The High Price of Health
Tapes & Transcripts

FRONTLINE
Show #1614
Air date: April 14, 1998
The High Price of Health

Written, Produced and Directed by Rachel Dretzin

Pres. BILL CLINTON: Today I am announcing the formation of the president's task force on national health reform.

NARRATOR: But four years after President Clinton's announcement, reform in health care has come not from the government, but from the free market and the controversial forces of managed care.

CUSTOMER SERVICE REPRESENTATIVE: [on the phone] Thank you for calling Health Net. This is Joanne. How may I help you?

Dr. MALIK HASAN, CEO, Foundation Health Systems: Managed care, as a concept is unassailable.

CUSTOMER SERVICE REPRESENTATIVE: [on the phone] This medication is currently not a covered medicine under your plan.

ROBERT SHAFNER, Executive V.P., Beverly Hospital: "Here's the reality, guys. We've got X number of dollars."

NARRATOR: But doctors and nurses say they've been pushed too far.
Dr. STUART JAMIESON, UCSD Medical Center: For two years we've been struggling to get him approval from his insurance company to be paid for a heart transplantation and they have come up with one objection after another.

Dr. A.R. MOOSSA, Chief of Surgery, UCSD: In fact when we talk about managed care, we are talking about managing money and rationing the care.

Dr. MALIK HASAN: It's a relatively simplistic equation. If you want our business you have to listen to us.

Dr. STUART JAMIESON: This field of medicine, which is the best the world has to offer, is now trying to be bargain-basement medicine. It's a discount store.

JOANNE LASCHI: I had to make a change and get out before something bad happened, because it's not a matter of if, it's a matter of when.

NARRATOR: Ralph Holmes is a surgeon at the University of California Medical Center in San Diego. He specializes in rare birth defects in children-

Dr. RALPH HOLMES, UCSD: There are only 150 cases of this in the world literature, so you're looking at something you don't see very often.

NARRATOR: -often cases at the cutting edge of medicine, whose treatments are costly and sometimes untested.

Dr. RALPH HOLMES: We need to come up with a plan how we're going to take care of this.

NARRATOR: This little boy was born with tumors all over his body that threatened his life.

Dr. RALPH HOLMES: [to mother] Which ones are they going to be treating later today? Are they going to be working on some of these down here?

NARRATOR: The largest of the tumors has been removed, but he is left with tiny black lesions that could spread and interfere with his ability to walk.

MOTHER: This one.

NARRATOR: His doctors wanted to treat the spots with lasers, but the boy belongs to an HMO.

MOTHER: [to Dr. Holmes] They had a switch at my managed care. They did determine that some of the spots that appear on his skin were cosmetic. And it's part of the disease, it's not cosmetic.

Dr. RALPH HOLMES: [to interviewer] Managed care doesn't want to look at what may be harmful to his health 5 or 10 years from now. And if you can defer something and let somebody else take care of the cost, that's the business mentality that prevails now.

NARRATOR: San Diego, where UCSD is located, has been seen as a symbol of where health care in the rest of the country could be headed. It is one of the nation's most aggressive managed care markets, with a handful of HMOs - most of them for-profit - controlling health care for the majority of the county's population. And for many of San Diego's doctors, this means that for the first time they are being told no.

1st PHYSICIAN: "No, you can't do this. It's too expensive." "No, you can't use this medication because it's not on the formulary for this particular HMO." "No, you can't put that device in because that costs too much. Go with something that is cheaper."

2nd PHYSICIAN: There's become a middle manager between the doctor and the patient, and that's made life quite difficult. Physicians are constantly defending their patients from having to have less and less done for them.

MOTHER: I couldn't just leave him stranded. I had to fight.

NARRATOR: After pressure from this boy's family and his doctors, his laser treatments were approved, but for one year only.

Dr. RALPH HOLMES: Managed care doesn't like to have people around like me because I'm a user of resources and they only want people that are conservers of resources. There's this contentiousness between me and the people who hold the purse strings. And I know that they don't like me.

TELECONFERENCE COORDINATOR: [teleconference] Portland?

PORTLAND MEDICAL DIRECTOR: Portland is here.

TELECONFERENCE COORDINATOR: Connecticut?

CONNECTICUT MEDICAL DIRECTOR: Connecticut is here.

TELECONFERENCE COORDINATOR: Good afternoon, gentlemen.

NARRATOR: Every week 15 cities across the country are linked by teleconference to the Colorado headquarters of Foundation Health Systems, one of the nation's largest HMOs.

Dr. MALIK HASAN, CEO, Foundation Health Systems: [teleconference] This happened with [unintelligible] in 1995. Do you know which hospital that happened, why didn't they pick this up?

NARRATOR: Malik Hasan is the company's CEO and one of medicine's new power brokers, overseeing the decisions doctors are making all over the country with a strict eye on the bottom line.

PHILADELPHIA MEDICAL DIRECTOR: [teleconference] We actually called the doctor and tried to get the doctor to discharge the patient, and the doctor refused.

Dr. MALIK HASAN: [teleconference] Is there any treatment which is required as maintenance as part of the diagnosis or-

[to interviewer] Let's face it, we have a limited amount of resources and do not have the luxury of frittering away those resources on wild-goose chases, and the winner is the consumer. And after one is through with hand-wringing and whining, isn't that what free markets are all about?

[on the phone] And if you change your attitude, we are still willing to sit down and talk to you, but-

NARRATOR: "Wall Street Journal" reporter George Anders profiled Hasan for his book on the HMO industry.

GEORGE ANDERS, Author, "Health Against Wealth": Hasan is brilliant, dead certain of his own virtue, bullying when he needs to be, charming when he thinks that can be helpful, and unabashedly proud of how rich he is.

NARRATOR: Hasan started out as a practicing physician, and says in his heart, he still is one.

Dr. MALIK HASAN: If I'm traveling in the plane and somebody in the next seat asks me, "What do you do?" instinctively my response is, "I'm a physician." It never comes out I'm a CEO or chairman of a company because that's not my identification.

