6 - The Rochester Area Hospitals Corporation: Decision-Making Forum

Summary

The hospital experimental payment program commenced on January 1, 1980. A two-county demonstration, HEP was designed to test the proposition that a community on a voluntary basis could more successfully control the rate of increase in hospital costs, improve the efficiency of hospital services, and maintain or improve the solvency of the participating hospitals than under New York State regulations. HEP operated for a decade, until 1990 with three iterations. The original experiment, HEP I, was inaugurated on January 1, 1980, to last for three years, and was extended, upon agreement of all parties at the end of the first year, through December 31, 1984. HEP II (or HEP-Extension) was implemented from 1985 to 1987, and HEP III was in effect from 1988 to 1990. The prospective-payment experiment concluded in 1990, when negotiations with New York State for HEP IV failed.

The experimental payment program seemed to hold out promise for communities across the nation challenged by rapidly escalating hospital costs during the 1970s. Less than a year after HEP began, Barber B. Conable Jr., the Rochester area's member of the U.S. House of Representatives, expressed high expectations for its success: “Rochester's progressive healthcare community is acting as a laboratory for the nation in a significant cooperative reimbursement experiment that may well provide a new direction in hospital financing.” The ranking Republican on the House Ways and Means Committee, which holds jurisdiction over Medicare and Medicaid, Conable asserted that the experiment would be “closely watched.”

HEP, however, was not a simple template for easy emulation by other communities. It was rooted in the distinctive history dating to the 1930s of community health care planning and hospital cooperation in Rochester and a civic culture involving strong business leadership and a dominant Blue Cross presence. This legacy had been strengthened and perpetuated by participation of local hospitals in MAXICAP and by their shared expectation that the state government would impose even more stringent regulations during the 1980s. MAXICAP enhanced their understanding of prospective reimbursement. State regulations predisposed them to take preemptive, antiregulatory action.