MANAGED CARE
Its long term fiscal prospects --- The community as stakeholder --- The role of the religious community

The Edited Transcript of a Breakfast Conversation
with Governmental, Banking, Health and Religious Leaders
Sponsored by Resources for the Civic Conversation
held at The Harvard Club of New York City
on December 5, 1996

Participants:

Bruce Vladeck, Administrator, U. S. Health Care Financing Administration Mary McNamara, President and CEO, The Interchurch Center Ronda Kotelchuck, Executive Director Primary Care Development Corporation Charles W. Rawlings, Director, Urban Programs and Resources for the Civic Conversation, National Council of Churches Gary Matthews, Doctoral Candidate in Ethics Union Theological Seminary Frances Root, Smith Barney Tom Manning, Director of Project Finance Primary Care Development Corporation

Allan Rosenfield, M.D., Dean, School of Public Health, Columbia University Donald L. Shriver, President, Professor of Applied Christianity, Union Theological Seminary, Emeritus Ruth Salzman, Vice President, Chase Manhattan Bank, Commercial Lending Department, Community Development Bruce Gregory, Vice President, U. S. Banking Division, Wells Fargo Christopher Conley, Senior Vice President, Public Finance, Tucker Anthony Marcel Welty, Program Coordinator, Resources for the Civic Conversation, National Council of Churches

DIRECTORY

MAJOR ELEMENTS OF THE MANAGED CARE DISCUSSION

1. INTRODUCTION
   Rev. Charles Rawlings, Director, Resources for the Civic Conversation, National Council of Churches

2. HMOs CAUGHT BETWEEN SHAREHOLDER EXPECTATIONS AND THE COST OF SERVICE
   Opening Remarks by Mary McNamara. President and CEO The Interchurch Center

3. WE’RE IN A TRANSITIONAL PERIOD
   Remarks of the Honorable Bruce Vladeck
   Administrator, U. S. Health Care Financing Administration

Q & A Discussion
Participants with Mr. Vladeck:
Dean Allan Rosenfield
Rev. Charles Rawlings
Professor Donald Shriver
Ronda Kotelchuck

PANEL PRESENTATIONS
The Community as Stakeholder in Primary Care Development

1. Ronda Kotelchuck, Executive Director, Primary Care
   Development Corporation
   
   Q & A Discussion, Participants with Ms Kotelchuck
   Dean Allan Rosenfield
   Ruth Salzman
   Gary Matthews
   Rev. Charles Rawlings
   Bruce Gregory

2. Bruce Gregory, Vice President, U. S. Banking Division
   Wells Fargo
   
   Q&A Discussion, Participants with Mr. Gregory
   Donald Shriver
   Ruth Salzman

3. Christopher Conley, Senior Vice President
   Public Finance
   
   Q & A Discussion, Participants with Mr. Conley
   Ruth Salzman
   Ronda Kotelchuck
   Gary Matthews
   Donald Shriver
   Tom Manning
   Bruce Gregory

4. Ruth Salzman, Vice President
   Chase Manhattan Bank
   Commercial Lending Department, Community Development Group

Q&A Concluding Discussion

About Resources for the Civic Conversation

How to Purchase printed copies of this discussion

INTRODUCTION

THE PUBLIC CONVERSATION ABOUT MANAGED CARE
Rev. Charles Rawlings, Director,
Resources for the Civic Conversation, National Council of Churches

In the past year and more, as a result of a growing number of conversations among community leaders and clergy about the descent of civic discourse into partisan bickering, we began to talk about creating new space for a more open and substantive public conversation about urgent issues that effect us all. We envisioned an atmosphere hopefully freed from ideological combat and hidden self-interests. As we looked at one of the most pressing issues, health care, we have encouraged the public to view this issue in terms of its complexity and to move beyond simplistic bipolar analyses toward a more realistic civic engagement.

Such engagement is critical for the spiritual future of the whole society, and its capacity for a sense of unity and community. It involves a kind of ecumenicity not determined by religious authority nor by the domination of the weak by the strong, but by a social negotiation that defines the public good and the means to implement or defend it. In this process, the moral component is not engraved on stone but is embodied in the civic process itself.

At a time of explosive re-financing of health care and its institutional reorganization, the extended conversation that follows among government leaders, bankers, health providers and ethicists gives us a helpful perspective about where we are in the evolution of Managed Care. It also suggests roles for the religious community and suggests ways local communities can become stakeholders in the process itself.

We are particularly pleased that this distinguished group gathered for this extended breakfast conversation, and that we are able to offer a full transcript to readers. It is, we hope, one more step toward the much needed space for community participation and democratic practice. Welcome to this Civic Conversation.

Introductory remarks by Mary McNamara,
President and CEO of the Interchurch Center, and host for this conversation.

This breakfast grew out of a particular concern about the future of health care, and that is the impact of the increasing amount that is delivered by profit-making health maintenance organizations who are in competition with each other for market share, and for demonstrated return on investment.

HMOs may be caught between shareholder expectation and cost of service
Investment is attracted to a particular health maintenance organization by anticipated rapid growth with corresponding increase in the value of the stock. At the same time, HMO's seek to meet customer expectations. However, the primary customers are typically the employers of patients rather than the patients themselves. Employers have their own concerns about profitability and about retaining value for their investment. HMO services for Medicare and Medicaid populations are subject to similar pressures to retain value for investment.

Regulation and evaluation of HMO's is a rapidly evolving field with full accreditation itself becoming an important consideration in marketing. Interestingly, when you look at annual reports of HMO's, physicians sometimes seem to rank low on the hierarchy of corporate decision makers. You know from reading newspapers that physicians are also subject to constraints and regulations about which the public may or may not be aware.

How can the poor and powerless be protected?
As HMO's gain a larger share of health care service you can expect that consolidation will lead to increased bargaining power and perhaps to increased prices and to decreased services. In this emerging health care environment the religious community must ask how the poor and the powerless can be protected and how the historic noble purposes of medicine can best be preserved. What roles might the religious community play in the search for affordable, accessible high quality health care?

And so today we welcome you as leaders of government and business to reflect with us on how the church can work toward understanding and direction in its relationship to health care.

Remarks of the Honorable Bruce Vladeck,
Administrator, Health Care Financing Administration, Washington, DC
[participating via conference phone]

It’s very important that when we look at the very important changes that are going on in the health care system we try to parse those changes as clearly as possible, and distinguish different parts of them that may have different both short and long-term implications, and that often sort of get conflated with one another.

…there are several things that are going on simultaneously that are not necessarily logically connected to one another, and which may begin to sort of break apart over time. Let me lay out what I mean by that.

Instability of the current configuration
First of all its important to emphasize that the changes in the health care marketplace, certainly on the supply side, on the provider or plan side, are very, very much still in progress, and in process, and I don't think anyone would argue that the current configuration of plans or plan/provider relations is stable, let alone one that is likely to persist over a period of time….If you look at the major purchasers on the demand side for a minute, many of them are in one way or another increasingly expressing their unhappiness with the state of the market. Whether it's the Minnesota business people saying "what do we need the HMO's for? We can contract directly with providers", or the FTC looking at the FHP merger, and asking us to participate because Medicare is a major customer of those plans, or the legislative proposals to allow direct contracting with provider sponsored networks, and so on and so forth, I think there's a lot of instability in the current configuration of the market.

Managed care is succeeding in reducing costs
The second [is] I think we have to be careful about these issues of investor ownership and profitability on the managed care side, as well, because, it's relatively clear to me, that what's happening…is that in much of the country the managed care plans are succeeding, at least for the time being, in an effort that neither government nor private purchasers were able to carry out earlier, and that is, basically, reduce what they pay to the providers of service.

Payors may begin to force changes
In the economic sense, I think, much of what is going on is the transfer of rents that have been historically received by physicians and hospitals to the managed care plan. Uwe Reinhardt has said "what does [he] care whether an extra dollar is going to provide an income of half a million dollars a year to a cardiac surgeon or a million and a half dollars a year to the stock options of an HMO executive". I'm not sure from a public policy point of view that makes a heck of a lot of difference, but from an economic point of view it suggests that once the rents have been transferred, as the payors get more sophisticated, they may get driven out. And to the extent that managed care plans have succeeded in the short run, not because they're doing the business of health care in a radically new way, but because they're reallocating rents that were in the system, it’s got to be a short term phenomenon.

