, despite some of the provider‐​friendly language having been taken out of the bills.

“It certainly doesn’t go as far as we had hoped, but it’s a first step,” explained Dr. Cathy O. Blight, M.D., chair of the MSMS Legislative Policy Committee. “In a perfect world those issues would have been addressed as well, but I don’t think we can underestimate the importance of the bills, [and] the ideas that the bills set forth, passing at this point in time. We will be back to look at some of the other issues, but it is a wonderful first step.

“As managed care becomes more of an issue in the state of Michigan — certainly with the Medicaid population being moved into managed‐​care settings — I think some of these issues will take on greater importance to the legislature. We have introduced the idea. Major portions of the ideas have been accepted, and we expect that we will continue to work on this issue.”

The bills, which amend state laws governing HMOs, BCBSM, and indemnity health insurers, are the foundation for incremental reform in the health care delivery system in Michigan and “based first and foremost on patient rights,” according to Jamian. The major provisions of the package include

  • requiring extensive disclosure of health plan and provider information to the public, including a plan’s financial relationships with providers, referral limitations, and responsibilities of the patients;
  • prohibiting preexisting‐​condition exclusion of people who move directly from one health plan to another and limiting such exclusions to six months for persons not previously covered by a group policy;
  • requiring health plans to open membership on their provider panels to new applicants at least once every four years;
  • requiring health plans to notify, in writing, providers who have not been accepted on a provider panel or removed from a panel and explain why;
  • requiring health plans to provide for continuity of treatment if a patient’s provider leaves the plan’s provider panel; and
  • guaranteeing timely action on patient grievances: final determination within 75 days unless waiting that long would put a patient’s life in jeopardy, in which case an initial determination must be made within 72 hours and a final one within 30 days.

Senate: Hurdle or Roadblock?

HBs 5570 – 4 have been referred to the Senate Committee on Health Policy, chaired by Sen. Dale Shugars (R‑Portage). Indemnity insurers, who oppose the bills because they say the disclosure requirements and the extensive grievance procedures will be intrusive and expensive, will be working the Senate ferociously — as will the bills’ supporters.

Jamian is confident about the fate of the Patient Bill of Rights in the Senate because “We have a Senate chair who is committed to doing the right thing for the citizens of Michigan.” Jamian’s real concern is whether the package will come out whole or whether some of its parts, such as HB 5572, which imposes the package’s provisions on indemnity insurers, will be wrenched out.

“Based on the awesome group that we put together in terms of the supporters, there is going to be a lot of pressure on the senators to keep this thing pure,” Jamian said. “When you look at the unions, big business, small business, the advocate groups — cancer, diabetes, heart, lung — the medical society, health and hospital association, [you can see that] when they descend on the Senate members to keep this thing clean, there is going to be a lot of pressure not to change it. That is what we are hoping for.”

The Senate plans to reconvene later this fall, for 14 days, sometime between the November 5 election and December 13. The last of December marks the end of the 2‑year formal legislative session, and any bills not passed die and must be reintroduced in 1997 – 98 session, which begins in January. For the Patient Bill of Rights, it will be a sprint to the finish; Jamian and the package’s supporters hope it doesn’t get tripped up or run into a brick wall.

Copyright © 1996

Status of Governor Engler’s 1994 Health Promises — October

October 1996

Status of Governor Engler’s 1994 Health Promises

by Martin Ackley, Consultant for Health Policy

Two years into his second term as Michigan governor, John Engler has established a clear track record in health policy in Michigan. Many of his positions were presented in a health policy agenda he set forth in September 1994. In a document entitled Making Michigan Number One: Continuing Our Mission of Change and Reform — An Action Plan for Our Future, Engler listed 18 steps he would take in his second term to reform health care, protect the public health, and better address the mental health of Michigan residents.

To evaluate the governor on whether he literally fulfilled his promises (i.e., asking for a study or exploring a certain issue) is not productive; what is important is the gravity of his commitment to an issue and whether he has brought about change. This Bulletin presents a point‐​by‐​point examination of Governor Engler’s 1994 issue statement and takes a look at the status of his health reform promises.

The italicized text is the governor’s words and reprinted verbatim from the 1994 document. The comment following each point combines information provided by the Michigan departments of Community Health (MDCH) and Treasury and Public Sector Consultants’ (PSC) independent research and analysis.

