Nursing shortage critical part of rising health costs

  1. There are several reasons for the continually escalating health care costs:
    • The increased development and use of clinical and operational technology.
    • Higher employment costs due to the shortage of personnel, including nurses.
    • Our aging population, which requires a higher level of care.
    • The cost of prescription drugs.
    • The heavy burden of federal regulations.
    The nursing shortage is the most critical problem on this list, as it increases the cost and may compromise quality of care and availability of care. Providers, faced with a growing shortage of nurses and the possibility of closing beds and cutting services, increase salaries and turn to nursing agencies that charge two to three times the going nursing rate.

    Full Article: http://www.bizjournals.com/industrie...er_focus4.html
    Last edit by brian on Jun 2, '04
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  2. 32 Comments

  3. by   Norbert Holz
    The "Nursing Shortage " is a misnomer! There is no shortage of Registered Nurses. There could be one some time in the future in some places. Market forces will easily be able to solve these perceived shortages!

    Blaming nurses for the rise in healthcare costs is a severely flawed leap of logic! Nurses have been severely underpaid for decades - perhaps since nursing began.

    If anything nurses contribute significantly to the containment and limit the rise in health care costs. Registered Nurses - in properly staffed patient care situations save far more that mere money we save lives and suffering!

    I am growing weary in defense of the Nursing profession. Countless administrators, academics and observers proclaim the alleged shortage. There is no shortage!

    If and when Registered Nurses are ever compensated with an appropriate amount. The supply will simply increase.

    I would like to make a contrast. There is a car shortage! There are not enough new full size sedans available for me to buy for $7,000.

    Car shortage, car shortage car shortage!

    Seems silly doesn't it? There is no real shortage of full size sedans. Purchasing an auto like a Ford Crown Victoria is done with consideration of market forces. Ford sets the price at what they believe the market will pay for such a vehicle. They also make as many as they think can be sold.

    Nursing services are a market commodity. If there is a shortage then real wages will rise. If an abundant supply is available prices, cost, will remain fairly stable just as they seem to have been for the past twenty years or longer.

    If and when a "Nursing Shortage" happens then compensation - for the actual nurse - will rise accordingly! Anyone seen a substantial raise lately? I sincerely do not believe that is the case.

    Brian please save the "Nursing Shortage" hype for those who are ignorant of facts. Stop spreading the rumors propagated by employing entities who's only desire is to have an overabundant supply of nurses to choose from while compensation proffered barely elevates them out of poverty!
  4. by   katscan
    Great, great post, Mr Holz!!! I agree totally. There is no nurse shortage...there is no nurse shortage...Maybe some day someone, or some group will REALLY investigate the conditions under which we work, the responsibility we carry etc. etc. and DO SOMETHONG ABOUT IT. When and if it happens, nurses will be coming out of the woodwork to apply!
  5. by   Sheri257
    Quote from Norbert Holz
    The "Nursing Shortage " is a misnomer! There is no shortage of Registered Nurses. There could be one some time in the future in some places. Market forces will easily be able to solve these perceived shortages!
    Well, I'm tired of the "there is no shortage" mantra too. It's not that simple.

    There are 500,000 licensed nurses who aren't working but, 70 percent of that population is older too. Retirements and deaths jumped to 175,000 in the last workforce survey, up from a relatively stable 25,000. If the average age of RNs was 25, I'd agree with you, but it's not. The average age is 47. Certainly an aging workforce is part of the problem.

    Not to mention an aging baby boom population. Do you realize that another 11,000 nursing vacanies are projected for just this year alone? 800,000 in the next 15 years. Why? Because of aging baby boomers and the fact that half a million nurses are expected to retire due to advanced age.

    I agree that salaries are a problem, although they actually haven't been declining. Nursing salaries have been stagnant, only increasing with inflation. But this has been a problem for the entire American workforce, not just nurses.

    Finally, even if the pool of 500,000 licensed, non-working nurses increases to 650,000 in the next 15 years (at the same rate that pool has increased in the last decade) ...

    And even if all them could and would return to work ... it still won't come close to filling those 800,000 projected vacancies, unless nursing school graduates, foreign nurses or some other element on the supply side increases substantially.

    Maybe there isn't a "real" shortage right now, but there is substantial evidence that there will be a "real" shortage in the future.

    Last edit by Sheri257 on Jun 3, '04
  6. by   llg
    When I first began participating in allnurses.com, I was a part of that group that talked about "the nursing shortage." In fact, helping my hospital deal with "the shortage" is the primary focus of my job. However, posts by people like Mr. Holtz above have caused me to re-think the situation.

