Reporting on the business of health care

By Tammy Worth

There is scarcely any area of business that is untouched by health care, yet the industry is unlike most any other business.

Producers (insurance companies) are heavily regulated by both state and local governments. They can charge varying prices for individual consumers or deny their business based upon a person’s height, weight or city in which they live.

Service providers (physicians and hospitals) may bill one fee if a patient is uninsured, another if their insurer is Blue Cross and yet one more if it is Humana. The physicians themselves are paid not on the quality of their work, but on the quantity.

And, absent a price tag providing the cost of their gallbladder removal, consumers (patients) are more often than not completely unaware of what they are charged for services rendered – until after they are completed.

These are merely a few of the reasons why it can be a challenge to cover health for reporters on other beats. Many business journalists, however, will at some point find themselves trying to unlock the mysteries of Medicare, decipher a hospital’s financial statements or comprehend how rising health care costs are overwhelming a local small business owner.

Following is a guide for business reporters on the basics of health care. It discusses some of the major areas of coverage and provides some resources for finding data, sources and assistance. There is also a glossary of terms to help navigate the jargon that comes with the beat.

Providers

Hospitals

There are three kinds of hospitals: nonprofit (60 percent), for-profit (18 percent) and government-owned (22 percent). Hospitals tend to be some of the largest employers in a community, have many well-educated employees, and spend a lot of money on buildings, equipment and salaries.

Some of the larger organizations like Geisinger Health System (Pennsylvania), Intermountain Healthcare (Utah and Idaho), the Mayo Clinic (Minnesota headquarters) and Cleveland Clinic (Ohio) are good places to look for “expert” sources. Similar to many other businesses, the larger hospital systems are often more media savvy and accessible than smaller operations.

Public relations people at local hospitals can be good resources as well. And if you are trying to find experts in particular areas, there are national associations for almost all of them, from cardiology to nursing to hospital financial management.

When reporting on the financial health of a hospital, there are five main documents that can give some insight:

• audited financial statements
• IRS Form 990s
• Medicare cost reports
• credit ratings
• bond prospectuses.

If it is the first time sifting through some of these reports, it is often wise to enlist the help of an academic or financial expert.

Audited financial statements are provided to banks, government agencies and others, and should be provided to a reporter as well.

Bond prospectuses are issued by nonprofit and government-run hospitals when selling bonds to raise funds for building new facilities. They provide information such as financial performance, major litigation and market position. Hospitals should give these out, but they can also be found on Web sites like www.munios.com and www.dacbond.com.

Bond rating reports are given out free to the media by rating agencies. They evaluate a hospital’s business and can be procured through Standard and Poor’s at media_relations@standardandpoors.com or Moody’s at mediarelations@moodys.com.

IRS Form 990s don’t offer detailed financial information, but are a good place to look to find employee salaries, board members and businesses. These documents must be provided by nonprofit hospitals but can also be downloaded from Guidestar.

Medicare Cost Reports are filed by almost every hospital and shows costs, expenses, charges for services, amounts of uncompensated care and bad debt, among other things. They can be found at the hospital, through CMS or firms like the American Hospital Directory.

For more on these key documents, be sure to see the AHCJ tip sheet "Digging Into Hospital Finances: Recent trends and five key documents."

Long-term care

There are more than 15,000 nursing homes in the nation housing more than 1.4 million people. Like hospitals, they can be for-profit, nonprofit or government owned. Nursing homes are licensed by the states and those who take funds from Medicare (which most do) are required to meet minimum quality standards set by the federal government in the Nursing Home Reform Act (1987).

Information on these facilities can be found online at the CMS Web site Nursing Home Compare. Though it is arguably flawed in some ways, the site is one tool that can be used to find out information including quality ratings, staffing ratios and health inspections.

Beyond what CMS offers, recent state surveys (Form 2567) are supposed to be posted in view at each facility. Inspections should be held every 12 to 15 months. Most states also have organizations that deal with nursing homes; these groups are knowledgeable about inspection reports, state regulations and most long-term care issues. Each state’s department of health should also have an ombudsman who is familiar with, and willing to provide information on, all of its nursing homes.