Health Care Reform

  • I will ask the legislature to make health insurance portable from job to job, simplify insurance‐​rating rules, limit the use of pre‐​existing conditions, and guarantee the issuance and renewal of health insurance policies. In addition, I recommend that three basic benefit packages ranging from comprehensive to catastrophic coverage be offered by all insurance plans doing business in Michigan so consumers can comparison shop and find the best policy for their individual needs.

The administration is working with Rep. John Jamian to pass the Patient Bill of Rights package (House Bills 5570 – 4). As passed by the House of Representatives (and awaiting Senate action), these bills eliminate preexisting‐​condition exclusions for people moving from one health plan to another and reduce to six months exclusions for people not previously covered. Nothing has been done on the promise to simplify insurance‐​rating rules or on establishing three basic‐​benefit packages.

  • I will support the establishment of voluntary health insurance buying groups for small businesses to help them save money by reducing administrative costs, build upon their shared interests, and aggregate purchasing power to achieve large group discounts from health plans and providers.

Preliminary discussions have been held within the administration about exploring ways to broaden the state’s health‐​insurance purchasing power; programs that could be affected include Medicaid, state employee benefits, and corrections. Creating an option whereby the state would use its leverage to help small employers also was discussed.

  • I will work to save taxpayer dollars by making state government join other employers who are forming purchasing groups to obtain discounts and reduce the cost of employee health care.

The MDCH did not respond to PSC’s inquiry on these points. In regard to purchasing groups, there seems to be no evidence that the state is joining with other employers to obtain discounts. It is the case that the state is moving toward capitated managed‐​care for Medicaid recipients — this is a form of pooling and is expected to reduce health care costs for this population.

  • I will direct the Department of Public Health [now the MDCH] to work with hospitals, physicians, HMOs, and other health‐​care plans to develop recommendations on how to reliably measure health care quality and outcomes, as well as how to make this information available to consumers to improve their ability to make purchasing decisions based on both price and quality.

The health department indeed did work on developing a comprehensive health data system, with the result that bipartisan‐​sponsored legislation has been introduced that establishes a health data institute and a data system, to help gauge quality of health care. Public hearings on the bills (HBs 4975 – 9 and SBs 633 – 7) were held around the state, but it appears unlikely that the legislation will pass this session.

Despite its early involvement, the administration now says amendments will be necessary to gain its support of the bills. The administration wants (1) a state agency to help coordinate the data collection, but without the data collection becoming a government function and (2) the data base to be established without further demand on the state General Fund.

Employers are not listed among the groups the administration identifies as responsible for contributing health care data to this data base, but public testimony supports their being required to do so.

  • I will continue to oppose mandated benefits that increase the costs of health care coverage, and decrease access.

At the state level, the administration says it “has resisted all legislative attempts to mandate benefits.” That is true if one doesn’t include mandated coverage in the definition of mandated benefits. Obviously, the Patient Bill of Rights, in eliminating of some preexisting condition exclusion clauses, mandates certain coverages; the same is true of SBs 708 – 9 and HB 5168 and 5174, signed this year by the governor and requiring health plans to cover children of unwed or divorced parents.

At the federal level, the governor pursued his opposition to mandated benefits in his participation with other governors in developing the ill‐​fated federal Medicaid reform proposal that would have eliminated individual entitlements, increased state authority and flexibility, and ensured that health care evolves with the needs of consumers.

  • I will continue to explore alternatives, including federal waivers, to increase access to affordable health care coverage for Michigan’s low‐​income and uninsured people.

The MDCH and the Family Independence Agency (FIA) jointly submitted a series of waiver requests to the federal government, including one to expand Medicaid for families up to 185 percent of the poverty level; the requests still are under review. One waiver has been granted, to permit the state to run a pilot program at six sites, allowing people who work their way off welfare to “buy in” to the Medicaid program.

The governor, in his fiscal year 1996 – 7 budget, had proposed expanding the federal Medicaid program, predicated on a windfall that Medicaid block grants would have generated. The block grants did not materialize, and his proposed expansions to the Healthy Kids, uninsured, and senior care programs are on hold.

  • I will continue to work with New York, Texas, California and Florida to update the 30‐​year‐​old Medicaid formula so that Michigan gets a fair share of federal funds to provide health care coverage to our state’s low‐​income families.