    I think both extreme positions on the issue are wrong. As with most real-life situations, the "truth" is complex and includes elements of both extreme positions.

    The health care industry's refusal to take some of the responsibility for the "shortage" and to acknowledge that it has treated nurses badly for generations is a big part of the problem. With that, I whole-heartedly agree. The same can be said for the schools of nursing now making noise about the faculty shortage. As a nurse with a PhD who has tried a couple of times to cross over from hospital work to a more academic career, I can also attest to how unwelcoming schools have been over the years to new faculty members. They have no one but themselves to blame.

    However, to say simply that "If they paid us more there would be no shortage," is also wrong. It ignores some basic facts that cannot be denied and presents an overly simplistic picture of what is actually a very complex situation. The demographics of the population, the increased sophistication required of today's nurse, the additional career opportunities available for women today, etc. -- these are all very real contributers to the situation that have to be acknowledged and taken into consideration.

    Anyone who thinks the situation is simple lacks a full understanding of the situation.

    llg
  7. by   Sheri257
    Quote from llg
    However, to say simply that "If they paid us more there would be no shortage," is also wrong. It ignores some basic facts that cannot be denied and presents an overly simplistic picture of what is actually a very complex situation. The demographics of the population, the increased sophistication required of today's nurse, the additional career opportunities available for women today, etc. -- these are all very real contributers to the situation that have to be acknowledged and taken into consideration.

    Anyone who thinks the situation is simple lacks a full understanding of the situation.

    llg
    I totally agree. There are so many factors to consider that there is no simple explanation for this problem.

  8. by   Norbert Holz
    Here are some interesting figures to ponder.

    The NLN states there are 1,419 schools for RN's.
    If every school produces 75 graduates
    This yields 106,425 new graduates every year.

    If true the positions projected to be open would be essentially filled without any additional capacity to produce RN's of importation of any foreign nurses.

    The link for this factoid can be found at this site.

    http://www.nln.org/Research/FacultySurvey/

    Projecting the numbers at the current capacity to extend the 18 years would yield 1,915,650 new nurses, significantly greater than the projected 800,000 claimed to be short at that time.

    Can't we simply agree that there is no nursing shortage and be done with it! Lets continue to ignore facts and talk about feelings! The facts simply negate any suggestion of a "nursing shortage." How do you feel about that?


    PS. If there is a nursing shortage - I am available - right now- to help solve it!
  9. by   Norbert Holz
    If they paid us more there would be evidence of a nursing shortage and the need to hire nurses to fill the vacant positions. Supply vs. demand!

    I experience a gasoline shortage frequently in my car!

    Gasoline shortage, gasoline shortage, gasoline shortage!

    I can not find enough gasoline to fill my tank at $1.50 per gallon. There must be a gasoline shortage. Besides no one shows up in my driveway - not even from another country - to fill my tank!

    Sounds absurd dosen't it? Lets keep this thread going! There has to be more shortages we can create!

    I'm LMAO reading the "educated responses" to my posting on this crisis!

    Do you "feel" the shortage yet?

    BTW it's HOLZ not Holtz use your real name too don't be afraid of the truth!
  10. by   Sheri257
    Quote from Norbert Holz
    Here are some interesting figures to ponder.

    The NLN states there are 1,419 schools for RN's.
    If every school produces 75 graduates
    This yields 106,425 new graduates every year.

    If true the positions projected to be open would be essentially filled without any additional capacity to produce RN's of importation of any foreign nurses.

    The link for this factoid can be found at this site.

    http://www.nln.org/Research/FacultySurvey/

    Projecting the numbers at the current capacity to extend the 18 years would yield 1,915,650 new nurses, significantly greater than the projected 800,000 claimed to be short at that time.

    Can't we simply agree that there is no nursing shortage and be done with it! Lets continue to ignore facts and talk about feelings! The facts simply negate any suggestion of a "nursing shortage." How do you feel about that?
    Everything I cited comes from the U.S. Heath Department nurse workforce survey, not "feelings."

    http://bhpr.hrsa.gov/healthworkforce...ect/report.htm

    You're only looking at one side of the equation:

    They actually estimate 300,000 new RNs entering the workforce every four years. But, as you can see, that's not enough compared with the projected half million nursing retirements due to advanced age. And, of course, substantial increased demand for RNs due to aging baby boomers.

    Again: Maybe there's not a "real" shortage now, but there is evidence that there will be a "real" shortage in the future, even when you take into account those half million licensed non-working nurses, and assume that all of them could return to work.