Where the profits are going is up for grabs
The other thing is that I don't think we've seen the counter-revolution, yet, fully from the providers or the next generation from the purchasers. So, I think the issue of the organization of the system, where the profits are going and what happens to them long term is very much up for grabs. At the same time there's a perception that managed care necessarily goes with this change in patterns of ownership in the system. Historically that's not true. There's also an assumption that managed care is somehow inherently good or inherently evil. And we now have an awful lot of evidence from the privately insured and the Medicare and Medicaid populations, as well, that, in fact, performance of managed care organizations in quality and customer satisfaction and economic efficiency, is quite variable.

There is good and bad managed care
There are good managed care plans and bad managed care plans. There are good Medicare managed care plans and there are bad Medicaid managed care plans, and so forth. I think, when you're talking about low income populations the evidence is very clear that good Medicaid managed care plans succeed at overcoming what has been one of the principle barriers for the provision of good services to high quality care for folks with Medicaid, particularly in urban communities, and that has been that even the Medicaid card has not insured people access to primary care physicians or to other user friendly primary care services.

The balance of power will shift
In New York city, historically, Medicaid beneficiaries continue to be highly reliant on hospital emergency room and outpatient departments which are unsatisfactory from a quality, customer satisfaction and economic point of view. An effective Medicaid managed care can move that service to more appropriate settings, if it's done well. I also think that all of us purchasers are learning a lot more quickly, in fact, than I would have thought possible about how to be discriminating, effective buyers of services from managed care plans for Medicaid or Medicare or both. The balance of power in a lot of these relationships and the expectations of the level of accountability is going to shift quite dramatically over the next two or three years.

The "new" problem of the uninsured
Having said that, however, there's something else going on which is, to me, the hardest conceptual problem I've encountered in the three and a half years I've been in this job, and that, we haven't come close to solving and that's the following….

If you look at the numbers, what really happened in the eighties and early nineties was that the historical subsidies to institutions to provide care to the uninsured, which had traditionally come from local tax levy, as in New York City, or from charitable sources, were largely replaced by a variety of add-ons or subsidies built into Medicaid payment streams. And that actually produced the opportunity, depending upon the community, depending on the exact period, for some very substantial improvement in the quality and availability of services for low income people, both the uninsured and Medicaid patients, since they tend to live in the same community and, in fact, will often be members of the same family or, at least, live in the same apartment houses.

Medicaid capitation eliminates the subsidy stream
What has happened with the movement of Medicaid into capitated managed care arrangements is that those subsidies have disappeared. It's very hard to carry the same subsidies into a capitated, competitive managed care kind of model. In fact, much of the savings the states think they are achieving may, in fact, be just the removal from payment streams of those subsidy dollars. So while again, the record is pretty good that Medicaid managed care in most instances, at worst, is no worse then Medicaid fee for services, and in many instances can make a very positive difference in terms of access to services, what Medicaid managed care doesn't do is maintain the level of subsidy that Medicaid fee for service has

The health care market is shrinking
This is even a more acute problem because the other thing that's going on in the health care market, that people don't pay nearly enough attention to, is that it's shrinking, or at least it's shrinking in terms of the proportion of the population that is able to participate because they have insurance either from private health insurance or through the Medicaid program, and the fact is that the number of folks with private insurance has pretty much plateaued over the last number of years as the population has increased. Medicaid has made up for some, but not all of that reduction in private insurance, until recently, but with welfare reform and its fall-out we think that Medicaid enrollment has probably largely stopped growing.

Fewer people with the insurance ticket
So you have an increased number of folks who don't have the insurance ticket into the health care system, and at the same time, you have a series of providers of service that have historically been available for uninsured folks who in the last decade we have kept alive through Medicaid subsidies who are now being largely closed out of those subsidies by the shift into private capitated plans for the provision of Medicaid services.

The uninsured are the flash point of future problems
Frankly, we don't yet at the federal level, have a very good solution to that problem. Some states are trying some ways of addressing that. Frankly, one of the reasons we're still negotiating with the state of New York over its large Medicaid waiver proposal after a year and a half of discussions is we're concerned about the extent to which those issues will be addressed in New York. But, this is, I think, in New York City and in most urban communities in the United States exactly the flash point and focal point of where these problems are going to be over the next several years. And this point is one that the National Council of Churches and other people it works with I think it would do very well to focus on.

DISCUSSION with Bruce Vladeck

Allan Rosenfield, M. D., Dean, School of Public Health, Columbia University
The uninsured need attention from this administration
Bruce, it seems to me the single greatest problem is the one you just identified, and that is the problem of the uninsured which, at least according to some of the projections I've seen, may rise from the current 41 or 42 million to as high as 60 million people. It seems to me that the administration and congress need to come back to this issue. I know politically it's not popular, and one doesn't hear universal access as we did in the first two years of the administration, but at some point these numbers are going to be high enough to drive this back on to the agenda of both the administration and congress.

It may mean setting up, as we've discussed in New York, some kind of surcharge on all health payment of all health plans in addition to the incorporation of the uninsured, it also impacts on hospitals by increasing rather significantly the emergency room use that was beginning to decline. I agree with you that managed Medicaid, if done properly, can be a good source of care for Medicaid patients. But, I think the uninsured issue deserves and needs attention from the administration as it did in the first two years.

Bruce Vladeck
Some incremental proposals coming
Well, we will probably have some proposals here to very incrementally begin to address some of those issues, but I think there are a lot of lessons that can be drawn from the health care reform debacle of 1993 and 1994. I think the lesson, the real sort of take home lesson, as they say, that people ought to remember is that we proved conclusively that you probably can't provide insurance for the uninsured without somebody having to spend some money on it, and I don't, at the moment, see anyone volunteering to provide that funding, and I don't know what the political dynamic will be that will change that reality. Obviously, I hope we find one sooner rather than later, but at least from the very parochial and sheltered world in which I now sit I don't see any significant, short-term rush to volunteer.

Allan Rosenfield
Medicare for kids?
Bruce, does it make sense, as some have talked about, including Phil Lee, to focus on, in effect, "Medicare for kids" as an incremental approach that all kids would have access to health care below a certain age. That would then, perhaps, lead to pregnant women and such and to begin to close in from the two ends of the age spectrum?

Bruce Vladeck
Can’t be done without money
Well, I don't mean to be at all superficial about this Allan because, I mean there's a lot of very committed, serious people spending a lot of important effort trying to think about a lot of these alternatives, and that needs to be done, and you’ve got to keep trying and keep being optimistic about it. But there are a whole lot of different ways you can address the problems of folks who are uninsured and try to get insurance coverage to them, certainly. And we are now currently looking at probably 8 or 10 ideas that we have under active review and analysis, and most of them are pretty good ideas. The problem is that we haven't figured out how to do them for free.

Charles Rawlings
Can we use the monies saved by efficiency
You spoke about the disappearing subsidies. I presume, under the impact of managed care, you're describing a process in which the monies gained from improvements in efficiency are being pocketed by shareholders, and I wonder if there is some way to turn this system on its head so that the shareholders become the community. It seems to me, the subsidy question by itself leaves us with a two-tiered or two-class health care system.

Bruce Vladeck
Savings being pocketed by the states
The shareholders may pocket them in the short term, but in fact, a lot of the savings in the Medicaid population particularly, are being pocketed by the states, and I think over time, that's where those saving are going to end up. I don't know of any business sector that is involved largely in selling services to governments that has ever maintained the level of profitability that the managed care industry has demonstrated over the last number of years. As I say, I think the states as well as the federal government are getting to be more sophisticated buyers all the time to the extent that if there are significant profits being made in serving our populations, we're going to take it back.

States being given a way to reduce their commitment
The real issue is, in a sense, that the development of managed care has, in an era of fiscal conservatism, provided the states with a way to reduce their commitments to subsidization to these institutions or subsidization of these services. If you look at Governor Pataki's original Medicaid proposal, that was pretty exclusively the agenda. The legislature put a lot of those subsidies back in, but not at the level that existed before his administration. And I don't want to particularly single him out because that kind of approach is, in fact, very widespread among state governments all over the country.

