by Peter Pratt, Ph.D., Vice President for Health Policy

This Advisor discusses policymakers’ wish to shape the Michigan health care market and the unusual bipartisanship involved.

Bipartisan Call to Shape the Health Care Market

The conventional wisdom among health policy pundits is that all the changes in the delivery and financing of health care in the last two years are a reaction against the enormous regulatory apparatus of the Clinton health care reform plan of 1993 – 94. The Clinton plan is to health care as Vietnam was to U.S. foreign policy: an ill‐​advised effort — not to be repeated at any cost — to corral an unwilling and resourceful opponent. The market was and remains king, driving unsystematic upheaval in our health‐​care “system.”

A curious slant to health policy, however, emerged in 1996 and promises to continue in 1997. In the Michigan Legislature and the U.S. Congress, discussion has focused on shaping the market, because, left to itself, the market does not produce the providers and services needed. Moreover, this market focus often is bipartisan: Republicans and Democrats frequently think alike on health policy, even in Michigan, where Republican control of both legislative chambers and the governor’s office has resulted in partisan policies in other arenas. With regard to health care, opinion is as likely to be divided within as between parties.

Perhaps the best example of Michigan’s bipartisan, market‐​shaping spirit is the Patient Bill of Rights, a five‐​bill package enacted in the waning days of the last session that addresses several shortcomings of the market, among them (1) insurer resistance to covering preexisting medical conditions and (2) insufficient consumer protection.

Eclipsed by the bills’ measures addressing preexisting conditions (the heated debate on which was led by principals who both were Republicans), are provisions requiring HMOs, Blue Cross and Blue Shield of Michigan, and commercial insurers to provide to consumers upon request (1) the professional credentials of all specialists who participate in their networks; (2) a phone number for information on disciplinary actions or lawsuits filed against providers; and (3) descriptions of financial arrangements (fee‐​for‐​service, capitation, and others) between providers and plans. This may not be all the information consumers need to improve their decision‐​making about health care, but it is a start. It can be argued that this will improve the health care market: better‐​informed consumers will be better able to choose among competing plans. But the market cannot be improved without regulation to require that the information be made available to consumers.

Scrutinizing Managed Care

When introduced, the Patient Bill of Rights package was attacked by some as being against managed care, because it prevents HMOs and preferred provider organizations (PPOs) from limiting the size of their physician and other provider panels. Opponents argued that health plans cannot control costs if they cannot configure their provider networks as they see fit, without interference from government. Supporters — physician associations and some consumer groups — fought this attempt by health plans to shape the market in their best interest. Eventually, a compromise was reached that allows health plans to fashion their own provider networks — the hallmark of managed care — but they must tell health professionals that they exclude from panel membership why they have done so.

Scrutiny of managed care will continue to be intense. The market sees managed care as the primary means by which health care costs can be controlled, but there is danger of access to care being restricted and quality of care being compromised, and this is enough to keep government vigilant. So worrisome are the possible effects of managed care that Michigan and the federal government are receptive to mandating that health plans must provide certain benefits, which traditionally is anathema to Republicans. The desirability of minimum hospital stays for deliveries, mastectomies, and other services, and coverage for pain management will be the subject of bipartisan discussion in the year ahead.

Michigan Medicaid and Managed Care

The Michigan Medicaid program is moving aggressively to managed care, and here again the shaping of the market is evident. By summer, the state expects to begin offering full‐​risk capitated managed care to Medicaid recipients in five southeastern Michigan counties. In its basic structure, the plan is market‐​oriented. The state passes risk onto qualified private health plans, who, for a monthly capitated rate, deliver or arrange for the delivery of all Medicaid‐​covered benefits; health plans currently are in the process of bidding for the business.

To ensure quality and access, the state is increasing data‐​reporting requirements. In addition, to the consternation of some, the state qualifications will preclude most new managed‐​care entities (i.e., so‐​called provider‐​sponsored networks, physician‐​hospital organizations, and physician organizations) from getting a piece of the action, at least in the near term; existing HMOs are likely to get the lion’s share of the contracts.

