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ELECTION '94: IMPACT ON BUSINESS : Health Care Industry Anticipates Friendly Climate, Modest Reform : Regulation: Companies welcome a Republican Congress. But one critic fears costs will trend upward again.


The prospect of Republican control in Congress has lifted the spirits of the health care industry, which hopes now to shape federal health reforms more to its liking.

The Republican romp is expected to produce a friendlier climate in Washington that favors modest, market-based reforms and less government regulation, industry officials said. They see the GOP-controlled Congress as added protection against the type of sweeping reforms favored by the Clinton Administration.

The insurance and pharmaceutical industries, for example, believe that any lingering possibility of federal price controls on medical premiums or drug prices has disappeared with the shift in control. Also out of the way are some of these industries' fiercest critics, Democrats such as Rep. John Dingell of Michigan and Sen. David Pryor of Arkansas, who lost powerful chairmanships on key House and Senate oversight committees.

The change doesn't mean that reform is dead altogether. President Clinton has said he remains committed to health reform, and Republicans now will be under pressure to prove they can "do something" about rising medical costs.

The flagging support for comprehensive reform means that Congress is unlikely to do anything that would guarantee coverage to the nation's 37 million uninsured--a principal goal of Clinton's reform plan that was supported by many health care executives.

"Money to finance (universal coverage) is hard to come by, and it's not something that Republicans generally put high on their list," said Kelly Baldrate, health care policy analyst for NatWest Securities Corp. in Washington. "There may be support for subsidies for the poorest uninsured."


Industry officials say they expect modest measures, such as insurance market reforms. There is strong support among Democrats and Republicans for insurance "portability"--which would guarantee that employees retain medical coverage when they change jobs--and for an end to exclusions for pre-existing conditions. Congress may also look for ways to help make insurance more affordable to small employers.

Hospital executives say they hope the Republican Congress will encourage the easing of antitrust restrictions that hospitals say are a barrier to long-overdue industry consolidation. "Republicans are more oriented to saying, 'Let's get rid of barriers that prevent competitors from doing what they want to do,' " said Rick Pollack, executive vice president of federal relations for the American Hospital Assn. "We hope there will be more concern addressed to antitrust policy." While industry officials expect federal reforms to be minimal, much of the attention will now focus on state legislatures, where a plethora of health reform initiatives are likely.

Because the Republicans' electoral success spilled over into governorships and state legislatures, health care executives say they also anticipate a friendlier climate at the state level.

"We would expect there will be a very positive and open climate in Congress and in the state legislatures," said Roger Greaves, co-chairman of Health Systems International, the parent firm of Woodland Hills-based Health Net, a health maintenance organization. That would contrast with what Greaves describes as the "very dictatorial and closed atmosphere" that the industry has faced in Washington.

One of insurers' big fears was quelled in Tuesday's elections, when California voters overwhelmingly rejected an initiative that would have created a Canadian-style, government-run health program for the state. The rejection of California's Proposition 186, which lost 3-to-1, should dampen support for similar "single-payer" health proposals in other states, experts said.

But Greaves says he expects physician and consumer groups to continue their push in California and other states for "anti-HMO" legislation--such as limits on HMO premium growth and provisions that would require HMOs to open their systems to any doctor.

The shift in power creates some concerns for the medical business.

Industry officials question whether Republicans can achieve their goals of slashing government spending and balancing the federal budget without significant cuts in Medicare or Medicaid, the federal health-insurance programs for the elderly, disabled and poor.

That would pose more problems for U.S. hospitals, two-thirds of which already report that they lose money treating Medicare patients. Also hit would be doctors, who, on average, rely on Medicare payments for more than 25% of their medical-practice income.

"Medicaid is already horribly underfunded, and Medicare cannot go down any more," says Dr. Richard Corlin, a Santa Monica physician and an officer of the American Medical Assn.


Such cuts could have repercussions for consumers, said a leading advocate of Clinton-style health reform.

Medicare and Medicaid beneficiaries "will find fewer hospitals and doctors willing to treat them" if reimbursement rates drop much more, said Ron Pollack, executive director of Families USA, a health reform advocacy group. "I've already seen doctors who are saying they'll keep the Medicare patients they have, but they're not going to take any more."

Pollack also worries that the Republican rout sends the wrong message to the health care industry. He believes the industry's efforts to hold down costs during the past year have partly been an effort to avert more-restrictive government reform.

"This may give signals to the insurance and pharmaceutical companies that they are off the hook and the sky is the limit in terms of prices," he said. "The historical experience tells us that each time the country comes close to health care reform, the price increases moderate. When Congress walks away from health reform, the pent-up profit desires get unleashed."

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