Don Shriver, President and Professor of Applied Christianity
Union Theological Seminary, Emeritus
Can we expect to have research on the comparative performance of various HMO's available in the near future or is it now available?

Bruce Vladeck
Better evaluation methods not yet available
It’s important to distinguish between two types of research. One is broadly based research that compares the performance of HMO's in the aggregate, and there is already a considerable body of literature and that literature is expanding very rapidly. A lot of it is of very high quality, and there's more that's going to be published all the time. In terms of the much more relevant question for purchasers of: "how do you tell one HMO from another?", "how do you compare the performance of HMO's either cross-sectionally or over time?"; that's a much more complicated process, in part because HMO performance and HMO quality is so multidimensional. So that we know, in fact, that some HMO's that do an excellent job of treating routine maternity cases do a lousy job of managing patients with certain kinds of chronic illnesses; that HMO's, in general, do a poor job of dealing with people with complicated psychiatric or substance abuse problems, but probably not as poor a job as the fee-for-service sector does, in general.

We’re involved in developing the evaluation mechanisms for looking at the performance of individual HMO's or other kinds of managed care plans. But that's a series of activities that is very much in process, and I think we are several years away from being able to provide either a public or private purchaser, and individual consumers, with the level of information that would make us all more comfortable about any particular plan.

Ronda Kotelchuck, Executive Director, Primary Care Development Corporation
What about quality standards?
Knowing that this is a subject of probably intense negotiation at this point I wonder if there is anything you can tell us in terms of: should mandatory Medicaid managed care come to New York? Should you grant the waiver? What assurances do we have that there are going to be quality standards upheld; that in fact, there is going to be access to primary care?

Bruce Vladeck
The real question is enforcement
Well, I think you implicitly hit on the real issue there, and that is if the waiver to New York is granted, my understanding is there will be very extensive systems put in place with some very sophisticated standards that seek to monitor and insure good performance on a number of dimensions of those plans. The real questions is going to be, as it has been to this point, not so much the ability to tell in a relatively timely way whether a plan is living up to expectations, or for that matter, contractual obligations, it's the question of what do you do about it when you find they're not….And that's a much more difficult kind of process and it's, frankly, at least to some extent, a matter of political will, as much as it is a matter of measurement technology.

Ronda Kotelchuck
Will market driven rates generate quality?
Well, from the perspective of primary care providers, as we go to market driven rates, I think the real issue, and the uncertainty is this: is that market going to support high quality primary care access or not? And it's very, very important to those doing a good job that they not be priced out of that market, and that has to do with maintaining those standards.

Bruce Vladeck
Inexperienced providers not ready to serve low income areas
Well…many providers who have not traditionally served low-income populations very substantially don't have built in to their operation some of the costs that are associated with trying to provide services in low-income communities; and they’re trying to provide to low-income communities, including people with more limited kinds of insurance coverage. So, the real fight, as you well know, is going to be that the state and the plans are going to go back to those providers and say, you know, we'll be more than happy to have you at the party, but we're not prepared to pay twice as much on a unit basis for a set of primary care services, as we can get from, you know, a board certified family practitioner on Queens Boulevard. And then the question is going to be: "why does it cost that traditional primary care provider twice as much?"

And I think a large part of the answer is because the bundle of services and the population being served by that provider are not identical to what's being done in the office of the provider whose getting into the Medicaid business for the first time. And that to me is, to some extent, back to the subsidies we had built in to maintain the availability of services, and the level of services over and above the very narrow ability to pay for doctor visits for Medicaid patients. I don't know enough, frankly, to know whether the New York proposal addresses that, but that to me is going to be where the sort of rate issue ends up resolving itself.

Allan Rosenfield
I think there's a lot of health economists who are beginning to say, "those of us who focused on these wealthy investors getting their money, that's not the big issue, the big issue is what are we going to do about future costs?" They've shown that they can cut costs, I see it in our own institution. Costs are down. Length of stay is down. The spiraling increases in the cost of health care have begun to level off recently. Managed care is having an effect, and if that ends up in someone else's pockets (I'd rather it didn't), I think the important issue is how do we begin to get that, or some other money, into the uninsured issue, and solve that? That's where I don’t hear that Clinton is prepared to act now because of the '93-'94 debacle.

PANEL PRESENTATIONS:
THE COMMUNITY AS STAKEHOLDER IN DEVELOPMENT OF HEALTH CARE RESOURCES

First Panelist:
Ronda Kotelchuck, Executive Director, Primary Care Development Corporation of New York City

Well, I did give a good deal of thought to community stake-holding. I'm not trying to put aside these mega issues which are of key importance and very thought provoking and will be the subject of a lot of angst before we begin to see what the shape of the new system is and what the opportunities will be.

Community Stakeholding
So, not meaning to put those aside entirely, I wanted to focus now on community stake-holding because I saw that concern at the heart of a lot of what you were saying, and I think we have some significant experience to bring. For a moment, I'm going to focus on the positive moments of managed care. I think there's really both positive and negative. From the perspective of poor communities I do think that there's a positive moment in terms of re-shaping the services that are available, or re-shaping services that have never been very responsive or very appropriate in those communities. Managed care has that positive moment in it because it puts primary care right at the heart of the system where, in my opinion, it belongs. And, it does create revenue streams allowing for its support there, at least until proven differently through experience.

So if I was going to stand back and say, what are the implications for community stake-holding of the move to managed care, I think we'd want to look at a whole number of sectors that are growing as the result of managed care. They're non-acute sectors, they're primary care, which is where our experience is.

But, we'd also want to ask ourselves, "Is there an experience out there in direct community stake-holding in managed care plans?" And there may be some interesting opportunities. I think we'd want to ask ourselves, "Is there an opportunity for community stake-holding in home health care, in long term care?" I do think there's some interesting experience. But, I'm going to focus on primary care because that's what we know, and what we're about.

A Range of Community-sponsored possibilities
Let me make one other background comment. I think the word "stake-holding" has embedded in it a whole number of different meanings and they probably fall out along a spectrum. At the starting end of the spectrum, it can mean (unless I'm misinterpreting the word) something as simple as improved services for the community. I think, to a number of people, it also includes increased in jobs and economic development for those communities. If you move up the spectrum it also means empowerment of communities who have not been empowered in the past, groups that have not been. What's achievable in community stake-holding really depends on what the goal is. There are different goals. Some are much easier to achieve than others. I think improved services, for instance, and even increased jobs and economic development are easier than empowerment in this environment. That's probably not a very profound statement.

Primary care needs community partners
So, let me talk about the Primary Care Development Corporation (PCDC), who we are and what our experience is. We're an initiative that was created by New York City to expand primary care in low-income communities. We were created with the full knowledge that managed care was coming and that primary care—very heart of the system that's needed—didn't exist in those communities. We address the building of new and expanded primary care facilities through our ability to give technical assistance, development loans, and then ultimately arrange capital financing for building of new facilities. Embedded in the PCDC effort are a couple of kinds of partnerships, if you will, between financial institutions and the project sponsors that we're working with. We're working with two kinds of lenders. One is the New York State Dormitory authority which provides tax exempt financing for larger primary care projects. The other is a group of commercial lenders who will provide financing for smaller projects. That includes a number of individual institutions as well as a consortium of six leading New York City banks in which Ruth Salzman has played an important part.

25-30 projects underway
Let me say that community stake-holding has been very important to us, because it's our view that it is critical for the success of primary care in these kinds of communities. It's critical to their business success as well as to their health care success. So, those values are built into our selection criteria when we evaluate and approve a sponsor. As a result we're working with somewhere between 25 and 30 projects with different sponsors, and I'd say that about a third of those are community-based providers. They're groups like federally funded community health centers, who have never had access to capital in any form, even to improve or maintain the premises that they may have been operating for the last twenty years, much less expand. It includes community based groups doing other kinds of treatment for whom going into primary care is the next logical step, in terms of the care of the population that they address.

We have a slightly smaller portion of partnerships between community-based groups and providers. If a community-based organization really wants primary care in their communities, probably the route is through a partnership with an existing provider. This is probably not the environment to overcome the challenges of becoming that provider yourself. So, in fact, we have an interesting group of partnerships between existing providers and community groups.