GEORGE ANDERS: He made his first few million as a neurologist in private practice in Colorado. He was one of the most dedicated, aggressive, hands-on doctors, driving from town to town looking for more patients and bringing them in for diagnostic tests. In fact, the federal government at one time asked questions about why he was ordering up so many tests. But once he got into managed care he switched to the exact opposite extreme.

1st CUSTOMER SERVICE REPRESENTATIVE: [on the phone] May I have your subscriber I.D., please?

NARRATOR: Today, with over $8 billion in revenues, Hasan's company is one of the largest HMOs in the nation, and still growing.

2nd CUSTOMER SERVICE REPRESENTATIVE: [on the phone] Thank you for calling Health Net, this is Joanne, how may I help you?

NARRATOR: This is the jewel in the company's empire, Health Net. It controls medical care for over two million patients in California alone.

3rd CUSTOMER SERVICE REPRESENTATIVE: [on the phone] I am showing that you're currently canceled.

NARRATOR: Every day thousands of calls from doctors and patients pour in to these offices, to be fielded by Health Net's customer service representatives.

4th CUSTOMER SERVICE REPRESENTATIVE: [on the phone] This medication is currently not a covered medicine under your plan.

5th CUSTOMER SERVICE REPRESENTATIVE: [on the phone] Do you know what doctor you want to change to?

6th CUSTOMER SERVICE REPRESENTATIVE: [on the phone] Doing good, thanks. And you?

7th CUSTOMER SERVICE REPRESENTATIVE: This is our operations manual. This is basically our bible. This has all the information about everything that we need here at Health Net.

8th CUSTOMER SERVICE REPRESENTATIVE: Look under "Durable Medical Equipment." These are the limitations. Infertility services would be covered at 50 percent. Chemotherapy would be covered with no copayment-

MARC ROBERTS, Harvard School of Public Health: The same way Sears can go to a clothing manufacturer and say, you know, "We'll buy 10 million sweaters, but we want a good price," a health maintenance organization can go to a hospital and say, "We're potentially 15 or 20 percent of all your admissions. We want a good price."

8th CUSTOMER SERVICE REPRESENTATIVE: Custom foot orthotics [unintelligible] cast, brace or strapping of the foot, they don't have coverage for it. Hearing aids are not a covered benefit-

Dr. MALIK HASAN: It became a relatively simplistic equation. If you want our business, you'll have to listen to us. And at some point, practically every institution decided that they needed that business, and whether they liked to listen at that time or not, they had to listen.

NARRATOR: There were few places less prepared to listen than UCSD Medical Center in San Diego, the city's teaching hospital and the Tiffany of its medical care.

PHYSICIAN: [on rounds] It's 8 to 9 out of 10 chest pain-

NARRATOR: It's here that elite doctors train the next generation of physicians and pioneer advanced medical treatments. For years the doctors at UCSD were privileged enough to ignore the pressures of cost, free to concentrate solely on their patients.

Dr. STUART JAMIESON, UCSD Medical Center: [on rounds] The operation we're doing today is a lady from Tennessee with quite an unusual condition. She's got clots very deep in the lung.

NARRATOR: Dr. Stuart Jamieson is by far the highest-paid surgeon at UCSD, with a salary of $500,000 a year. That's because he brings the hospital a great deal of business. He's a world pioneer in heart and lung transplants.

Dr. STUART JAMIESON: If the circulation to your brain stops for more than three minutes, then you won't recover, and we stop the circulation for over 20 minutes at a time. The only way we can do that is to cool these people down so much that we put them in suspended animation. Most heart surgeons have at least a 25 percent mortality for this operation. Our success rate is over 95 percent. I mean, my personal experience with this operation is way more than every other surgeon in history in the world.

NARRATOR: But despite the doctor's skill, operations like this one - which costs about $80,000 - are becoming harder and harder to do at UCSD.

Dr. STUART JAMIESON: An HMO doesn't recognize that one doctor has a special skill over another doctor. There's no allowance made by the HMO for the fact that this person is getting operated on by the professor with a national reputation, versus this patient is being operated on by Dr. Smith, who may be just out of his training. It makes no difference to them. So we have to directly compete.

[on the phone] This contract would bring with it a lot of the straightforward, routine cases that everybody else is doing.

NARRATOR: Dr. Jamieson may be the best in the world at what he does, but these days, he has to peddle his wares.

Dr. STUART JAMIESON: [on the phone] Just how low do you think we can bid on this?

NARRATOR: The small number of HMOs that have a lock on the San Diego market are looking for the doctors who offer their services at the lowest price.

Dr. STUART JAMIESON: A large part of my day is spent negotiating with the hospital, with my other colleagues, "Just how low can we go?"

[on the phone] We can come in at maybe a 60 percent discount of what we normally charge, just because of the volume of work that would be involved.

NARRATOR: Every week, the chairs of UCSD's nine divisions of surgery meet. Whatever else is on the agenda, invariably their talk turns to the crisis their hospital is facing.

Dr. STUART JAMIESON: [at meeting] We've tried to cut things to the bone, as all of you have. We've cut out really a lot of the testing that we used to do.

1st UCSD PHYSICIAN: [at meeting] I think that it's going to be a tough time. We've cut all of the fat out of our operating budget, as you know.

NARRATOR: For the first time, these doctors say, the thing they do best - caring for the sickest - is putting their financial survival in jeopardy.

2nd UCSD PHYSICIAN: [at meeting] It's a real irony, isn't it. We didn't train to take care of well people. One thing that I have found particularly disturbing is that residents now focus on the payment status of the patient.

3rd UCSD PHYSICIAN: [at meeting] Here we are talking about these things. I never expected to worry about which insurance company is taking care of the patient, but that's what's happening with managed care.

Dr. RALPH HOLMES: We are having to educate our residents, but we don't have-

[to interviewer] Did I think about money back 12 years, 15 years ago? No, I didn't. I just thought about the patients' health and what would best serve them. And the health insurance industry I thought was one of our allies. So it seemed like it was a golden age of health care not just in San Diego, but in the world.