Although the Michigan Department of Community Health (MDCH) is opening the Medicaid program to the marketplace, it is making demands of health plans that it believes will protect quality and access as well as trim costs. Through this process, the Engler administration is both promoting and keeping an watchful eye on managed care.

Medicaid managed care is primarily a Republican initiative, but Democrats have not challenged the basic structure or assumptions of the program. Instead, their focus likely will be on guaranteeing that Medicaid recipients receive the protections the MDCH has outlined. To accomplish this, House Democrats intend to introduce legislation to establish a Medicaid ombudsman office. Although the Democrats’ focus is a little different, their fundamental position is not really at odds with that of the governor and his fellow Republicans.

Controlling Market Access

Scope of Practice

Government must constantly assess which health organizations and professionals it will allow access to the market. If Medicaid managed care illustrates the way in which the state, in the interest of quality, limits organizations’ access, the battles over scope of practice show how the state is wrestling with limits for the professions.

A subject of recurring legislative debate is whether the scope of practice of various health professionals (e.g., chiropractors, optometrists, psychologists, advanced‐​practice nurses) should be expanded. Even the most devoted advocates of an open health care market concede that government is correct in requiring that professionals meet certain qualifications before they can practice in their field; government‐​sponsored credentialing minimally protects the public against unqualified practitioners. Beyond this, however, the picture is murkier.

Health professionals who wish to broaden their scope of practice argue that they are more than adequately trained in the areas into which they wish to expand, and, moreover, they can competently provide the service for a lower cost than can physicians. For example, a current bill proposes giving advanced‐​practice nurses authority to prescribe certain drugs under certain circumstances; proponents point out that these professionals have considerable training in pharmacology. Opponents — of this and other scope‐​of‐​practice expansions — argue that physicians are more thoroughly trained and that other practitioners will end up duplicating rather than replacing physician services, thus driving health‐​care costs up, not down. Both sides believe they stand for higher quality and lower cost.

In this battle the legislature is the referee, trying to forge good policy out of the oddities of the health market. While health‐​care payers (employers) customarily oppose expanded scope of practice because data show that costs rise when new professionals gain access to the market, the dynamics of managed care may alter the debate. If health plans can demonstrate that costs can be affected and quality preserved by permitting nonphysicians to carry out certain tasks (such as advanced‐​practice nurses being permitted to write prescriptions), such managed‐​care advocates as big business and labor may change their minds. As an aside, the debate about advanced‐​practice nurses is particularly interesting because it pits the physician organizations, which generally oppose expanding the scope other practitioners’ practice, against Sen. John Schwarz (R‑Battle Creek), a physician and the sponsor of the bill.

Certificate of Need

Certificate of need (CON) is another issue on which current policy stems from acknowledgment of an imperfect market. Simply stated, under the CON program, health facilities wishing to build or expand must prove there is need and obtain permission from the state before they proceed. Several states have eliminated their CON program and there is talk that Michigan will do the same. Some say that CON will be obsolete once the market evolves to the point that unnecessary capital expenditures are not rewarded by payers; while this may prove to be true, very few policymakers believe we are near that blessed day.

Many business, labor, and government leaders see merit in continuing to limit capital expenditures and impose strict criteria for demonstrating the need for new or replacement services and facilities. There may be gradual liberalization of CON, but we do not expect large‐​scale changes in the next two years. The potential health care cost increases that could follow from an unbridled capital market frighten most everyone in the executive and legislative branches. In an interesting, if understandable, twist of the usual political alignment on CON, House Democrats may introduce legislation to deregulate CON for nursing homes, presumably because they believe that strict CON standards have led to an undersupply of nursing home beds, which hampers consumer access to this service.

Nonprofit vs. For‐​Profit Hospitals

Recently, Sen. Dale Shugars (R‑Portage), chair of the Senate Health Policy and Senior Citizens Committee, told Public Sector Consultants that his first priority in the new session is legislation to regulate the conversion of nonprofit hospitals to for‐​profit entities. Such legislation also may be introduced in the House, by Democrats.