Impact of Managed Care
Let me talk for a moment about what the transition to managed care has meant to us and what we're trying to do. We started this effort under a highly regulated New York State health system where there was much more predictability with regard to revenue streams. So, we’ve invested a lot of energy accommodating to the transition to managed care. Why am I confident that we can do that relatively successfully? I'm confident because that's the whole direction that managed care carries you in. And I have to believe that if managed care represents a commitment to anything it will ultimately support the provision of good primary care. But, to us, the uncertainty it has brought has posed the real problem. If I knew where "there" was I could accommodate our programs and make decisions accordingly. But nobody knows where "there" is. All we know is that we are in a very rapid process of going from here to somewhere.

New uncertainties
So what is the impact of uncertainty? We’re not dealing with grant funds, we're dealing with debt. The key impact of uncertainty is to make both parties, lender and borrower, very cautious. No one wants to take on debt if you think you're not going to be able to support it through your revenue streams. And, uncertainty and caution have slowed down the process enormously, on both sides as parties come to terms with that. To help in this situation we’ve created a model so that at least we can every conceivable assumption about the future, and understand its impact on the bottom line and on the enterprise. Thus we can assure all parties that a proposed budget is a good proposition; or no, that it’s not; or we will need to strengthen it, or figure out another strategy.

The turbulence, the uncertainly, works a real disadvantage for community based groups who tend to be weaker, and tend to be interested in new starts. Rather than simply abandon them, because we think that they bring so much to the table in terms of partnership, we have urged them to find partnerships with financially strong institutions who can stand behind them and make the proposition possible. And we've gotten a number of quite interesting partnerships in that respect. For instance, a locally based social service group, very strong and very smart, is in the process of working out a partnership with a major academic medical center who will help them get the experience to start up the center. The center will provide a credit guarantee. Should the enterprise fail under their management—the medical center will step in, take it over, do a turn around and give it back to them. To say that this partnership has been difficult to negotiate would be an understatement. On the other hand, I think it demonstrates some of the possibilities in our new managed care environment..

RFPs in search of partners
Knowing that managed care plans were the new party on the block, taking over from Medicaid as payor, we also did a special initiative to try to invite them into partnerships, backing up community-based primary care. About a year and a half ago as we saw the environment changing, we put out an RFP encouraging managed care plans to link up with community groups, and got some quite interesting responses. Our timing wasn't wonderful because the RFP came out just at a moment when a change of policy created a crisis of uncertainty for managed care plans. So, I don't think we have fully played out that gambit, but I believe there’s a lot of possibility there..

We did see a couple of plans step forward with really quite interesting offers of how they could work with community sponsors. Their action is not based on charity; it is based clearly on a calculation of self-interest. Ironically, the managed care environment has strengthened the hands of community groups in a lot of ways. They bring to the table a knowledge and credibility within their communities. Two of our community-based sponsors actually issued their own RFPs to get affiliations with hospital backup. It used to be that a community-based health center one begged and pleaded and tried to piece it together, and felt like the orphan on the block. Now their hand is strong enough that they can entertain offers from different hospitals and medical centers and chose the strongest one. So, this is a small indicator that things are changing and there are new possibilities.

Uninsured people—the unsolved problem
The third problem that managed care presents to communities is a major and obvious one. It is the problem it is serving the uninsured in an environment where their numbers are growing and resources are shrinking. Bruce Vladeck was quite eloquent about why that is taking place. Let me just say, that this problem presents particularly difficult financial, moral and operational dilemmas to community-based providers. The community is made up of people who are insured and uninsured. It's often the same person or different family members who are insured and uninsured over time. So, to the extent that there's a commitment to serving the community this is really a wrenching question. We see community-based providers sitting down and contemplating trade-offs, between service to the whole community and their own fiscal integrity,, particularly as they think about expanded primary care. Ultimately, we're working with smart operators. They will eventually do what they need to do to survive, and to serve the community, but this is a problem that has got to be solved because it's going to be too awful if it isn't.

So, just in terms of what we need to make these primary care partnerships successful, to make them grow, there's two or three things that I would suggest. One I broached earlier with Bruce. We really need to know that quality standards are going to be enforced, because that will create a market, and the market will pay for quality services. If quality standards are not enforced then you're going to cut the market right from under providers. So, this is a real and present issue on many accounts, not the least of which is financial; not to speak also of the quality of services received.

In this period, if people believe, as we do, that managed care is driving toward a primary care based system, it would be useful to have a few assurances to try to lock down some of the uncertainties. As the policy makers are putting this system in place, we need some clear expressions that the goal is access to primary care, expansion of primary care. Assuming this, there are any number of different suggestions for how it could be done. I'm talking about public policy.

Then, we must have effective advocacy for the uninsured. There has to be a solution to that problem. It's only going to grow. And then finally, to those who would really want to strengthen primary care expansion, we need to find some additional resources and ways of reducing risk, and people that are willing to make investment and risk debt in order to expand primary care. We need to find additional resources that can bring down the amount of debt in a new primary care setting. That would loosen up a lot of things, and make a lot of things more possible. We need to find additional credit sources that could stand behind these projects. With that, I'm sure I've talked too long and too much.

Questions, Answers and General Discussion with Ms Kotelchuck

Allan Rosenfield
Competition will impact quality
I think in the private managed care setting the consumer, coupled with their employer, will probably play a role if there are enough complaints to the personnel department that they're getting bad care. They'll change. The quality measures that are being put in place by them are going to be used, people are going to be using them to advertise that they're better then their competitor.

But not in the case of Medicaid
I think for managed Medicaid, particularly, it's going to have to be a government function to put in similar measures and government's going to have to be the equivalent of the employer. The welfare changes are going to drive a lot of people out of Medicaid eligibility so that the numbers eligible for Medicaid are going to decrease as the "welfare reform" kicks in.

Ronda Kotelchuck
Let me say one thing about the uninsured in a primary care context. People, when they don't have insurance, or access to care, don't go away, and they don't cease to get ill. If they don't have access they will end up in the emergency room costing far more in an inappropriate setting. They end up in the inpatient environment because there was no prevention or primary care. Preventive and primary care is the least expensive, most effective mode of meeting the vast majority of needs. I would argue access to primary and preventive care takes on a paramount importance, and it's not as expensive as what you're going to end up paying when these patients are forced to enter.

Allan Rosenfield
I agree, and that's rational. Unfortunately, that message hasn't gotten through. We've know that from the previous era when there were so many people using the emergency room care. And the data that's recently being published, (that recent study got a moderate amount of attention in a column by Bob Herbert in The NY Times two or three days ago) which is re-enforcing what McCort and Freeman found in Harlem where excess mortality for adults, men and women, well above the levels for the rest of our society, above the levels for many developing world's societies for adult life expectancy. And it's not drugs and homicide primarily, it's chronic, it's stress, chronic diseases, and the lack of adequate preventive and mental health and related services to try to help. So there's a lot of evidence to support what you say, Ronda, but the facts don't always move the political agenda the way they should.

Ruth Salzman, Vice President, Chase Manhattan Bank
An Ohio study suggests people have to be educated about managed care
One of the most hopeful aspects of the partnerships between traditional more established providers and community-based institutions revolves around the issue of outreach and communication. I thought this was well highlighted in an article in the New York Times which reported on how mandatory managed care was working out for Medicaid recipients in Ohio. It seems the emergency room utilization has hardly dropped at all. There were a few reasons given, but the single most important, and I think the one that explained the others as well, was poor communication to the enrollees on how the new system works. It seems to me one of the greatest assets of the community-based organizations is their legitimacy and knowledge of their communities. They are much better able to reach out to local neighborhoods and help people to learn how to take advantage of a more appropriate way to access medical services .

Ronda Kotelchuck
And clearly, that's the asset that the community-based group brings to the table. The partnership is not out of love and charity.

Gary Matthews, Doctoral Candidate in Ethics
Quality through regulation?
Ronda, I've been wondering whether [some of the quality questions] couldn't be a part of some of the regulatory thrust toward managed care. Most of it's been consumer oriented, consumer rights oriented, quality standards oriented, but couldn't some of that regulation be focused on this issue, focused on nudging managed care organizations if they're going to operated in a particular community that they need to form these partnerships?

