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MCIC Press Release

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Hot Off The Press

Soaring Health Costs Number One Industry Issue for 2004

MANASQUAN, NJ -- The escalating costs of healthcare continues to near the boiling point with yet a third year of double-digit health plan premium increases forecast, prescription drug costs sapping consumers, especially the elderly, and no concrete resolutions being offered, according to an analysis by the Managed Care Information Center (MCIC).

With the exception of hospitals that do not seem to be getting their fair share of the blame, consumers, pharmaceutical companies, lawyers, physicians and the federal government all received high marks for being the cause for high health care costs, said Robert K. Jenkins, MCIC CEO.

The health costs analysis, including results of an exclusive MCIC survey, appeared in Healthcare Market Reporter.

Over the last four years, Jenkins noted, average plan premiums and other out-of-pocket costs have more than doubled for enrollees in Medicare+Choice (M+C), the Medicare program's managed care component, according to the results of a new study.

Medicare preferred provider organization (PPO) out-of-pocket costs are even higher, the study supported by the Commonwealth Fund found.

From 1999 to 2003, average out-of-pocket costs for Medicare beneficiaries in poor health climbed from $2,211 to $5,305.

Private health plans say they are now "poised for an expansion of Medicare+Choice if Congress acts this year to stabilize the financially strapped program," according to the results of a survey released by the American Association of Health Plans (AAHP).

Even the government was pointing at another body - the Congress - as having the potential to ease the pain of increasing costs of health.

Just before the historic passage of the Medicare prescription bill, Jenkins said, Tom Scully, now the outgoing administrator of the Centers for Medicare and Medicaid Services (CMS), said "If Congress does not act, more seniors and disabled Americans will continue to lose their existing prescription drugs or other medical services."

Karen Ignagni, AAHP president and CEO, believes the future stability of the M+C program depends on action by Congress, which slashed the original program funding with the enactment of the Balanced Budget Act.

"Congress has an unprecedented opportunity this year to fulfill its promise of more Medicare choices for seniors. Plans are waiting for Congress to act," Ignagni said. "They have proven tools and techniques that add value and can be deployed, but only if Congress steps up to the plate and fully funds this program." Factors Driving Cost Increases: Consumers, Government Regulation, Pharma, Payor Bureaucracies, Technology, Litigation, Malpractice

There are multiple factors driving health costs upward, Jenkins said.

He cited results from an industry survey conducted earlier this year by the Managed Care Information Center (MCIC). For example, Jenkins quoted a consultant who said "high liability insurance, over-testing, aging population, too few people paying for insurance, inefficient hospital management, over-prescribing of prescription drugs, disconnect with cost of procedures and person receiving procedures, doctors and hospitals looking to make up for lower Medicare reimbursements on the backs of commercial clients."

While the "litany of un-coordinated and conflicting federal and state regulations, the bureaucratic dynasties of the insurers (with the backlash bureaucracies in healthcare giver's offices), and defensive medical practices (unbridled litigious greed) might be evoked as correlative, the reality is that the driver in all this is really the aging society we live in," another consultant told the MCIC.

"Insurance companies shield the true cost of health care from the consumers," believes another consultant. "Consumers demand more coverage, more choice and higher quality care without understanding the true cost and without understanding the true purpose of insurance."

The result, said the consultant, has been "a sector of the market that is regulated by nothing - not the market and not the government."

Government is now trying to impose regulation, he continued, "but the way they do it only exacerbates the problem. We need to somehow get the consumer involved in pricing decisions and then let the market regulate itself."

Jenkins said a hospital executive responded that there are primarily three factors driving the increases: 1) a multibillion dollar for profit insurance industry guaranteeing margin 2) rising technological costs 3) increased costs for un-reimbursed care.

"The U.S. healthcare system is fundamentally flawed," responded another industry consultant. "There is no one to blame except for perhaps the citizenry for allowing such a patchwork system to come into being and not be repaired."

"Costs will continue to increase until there are more proven, consistent procedures with appropriate rationing of time/effort/money to the types of care that provide the most payback," said the consultant.

Besides the MCIC study, Jenkins said past hospital mergers have not resulted in price increases and not driving up the cost of health care premiums, citing a study commissioned by the American Hospital Association (AHA).

The study done by Economist Margaret Guerin-Calvert and Economists Inc. in Washington, DC, was in response to the Blue Cross and Blue Shield Association (BCBSA) that indicated that hospital "consolidation" is a key driver in health care cost increases.

Also, Jenkins continued, a PricewaterhouseCoopers (PwC) study also found that the primary drivers of increases of spending on hospital care were increased utilization -- more people needing hospital services -- and higher labor costs resulting from shortages for nurses and other key hospitals workers.

Address: Healthcare Market Reporter, Managed Care Information Center, 1913 Atlantic Avenue, Suite F4, Manasquan, NJ 08736; 732-292-1100,fax 732-292-1111,

Sales, marketing or business development executives may also call for more information, 1-800-516-4343.

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