The announcement last week that federal health care legislation is dead for the current congressional term has shifted the focus of reform to the state level, industry analysts say.
Away from the attention given by the media and politicians to the Clinton Administration's efforts, the implementation of health care reform at the state level has been proceeding steadily and should continue to pick up steam, according to Kenneth Rodgers, managing director in the health care and higher education group at Standard & Poor's Corp.
Nine states - Florida, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Oregon, Vermont, and Washington - have already implemented "comprehensive reform," Rodgers noted, and it is going to be "incumbent on [other] states to pick up the slack."
Several states have passed more limited health care reform but were waiting to see what Congress would do, and it is "likely that some of those efforts will be hastened since the federal government has passed the buck, at least temporarily," he said.
Common elements of the programs already enacted include: the reliance on, and creation of, managed-care programs for Medicaid plans; the increased used of capitation contracts, in which providers are given a fixed fee per user, instead of being paid for specific service; efforts to encourage the creation of purchasing consortiums among small businesses; and the growing use of selective contracting, whereby states limit the use of health care providers to those who demonstrate they can deliver services at reasonable rates.
"State reform has happened, continues to happen, and is within the realm of possibility and less in the realm of politics," said Edward C. Merrigan, senior vice president in Fitch Investors Service's health care and higher education group.
But state governments are restricted by federal laws in the degree of reform they can institute. If Republicans eat into the Democratic majority in Congress this fall, as many expect, the debate next year could focus on freeing up the states to be "laboratories for change" rather than on an overhaul of the entire health care system, said Thomas Letavis, deputy executive director at the Michigan State Hospital Finance Authority.
In general, most health care analysts polled for this article said the health care debate in Washington did not dramatically affect the ongoing evolution of the health care industry.
"Providers were not directly affected by federal legislation because that was insurance oriented," Merrigan said. "In terms of rating hospitals, it was a sideshow going on while we still had to determine whether or not they could pay their bills" over a given period.
The municipal market's reaction to the death knell for federal reform bears out a similar approach.
Since Senate Majority Leader George J. Mitchell's announcement on last Tuesday that health care legislation is dead, hospital bonds "haven't traded up, down, or indifferently," according to Troy Gerleman, a vice president of fixed-income research and a health care specialist at Kemper Securities Corp. "It could be that any impact is shrouded by the fact that we're in a tough market. Possibly it may create a more viable market for health care bonds, but it has not done that yet."
In the first eight months of 1994, $12.9 billion of tax-exempt health care bonds were issued, down 44.5% from $23.2 billion in the first half of 1993, according to Securities Data Co. Overall issuance fell just under 40% in the same period.
However, the demise of federal health care legislation cannot be considered a non-event, analysts say.
"I think that if Clinton getting into office did nothing else, it heightened awareness, and caused a mad scramble for mergers and integrated networks," Gerleman said. "I believe there was a gravitation toward managed care going to all along, but this whole health care reform issue quickened the pace of what would have been a long process."
Results from a recent survey of hospital executives indicate the depth of the industry's evolution.
Nearly 70% of hospital chief financial officers responding to a poll conducted recently by American Hospital Publishing Inc. and Municipal Bond Investors Assurance Corp. said their institutions have already consolidated or affiliated with other providers to improve cost efficiency, or have plans to do so.
The results indicate that hospitals "are not going to wait for Congress to enact legislation before they're going to do what they have to do to improve their competitive position," said Emeline Rocha-Sinha, vice president and manager of MBIA's health care group.
The survey polled 750 chief financial officers from not-for-profit, non-governmental hospitals with more than 200 beds.
Rocha-Sinha predicts that health care issuance will maintain its current pace in the coming year, despite higher interest rates and a growing wariness for debt among hospital executives.
"Hospital CFOs will be cautious about which projects they'll finance and how they'll finance them, but will recognize that instead of using their own cash they're better off choosing to debt-finance certain projects," she said. "Many hospital finance officers recognize that going forward in a managed care environment, there will be pressure on operation margins and they'll need interest income from cash reserves to generate healthy bottom lines."