Ruth Salzman
Regulation argued as a poor route to cooperation
I have a strong view of the role of regulation, both its intended and unintended consequences. First of all, regulation tends to be a very oblique tool. Second, a regulation that calls for interaction between major providers and locally-based agencies sounds a lot like the first 30 years of the Community Reinvestment Act regulation that banks are subject to. Until recently, CRA has emphasized ascertaining the needs of local communities - presumptively in order to meet these needs - but resulted in thick dossiers documenting that many meetings have taken place at the community level. In April of 1995 the CRA regulatory approach was significantly modified to an outcome rather than process based approach. I can’t help but believe a lot more loans will be made when what’s being counted in closed loans, not numbers of meetings to determine who needs those loans.

HMO performance records –an analogy from the Community Reinvestment Act
I think there are some striking analogies between the community reinvestment experience in the banking industry and community outreach on the part of major proprietary and voluntary providers in the health care industry, and some of the same techniques we’ve learned in one setting can be helpful in the other. We’ve both learned that you cannot come in, no matter how well intentioned you are, and do good for others. Without understanding the needs of the community from the perspective of the community you can waste a heck of a lot of resources and have very little to show for it. At Chase our community development banking efforts are built around forging dynamic partnerships with community-based organizations.

Minority churches have become an increasingly important sector in this strategy. I think they present a similar opportunity for successful partnership with health care institutions. A major managed care company that wants to get serious about Medicaid managed care would do well to think about sitting down with a Rev. Butts or Rev. Flake. These individuals know the needs of their communities extremely well, have themselves institutionally accomplished a great deal of community investment, and have a fine understanding that a successful partnership requires both parties to benefit. Their imprimatur would confer a legitimacy - a "Good Housekeeping Seal of Approval - that no amount of advertising could equal.

Adding a third leg to the stool, bringing an organization like PCDC into the partnership, creates a very exciting set of possibilities. You then have knowledge and expertise, community legitimacy and scale brought together in a structure that greatly increases the probability that the outcome is the one you want to achieve.

Allan Rosenfield
The Public Health Scoreboard
Another scoreboard on the lines of how many loans are given out is this—we've had some dialog with managed care companies about the public health perspective versus the managed care perspective, and how public health covers population based perspectives. For a managed care company it's their own population. It is not a geographic population, nor an ethnic population. Rather, It's their covered lives (which is a term I wish we could ban). One set of measures, like the number of loans, is what percentage of kids under the age of five have been immunized in your population, whatever it may be? What percentage of women have had pap smears and mammograms? What percentage of hypertensive checks have been initiated? The whole range of clinical preventive services. Those can be easily developed measures by which a government or a company or anybody can assess one aspect of quality of care. And it’s something that can be done in conjunction with local community groups. Then you can go on to say how many complaints and other things, but those are very specific types of measures that can be useful.

Ronda Kotelchuck
Let me say that, short of regulation, there's some things that can be done, and even were faintly attempted. The state and the city have a competitive selection process for plans that will participate in Medicaid managed care. And a set of criteria that they were to use to winnow that down from a very large to a smaller field. We argued and got included among those criteria in that commitment to increasing primary care capacity. That was one of many considerations, however, and eventually, in all the tumult of the changes, it fell to the bottom rather than toward the top. The purchaser can say what they want and who they're going to favor and how they are going to make that judgment, and that would be a very important thing to do.

Allan Rosenfield
Giving HMOs a community responsibility
When you think about a managed care company, you try to think about how you can give them a community responsibility in relation to the population they cover, at least in most of the larger ones, for people scattered throughout a large area. There is no community, as such, except their "covered lives." The Public Health Department, on the other hand, or a local group, can have a more easily defined community responsibility.

Charles Rawlings
Improving the community’s negotiation position
It's very opportune right now because the churches, particularly the largest among them, are being be heavily marketed and I think your comments go in the direction of helping them put themselves in a better negotiating position in relationship to this entrepreneuring that's going on.

Ruth Salzman
I agree. I think managed care represents a concentration which can advantage the community from a negotiating standpoint. Institutions able to "deliver" significant numbers of covered lives, and this harks back to my earlier comment about conferring legitimacy - have bargaining power.

Let me just mention the regulatory approach now being used in the Community Reinvestment Act that addresses the issue of which communities have access and which are being passed over. Our reporting of credit extensions to small businesses is done at the census tract level. The test being applied is one of comparative market penetration. If a bank has a 30% market share of medium to affluent income census tracts in its so-called delineated community, and a significantly lesser penetration of the low or moderate income census tracts it creates a presumption that the bank has to be prepared to respond to. And these penetration figures, bank by bank, will be publicly available beginning in 1997.

Ronda Kotelchuck
Let me say, that also, right at the moment you have some community and provider-based plans operating. Many of them were formed by community based providers to try to help them survive this era. Because of that community base you find plans that have their enrollees concentrated in particular communities: Harlem, Bronx, parts of Brooklyn, etc. I think that offers a useful configuration. I don't know whether it will endure as the competitive process continues

Ruth Salzman
But it does have something to sell.

Ronda Kotelchuck
They're non-profit, and they're committed to those communities, and they're committed to those groups.

Allan Rosenfield
Growing inequality of health services
One problem with not getting the government involved, one way or another, is that there's going to be tremendous inequality scattered throughout the country. There will be some areas where there's great interaction between the community and providers and funders, and where there's good leadership that makes it all happen. But, there are going to be a lot of other communities in the country where the ground rules are going to be a lot different. If there's not the establishment by the government of some overall ground rules and regulations, then we're going to have a very scattered system of good, mediocre and awful health care in the country.

Ruth Salzman
Government could set base-line standards
All I’m suggesting is that regulation is not a very acute tool. It certainly has a place, and I’d suggest that place is in setting baseline standards. Looking for some rough comparability of penetration between poorer and richer communities on the part of profit-seeking institutions is one example of setting a baseline. Beyond that, I firmly believe that local communities interacting with market forces can accomplish a good deal as well if the local communities can come to the table with leverage.

Bruce Gregory
Religious Partnerships
How many of your community-based partnerships are linked to religious organizations in some fashion?

Ronda Kotelchuck
Okay, a significant number. Among existing community-based providers, particularly community health centers, we don't tend to see such a large representation of churches. But among the groups that are really mobilized to try to bring care into their communities, I'd say that churches are a particularly important force. For many, this is part of a whole community redevelopment scheme. They've done housing, they've attempted to address jobs and job training, and they see that primary care is a necessary piece of the complex of services needed to achieve their missions. For instance, we're doing a project that is part of a community redevelopment scheme of a church in Queens. We're having a discussion with a couple of churches in Harlem. I see those as particularly important groups in terms of the assurance that we're going to get primary care into those communities.

Bruce Gregory
Open to everybody?

Ronda Kotelchuck
Yes, everyone's vision is that this is open to everyone. Not withstanding all the contradictions and difficulties we just heard.

Second Panelist:
Bruce Gregory, Vice President, U. S. Banking Division, Wells Fargo
I was involved with the Brooklyn Ecumenical Cooperative in the eighties and this was never on their agenda. Job creation was, housing was, literally fuel for their churches, but never health care. Now, again, health care wasn't perhaps as urgent then….

The public must understand the real costs of health care
I thought your comment, Ruth, about communication was fascinating because I'm convinced that politicians, all of us, don't educate the public about what are the real costs involved in delivering health care: training, equipment, etc. There are staggering costs involved here, and no one has really said that this morning, and I think it's a very real nut to crack. I don't believe that the average patient understands that a $15 to $20 fee hardly covers the cost of a good doctor, of a good psychiatric practitioner.

That cultural attitude hits us hard at Blanton Peale Institute. I'm a board member of Blanton Peale. Blanton Peale is a psychoanalytic training program. It serves New York with over 16,000 hours of therapy each year. And this reaches down, often into the groups that we're talking about here. We have offered our services to managed care organizations. We are an ideal provider for managed care organizations because we have an honest and tight administration, we have our own premises, we have good supervision of the people that deal in the psychiatric area. Our atmosphere is pleasant it's focused, but we're pricey, according to the managed care people. Our professionals receive about $30 an hour.