    Last edit by Sheri257 on Jun 3, '04
  11. by   llg
    Quote from Norbert Holz
    Can't we simply agree that there is no nursing shortage and be done with it! Lets continue to ignore facts and talk about feelings! The facts simply negate any suggestion of a "nursing shortage." How do you feel about that?
    PS. If there is a nursing shortage - I am available - right now- to help solve it!
    No ... I believe there is an actual shortage. Many of those people who have RN licenses are elderly and it is not realistic to expect them to actually work a floor any more. Others are middle-aged and financially secure (e.g. married well) and have no intention of working again regardless of what happens. These people keep their licenses, partly as a source of pride, partly to help maintain their identity as a nurse, and partly "just in case." Therefore, they are in the numbers as "available nurses", bBut it is totally unrealist to expect them to work.

    Similar things can be said for many of the people in school. They intend to work full time (or even at all) only as long as they have to for financial reasons. If they have a husband who can provide sufficiently financially, they will choose to stay at home and raise a family -- or work only the amount to generate the income they need. Many others are planning to practice at the bedside only as a stepping-stone to another career. They have no intention of having a long-term career at the bedside -- or perhaps, not even a long-term career in nursing.

    The numbers are actually much more complicated than they might at first appear. You have to account for all of that sort of thing hidden within the numbers. You can't just take them in at face value in such a simplistic fashion. There are complex social trends at work behind the numbers that must be taken into account.

    llg
  12. by   pickledpepperRN
    http://www.revolutionmag.com/newrev2/engineering.html

    The health care industry and its proponents, including investment banks and management consulting firms, have had much to say in recent years about the origins of RN shortages and solutions. However, nearly all of their analysis has focused on causes that leave the industry itself invisible and devoid of responsibility for its own role in causing the nursing shortage

    Nursing shortages are certainly not a new phenomenon. Like other market and labor trends, the supply of nurses has historically been uneven, and nurses have entered or re-entered the workforce to stave off national crises of care.
    But the nursing shortage that has grabbed headlines across the country in recent years, and left scores of unfilled vacancies on hospital bulletin boards, is unique and threatens to be far more enduring.

    Increasingly, trends indicate that many RNs simply have lost trust in the industry; they've left the hospital setting and they are not readily coming back.
    The health care industry and the numerous management consultants it employs have a catalog of explanations for the current shortage.

    They cite an aging workforce - the average age of RNs is now 46 - and opportunities for women in other professions as long-closed doors in business, law and other male-dominated venues begin to slowly crack open. They note drops in nursing school enrollments and declining graduation rates. They blame the "invisible hand" of the market, which in supposedly neutral fashion dictates supply and demand, as well as changes in medical technology and patient care trends that require fewer nurses.
    Not coincidentally, the industry analysts paint these factors as beyond their control. Notably absent from these clarifications is any recognition or accountability for the industry's own actions.

    An assessment can begin with a brief look back at the last major nursing shortage in the mid-1980s. As noted by Judith Shindul-Rothschild, RN, assistant professor at the Boston College School of Nursing, that shortage was reversed when hospitals abandoned fragmented models such as team nursing and turned to primary care nursing, which enabled RNs to provide a patient's total care. The result was what Shindul-Rothschild calls a "renaissance in nursing," and RNs returned to the workforce.
    Within a few years, however, virtually everything had changed. Nursing care no longer was prioritized as the health care industry had begun to systematically deskill, displace and deprofessionalize nursing.

    Guided by market-driven goals of cost-cutting and profit-making rather than assurance of quality care, corporate health care firms began to implement restructuring programs in the corporate, clinical and technological arenas.

    On the corporate level, large-scale mergers and acquisitions intended to increase market share and build economies of scale resulted in an unprecedented concentration of health care resources in the hands of a shrinking number of very large companies.
    In the past six years, mergers and acquisitions have consumed an astonishing $453 billion in health care, concurrent with a rise in profits and executive stock portfolios, resources that could have been better spent elsewhere ......

    The binge was fueled by a 1994 change in U.S. anti-trust law (ironically, the only major change adopted by Congress in response to the Clinton administration's 1993 health care plan) that granted extraordinary latitude to merging health care corporations, reputedly to encourage competition.

    The anti-trust law was reflective of the increased political clout of the industry. It was also a harbinger of vigorous lobbying against any policy legislation, including scores of health care reform proposals, that would inhibit its corporate expansion and profit generation.

    Similarly the industry was successful in manipulating tax laws - for example, shifting assets from for-profit to non-profit entities to avoid taxation and regulations, such as moving patients to hospital units or other areas with lesser regulatory oversight.