Governor Engler worked tirelessly, as a lead member of the National Governors’ Association (NGA), to convince the U.S. Congress to reform the federal Medicaid program and deliver federal health care funding to states in the form of block grants. Despite the battles between Congress and the president over how much control the federal government should relinquish to the states, another battle raged on among the states as to how the Medicaid block grant would be calculated.

Engler spent more than 100 hours with the governors of Utah, Colorado, and Florida, crafting a block‐​grant formula that would have benefited Michigan by some $200 million, had block grants been realized. The resulting NGA statement was unanimously approved by both Democrat and Republican governors and formed the foundation of Congress’s Medicaid reform proposal. Congress eventually deleted the Medicaid reforms from the legislation, to ensure that the president would sign a welfare reform initiative.

The state MDCH budget, however, has been built on the assumption that federal block grants would be implemented and that the federal Medicaid match rate would increase from about 56 percent to 60 percent. Contingency funds were placed in a budgetary “lock box,” which has become necessary to pry open. Because the federal match rate did not jump to 60 percent, the state now must divert over $10 million from the Healthy Michigan Fund to make up the difference.

Protecting the Public Health

  • I will ask the legislature to pass a bill to ban billboard advertising of tobacco and alcohol products.

Rep. Tom Alley (D‑West Branch) has introduced a bill (HB 4248) that prohibits public advertising for tobacco — but not alcohol — products on billboards. The bill has been in the House Committee on Conservation and the Environment since February 1995, and there is no indication that the governor is pressing the committee to move on it; the MDCH and the Michigan Transportation Commission both support it, presumably with the governor’s blessing.

  • I will ask the Department of Treasury for recommendations on the advisability of divesting State of Michigan pension funds of holdings in companies that manufacture tobacco products.

The governor did ask the Department of Treasury for recommendations, and Treasury responded by telling the governor that such a divestiture is inadvisable, impractical to administer, and improper for the department to do unilaterally. The state’s divestiture of South African stocks in the early 1990s was authorized by statute. A bill introduced by Representative Alley (HB 5995) this session prohibits any further state investments of this type and requires the gradual divestiture of any current tobacco holdings.

  • I will direct the Department of Public Health to prepare plans to phase in the vaccination of Michigan children against Hepatitis B.

Administrative rules were developed in consultation with the Citizens Advisory Council and have been approved to require phase‐​in of a Hepatitis B vaccine. Required will be vaccination for (1) day care attendance, effective January 1997 and (2) school attendance, effective autumn 2000. Michigan is not unique in implementing this initiative: It is following national guidelines in regard to fighting the spread of Hepatitis B.

  • I will introduce new combination vaccines that can prevent up to six diseases in a single shot, making it easier to reach at‐​risk population, particularly in our urban areas. In addition, I will implement a new Childhood Immunization Registry to keep track of the immune status of our population, and to help target public health programs to high‐​risk children.

The governor scores big on childhood immunization. When Michigan implements its immunization registry next year, it will be the first state in the nation to take such action. Strong emphasis has been placed on immunizing children aged under two, and the state has established award‐​winning private/​public immunization partnerships (e.g., nearly 4,000 youths received immunizations on one “Super Saturday” in September). In 1991 childhood immunizations were at 41 percent, but the MDCH says that a study due out soon likely will report that the rate now exceeds 70 percent.

The governor has moved, however, to privatize the state’s biological products lab that once produced all of Michigan’s diphtheria/​tetanus/​pertussis (DTP) vaccine for children. The move was due to the state not having a license to produce a high‐​tech DTP vaccine — the vaccine “cocktail” he described in his 1994 action plan. Some health officials are concerned that divesting the state of its vaccine‐​making capabilities will threaten the long‐​standing guarantee that Michigan children will have vaccines available to them.

  • I will put mobile public health clinics on the road to bring immunizations, health screenings, health education, and pregnancy prevention services to people who would otherwise have little access to these basic health services.

The MDCH Community Health Agency has purchased and is using five mobile health clinics. Some local public health departments have followed the state’s lead, and it is estimated that there are 7 – 8 mobile units in Michigan today.