Dr. MALIK HASAN: I practiced in that golden age, and at least from my perspective, it wasn't a golden age, it was a mixed age. There were some good things and some bad things. One of the bad things was that there was hardly any accountability of what the physician did.

NARRATOR: It was an open expense account. Doctors spent and insurance companies passed on the cost to their customers- government, big business and ordinary consumers. The result: unnecessary surgeries, too many diagnostic tests and, by the 1980s, health care costs that were spiraling out of control.

UWE REINHARDT, Princeton University: Before managed care, the business community and the United States government had surrendered to doctors and hospitals the key to their treasuries. And they told these doctors and hospitals, "Do whatever you think is right for the patient. Hospitals," we said, "whatever your costs, we'll reimburse you, with a little tip on top." The more doctors did for you, the richer they got. The more hospitals did for you, the longer you stayed, the richer they got. That was the status quo.

NARRATOR: In a health care system rewarded for doing more, UCSD was a typical offender. As recently as five years ago, it built a lavish new facility which catered to its wealthier patients. It was called Thornton, but some people called it "Four Seasons by the bay". It was built when there were already too many hospitals in the city, and it has sat largely empty, an invitation for people like Malik Hasan looking to make their business by wringing waste out of San Diego's hospitals.

Dr. MALIK HASAN: I think if you will go and talk to the leaders in these institutions, if they are being candid with you, after the hand-wringing and how terrible it is, I think they will acknowledge that they are acting much more efficiently and better than what they were doing before. Maybe it was some pain which brought that on, but it did make them better because, in my book, efficiency ultimately decides how good or how bad you are. That's the yardstick, not that you're a legend in your own mind.

NARRATOR: A.R. Moossa, UCSD's chief of surgery, agrees.

Dr. A.R. MOOSSA, Chief of Surgery, UCSD: We have a responsibility which in the past the profession has neglected some. I know I wasn't aware of cost until the last few years, but I am making a big effort to know about costs, to be cost-effective. We all do, and we are training our residents to do so. But I think we have gone too far to the other extreme. In fact, when we talk about managed care, we are talking about managing money and rationing the care. That is basically what we are doing.

Dr. RALPH HOLMES, UCSD: [to patient] The jaws are not wired together, but there are some rubber bands-

NARRATOR: Many doctors at UCSD say that in the HMOs' race to cut costs, they have crossed a crucial line.

Dr. RALPH HOLMES: [to patient] Did it hurt after some of the last operations? Which one hurt the most? Yeah, that really hurt a lot.

NARRATOR: Ralph Holmes is UCSD's chief of plastic surgery. Born with malformed ears himself, Holmes does over 90 percent of the reconstructive surgery in San Diego for children with birth defects of the ear.

Dr. RALPH HOLMES: [to patient's mother] When she sleeps, you'll hear. She'll know when you call.

NARRATOR: But when this boy needed a new ear, Dr. Holmes was not asked to perform the surgery. The boy's HMO sent him to one of the doctors in their plan, someone with far less experience in doing this kind of operation. this was the result.

MOTHER: [to Dr. Holmes] I saw the ear and I was shocked because the person informed me it would be the last surgery. And I remember my son's reaction. It looked like he was going to pass out. And my dad saw the ear and he just- many people couldn't believe it. They said "It's finished? It looked better before, when he had no ear."

Dr. RALPH HOLMES: [to mother] It looks like there was an attempt to carve this-

NARRATOR: After letters and protests from the boy's family, the HMO agreed to refer him to a specialist outside the plan, who redid the operation.

Dr. RALPH HOLMES: [to mother] It's a matter of sculpture. You have to sculpt the cartilage.

[to interviewer] And I find, to make things even worse, that what managed care is now doing is they're asking their plastic surgeons to recommend that these children have rubber ears made- in other words, to drill a little hole into the bone, stick a little metal post in there, to which you could clip these rubber ears. And the true tragedy is once that is done, you've so scarred up that ear that they can never- when they are older and want a real ear made out of their own tissue, they can never have that done.

DAVE SAUNDERS, Heart Patient: [to Dr. Jamieson] Now I'm having great difficulty climbing stairs, lifting anything-

NARRATOR: Dave Saunders is 55 years old and wants a new heart.

Dr. STUART JAMIESON: [to Saunders] It's been some time since we've been trying to get approval for your transplant, and I think we're both concerned that you might be deteriorating in that time.

[to interviewer] For two years we've been struggling to get him approval from his insurance company to be paid for heart transplantation and they have come up with one objection after another.

DAVE SAUNDERS: [to Dr. Jamieson] It's very frustrating. Two and a half years since I was told I needed a heart. And now my latest insurance company says, "No, we're not sure he's sick enough."

Dr. STUART JAMIESON: [to Saunders] We won't let you down on this issue. You do need a heart transplant and, actually, it's the only thing that'll save you.

[to interviewer] It's never a question of "How can we help you?" It's a question of "How can we slow things up? How can we delay it a little bit? What other objections can we have?"

Dr. RALPH HOLMES: [on the phone] Hi, I'm Dr. Holmes. Are you in the office for authorizations?

[to interviewer] I've heard rumors that it doesn't do any good for me to call up on a patient's behalf because all they'll do is they'll take that file and put it at the bottom of the file because, you know, this is a way of kind of wearing me down.

[on the phone] She's not absolutely convinced that this thing is benign. and I can't give her 100 percent assurance that it's benign, either, unless-

[to interviewer] They have these people that are like medical assistants. They want people that will just look at the book, look up something and then deny it.

PHYSICIAN: [on the phone] I'm waiting for a physician, please. I don't really know what's going on.

NARRATOR: For doctors everywhere, a big part of the business they do nowadays is on the phone: talking, waiting and getting permissions from HMOs.

CUSTOMER SERVICE REPRESENTATIVE: [on the phone] I don't have a referral for anything that's been recent.

NARRATOR: For HMOs, these conversations are also an important part of business. From his Colorado headquarters, Malik Hasan personally monitors calls as they come in to his company's offices around the country. [www.pbs.org: More on Hasan and his company]

CALLER: The price of a tube of that stuff is $29.50. Do you know what the net price will be to me?