AHCJ offers resources for covering nursing homes and long-term care facilities, including "Covering the Health of Local Nursing Homes," a reporting guide that offers advice about Web sites, datasets, research and other resources. Members also can download easier-to-use Nursing Home Compare data. AHCJ has taken key elements from the federal database and put them into a more manageable format in Excel spreadsheets. This allows members to quickly analyze the most recent Nursing Home Compare data for local stories about ratings or violations. For additional help, AHCJ created a tip sheet about summarizing spreadsheets to create categories and counts.

Insurance

Background

The beast that has become the nation’s health insurance industry has its roots in plans that were offered by Blue Cross and Blue Shield in the late 1920s and early 1930s. During World War II, salary freezes caused employers to seek alternative ways to attract workers; they did so by improving benefits, which included employer-sponsored health care.

Insurance not provided by the government comes in two basic forms: employer-sponsored or individual.

Group plans

Employer-based (or group) plans are regulated by the federal government under the Employee Retirement Income Security Act of 1974 (ERISA). The law set minimum standards for private industry health plans including: providers much provide information on the plans to participants, they must create a grievance process for the insured, and the act enables participants to sue insurers for breach of duty.

In recent years, employer-sponsored plans have become increasingly lean, particularly at small businesses struggling to pay for health care costs. Costs for employers to cover their workers increased 131 percent over the past decade, according to the Kaiser Family Foundation. Many companies have seen premiums (the cost they pay monthly to “purchase” insurance) rise in the double digits.

To stave off the rising costs, many employers in recent years have done one of two things (or a combination of both): reduce the generosity of the plans by raising deductibles or shrinking benefits, or shift the burden to employees by increasing the amount workers pay in premiums.

Many also have implemented corporate wellness programs that encourage employees to exercise, eat well and get health screenings for diseases such as diabetes, high cholesterol and depression. Some companies have taken more controversial measures such as pinpointing risk factors and refusing to hire smokers or raising premiums for obese employees in an attempt to reduce costs.

Individual plans

Though employer-based insurance has diminished in recent years, it is an enviable place to be for the 18 million people currently insured in the individual market.

Individual plans are covered by state laws, most of which are focused on ensuring that the companies providing the plans are solvent, can pay claims and meet minimum conduct requirements in areas like underwriting and marketing.

Unlike with group plans, individuals are subject to underwriting by insurance companies prior to acceptance. People who have a pre-existing condition or who have poor health can be denied coverage or charged exorbitant premiums. Individual premiums may also be higher due to someone’s age and the state in which they live (with the Northeast region typically being the costliest).

For those denied coverage on the individual market for medical reasons, about two-thirds of the states have what is called a high-risk pool. These are state-created nonprofit groups that offer coverage, often at a higher cost than the individual market.

Government

Businesses have a large stake in the current discussions in the Beltway because, should health care legislation pass, it could greatly affect employer-based health insurance – one of the largest expenses for many companies.

One of the main reasons is a possible increase in the number of businesses (particularly small businesses) that provide insurance. It will also likely create new layers of regulations and administrative hurdles to which businesses would have to comply.

Almost 180 million Americans have either employer-based or individual insurance, but the single biggest payer for health services is the federal government. Health care is also the single biggest portion of most state budgets. Medicare and Medicaid combined account for almost half of the total health care spending in the nation.

Harry Truman was the first president to attempt to pass health legislation in the 1940s, but it was not until the Social Security Act of 1965 that Medicare and Medicaid were signed into law under the auspices of President Lyndon B. Johnson.

Medicare is a federal program that funds health care for the elderly and disabled. It has three parts: A pays for hospitals, B pays for doctors and D pays for prescription medications. In 2008, it covered 45.3 million people.

