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Preferred Provider Organizations Gain : Companies Shift to Alternative Health Plans to Cut Costs

September 23, 1985|JUBE SHIVER Jr. | Times Staff Writer

After years of unsuccessfully goading hospitals to hold down price increases, Goodyear Tire & Rubber decided to take matters into its own hands: Last August, the company rolled up its sleeves and opened its own medical center to treat employees.

Located in Lawton, Okla., the medical center "is already a financial success, and we're looking into applying the concept at other manufacturing locations," said Robert E. Mercer, chairman of Goodyear.

Southern California Edison has launched an even more extensive attack on health-care costs. Last year it terminated its health insurance contract and assumed the task of collecting employee insurance premiums and paying medical claims directly. The utility company also operates nine medical clinics and owns its own pharmacy.

As the economy has improved, companies such as Goodyear and Southern California Edison are using unusual and even daring techniques to combat one of the vestiges of the inflation that ravaged the 1970s: rising health-care costs. They are supporting the formation of lower cost health-care plans, such as health maintenance organizations and preferred provider organizations, and encouraging their employees to join them.

$400-Billion-a-Year Industry

They have been driven to such ends by a health-care industry that defies the supply-and-demand market pressures that control much of the rest of the economy.

Although the Federal Reserve Board's tight money policies have sharply cut the overall inflation rate in the last six years, those moves have had a less dramatic effect on the $400-billion-a-year health-care industry, experts say.

Business continues to be especially hard hit, with hospital insurance premiums increasing to 9.1% of pretax corporate profits in 1983 from 3% in 1970, according to the Bureau of Labor Statistics.

"Supply and demand works fine when the users are also bearing the cost of the service being provided," said Chris Frenze, an economist with the Joint Economic Committee of Congress. "But if you have a third party (insurance company) making payments, the principle doesn't work as well.

If you are a hypochondriac and it doesn't cost you anything for a checkup, you are going to go to the doctor every day. Whereas if you had to pay $25, you might think twice about going in as often," he added.

Although the rise of medical costs has abated in recent months--helped in part by controls on government-managed health-care entitlement programs--most experts expect those costs to resume their torrid climb.

"After we emerge from this (current) period, we have to be willing as a nation to make some hard choices about restricting access or the quality of health care," said Jack Meyer, resident fellow in American Enterprise Institute in Washington and former assistant director of the federal Wage Price Council.

"In the long term--10, 20 and 30 years down the road--we have some powerful forces pushing up the cost of health care," said Meyer, citing the aging baby boom generation, more expensive medical technology and the growth of health insurance.

$19-Billion Increase

Some businesses already are trying to counter those forces and control the rising tab for employee health insurance premiums, which increased to $101 billion in 1984 from $82 billion in 1983, according to the U.S. Chamber of Commerce.

At the Goodyear plant in Lawton, for example, the 1,726 employees have a choice of using the company-owned pharmacy and medical center or going to more costly outside physicians and drug stores.

Equipped and renovated at a cost of $100,000, Goodyear's center provides a number of non-critical medical services almost at cost. A blood test that costs $25 at local doctors' offices, for example, costs $3.27 at the Goodyear center. Pap smears, X-rays and minor surgeries are also much cheaper there.

"There is no middleman, so to speak, so we are able to provide services at much lower cost," said Frank Armstrong manager of corporate health services.

Of course, it's not quite that simple.

The medical center's costs are lower primarily because it doesn't perform major surgery and therefore doesn't maintain the expensive assortment of medical equipment required by full-fledged hospitals. Its staff of 16 doctors, who are paid by a company that manages the medical center, agree to control their costs. But the center does provide a powerful incentive for Goodyear workers in Lawton who are covered by a company health insurance plan that, among other things, pays for physician office visits and prescriptions filled at the medical center--an offer that saved Goodyear $42,000 on drug prescriptions in the first six months of the pharmacy's operation.

Workers who opt to go to other physicians and other pharmacies must pay a portion of the physician's fees and drug costs.

Southern California Edison is even more extensively involved in running health-care-related businesses.

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