The HMO networks find that too high. They want practitioners who receive about $15 an hour. Now, minimum wage is about half of that, as you know. They want fewer visits. I sort of equate it: they want champagne results at beer prices. And they always pay late, very late. I have been the treasurer of this organization and I have watched how we finance months thousands of dollars worth of receivable to well-off insurance companies, as well as Medicare and Medicaid. It's an astounding thing to watch. It's very hard to know, as a board member, how to address this squeeze. Do I suggest we dumb up this organization? lower the skill of the practitioners so that they can come in under this $15 limit? Simplify the training, don't make it as complete as it is (and it's very good now). I'd even say in a scandalous way this is what sometimes short-term therapy is called in a code kind of a way. It's basically, potentially "dumbing up" the process. Do we move patients out before they really need to be moved out?

My organization is about 25 percent dependent on donors. It's very hard to know how to go to major donors like the heirs to the Johnson and Johnson fortune and talk about "we're going to dumb up the organization so we become more efficient." That's a hard one. So, I can only say that I'm fascinated to be here because there have to be some linkages, other then what we're doing right now. I know that business as usual is not going to allow us to continue with our mission (and it's a good one and it's established).

Questions, Answers and Discussion with Mr. Gregory

Don Shriver
Efficiency for whom?
Efficiency is always a loaded term. Efficiency for whom? and for what? In order to have efficiently managed care, must we have administrators who are not paid so much by salary, as by the promise of profits. Most of us have made our living on salaries, and have worked very hard at it. And we like to have raises and all that, but why is it that so many of us seem to tolerate the notion, even the promise of large profits for management. Is that the only thing that drives people to be efficient, in the business world?

Bruce Gregory
The profit motive parses out inefficiencies
I would join with Ruth in saying that I do believe that the profit motive is a very important parsing out in our system and I think that it works. Maybe to try to re-quote Churchill about democracy, "It's better then most systems." I really do think that it parses out and creates efficiencies. I've watched it in my own bank, and I'm sure Ruth has too. And, we do provide services often on a mass basis more efficiently then we did before. So, there's a lot to be said for that. But, I do believe in the sense of the pendulum, and things can get swung off in one direction or another, so I think that I will move away from the table with a pendulum image.

Ruth Salzman
I think we have a lot of evidence that the absence of the profit motive does not create efficiency in a delivery system. Nor, for that matter, does it insure quality. What we seem to be grappling with is combining the benefits of both a profit-seeking and a charitable approach without incurring the excesses of either. We’re also trying to combine the benefits of large and small. Big systems have scale that drives down cost and delivers more service but does not deal particularly well with situations that are not standardized, and human beings are notoriously not-standard. Small agencies can have flexibility, and hopefully sensitivity, but represent tremendous amounts of duplicative overhead. We’ve talked a great deal this morning about where to find the resources to care for the uninsured. It’s hard not to look at this redundant overhead as part of the answer.

Don Shriver
The Case of Excess Profits: U. S. health Care and Aetna
I think I understand that. I guess we're really asking questions of distributive justice here. I'm for profit-sharing, including sharing of the profit with the consumer, in terms of lower rates and so forth. If that becomes a broadly shared benefit of efficiency that is an ethical accommodation that would be hard to object to. It's the disproportionate sharing of that profit that raises the real ethical questions. I think that the HMO industry suffered a very bad propaganda blow when Mr. Abramson got his $920 million last April from the sale of U. S. Health Care to Aetna.

Ruth Salzman
Good deals for the community can be good for business
I agree with you completely. I think an entity like PCDC can help by bringing together community based institutions and large managed care companies. These companies need delivery sites, and PCDC is in the business of creating them. Because PCDC is not developing just one, but rather a substantial number of facilities, it has scale and bargaining leverage. It can be a very positive force in negotiating reimbursement levels that are fair and realistic and consistent with good quality.

I would also add that shareholder value for the profit-making company is enhanced over time by a solid reputation for what is often referred to a "corporate citizenship." I’ll give you just one example. Around 1980 Chemical Bank formally announced a policy of not doing business with the apartheid government of South Africa. That was the right thing to do morally, I believe. It also brought our bank the largest share of institutional church business in our market at a time that most of the major Protestant denominations were headquartered in New York. I firmly believe that similar opportunities to - as the saying goes - do good and do well - exist in the health care arena.

Chris Conley
New initiatives to meet needs of small providers
Going back to your suggestion about what drives efficiency, Don, I think profit is the positive side of what drives efficiency, and I think what is driving many not-for-profits is fear. What I see going on in both—I sit on the board of a Catholic hospital—is I see fear about what will happen when for-profit providers are coming in. And also I see some leadership, quite frankly, with the management efficiency side asking "how did they do that?" Part of it is good selection, managing better, being more efficient. Part of it’s bad, it’s what concerns services. But in the not-for-profit world, unfortunately, I think there’s responsiveness going on quite often out of fear of what might happen to physicians.

I worked in a large investment banking firm for about 12 years financing large hospitals and nursing homes, transactions with high credit quality in New York. While there, I was often struck by the fact that very few bankers were paying attention to the small provider. And I was struck by it from a number of points of view.

Financing small providers
One is that it occurred to me that that's the future direction health care was going in towards community-based services. Two, there was available funding. And three, based on some research I had done, the track record for defaults was actually quite good among smaller health care providers, the un-rated community mental health centers, primary care centers, smaller hospitals, etc.

The Community Health Facilities Fund
So, I left Lehman Brothers, in April, '95, to go to Tucker Anthony to focus on this particular market segment, and I was fortunate thereafter to be asked to run, on a contract basis, a 501-3 organization called the Community Health Facilities Fund which is based in Washington, DC. And the purpose of this organization which is funded by $10 million from the Robert Wood Johnson Foundation, and Prudential Social Investment is to improve access to capital for community mental health centers all over the country. CHFF uses this money, in whatever form seems to make sense, to get providers their cash. And, I'm happy to say 18 months in, we're about to close our first deal of $10 million. It's been a long process, and Ronda and Ruth can identify with the time it takes to get a lot of these providers to the financing table.

Linking community based programs to state regulatory reimbursement frameworks
But, I've learned a number of things, and I think is some good news and some bad news for what we have talked about today. First of all, in financing community mental health centers all over the country, we rely very heavily on the regulatory and reimbursement frame work in which they exist. If you look at a hospital you can look at management, look at the balance sheet, look at the income statement, and, perhaps, get comfortable. If you look at a community mental health center, that just doesn't get you there. You've got to go back to the state and say: are you supporting this operator? what's the reimbursement mechanism? have they been doing a good job? are they going to be around for a while? and so forth. And so you have to link that community based organization to this higher entity, to this state government, to this regulatory and reimbursement framework.

The community connection makes a difference in financial success
If it's not there, or if it's not going to be there, the loans don't really get made. And I think it's a sort of a comment on what this represents, because if you're going to lend something, you want it to be a stable organization. What represents stability in community based health care organizations? I think it's a very interesting marriage of the community saying, "we want this service, we're going to provide it," and then finding those mechanisms in the regulatory and reimbursement, or more broadly the payor world, to make it happen. And I say payor now because the payor's changing. Bruce said it. Everyone here knows it. The payment mechanisms in New York, for example—people complained about them for many years—but, they were very reliable. You could rely on the money coming in. Now that's beginning to change.

Financing a Hospice
I can give you a couple of examples, but the most recent is we're financing an in-patient hospice in Michigan. This project is consistent with the direction of managed care because we're taking people out of ICU's and letting them die with dignity in a very low cost setting. One individual started this in her house ten years ago. It's an outpatient program. She built it up by herself, she built the staff and then three or four years ago, reached out for the reimbursement and regulatory mechanism to turn this into a much bigger project. She went to the state of Michigan, got a CON, got a certain number of beds carved out just for this purpose. So she has her franchising mechanism. There's fairly good funding from Medicare and Medicaid, and we're funding this project next week, but the point is it started with a community based interest, and reached up to grab on to something that represented some stability that we could finance.

And so, the bad new in this discussion is the extent that those revenue streams you were talking about are changing. The question is whether or not the change can be managed in such a way to create long term stability in these organizations, and we're seeing it. We manage some operators of mental health centers in Florida. Managed care is rampant there. So they're hanging on. That's probably the best way you can put it. They're trying to merge, they're trying to control their costs.