CUSTOMER SERVICE REPRESENTATIVE: [on the phone] I don't know. It depends. If it's a generic, it will be $7. If it's a name brand-

NARRATOR: The smoother they run, he believes, the better his company will be.

Dr. MALIK HASAN: This is one of the ways we have direct access to what is happening so that I am comfortable.

WOMAN: [at meeting] The response time has slowed down significantly from 30 seconds up to 20 to 30 minutes.

Dr. MALIK HASAN: [at meeting] And one minute, you realize, is unacceptable to people sitting there. One minute is an eternity. How did they miss that point? I'm just getting tired of this.

WOMAN: [at meeting] Okay.

NARRATOR: In Hasan's eyes, the system doesn't breed mistakes, people do.

Dr. MALIK HASAN: Whatever shortcomings are of the managed care, those are the shortcomings of the managers and the shortcomings of the plan. It's not the shortcomings of the concept. Managed care, as a concept, is unassailable, and that is you manage the care in the most efficient manner, bringing the best quality and the lowest cost. I don't think there's anybody who can disagree with that concept.

NARRATOR: Down on the ground, these doctors say, the concept doesn't seem to be working.

1st UCSD PHYSICIAN: [at meeting] There are also cases in which people do need an operation and they're not referred.

2nd UCSD PHYSICIAN: [at meeting] Or they're referred late. I mean, I think the problem that we see is that the patient comes later.

Dr. STUART JAMIESON: [at meeting] They are referred late to save money. It pays the hospital, obviously, to get the patients out quickly, and then-

[to interviewer] The people that are the most affected and don't understand it yet are the patients. This field of medicine, which is the best the world has to offer, is now trying to be bargain basement medicine. It's a discount store. People are focused exactly on cost and quantity.

3rd UCSD PHYSICIAN: [at meeting] Radiation therapy for cancer that ordinarily-

Dr. A.R. MOOSSA, Chief of Surgery, UCSD: The language that is used is very telling. We no longer talk about patients. We talk about "covered lives." We no longer talk about doctors. We talk about "providers," okay, so it's a totally, totally different system in which we all got trained, and I think the public is not very aware of what is happening.

NARRATOR: But the public is rapidly finding out how far-reaching the impact of HMOs has become. Perhaps the biggest change is how quickly people are sent home when they go to the hospital.

MARY LOU CONNELLY: Patients are being discharged more acutely ill. Patients are having surgeries done in outpatient facilities that used to require an overnight stay in the hospital. Mastectomies- women who underwent mastectomies just a few years ago had several days in the hospital, and oftentimes that is just a one-day hospital stay now.

NARRATOR: Mary Lou Connelly runs UCSD's home care program, which contracts with HMOs to provide visiting nurses for people who need care outside of the hospital.

MARY LOU CONNELLY: The expectation is that there will be sophisticated care provided either by an agency or a family member in the home in order to effect that early discharge.

NARRATOR: But that is not always the case. Dorace Deutsch had severe ulcerations on her legs which required complicated daily care. Her HMO would only authorize four home visits by a nurse. The rest of her care was left to her husband, Art.

ART DEUTSCH: I had to undress the wound and I had to debride it, removing scab tissues, which is painful. If you care for somebody, it hurts you. And when you do it for two years, it starts to take its toll. Now, it's a different story if you see someone in bed and somebody else is doing it to her. It hurts you, but it doesn't hurt you as much because you're not doing it. I become emotional.

MARY LOU CONNELLY: As a nurse, I know that I would not want the responsibility that we expect some family members to take about providing care to their loved ones, and that's scary, too. If I think that I couldn't handle it as a health care professional, then what business do I have expecting other people who have no knowledge of health care to, in fact, do what I wouldn't want to do?

NARRATOR: The Deutches are not an isolated case. Around the country, state legislatures have begun passing laws requiring HMOs to pay for longer stays in the hospital.

ART DEUTSCH: Can you imagine how this God damn government has to pass a law so a woman that has a mastectomy can stay in the hospital one more day? Ridiculous. When a woman has a cesarean, she can't stay in for two days? Only one day? Come on! My wife had a hip operation. They forced her out of the hospital in three days, and to this day she can't walk properly. They have everything like this, and the average person can't do a damn thing.

NARRATOR: With patients going home faster, hospitals are increasingly filled with only the very sick, a situation which puts more and more pressure on hospital staff.

CATHY JENKINS, Nurse, UCSD Medical Center: I'd have to say the morale is poor right now, really poor. We just don't have enough help. We're asked to do the impossible a lot of times, and there are no reserves to draw on. People are just stretched to the limit. But if I left here and went anywhere else, I'm not sure the grass would be greener. I see the same thing happening everywhere. As managed care sweeps the country, this is what you're going to see now. If it hasn't hit the east coast yet, it's coming.

NARRATOR: It has already come. Here on the quiet north shore of Massachusetts, most of the HMOs are still not-for-profit, but they have to compete with for-profit HMOs like Foundation Health. And as a result, hospitals here are under just as much pressure to cut costs.

ROBERT R. FANNING, Jr., President, Beverly Hospital: [on the phone] Is that the final offer from Tufts that was put forth?

NARRATOR: Bob Fanning is the CEO of Beverly hospital.

ROBERT R. FANNING: [on the phone] There's no way of moving that forward?

[to interviewer] When we negotiate with many of the managed care plans, we have what I would term little to no leverage. They simply can say, "Look, if you don't like the terms of our contract, we can take our contract and simply give it to one of your competing neighbors."

NARRATOR: But all of Beverly's neighbors are having trouble managing on the reduced income HMOs provide them. Once there was a hospital for almost every town in this area, but today half of them are gone. This office building used to be a hospital. So did this rehab center and this supermarket. Faced with these pressures, Fanning and his vice president, Bob Shafner, have had to take a tough stand to keep their hospital alive.