  • I will encourage the establishment of independent Charter Public Schools for pregnant girls who want to complete their high school education, while at the same time learning essential job and life skills.

At least one charter public school that welcomes pregnant girls has been established. The Midland Intermediate School District has created the Windover High School for students who weren’t “making it” in the traditional public high schools. Windover serves 70 students — 9 are pregnant girls, 13 are parenting girls, one is a parenting boy, and 13 are receiving job training.

  • I will close the tobacco tax loophole created by the passage of Proposal A and retrieve the windfall profits.

When Proposal A passed in 1994 and increased the state wholesale tax on a pack of cigarettes from 25 cents to 75 cents, cigarette wholesalers stockpiled thousands of cartons at the lower rate and sold them at the higher rate. Wholesaler profits and the state’s subsequent revenue loss were estimated at more than $20 million, and despite the governor’s strong rhetoric in 1994, the money has not been recouped.

Mental Health

  • I will continue to support the provisions of appropriate acute mental health care in local communities, and I will continue to bring back Michigan tax dollars sent to Washington, D.C. by increasing the utilization of private psychiatric hospitals.

Support of community‐​based services continues. The state psychiatric hospital census continues to decline, while private psychiatric hospital usage increases. The community programs soon will manage all Medicaid‐​funded services. Each year, the budget diverts more funding away from state services and toward community services.

  • I will implement a first‐​of‐​its‐​kind, managed care program for mental health services that will provide cost‐​effective, high‐​quality care through approved networks of mental health professionals.

The MDCH has begun to move Medicaid recipients into a capitated managed‐​care system that incorporates behavioral health and developmentally disabled (DD) components. Competitive bidding for these services will be phased in over the next three years. The state Medicaid chief executive officer, Bob Smedes, says there are several models from other states that merit review, which means that while the governor is delivering on this promise, he may not be able to claim that Michigan’s program is “first of its kind.”

  • I will direct the Department of Mental Health to develop legislation to update Michigan’s 20‐​year‐​old Mental Health Code.

The governor signed into law Public Act 290 of 1995, revising the Mental Health Code and culminating two years of negotiations between the state and interested organizations. The new law, among its other provisions, enlarges local community mental health boards’ flexibility and authority and expands the recipient‐​rights program. While more decisions on programs and services will be made at the community level, some observers are concerned that the abrogation of state‐​level responsibilities and the program’s tenuous funding will result in diminished mental health services and care.

  • I will explore the extension of the Charter Public School portable, per‐​pupil grant, and parental choice concepts that have been adopted for primary and secondary education to special education.

Parents of children with or without disabilities have the same opportunities to enroll their children in charter schools or avail themselves of schools of choice. Policy clearly prohibits discrimination against children with disabilities, or their parents, in enrolling in charter schools or schools of choice. To date, a policy by which parents can use the foundation grant to choose programs and services has not been developed.

A recent development has put special‐​education funding in jeopardy, however. More that 80 local school districts sued the state for some $500 million, alleging that Michigan has not paid for the special education it requires the districts to deliver (a requirement set forth by the so‐​called Headlee amendment to the Michigan Constitution). The Michigan Supreme Court has decided, thus far, not to hear the state’s appeal of a lower court’s ruling that it must pay up. If every school district reaps the benefit of this suit, state coffers could be tapped for as much as $3 billion. It has been suggested that the administration may respond by eliminating the state special‐​education mandates and reverting to federal requirements in this regard, which are less far‐​reaching than the state’s.

Bonus Issue

One of the most dramatic health policy issues that arose over the past two years wasn’t addressed at all by the governor in 1994 — the merger and reorganization of the departments of public and mental health and the Medicaid agency. The opportunity presented itself when the state public health director resigned in 1995. The director of the Department of Mental Health, James Haveman, was tapped to serve also as public health interim director, and by executive order on January 31, 1996, the governor created the Department of Community Health.

The primary purpose of the merger was to consolidate more than 20 scattered health care programs. The aim is to allow easier access and delivery of services to the public, and there have been no indications to the contrary. The implementation of the capitated Medicaid managed care program over the next two years and the extent to which the recently formed local collaborative bodies (consisting of various types of county‐​based health agencies) are utilized will help determine the success of state‐​funded health programs in Michigan.

As always, PSC welcomes comments and observations and may include them in a subsequent Bulletin on this issue.