Medicaid is a state-run program monitored by the federal government that covers low-income parents and children, some elderly and the disabled. In 2008, it was estimated to cover 49 million people and paid approximately $204 billion for care.

Over the years, some notable changes have been made to the federal health programs. In 1996, Congress passed the Health Insurance Portability and Accountability Act, or HIPAA, which predominately allowed individuals to keep insurance when switching jobs or becoming self-employed. Most recently, the Medicare prescription drug benefit, signed into law in 2003 by President Bush and put into effect in 2006.

Health reform has obviously been a hot topic in the past year. The AHCJ tip sheet “Health reporting resources for journalists on state and local government beats” gives a thorough guide to reporters covering the government side of health. To quickly compare proposals, you can review the Kaiser Family Foundation’s side-by-side comparison.

To find out information on local and national policy issues, many states have groups such as the Kansas Health Policy Authority or the Missouri Budget Project who know the topics inside and out. Individuals at each state’s State Health Insurance Plans (SHIP) are knowledgeable on most Medicare and Medicaid issues.

Pharmaceuticals

Pharmaceuticals can be one of the most difficult nuts to crack on the health care beat. Drug companies are notoriously tight-lipped about everything from how they spend dollars to product safety. Reporting studies is often difficult because they are often so filled with jargon that they seem impenetrable.

But this industry is an important business: it is rapidly growing, has many large and influential employers, and is full of workers with advanced degrees who are paid extremely well. Companies spend billions annually on research and development to bring new medications to the market, and an equal amount, if not more, to market those products.

Regulation

The industry has close ties to the government, and two agencies play a large role in getting pharmaceuticals to the public and ensuring their safety.

The Food and Drug Administration is the agency responsible for monitoring the safety of food and cosmetics and for the safety and efficacy of drugs. The group also set regulations for the marketing and dissemination of food and drug information to the public.

The National Institutes of Health, part of the U.S. Department of Health and Human Services, is the federal government’s agency that conducts and funds medical research. It encompasses 27 institutes and centers and spends about $28 billion a year on research internally and externally through competitive grants.

Clinical trials

There are a few main steps that drugs go through to get to the public, a process which can take from a few years to a decade. Preclinical studies are performed on potentially beneficial compounds to determine dosage and safety prior to human testing. These tests are typically performed on animals, often canines.

Clinical trials begin with Phase I. This is the first time a medication is introduced to people; it is used on a small group to test safety, dosage and potential side effects. During Phase II trials safety is tested as well as efficacy. Phase III is performed on a larger group of people in order to confirm effectiveness, compare the medication to other treatments and collect safety information. And finally, Phase IV trials are performed prior to marketing a medication to look at its impact on different patient populations and evaluate long-term side effects.

Trends

Because drugs are so expensive to get to the public, it is becoming common practice for companies to farm out research and development to contract research organizations (CROs). These companies contract with drug companies and perform tasks such as clinical trials, safety monitoring, product development and data management.

Another growing market in pharmaceuticals is alternative, or complimentary, medicine – essentially any practice or product not provided by traditional medical doctors.

According to the National Center for Complimentary and Alternative Medicine, almost 40 percent of adults use some form of CAM ranging from chiropractors and yoga to vitamins and herbal supplements. Although this is a somewhat mainstream practice, it is controversial because most of the products are not approved by the Food and Drug Administration, making physicians question the safety, efficacy and quality of the treatments.

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Special thanks to the journalists who provided information for this article: Karl Stark, The Philadelphia Inquirer; Felice Freyer, Providence Journal; Theo Francis, BusinessWeek; and independent journalists Lisa Zamosky and Lola Butcher.

Tammy Worth is a freelance writer in Blue Springs, Mo., with most of her work focusing on health care, business and the environment. She has written for The Economist, The Associated Press, the health sections of the Los Angeles Times, The Washington Post and numerous health care trade publications. She is a regular contributor to the Kansas City Business Journal and works as a stringer for Bloomberg News. She was an AHCJ Midwest Health Journalism Fellowship participant in 2008-09.