ROBERT SHAFNER, Executive V.P., Beverly Hospital: We're being asked to do more work, and we're being paid less. You can try to find other sources of revenue, but that's very difficult to do. So our trick is to maintain quality of care on the one side, and try to do it within the resources that we have that we're being paid, the revenues.

NARRATOR: It's not an easy job. With sicker and sicker patients in the hospital, every decision to cut costs is high stakes. And nowhere are the decisions more difficult to make than when it comes to nursing staff.

SUSAN DUNCAN, Nurse, Beverly Hospital: [to patient] On a scale of 1 to 10, with 1 being no pain and 10 being the worst pain you've ever had-

NARRATOR: At small hospitals like Beverly, the patient floors are almost exclusively the nurses' domain. Doctors are in and out, but it is the nurses who man the floors 24 hours a day, and who are often the first and last line of defense for patients.

PATIENT: [to Duncan] Is it swollen?

SUSAN DUNCAN: It's soft.

PATIENT: Is that good or bad?

SUSAN DUNCAN: That's good.

PATIENT: Thank you.

SUSAN DUNCAN: You're welcome.

PATIENT: So I'm going to have a deficit later?

SUSAN DUNCAN: Yes, ma'am.

NARRATOR: Registered nurses are also one of the hospital's costliest expenses, and so Beverly, like many hospitals around the country, has cut back.

ROBERT SHAFNER: We had a time when we had an all-registered-nurse staff. And then when you stop and look at what registered nurses were doing, they were being forced to do a lot of non-nursing activities. We try to relieve the professional nurse of non-nursing issues and pass those off to other kinds of workers.

CLINICAL ASSOCIATE: [to patient] The main idea is to lay as still as still as possible, okay?

NARRATOR: What they did was hire less-trained workers - dressed in red - called "clinical associates." At a much lower cost to Beverly, they are changing bed pans and dressings, taking EKGs and drawing blood.

CLINICAL ASSOCIATE: [to patient] It's always better when it doesn't hurt as much, right?

NARRATOR: This allows Beverly to use its nurses in a more supervisory role, giving them a heavier workload. It has not been a popular policy with the nursing staff.

SUSAN DUNCAN: I find that I'm being taken away from my patients more and more. We're still trying to do the best we can for our patients, in terms of providing care under these conditions, under these cost-cutting conditions. You know, we're asked to do more and more with less and less, basically.

1st NURSE: [at meeting] Anybody have ICU numbers?

2nd NURSE: [at meeting] Two potential admits to monitored beds-

NARRATOR: Beverly's new policy turns meetings like this into a tug-of-war for precious resources. Which floors are going to have enough nurses to take care of the work today and which floors are going to run short?

3rd NURSE: [at meeting] J3 is down a half a person.

1st NURSE: [at meeting] All right, so now we've got a problem. I have to think we need to plan that we're not going to get that person. So now let's figure out what we're going to do with what we've got.

NARRATOR: To meet its financial targets, the hospital uses a mathematical formula - called a matrix - to calculate the minimum number of nurses necessary for the patients on the floors that day.

ROBERT SHAFNER: We have been able to redesign and reengineer new ways of delivering our services and products, absolutely parallel to what was done in the automobile industry and now done in thousands of industries around the country.

1st NURSE: [at meeting] Do you have 40 beds? You do? You have two females, a male and a private?

ROBERT SHAFNER: Trying to wipe out duplication, trying to make things more streamlined, more efficient, taking steps out of the process - manufacturing or patient care - that are redundant or don't do anything to add to the final products.

STACEY KELLEHER: [at meeting] I call for 4.75 RNs in 2

1st NURSE [at meeting] You're calling for 4.75 RNs and we don't have 4.75 to give you. We only have 4 to give you.

NARRATOR: Stacey Kelleher has been a nurse at Beverly for four years.

STACEY KELLEHER: If I was coming on for the next shift, to know that I'm already basically down a nurse - I mean .75 of a person - you can't get .75 of a person, it's a nurse - it would upset me because I would know that people higher up that aren't going to be busting their butts working on my floor have chosen to run me short.

NARRATOR: On Beverly's floors, the staff struggles to keep up with the demands of the new system. To help manage the workload, the hospital has also given a larger role to its housekeeping staff. Now, in addition to cleaning, they also give patients their meals and transport them to and from their rooms and to and from surgery.

TANIA IAGALLO: [to patient] You eat as much as you can, all right?

NARRATOR: Tania Iagallo is a manicurist. Now she also works at Beverly as a service associate, earning $6.73 an hour.

INTERVIEWER: What's the toughest thing about your job?

TANIA IAGALLO: The toughest would be, you know, just learning more of the medical. I wasn't trained fully on medical because that's not what the position needs. But I'm learning as I go along. Even if my feet can handle it I'll do it. So it would be more if you're doing transport, you've got to understand about the oxygen. You have to understand where it goes, what to do with the tank. You know, make sure you shut it off so it doesn't expel itself, and then if someone needs it in an emergency, you go.

[to nurse]: His I.V. is leaking a bit.

NURSE: Okay.

TANIA IAGALLO: Everything has to be sterilized. And if there's oxygen, the tubing's on the wall. You know, technically, it's not my job to take it out, sterilize it and put it back. But if I'm there, I want to do it and get it done because it makes everything run smoother. And if I'm not 100 percent sure, I ask.

SUSAN DUNCAN: I don't think the public understands what's happening. I don't think they realize that many of their nurses have been replaced by unlicensed, assistive personnel. I don't think they realize that they're not getting the training that a nurse would, or even that an unlicensed assistive personnel should get. I really don't think that people know. I think they need to know.

CLINICAL ASSOCIATE: [to patient] Okay, I'm going to take your temperature.

SUSAN DUNCAN: One of the biggest indicators that something is going on medically with someone is vital signs, and we are no longer responsible for vital signs. That's the clinical associate's responsibility. And a lot of times, they don't recognize a change, an important change or a change that signals that there's something going on.

NARRATOR: In response to the changes at the hospital, Beverly's nurses have begun to organize a union.