Copyright © 1996

Haveman, Smedes Discuss Future of Public Health Care — November

November 1996

Haveman, Smedes Discuss Future of Public Health Care

by Martin Ackley, Consultant for Health Policy

Publicly funded health care in Michigan will go through a striking transformation during the coming two years. The catalyst is Medicaid, which will become available only through capitated managed care. The effort will start in southeast Michigan in early 1997 and be statewide by late 1997 or early 1998.

The Michigan Department of Community Health (MDCH) has been working with consumer and provider groups over the past six months to prepare a request for proposal (RFP) that details the criteria that managed‐​care organizations will have to meet to be a contracted provider for Medicaid services.

This RFP signals the future direction of publicly funded health care programs, which cost an estimated $8.4 billion in 1995. State officials voice hope of one day pouring all state health care dollars (for Medicaid, state employees/​retirees, corrections, public school retirees, and veterans) into one purchasing pool, to leverage the lowest‐​cost managed care. Medicaid capitated managed care is the first step.

The leaders in this initiative are MDCH Chief Operating Officer James Haveman, Jr., and Medicaid Chief Executive Officer James Smedes. Public Sector Consultants recently talked with them about the RFP and the future of publicly funded health care in Michigan.

PSC:  What response do you anticipate to the RFP, and what will be the effect on access and quality of care for Medicaid recipients?

Smedes believes that all the managed‐​care entities now in place will submit proposals, as will a number of new entities. He believes overall health care access will improve as a result, in part because the initiative will lead health care providers that currently have only modest capacity to substantially increase it, particularly in southeast Michigan counties.

“Virtually all of the doctors participating in the PSP (Physician Sponsor Plan), as near as we can determine, are already in other health plans,” Smedes said, “and we expect the rest of them [to join with the Medicaid‐​contracted health plans]; these are quality docs.

“Medicaid has never been able to enroll just the best docs. We have had to take anybody who has a license. Some of the docs participating with us today are not up to snuff, and they aren’t going to meet the credentialing criteria under the plan. So some will be eliminated. It’s a small number.”

Smedes says his agency will give time for nonparticipating doctors to enroll with the successful bidders. He says that because credentialing criteria will include a provider’s performance outcomes, the individual Medicaid recipient is going to have access to the best possible care in his/​her community.

“Are there bad managed‐​care plans?” Smedes posed. “Certainly, some are better than others. We are going to try to differentiate, based on the requirements we are putting in the proposals. I think we have a chance of really improving the way managed care is done in this state, because we will set high standards for the Medicaid plans — the same as the commercial accounts set high standards for the HMOs with which they participate. We will do the same for Medicaid recipients. So overall access will get better, and access to quality care definitely will improve.”

PSC:  Do you see HMOs, because they already exist, as the primary respondents to the initial RFP?

More HMOs than unlicensed or qualified health plans will be chosen in the short run, according to Smedes. He says that truly successful health plans in other parts of the country, both from quality and cost‐​performance standpoints, are physician‐​driven plans, not those owned by the HMOs. Ultimately, they resemble an HMO, according to Smedes, because the HMO structure is the way to accomplish this integration. He and Haveman agree that Michigan will see the emergence of some strong physician‐​driven organizations.

“Doctors make 85 percent of the decisions that cost money in health care,” Smedes said. “If we get doctors leading the effort to improve quality, then we will get the cost performance we need.

“Doctors must be in the leadership of that kind of thing. They need the infrastructure to be able to organize processes for actually accomplishing quality improvement. The organizations that are provider‐​driven are going to be the real winners.”

PSC:  The initial contracts will be for two years?

The state will bid the rates just for a single year, then negotiate the second‐​year rate. During the first year, the MDCH will set clear performance criteria; Smedes says if the criteria are not met, the department will terminate the contract.

Historically, Medicaid contracts have had no quality‐​assurance provisions and provided no easy way to impose sanctions on poor performance, Smedes explains. He says “the new contracts will be quite different. They will focus on performance, and when plans aren’t performing, we’ll work with them.

“Medicaid is going to change from being a claims payer to a quality assurer, a quality improver. We’ll work with plans to try and get them to improve, but if they are not making it, we’ll cut them off.”