Local providers are needed by Managed Care
But, one other point, I don't think that managed care companies want to be these providers. I don't think they want to put a well established provider of mental health services, of community based services, out of business. It may get close to that, in certain circumstances, but I think that we have to separate providers from payors, and I happen to believe that a strong community based organization providing a kind of specialized service will be there, will find a way to be there, and I don't think that the managed care companies want these providers to go out of business because, what are they going to do? How are they going to provide for developmentally disabled individuals, and mentally retarded individuals, and people who are essentially wards of the state? I think in time some sort of symbiotic relationship will develop there. That's all I wanted to comment on. I think there is a way to marry the community interest with payment mechanisms even when the community interests and the payment mechanisms are changing.

Ruth Salzman
Are you familiar with managed care initiatives in New York? There's a company called MCI, Managed Care Initiatives.

Chris Conley
No I'm not.

Ruth Salzman
Inventing new combinations: for-profit and not-for-profit
MCI is a partnership of very well established nonprofit providers of mental health care. They have come together to form a SNP, a Special Needs Plan, which will be able to deliver the full spectrum of non-acute mental health services. Their expectation is that, as experienced providers, they can achieve a favorable balance of efficiency and quality resulting in lower cost for the public sector, high quality appropriate care for the "consumers" and profit participation for the partner agencies. If approved as a SNP, MCI will then be able to contract both directly with the public sector, such as Office of Mental Health, and with general medical managed care plans which are required to provide a mental health component. At least on its face I think this venture can be competitive with large national mental health care delivery systems.

I am not convinced that nonprofit general primary-care delivery institutions can be competitive in the same way, partially because they practice in a more commoditized area of health care delivery. But I do think that the special needs markets such as mental health care and substance abuse services represent niches where the community-based institutions can come together to become competitive if not in fact dominant.

Chris Conley
And actually, that's another thing that they're doing in Florida as well. They're forming their own managed care programs for that purpose.

Ronda Kotelchuck
When the dust settles the market will support a lot of enterprises
See I have some faith that when the dust settles, the market will support a lot of enterprises, the nature of which we’ve talked about. And, classically, we always read: first there will be price competition in the managed care world and then when prices have finally been evened out, there will be quality competition (if we live long enough to reach that point). I both have a faith that when the system settles out, it’s going to support basic care. What's causing real problems for us, is the transition, the enormous uncertainty, the bumps that we're going to go over until we get there.

Chris Conley
In our case, that’s what our $10 million is for. We’ve got the uncertainty factor because if the pool takes a hit, I would agree with you that the transition part’s the toughest part, and I also agree about your faith in the future. I think these institutions will be there, in some fashion. And it will almost certainly require the partnerships you were talking about before, either with one another, or with larger organizations.

Gary Matthews
What about long term Managed Care profitability?
I've been wanting to ask a question that….has to do with providers, certain providers, that are outside the managed care mainstream, and that need to find payment mechanisms of their own. They’re beginning to look toward their own types of managed care payment structures, and that type of thing. There’s been some talk [about large purchasers still being very unhappy about what they're receiving for their money, it has to do with some echoes that I've heard and various things that I've seen come out of Wall Street that say that profits are down on managed care companies, generally, over the last year or two and the fact that managed care organizations have developed their profits primarily from squeezing some things. Like the charitable payment mechanisms, so that some of the savings and some of the profits are coming out of squeezing that money and diverting it.

All of those things point to at least an open question about the long term viability of managed care in this transition. Thus, there’s the movement toward having buyer and providers linking up directly and pushing the middle man out of it all together. I'm interested in some of your thoughts about that and what you see coming down along those lines.

Chris Conley
Managed care may be a short term phenomenon
I don't know whether I can comment on what I would actually see coming down the line. I think to some extent if the managed care companies are very profitable now they will continue to grow, but when they stop growing, and really start competing, profit margins will come down. That's a known. It’s interesting, what Bruce said this morning was that maybe this is a temporary phenomenon, this managed care business.

The payor could change!
Maybe the payor is going to change again. You know it used to be the government, now it's filtered through managed care. Maybe somebody else will be here later on. The important question that I would like to go back to is this: are these needed, are these services needed in the community and is the community supporting them? And I think if you answer that question, yes, I think those community-based services will find the right payor. I mean, you know it's not going to be easy in all cases, and people will probably go out of business from time to time, but I think, if you really believe that this is an essential service, that the payor will be found whether it's a managed care company or not.

Don Shriver
Many times in this discussion, we have come to the sense that the uninsured is the big problem. Before we end, I'd like to know from some of you what do you think churches ought to do and what kind of argument should we promote publicly on behalf of the uninsured?

Tom Manning
I think there's a huge role for churches to play, and I think it's a flat out political advocacy role, because providing for the uninsured is not a difficult theoretical problem. It's not like, "how do we solve poverty in its broadest sense?" It's more like "how do we pave a road?" Everyone knows how to provide care to the uninsured, they just don't want to pay for it. There's one straight forward source of payment, and that's from all of us, through taxes and through government.

Churches are extraordinarily effective grassroots lobbyists. I worked for a politician for a time. Few things move a politician quicker then getting lots of letters, particularly, individual letters on a specific subject. They go crazy!

Don Shriver
Some of us work for something other than money
You know, that we're constantly being told in the church that it's money that runs the system and profit is the great motivator, that's partly behind my question up to here, you know, but it turns out that there are other motives in human behavior, and that money is not the solution to all problems, I know I'm talking ordinary stuff, but it seems to me, it's very important for people in professional practice to admit to the fact they do some things because they are professionals and not because they are paid. And I'm saying this American society operates as well as it does, as badly as it is, but it's better than it would have been if there weren't a lot of people out there who are doing things because they think they ought to do it, rather then only because they've got profit, or salary raise, and a Christmas bonus. That's not idealism in my meaning of it, that's fact.

Charles Rawlings
Justice as participation
But I think there's a conundrum here that we need to recognize, and I thought perhaps you were taking us there. You said perhaps there would be something else, and I wondered if the something else would be some sort of quasi-public instrument. Government has become so out of fashion that we've almost abandoned the notion that there has to be some kind of partnership between public good and private interest. You know, back in the 1980's when we were working with the churches on the issues of economic justice that arose from the plant closing crisis, and it was so vivid then as we see vividly now in managed care that a few people were making decisions that condemned tens of thousands of people to life changes, unemployment, and a great deal of pain. We coined a phrase in that period called "justice as participation." If there isn't some way in the public quarter for the people to participate in shaping their own fate, then we have, I think, something like friendly fascism. I don't think we can get out of the conundrum simply by reminding people of the moral principles that are in our Jewish and Christian heritage. Somehow or other that has to find a modern translation that preserves the public good through a process of public self-determination.

Bruce Gregory
Declining profits may force cuts in service
I would suggest I think the pendulum's going to swing the other way, and I think two things are going to happen. One is, I think, profits are going to go down. When they go down what are those shareholders, what are those manager's going to do? Their going to try to cut services to increase the bottom line, and that goes back to what Ronda was saying, if you get to the point where there's a policy level decision that we have to have a minimum quality then the cutting of services hits this floor where you can't go below.

There may be a conversion back to non-profits
But if those public companies then can't make it they may convert back to non-profits. You know, I think the pendulum is going to go the other way, but I think essential to that is a policy of quality standards that they can't go below.

Ronda Kotelchuck
A possible return to the need for universal coverage
I guess as I get older, I look ever more optimistically for opportunities. I think we may be seeing now the system going through some necessary changes that are very scary, but that create the conditions upon which we can create universal coverage. First, I think you will see price of care And there was no way you could think about universal coverage as long as cost was totally out of control. I think you'll see a system that's giving much more appropriate services. Cross subsidies are not an intelligent way of covering uninsured people, but a very, very inefficient way. I think we may be creating a foundation upon which we can re-introduce universal coverage, that would not have been possible until the system underwent change.

Don Shriver
Supported by tax funds?

Ronda Kotelchuck
By whatever. The crisis will get worse before it will get better..