NURSE: [at union meeting] At this point we're having trouble with the mid-range, the 8- to 10-year experienced registered nurse.

NARRATOR: But the administration defends its staffing decisions.

ROBERT R. FANNING, Jr., President, Beverly Hospital: I think, clearly, the philosophy here is that nursing care is terribly important and we have to make sure that we keep our eye on that target. But what we do is we challenge those people that have been in our field for a long period of time, who have been used to dealing with things for 20 years, the status quo. I think when you begin to challenge the status quo, I think you begin to get resistance.

ROBERT SHAFNER, Executive V.P., Beverly Hospital: People have a great deal of difficulty identifying and explaining what quality of care really is. And I think it's just too easy for most of us or many of us to say quality of care is being sacrificed. I think that's become a catch-all excuse for not going through necessary change.

CLINICAL ASSOCIATE: [to nurse] No, we need new ones. They're broken. They're taped and everything.

SUSAN DUNCAN: I feel like some bean counter someplace is deciding that, "You nurses make far too much money. We can train these people off the street to do what you used to do, and," you know, "there's going to be a big savings."

[to patient] Has your daughter been in to see you today?

PATIENT: Nobody's been in.

SUSAN DUNCAN: Remember me? My name is Sue. I took care of you the other night.

PATIENT: I need help.

SUSAN DUNCAN: You need help? What's the matter, honey?

PATIENT: I'm scared to death to be alone.

SUSAN DUNCAN: I know you are.

[to interviewer] I feel like I can't be everywhere at once and what if something goes wrong? If something goes wrong I'm sunk. Some nights, if they're all breathing when I leave at the end of my shift, I think, "Whew! Thank God." And then I come home and I lay awake all night thinking, "What didn't I do? What did I forget to do? What did I do wrong? Did I do something wrong? Did I forget to give a med?" And it happens to me night after night after night.

JOANNE LASCHI: [to patient] And how do you feel right now?

NARRATOR: Joanne Laschi, who trained as an intensive care nurse, says she also has worried that something will go wrong.

JOANNE LASCHI: If you're sick enough to be in intensive care, especially nowadays, you're a moment-to-moment, hour-to-hour kind of person, you know? And things change that quickly. Therefore, the logic of planning only for the moment leaves a lot of room for bad things to happen because if you plan on "At this moment we have six patients, therefore you get three nurses," and even one of those patients changes in their level of illness, you've upset the balance. There's a line you cross there when things are no longer serious and intense and in control and being dealt with. They become serious and intense and out of control and not well coped with.

ROBERT SHAFNER, Executive V.P., Beverly Hospital: It is a response that I hear all too often. "I'm scared." I hear nurses who have said to me - that are more my age - and say, "I can't change." And this is very frustrating to me. "I cannot change." They all want to go back, as I do sometimes, to the good old days, but those things aren't going to happen.

NARRATOR: But for Joanne, the changes at Beverly became too much for her to bear.

JOANNE LASCHI: I had to make a change and get out before something bad happened because its not a matter of if, it's a matter of when. We've all been this close, and I don't want to be any closer than that.

NARRATOR: Joanne didn't leave nursing. She went to work at Cable, a small emergency center in the nearby town of Ipswich.

JOANNE LASCHI: [to patient] Sometimes your blood count can run too high or too low, meaning-

NARRATOR: Here, where the pace is slow and the faces familiar, Joanne can do the kind of nursing she likes, the kind that used to be practiced all over these towns.

JOANNE LASCHI: It's you, another nurse and a doctor available. We're very available. There's no bureaucracy when you walk in the door, it's just us to take care of people. Yeah, I think it is a throwback, in some ways, to what health care was like before, because you can establish a little bit of a relationship with the person.

[to patient] When you say you were lightheaded, did you feel the room- was the room spinning?

[to interviewer] You get to do the medical stuff, but you also get to do the personal stuff, which is gratifying. I mean, that's what it's about. That's what makes medicine different than fixing cars.

[to patient] Did you notice any clots?

NARRATOR: But Cable's future is in danger. Northeast Health Systems, Beverly Hospital's parent company, owns Cable and has been talking of closing it down for over two years.

ROBERT SHAFNER, Executive V.P., Beverly Hospital: It's served its time. It's served its need. In the days of technology that are available, the paramedic system that's available, the cost savings, the cost constraints that both the community and the hospital are under, the time has come to phase that down and, hopefully, replace it with more access to primary care physicians.

"Here's the reality guys. We've got X number of dollars. We've got this many patients. What can we do differently and still care for our patients in this environment?" And that's what's happening here. And I think people sort of hide behind some excuse- we're sacrificing quality of care. They're not picking up the mantel and doing what they need to do to see that that doesn't happen. And to bury your head in the sand ain't going to change public policy.

DEMONSTRATION LEADER: What do we need?

PROTESTERS: RNs!

DEMONSTRATION LEADER: What do we need?!

PROTESTERS: RNs!

NARRATOR: Since the early '80s, the number of nursing personnel has been cut by 27 percent in the state of Massachusetts, 25 percent in New York and 20 percent in California. And across the country, nurses have protested.

NURSE: [at demonstration] Fourteen months out of nursing school, I am ordered to care and supervise 40 patients on my own. I do not have the skills and nobody has the time to teach me. I am afraid to care for these patients. [www.pbs.org: Read a survey of nurses' complaints]

NARRATOR: The movement against managed care has picked up steam. In December of 1997, a group of Massachusetts doctors and nurses re-staged the Boston Tea Party, tossing symbols of for-profit medicine into Boston Harbor. They said they resented the interference of for-profit HMOs in important and private medical decisions.

That night they held a town meeting in Boston's historic Faneuil Hall. Harvard cardiologist Dr. Bernard Lown:

Dr. BERNARD LOWN: [at town meeting] Medicine is a calling, at its core is a moral enterprise grounded in a covenant of trust between health professionals and patients. By contrast, market medicine is organized like any other business. Its aim is to generate profit. In order to survive, the well-intentioned must hew to competitive pressures of the market or get out of business.