PSC:  Do you continue to see the Michigan Medical Services Administration as managing Medicaid?  You don’t foresee a privatization of the Medicaid Program?

“We are privatizing the delivery and management of care,” Smedes noted. “In the end, the state will have to manage no more than thirty plans, which is a pretty small role. It means thirty checks a month instead of three million, and it means a relatively small staff to work with in managing the plans.”

For Haveman, it will streamline the department’s operation to a rational end. “Right now, we determine eligibility and we write checks,” he says. “I ask: ‘Why do I print 800,000 new Medicaid checks every month? And the response is: ‘That’s the way it’s always been done.’ There is a better way to do this.” Haveman adds that it is likely that the qualified health plans eventually will determine Medicaid eligibility and write the checks to their providers and subcontractors.

PSC:  What is the question asked most often? Are people concerned about the complexity of the new effort?

Haveman says that most people assume that this initiative must be driven exclusively by cost. “It’s not,” he states. “There are a lot of values and qualities involved. We often are asked, ‘Is this going to be value added? Is this going to be better?’ We say it will be better.”

In addition to questioning the capitated managed‐​care program, people also are concerned about the mental health and long‐​term care systems and how they will be affected. Haveman says that he and his staff often are asked if they are going to issue a map laying out which community mental health boards must affiliate and which health departments or districts must affiliate. Haveman says he won’t — to be arbitrary would stifle the bodies’ own creativity and wishes in this regard.

Haveman recognizes that the plan is complex: There will be “a comprehensive health program and also one for the kids with extensive health needs, we are looking at carve outs [see below] for substance abuse and community mental health (CMH), and then there is the whole issue of the developmentally disabled [program].

Perhaps the most complex aspect, however, will be the forthcoming managed long‐​term care plan. “We have tried to keep dialogue going with long‐​term care folks,” Haveman said. “They know that it has to change. They know the current system is fragmented. They are eager to change, but there is fear about change as well. They don’t have a clear picture about what is going to change, because we still are working on it with them.”

PSC:  What is a “carve out,” and what are its implications?

Behavioral health services and services for developmentally disabled will be “carved out” from the overall Medicaid managed‐​care plan. Smedes explains that even now, in the larger health care economy, these two sets of services are separate from the rest. For example, most HMOs manage both benefits for behavioral and physical health, but typically, within the organization, management of the two types of benefits is separate.

Currently, Michigan Medicaid reimburses for mental health services; for people who belong to HMOs, the financing is integrated. But Smedes says this has caused problems, because the Medicaid‐​designed benefit takes care of mental health problems that can be fixed quickly and economically but excludes taking care of chronically mentally ill recipients; the latter are directed into the CMH system.

“We created problems for clients and ended up paying two systems to take responsibility for single individuals,” Smedes explained. “We must solve that problem, so that people can get all their mental health services in one place. Let’s structure this differently.

“People will join HMOs, those who are eligible for Medicaid, and we’ll tell the qualified health plans that the plan is ‘responsible for mental health services — not for delivering the services — but for managing them. You [the plan] refer the member to the CMH board, which is responsible for the treatment.’ We’ll pay CMH directly for taking responsibility.”

PSC:  Will mental health services be subcontracted?

“[Qualified health plans] will have to have an agreement,” Smedes says. “Although the plan won’t actually pay the CMH — the state will continue to pay the CMHs — we will expect the CMH to report back to the primary care doctor in the HMO or qualified health plan. There will be real integration of mental and physical health care, which is what is needed.”

PSC:  Regarding substance abuse services, do you see the local coordinating agencies eventually being eliminated?

Smedes says the department wants some more efficiency, coordination, and collaboration. “We want ultimately to get all of this integrated. Each community does what makes sense in that community, but we’re telling you where we are headed in the long term,” he said.

PSC:  Is integration the reason that in the newly rewritten Mental Health Code, the old CMH boards now are referred to as entities or authorities?

Haveman says he had thought only four to eight CMH boards eventually would have “authority” status, but so far twenty have applied and the department already has approved five. He reports having recently met with county commissioners from Ionia and several other counties meeting as a consortium. He explains that these commissioners represent 750,000 people insofar as mental health services are concerned, and he believes the next logical step is to sit down with the substance abuse coordinating agencies that also serve that area. “How [else] can we have a body here that will [comprehensively] cover the residents?” Haveman posed. “We don’t have to merge all these boards, but let’s put together a consortium. These counties are starting the process.”

