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NASHVILLE, Tenn. -- Employers, and employer coalitions in particular, must take the lead in demanding higher-quality medical care, a pioneer in managed care says.

Higher-quality care will then lead to lower costs, said Dr. Paul Ellwood.

"The problem is quality, stupid," said Dr. Ellwood, president and chief executive officer of the Jackson Hole Group, an informal health care policy think tank based in Jackson Hole, Wyo., that became famous for its earlier managed health care proposals. "Solving the quality problem will solve the cost problem," he said.

Dr. Ellwood was the keynote speaker at the third annual conference of the National Business Coalition on Health. The conference was held in Nashville, Tenn., earlier this month.

Overall, Dr. Ellwood said managed care has not lived up to its promise. A few large players dominate many markets, reducing competition. Also, managed care has had little impact on specific care and medical procedures, he said.

Managed care is "off course and running out of fuel to steer it," he said.

Critics of managed care say it has simply wrung one-time savings out of the system, allowing costs to once again rise. "If we continue to focus on managing costs and not managing health," these critics will be right, Dr. Ellwood said.

Another problem he noted is that health plans have too many specialists. "There is no way a health plan can feed all those specialists' mouths," he said.

Many managed care plans also lack financial health, he pointed out. Many plans have cut their premiums to maintain market share and now are losing money, Dr. Ellwood noted. Increasing rates to correct this trend won't significantly help, as employers balk at higher rates and cannot easily pass increases along to employees in a tight labor market.

Despite its woes, managed care has scored some successes, he said. Most significantly, the growth of managed care has lowered health care costs well below projections made ten years ago.

Dr. Ellwood said that in 1988, health care costs rose 15% over the previous year, and in 1996, costs did not rise. Overall, managed care last year cut $1 trillion, or about half, from a projection of $2 trillion in 1997 health care costs, he said.

But how managed care accomplished this concerns him. The lower costs are not the result of better or more efficient medical practices but rather from forcing lower fees on doctors and limiting hospital visits.

The real challenge for today, Dr. Ellwood said, is to improve the quality of health care. Quality problems include too much care, too little care, and inappropriate care. For example, he cited studies showing that 10% of hysterectomies are unnecessary, as well as 20% of pacemakers. In addition, numerous cheap and effective treatments are not used, such as providing aspirin and beta blocker drugs for heart attack victims that could prevent 18,000 deaths each year, he said.

Added to this are the public's dislike of managed care and doctors' hostility toward HMOs that limit their freedom while drawing out payment schedules for claims. Also, because most physicians belong to more than one managed care plan's network, there is no physician loyalty to plans.

Who can resolve the quality of care issue is of paramount importance, Dr. Ellwood said.

Managed care plans won't do anything, he said, as they don't see a market advantage in offering the better-quality plan. Providers, to Dr. Ellwood's disappointment, also won't change the system, as there is no ground swell for tracking patients over a long time period to look at treatment outcomes.

Individuals also can't change the system. "You, as individuals, are powerless in this environment," he said, recounting his own experience as a patient in the health care system that left him feeling unable to control his own treatment.

The government also won't tackle the problem of quality, he said.

This leads to employers to change the system. "I still think you're the best bet," he said.

To accomplish this, employers must change their ways, Dr. Ellwood said. In the past, employers haven't matched demands for lower prices with demands for higher quality, he said.

To address this, Dr. Ellwood recommends employers use the Foundation for Accountability system of health quality measures that arose out of the work of the Jackson Hole Group. FACCT, a group of private and public health care purchasers, consumers and community organizations, puts quality measures in a format that consumers can understand, allowing them to evaluate plans and choose. This creates competition among plans to demonstrate their quality or face losing enrollees. FACCT covers five areas that concern consumers: satisfaction with care, staying healthy, getting people healthy, living with illness, and caring for people when abilities change.

Filling in data for these areas is the next challenge, he said, noting that the best way is to ask patients directly to supply the data, as health plans often cannot provide the necessary information.