NARRATOR: But for all their concerns, efforts by doctors to take control of the system themselves have not often succeeded. This New Jersey health plan was founded by a group of doctors and hospitals. They placed a 5 percent cap on profits, touting the plan as an alternative to the big HMOs, more committed to good care than to generating dollars.

But the plan ran into serious financial trouble and had to turn for help to Malik Hasan, who bailed the company out in exchange for a controlling interest. With this addition, Hasan's plan will become the third biggest HMO in the Northeast.

Dr. MALIK HASAN: [to HMO executive] Good to see you.

HMO EXECUTIVE: Hi, Dr. Hasan. How was your trip?

NARRATOR: Today Hasan is visiting his new acquisition.

HMO EXECUTIVE: [to Hasan] We've been waiting for your arrival with great anticipation.

Dr. MALIK HASAN: [at meeting] In the first 10 months, this plan has lost about $74 million. And you know, we have gone into the details. Going forward-

NARRATOR: They know Hasan is the only one who can get their company out of trouble and they are anxious to please.

HMO EXECUTIVE: [at meeting] We've initiated a new pre-authorization process that you've been kind enough to lend your expertise to. You know, we're now pre-authorizing-

Dr. MALIK HASAN: I don't think you were given a choice.

HMO EXECUTIVE: No, I wasn't.

Dr. MALIK HASAN: Is that fair to say?

HMO EXECUTIVE: That's right.

Dr. MALIK HASAN: Okay.

HMO EXECUTIVE: That's right.

NARRATOR: The founders of the plan had wanted to keep out public shareholders who might demand higher profit margins, but with Hasan on board, the hand of Wall Street will be felt.

UWE REINHARDT, Princeton University: The for-profit CEO has to worry daily about what these young people on Wall Street think about what he or she is doing and how that reflects on the stock prices, which can do bad things for him if they tumble.

ANALYST: [on the phone] The quarter which you'll be reporting should be- is actually on target with Street estimates, which is nice to hear.

NARRATOR: Wall Street analysts monitor the performance of Hasan's company, and Hasan pays close attention to their opinions.

Dr. MALIK HASAN: [on the phone] Do you have any concern about our company?

ANALYST: [on the phone] I think Foundation, from a stock standpoint, is very attractive. There's a "buy" rating on the stock, as you know.

UWE REINHARDT: The for-profits set themselves up to these targets. And once they're there, they feel almost morally obligated to deliver that to Wall Street. You know, to go to Wall Street and say, "I promised you 15 percent and its only 10," that's a very painful walk.

Dr. MALIK HASAN: [on the phone] What do you think is the right size? Are we the right size or do we still need to get bigger?

ANALYST: [on the phone] I think ever greater scale, if it's properly managed, will be important to sustaining growth and earnings.

GEORGE ANDERS, Author, "Health Against Wealth": A lot of the decisions in Hasan's HMOs are made by medical directors who are essentially MDs who will take a desk job. And one of the very clever things that Hasan has done is to have an awful lot of their pay tied to stock options, so they begin to think like Wall Street. Their thinking is not just "What's right for the patient? What's right for the community?" but "How do we get the value of the stock up?"

And I've interviewed former medical directors who say they took a pay cut to come and work inside one of Dr. Hasan's HMOs, but they ended up making $3 million and $4 million on the stock options. When you've got that kind of pay incentive, pretty soon everyone within the health plan is beginning to think, "What's the way Wall Street would want to do it?"

Dr. MALIK HASAN: [to customer service representative] Hi.

CUSTOMER SERVICE REPRESENTATIVE: Hello.

Dr. MALIK HASAN: How are you doing?

CUSTOMER SERVICE REPRESENTATIVE: I'm fine, thanks.

Dr. MALIK HASAN: Keep up the good work.

NARRATOR: Hasan sees a world of medical efficiency, where higher quality and happy shareholders go hand in hand.

Dr. MALIK HASAN: The interests of the shareholders and the interests of the members are the same, and that is that you have an organization which is efficient, an organization who knows what they are doing.

1st CUSTOMER SERVICE REPRESENTATIVE: [on the phone] As soon as we hear from them, we can put it in the works.

2nd CUSTOMER SERVICE REPRESENTATIVE: [on the phone] Thank you for holding. This is Julie. How may I help you?

Dr. MALIK HASAN: It is in our shareholders' interests, in the long term, that we should have a reputation of taking good care of our customers.

NARRATOR: But in recent months, Wall Street's pressure on for-profit HMOs like Foundation has begun to mount.

3rd CUSTOMER SERVICE REPRESENTATIVE: [on the phone] Yes, we have dental. We have vision. We have chiropractic care.

4th CUSTOMER SERVICE REPRESENTATIVE: [on the phone] We do offer a PTO network with our plan.

NARRATOR: In the early '90s, most HMOs were delivering as much as a 20 percent profit per year to their shareholders. But as the obvious fat is cut from health care, that number has begun to slip.

1st SALESPERSON: [at trade show] Sir, have you got your packet from U.S. Healthcare?

2nd SALESPERSON: [at trade show] You can stick that on your refrigerator.

NARRATOR: Most for-profits only saw a 5 percent return last year. Many people predict that premiums will go up. Others wonder, "Will more cost-cutting be necessary?"

Dr. MALIK HASAN: Well, actually, now the fun starts because you're absolutely right, the easy fat is gone, but it can be even more efficient. And the American ingenuity and innovation then comes into play because then you start thinking about productivity. Then you start thinking about how to do things better.

NARRATOR: One solution that HMOs are turning to, called "capitation," passes the tough medical decisions on to doctors and hospitals, giving them a lump sum of money per patient per month. What they save, they keep. What they spend, they lose. Now it's the hospitals themselves saying no to their doctors.

Dr. A.R. MOOSSA, Chief of Surgery, UCSD: [at meeting] Dr. Holmes, you are the other division that is grossly in the red. I am having complaints from the other divisions that they are supporting you. What's your answer to this? How are you addressing it?