Ruth Salzman, Vice President, Chase Manhattan Bank
The positive role of government—the SBA Example
I’ll just make a few observations. The first regards the role of government. We’ve discussed the possibilities offered by government regulation in this arena, and I’ve argued for a very limited approach. But I think government has an untapped role as incentivizer. I would particularly focus on government’s ability to improve access to financing. When I lend to new or thinly capitalized businesses I am often able to reduce my risk of loss by obtaining a Small Business Administration guarantee. I do not get a 100% guarantee, I’m at risk for from 25% to 50% of the loan amount. But I am able to stretch my credit standards further than would otherwise be the case because I know I have some protection. I have no similar protection in lending to a nonprofit entity.

Recognize, too, that business abhors uncertainty. Lenders are being asked to finance health care institutions at a time when their major sources of revenue are undergoing very significant changes. Put this together with the fact that the primary health care facilities we are being asked to finance are startups, sometimes being developed by community-based agencies that have a limited track record with health care provision and that these facilities have razor-thin capital bases. If public policy today supports the concept of a primary care delivery system - just as it supported the concept of encouraging the formation of small businesses in the post W.W.II era - it makes sense for government to back up that public policy by mitigating - not eliminating - the risk that clearly exists in this industry.

Not all primary care facilities are being developed by marginal entities. Major hospitals are very actively involved. They present another problem that leads to exactly the same situation described above. Major hospitals are often the beneficiaries of large tax-exempt or government-guaranteed financings. In return, they are forced to pledge all their assets. When the hospital undertakes the development of a needed primary care facility, it has effectively been made equivalent to the undercapitalized startup community-based sponsor. Since all assets have been pledged, including the asset being created by developing the facility, none are available as collateral to support a loan for the new project. The uncertainty in revenue stream is the same as described above. What can we do? Here again, I would argue that government must play a role to resolve the problem that it created. There should be a carve out, at a minimum, of the new facility if it supports the public purpose.

My second observation is that the concentration the managed care environment represents is bringing opportunities to local communities if they can organize. Churches with serious community development capabilities are naturally poised to take advantage of this situation. The Chase Community Advisory Board includes, either directly or through representatives, Rev. Congressman Floyd Flake, Rev. Calvin Butts, Rev. Johnny Ray Youngblood and Rev. Fred Lucas. Four more talented entrepreneurial individuals I have yet to meet. And what they have been able to accomplish in their own institutions and in their communities argues powerfully for the kind of focused creativity they and other community leaders could bring to bear in developing rational efficient and compassionate health care delivery in their communities.

Questions, Answers and Concluding Discussion

Charles Rawlings
Do you have a suggestion as to where in the federal bureaucracy we should encourage, what I think in some ways is a marriage between economic development and community-based health care innovation, where is the federal bureaucracy do you think there is a fruitful potential?

Ruth Salzman
I am more familiar with New York State than with the Federal scene except to say that the Federally-guaranteed or extended mortgages to the hospitals arise from HUD and the FHA.

Tom Manning, Primary Care Development Corporation
FHA links
Yes, economic development and community-based health care are actually linked in the FHA right now. The FHA is the driver, from the federal loan guarantee standpoint, of a lot of housing activity, and they stand behind many health care loans, as well. And there are many reasons, that Ruth was just alluding to, that they need to be in the business of insuring health facility loans. So FHA, which is within HUD, is where those things do come together to some extent right now.

Bruce Gregory
I would suggest, too though, now that in HUD they're looking seriously, maybe in part of these conversations, at rapidly expanding the title 11 program for financing community health centers?

Tom Manning
HUD interested in expanding community health programs
One of the things some of the people at HUD want to do is expand the community health care program. And I think it makes a lot of sense for them, because their health care loans are concentrated in major hospitals. They can actually strengthen their existing loans by permitting the hospitals to take on additional loans for the purpose of expanding and diversifying into community-based primary care.

Ronda Kotelchuck
Tax exempt bond financing from New York City for primary care
Let me just point out that we exist just because of the willingness of New York City to play just exactly that function with regard to tax exempt bond financing. The city stepped forward saying "what can we do to expand primary care, we can't give 100 percent tax dollars to create it, but how can we leverage it?" And, what we came up with was the city can offer credit support, and therefore make available tax exempt capital financing to primary care providers. So, it is a public/private partnership with the city playing that leveraging/guaranteeing role with regard to tax exempt financing.

State Sallie Mae financing for small projects
Our problem is that that doesn't work very well for small projects, so we have been trying to create something that would work for small projects, and we're working with Sallie Mae in the case of the state, and you know, we have a long way to go. We need that piece for small projects.

Ruth Salzman
You need it to work better.

Chris Conley
Financial institutions ready to address primary care needs
Let me mention one other item. I found in the last six months, that the number of financial institutions trying to address primary care community type health care financing is growing fairly rapidly. You have your organization, PCDC and Chase Manhattan Bank, you have what I'm doing, and I know of two or three other types of developments that are coming forward. As a matter of fact, when I announced my first description of what I was doing I was able to get indications of interest of $200 million for the kind of paper that I'm trying to put together in a couple months from large financial institutions. I thought it would be difficult to sell these financial instruments. And, it turns out that people really want to buy them. So, the interesting point, I think, is that more and more people are trying to figure out ways to solve these financial problems. It's a very difficult area of finance because of some of the issues we've talked about.

Charles Rawlings
Need for a facilitating structure to serve the religious community
We may want to try to persuade a consortium of corporate and foundation interests, and HUD to create some kind of facilitating structure that will enable the religious community to connect people to information and to resources. Part of the problem is that—you know, the pantheon of outstanding clergy that you had mentioned—for every one of those there are a hundred others, and some of them quite bright, who simply don't have the connections, don't have the knowledge, and they're scattered all across the country. So, the question is, how do we facilitate those connections, and we're going to need help in order to play the catalyst role there, but it's clear that there's a blue print in a way already taking shape about how this can begin to happen, plus some of the public policy problems that still have to be solved.

Don Shriver
Quality depends on something besides money
At the risk of haranguing, I would just like to underscore from another angle the irony that churches should be turned to by profit institutions in order to shore up some of their profits and I just think we should at least be conscious of the irony that a great deal of the quality of medical care and the support for it, depends upon people who are not profit oriented. That's okay by me, because that's the world in which I exist, but we'd have less arrogance in the financial world if we did a little more tipping of the hat of what we owe to people who do things because they want to do it, not because they're paid. That's a philosophical point, but one which I think that everybody, including your organizations, ought to take to work with them because I can tell you that running a seminary with 100 employees sometimes requires that we depend upon good will and energy and professional commitment rather then on increased salaries. For me that is a terribly important point, not just for bankers. I don't think bank cashiers are honest only because they're liable to get fired or put in jail. They're not. Churches ought to be able to accentuate the positive motivations by doing what we ought to do. And I'm ready to get profit into it, because if you’re profitable you can have a much better society, I know that. But, it's not always possible.

Chris Conley
I think if you and I went on some of these site visits together, I think you would be pleased at what you saw in that regard. I'm dealing with people who just . . .they're doing God's work and they know it. I mean, it's just, it's very satisfying.

Don Shriver
It helps you, inspires you a bit, probably.

Chris Conley
It does! Quite honestly, it does. These people are working under very difficult conditions to do a very important service, and they're committed to it, and have been for years. And I think it is one of the things I like about what I'm doing, is finding those people. And I think, generally, I found that most of the people I work with in these institutions are like that. I don't know what you find Ronda or Tom.

Ronda Kotelchuck
Absolutely. I would invite you. There's twenty or thirty sites we could have you visit here in New York City without having to travel, and you'd see the same thing.

Ruth Salzman
And I think, in many cases, you would see a greater participation on the part of profit-making institutions than you may suppose. I don't think it's been a particularly efficient process. There is certainly more that one can do to leverage those sentiments, but I think that we've got plenty of models, and plenty of examples where exactly the kind of motivation that you're talking about is at play, and at play powerfully.

Charles Rawlings
Well, I hope that as we draw our discussion to a close we can observe that we've established some communication among ourselves here and perhaps there are some informal partnerships forming even as we speak. I appreciate that possibility

Mary McNamara
I'd like to thank everyone who participated this morning. Thank you very much.

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