There also is much discussion about the need for nonprofit hospitals that do not convert to for‐​profit status to more concretely demonstrate their community benefit — that is, justify their tax‐​exempt status. One common justification is that they provide care, usually to un‐ or under‐​insured people, for which they are not compensated, but a recent study of California hospitals finds “no evidence that acquired [by for‐​profit entities] hospitals provide on average less uncompensated care than they did before the acquisition.” While there are many ways a nonprofit hospital can serve its community, this study warns them that they had better be able to quantify such service.

Republicans and Democrats alike are concerned that for‐​profit hospitals will compromise the quality of health care — although they have not been much concerned with for‐​profit health plans, nursing homes, and others. Legislators do not believe that the health care market should evolve without impediment. (After all, nonprofit hospitals presumably are acquired by for‐​profits because the latter believe it will give them an advantage in a competitive market.) At the same time, there is a suspicion that some nonprofit hospitals are taking advantage of their tax‐​exempt status.

Covering the Uninsured

To many, the most glaring shortcoming of the health care market is its failure to provide health insurance coverage to all Americans. During debate on the Clinton reform plan, most Republicans opposed mandated health insurance, and most Democrats favored it. The new bipartisan focus in Michigan appears to be a middle ground that shies away from mandates in favor of using the tax code to encourage coverage. While Senator Shugars did not say he would push legislation to expand health insurance coverage, he did acknowledge that the Patient Bill of Rights “skirted the biggest issue, the uninsured and the uninsurable.” He added that “We may need to come up with tax incentives for working uninsureds. I’m not sure medical savings accounts will work for them.” Republican Sen. Joel Gougeon and Democrat Rep. Nancy Quarles have introduced legislation creating a state income tax credit for premiums paid for private health insurance.

In his FY 1996 – 97 budget, Governor Engler proposed expanding Medicaid to cover all children up to age 18 in families with income up to 185 percent of the federal poverty level; this was expected to affect 30,000 Michigan youths. This expansion was predicated on the failed expectation that there would be federal Medicaid block grants to fund the program. Absent the immediate prospect of block grants, the governor is unlikely to repeat the proposal in his upcoming FY 1997 – 98 budget, but the earlier proposal reflected growing interest in covering children; President Clinton and Congressional Democrats may push for this in the year ahead.

Unquestionably, an attempt to cover the uninsured will meet with strong opposition and probably fail in the short run. But renewed interest in the uninsured (or at least their children) — all but forgotten in the two years since the demise of the Clinton plan — reflects a broader concern: cost‐​cutting pressures on health plans and providers could compromise access to good care like nothing before.

Interest Groups and the Market

The idiosyncracies of the health care market prevent interest groups from being market purists. Most interest groups’ support for or opposition to the market varies from issue to issue. Self‐​interest edges out ideology.

With few exceptions, groups with an established (and, to them, self‐​evident) place in the health market seek regulatory protection against others who want permission to do what the established groups do. And with equally few exceptions, these others seek to raze regulatory barriers to their entering the market to the fullest extent of their self‐​proclaimed abilities. This is the basic principle of politics: Protect what you have from the incursion of others and move into areas that others have kept to themselves. As an example, most physicians want regulatory protection against other health professionals who wish to practice in their domain; conversely, they also want regulatory relief allowing them to form managed‐​care organizations that will compete with HMOs. Neither position is obviously right or wrong. The interest groups’ absence of ideology (and presence of self‐​interest) makes it easier for government policymakers to judge each matter on its merits — whether it cuts costs and maintains patients’ access to proper health care.


The message here is not that the market is wrong and that regulation is good, or vice versa. Rather, it is that in Michigan — for now — there is bipartisan consensus that the health care market must be shaped so that it serves the public good. Despite the fact that this general (and, I might add, unacknowledged) agreement may be evanescent — that is, Republicans and Democrats may differ on the degree to which the market must be shaped — and despite the fact that the nature of politics usually forces Democrats and Republicans to decide to disagree even about matters on which they privately are in accord, for this brief moment there may be an opportunity to move forward together.

Copyright © 1997