Dr. RALPH HOLMES: [at meeting] Well, we're making a number of very substantial changes. And the largest one is that we're realizing that our mission - which is to take care of the complex reconstructive problems of birth defects, breast cancer reconstruction, burn reconstruction - can't be the primary focus of our mission if we are going to survive as a division.

Dr. A.R. MOOSSA, Chief of Surgery, UCSD: Because we lose money on them.

Dr. RALPH HOLMES: We lose money on every one of them.

NARRATOR: Dr. Holmes has been told he has to make a radical readjustment of his priorities.

Dr. A.R. MOOSSA: The only way his program can survive is he has to do a larger portion of cosmetic surgery because this is cash payment.

1st PATIENT: [to Dr. Holmes] I came to you to talk about my arms. They're a little larger than I'd like.

Dr. RALPH HOLMES: Okay, so you're thinking about liposuction? Is that what you're interested in?

NARRATOR: Faced with the closure of his department, Holmes has shifted his emphasis to lucrative cosmetic surgeries like liposuctions-

Dr. RALPH HOLMES: [to patient] Have you heard about ultrasonic liposuction?

NARRATOR: -and facelifts.

2nd PATIENT: [to Dr. Holmes] I guess around the eyes, from this part over here, and I guess any other-

Dr. RALPH HOLMES: Yeah.

2nd PATIENT: -recommendations that you have.

Dr. RALPH HOLMES: Yeah. All right. Well, let me have a look up here.

3rd PATIENT: Liposuction on my legs.

Dr. RALPH HOLMES: Okay. Sure.

3rd PATIENT: I can show you the sites right here that I'm not happy about. How long will this procedure take?

Dr. RALPH HOLMES: The procedure itself takes about an hour. You don't have a whole lot of fat. I think there are a number of advantages that we offer people come in and they feel so much better about themselves because they look good. People sometimes believe that they go into the university and some intern is going to be doing your surgery, and that's really not the case. I and I alone would be doing all of your surgery.

Dr. A.R. MOOSSA, Chief of Surgery, UCSD: We've converted it into a business, and as soon as you become a business, the major, major issue is always profit. The number of surgeons, which amazes me enormously, who are going to go and try and get an MBA is amazing because they see this is where the money and where the action is. Their mission of taking care of patients, educating other doctors and doing research has been eroded enormously.

Dr. RALPH HOLMES: I find that I'm most worn in the evening. You have to see so many patients per day. You have to operate on so many patients. You know, this is all tallied and monitored under the managed care arrangement. And so the idea of spending time with a child before surgery, trying to make them trust you so you can take them into the frightening environment of the operating room, doesn't exist in the minds of those who are looking after efficiency. It's become an assembly line. It's a dramatic change.

NARRATOR: Few would deny that what has happened in San Diego has reordered a system that was badly in need of fixing. But the question for those around the country who are watching is what we may be losing in the process.

PATIENT: [to nurses] It's downhill. I'm 82. I feel like I wish they'd go away and let me be now, if you know what I mean.

GEORGE ANDERS, Author, "Health Against Wealth": I think medicine is practiced one patient at a time. Even if we have 260 million people in the country, it all comes down to "What's happening in that exam room when I go in and I ask the doctor to take care of me?"

PATIENT: [to nurses] It's getting so when they start to grab my arm and haul me around like I'm 90-

GEORGE ANDERS: The most important thing that HMOs cant count is trust. There's no space on an Excel spread sheet that says "trust." But if you fundamentally trust your doctor and your hospital, your chances of a good recovery are better. And the concern on both sides of the divide becomes, "Can I, as a patient, trust my doctor and hospital?" Or as a physician, as a hospital, "Do I feel I'm in an environment where I will get rewarded for doing the right thing?"

JOANNE LASCHI: I couldn't feel that I was delivering care the way it should be given. And that's not the kind of person I want to be. I need to feel that I did the best that I could do, and I don't feel that way anymore.

Dr. RALPH HOLMES: Some doctors and nurses have just chosen to leave rather than accept this process of being worn down by managed care and their reduction of resources. And sometimes you wonder whether you should just stick it out and wait until things get better, or whether you should join them and find some way to recapture some time to do other things that we should be doing in life.

[After his insurer denied Dave Saunders coverage for a heart transplant, he appealed and won. He is currently on a regional waiting list for a heart.]

ANNOUNCER: Find out more about this report at FRONTLINE's Web site. Read reports on the pros and cons of HMOs from the viewpoint of doctors, a profile of Malik Hasan and his HMO, one of the largest, fastest-growing in the nation, some advice on how to choose an HMO or evaluate the one you have, and much more at FRONTLINE online at www.pbs.org.

Next time on FRONTLINE: Marijuana. Two and a half billion dollars a year is spent to combat it. One in six federal prisoners is serving time because of it.

WOMAN: And he's facing a life sentence. Well, who did he kill?

ANNOUNCER: Are we fighting the wrong battle in the war on drugs?

MAN: I think we ought to start basing mandatory sentences on the conduct of the people engaged. Are they using violence? Are they using kids?

ANNOUNCER: Watch "Busted: America's War on Marijuana" next time on FRONTLINE.

Now your letters, this time about our program examining class divisions among black Americans. ["The Two Nations of Black America"] Here are some excerpts.

LOIS WILLIAMS DOUGLAS: [Suisun City, CA] Dear FRONTLINE: It is not as if we do not want to affiliate ourselves with our disenfranchised counterparts. The truth of the matter is that in many situations, we are shunned and made to feel as though we are sell-outs. We are constantly bombarded with statements such as, "You don't act black." "You don't talk like a black person." "You aren't really one of us." What this segment of society fails to grasp is the reality that the majority of white America still views us as black, regardless of our accomplishments.

CLYDE DORSEY: [Bridgeport, CT] I think a lot of the interviewees got the analysis right, but their age-old problem is that they only know how to talk to each other, and not to the people that are the subject of their internal debate.

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WRITTEN, PRODUCED AND DIRECTED BY
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THE HIGH PRICE OF HEALTH

WRITTEN, PRODUCED AND DIRECTED BY
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