Smedes points out that the upper peninsula is another good example. A behavioral health management company has been formed there consisting of six community mental health boards, the substance abuse coordinating agencies responsible for the entire eastern U.P., two hospitals, a Sioux Indian tribe clinic, and a couple of public health departments.

“We probably will contract for most U.P. behavioral health services from that (behavioral health management) body,” Smedes confided. “Also up there, the hospitals, except one, have come together in a network, and they are involved in behavioral health. You have the genesis now of a truly integrated health system.”

PSC:  Let’s talk about local multi‐​purpose collaborative bodies. Will they be separate entities? How will you utilize them?

“The local collaboratives will be a focus for new ideas, innovation, and a common place for people to come together and talk,” Haveman says. “They are not legal entities; there is nothing in the [Public Health] Code that allows them to become a legal entity.”

He told us that there are a number of county commissions that would form multi‐​county community health authorities involving both public and mental health functions if there were legal ability to do so. Haveman notes that the Manistee/​Benzie Community Health Board has coupled mental health and substance abuse services for twenty years. When he asked a farmer from that northwest Michigan area why they’ve done it that way, Haveman says the farmer told him that “If we can grow hay and oats on the same farm, we certainly can have these do‐​gooders working together as well.”

PSC:  Do  you see those bodies having a significant role in defining the community programs?

“Some counties would like to build their collaboratives into a vehicle that tackles community health assessment, planning, and needs,” Haveman said. “[But this requires] people participating and wanting it to happen. If I get authoritarian and say this is the way it is going to be, creativity will stop. I am hesitant to become autocratic and allow the state to become intrusive.

“As we direct the future of publicly funded health care, we are going to put the most emphasis on wellness and responsible care. I am looking at all the money we spend from the Healthy Michigan Fund and evaluating how it relates to what we are doing here. We have a chance to impact all kinds of diseases that we didn’t before.”

The department’s goal, according to Haveman, is to do a better job with the money it has and begin covering groups of people who currently are not. He illustrates this by pointing out that the state spends $200 million of Medicaid on respiratory problems, many of which are related to smoking; it also spends $103 million on cardiovascular problems, three‐​quarters of which are preventable. By focusing attention and funding on those diseases, they hope to affect health‐​risk behavior not only in the Medicaid population, but in the general population as well.

He adds that if the state could have gotten the hoped‐​for $100‐​million windfall this year from federal Medicaid‐​reform block grants, the state would have spent $50 million dollars to start working on dementia‐​type issues. In demonstrating how these strategies all fit, he says such programs could have a real effect on nursing home costs.

Haveman envisions that in three to five years, his department’s efforts will culminate in there being perhaps “fifteen to twenty integrated health care delivery systems out there that will incorporate public health functions, mental health functions, substance abuse, and acute care [and have a] relationship with long‐​term care. You will have one recipient file to wrap services around. That is why it is called community health.”

Copyright © 1996

Health Care Providers Express Concern about State Plan for Medicaid — December

December 1996

Health Care Providers Express Concern about State Plan for Medicaid

By Lisa D. Baragar, Consultant for Health Policy

The anxiety caused by the months of waiting for the Michigan Department of Community Health (MDCH) to issue its request for proposal (RFP) for providers of capitated managed‐​care for Medicaid recipients has turned to distress for some of the more than 90 health care provider groups who had hoped to bid for the contract.


The RFP is more than 75 pages and has 9 appendices. Not surprisingly, it covers a range of topics — from administrative and organizational requirements of bidders to how the state will compensate providers for covering the health services of eligible Medicaid recipients.

For the most part, providers agree that the state did a good job of communicating the intent of the RFP and, in preparing it, in seeking input and feedback from those who deal with health care issues. Charles Ellstein, group vice president for policy for the Michigan Health and Hospital Association, notes “The RFP was comprehensive — there were no surprises. There were some disappointments, though …”

And The Winners Are…HMOs?

Christine Shearer, chief of state government affairs for the Michigan State Medical Society (MSMS), and Ellstein explain that their primary concerns about the RFP relate to provisions describing who successful bidders likely will be. The RFP states that only providers that have certain organizational structures and follow very specific policies will be awarded contracts: The structures and policies almost exactly mirror those of health maintenance organizations (HMOs).

“We understood that physician organizations would be able to participate …. There was no clear understanding that physicians will lose their Medicaid patients unless they join HMOs that have been awarded contracts with the state to provide Medicaid services,” said Shearer.

Members of the MSMS are particularly concerned by this, Shearer adds. “A lot of HMOs are telling physicians that they will lose their Medicaid patients unless they sign up now for the HMO’s provider panel [the group of providers with which an HMO contracts for patient care and other health services]. One even put an ad in [the September 18 edition of] Health Care Weekly Review that says, ‘The Department of Community Health will be ending the [Physician Sponsor Plan] program soon in five southeast Michigan counties. If you do not choose a managed‐​care plan, your Medicaid patients may be reassigned to a physician who is part of an approved plan.’ Physicians are in a panic, even though no RFPs have been awarded yet, and no one knows who will receive contracts from the state.”

The only option that seems to be available to physicians, Shearer explains, is provider organizations that exactly resemble HMOs. Ellstein says that hospitals, clinics, and other provider networks also are discouraged, remarking that “Tables are tilted in favor of HMOs.” He goes on to quote Medicaid chief executive officer Robert Smedes as saying that some of the best health plans in the country are physician plans, but successful respondents to the Michigan RFP will have to be organized like HMOs.

Racing the Calendar

Susan Garcia, deputy director of the Michigan Association of Health Plans (MAHP) — formerly the Michigan Association of HMOs — and Ellstein express concern about the time frame in which bids for contracts must be submitted to the state. The RFP was issued in mid‐​November, and bids are due on January 31, 1997. This gives potential bidders approximately 11 weeks — interrupted by holidays — in which to prepare bids and, in many cases, find ways to meet the structural requirements outlined in the RFP.

Garcia explains that the time frame limits the ability of many managed‐​care providers and others to file competitive bids. Garcia states, “Members [of the MAHP] wanted a ‘level playing field,’ but bids have to be submitted in 75 days. “There is not [enough] time for new or small systems to respond.”

Moreover, Ellstein adds, “There is not enough time for many health care providers, including special care providers, to put together [the kind of] network required by the RFP.”

Some also are concerned that the state may not have enough time to carefully evaluate the proposals and carefully choose providers that will best meet the needs of Medicaid recipients: The state has only approximately two months from when the bids are received until it must announce the award recommendations.

A Bumpy Transition?

Another concern of the health care community is the quality of care that Medicaid recipients will receive during the transition from a fee‐​for‐​service program to one of managed care. “I don’t want to see the Medicaid program lose its momentum during this transition,” says Mark Bertler, executive director of the Michigan Association of Local Public Health. “This is a pragmatic shift by the state… it will be interesting to see how the state measures the quality of services offered by providers to beneficiaries of this new system.”

Bertler worries also about the possibility of changes in Medicaid patients’ access to care. As an example, he suggests that “Managed‐​care organizations might not be used to going into new moms’ homes to provide child care. They will have to work out these issues.” Shearer mentions transportation, pointing out that many Medicaid recipients go to the physician nearest them; if the doctor is not part of a plan that received a contract from the state, the recipient may have to travel farther in order to see someone who is.

Bertler notes that on the government level, public health officials also are concerned about how the new system will affect them. “Public health officials are interested in government’s role in moving Medicaid to a managed‐​care system. Will they be agents of managed‐​care organizations? Will they be watchdogs or patient ombudsmen?”

It’s Not All Bad News

Despite the uncertainty and concern expressed by some members of the health care community, many agree that some good has come from the RFP. As Garcia points out, the RFP signals the progressiveness of the state in moving to the managed‐​care forefront. She believes that the result is that health‐​care systems will experience more competition, and she hopes this will lead to savings that can be reinvested in the system.

Ellstein adds, “The state is focusing more on primary care and accountability. The plan is to make the [health care] system reach out to people, instead of making people come to the system.”

Providers agree that the RFP has brought the health care community together to talk about issues as never before. Bertler noted that the RFP has generated a good deal of discussion, and he expresses his pleasure with seeing the MDCH “encourage collaboration and make sure that managed‐​care providers pay better attention to the needs of the community.”

Copyright © 1996