    To accumulate the cash needed for their expansion, and to pay off the staggering debt load they incurred, hospital corporations increasingly turned to squeezing labor costs - and nursing care in particular, their main source of expenditures.

    At the bedside, management consulting firms like McKenzie, Booz Allen & Hamilton, American Practices Management (APM), Andersen Consulting and the Hunter Group, were paid hundreds of millions of dollars to implement work redesign models.
    Carrying pleasing-sounding names such as Patient Focused Care or Population Based Care, the re-engineering was premised on models first introduced in the manufacturing sector of the economy and forced onto the health care workplace and direct caregivers.

    The emphasis was on "just-in-time" production techniques that cut staff to dangerously low levels and only provided care for patients when they reached the periphery of crisis and presented a legal liability if they were not treated.
    At their core, the redesign plans were intended to deskill and disempower direct caregivers. Most of the models featured the carving up of the care process into assorted "tasks," and shifting RNs away from hands-on patient care to serve as "team leaders" of unlicensed assistive personnel who would perform the tasks. It would mean replacing direct care RNs with unlicensed staff and RNs with advanced degrees who would supervise them.

    New technologies also played a major role in the deskilling process, such as computerized diagnostic and treatment protocols that some institutions began to use in areas from bedside care to telephone advice.

    Large numbers of RNs were simply laid off - Kaiser Permanente alone laid off 1,600 RNs in Northern California from 1994 to 1997, and a 1997 survey by the California Board of Registered Nursing found that 5 percent of respondents had left nursing due to downsizing.

    Health care had been "transformed," the industry and its consultants proclaimed. With fewer RNs ostensibly needed in hospitals, hospital-based education and training programs for RNs were dropped. As hospitals signaled to nursing schools that fewer nurses were needed, education curricula and expenditures were cut back. Enrollments in entry-level bachelor's degree programs had fallen by 4.6 percent in the fall of 1999, although advanced degree programs were growing, according to the American Association of Colleges of Nurses. The Boston College School of Nursing was among the healthiest programs, with admissions flat rather than declining, Shindul-Rothschild said.

    The restructuring programs had a huge economic cost. Kaiser Permanente alone spent about $100 million in only one year on its top four consultants - enough to insure at least 80,000 people.

    Results for patients also have been disastrous. In an examination of more than 18.2 million patient discharge records from 1993-1997, a study by the Institute for Health & Socio-Economic Policy found that the proportion of patients admitted to a hospital in a given year who were well enough to be discharged home dropped 5.2 percent.

    Industry attempts to limit admissions and reduce costs have forced many patients to seek the ER as their only means of access to a hospital bed of any kind. California ERs now account for almost 34 percent of all hospital admissions statewide.

    And hospital-based errors leading to the deaths of up to 98,000 Americans every year have become a national scandal. Notably, the Institute of Medicine, which produced the findings, studied every conceivable variable except RN staffing ratios and deteriorating patient care conditions to explain the shocking numbers.

    Patients are sicker than ever, and there are fewer RNs at the bedside.
    Some states, such as New York, Massachusetts and Pennsylvania, have experienced steadily declining numbers of full-time RNs, coupled with a rising uninsured population. As more patients use the emergency room as their entry point to health care, RNs struggle with higher nurse-to-patient ratios and higher acuity levels of patients.


    In Maryland, the nursing shortage is reaching epidemic proportions. Dr. John Burton, director of geriatric medicine at Johns Hopkins Bayview Medical Center told a Baltimore Sun reporter that the staffing problems are "having a dramatic impact, and it's likely to get worse. We're headed for a crisis." Maryland hospitals are suffering nurse vacancy rates of 10 percent to 12 percent, with some hospitals facing a 20 percent shortage. The Professional Staff Nurses Association of Maryland, which represents nurses in six of the state's 55 institutions, reports that complaints on unsafe assignments or mistakes have doubled since the beginning of the new year.
    Although Maryland hospitals are offering higher salaries and extra benefits like tuition or day care provisions, they aren't finding takers. The state's Board of Nursing reports that the number of registered nurses available for work dropped by about 2,300 from 1998 to 1999.

    In other states, hospitals are also offering signing bonuses of $6,000 or more, seemingly to little avail.

    A closer look yields disturbing information. According to the American Hospital Association, the number of California full-time employed hospital RNs peaked at about 63,700 in 1994 and has not quite attained that level since. But figures obtained from the California Board of Registered Nursing this year reveal that 266,800 RNs are licensed statewide and, of that number, about 248,000 are actively licensed.

    So, where have all the nurses gone?

    "All you have to do is talk to a direct care nurse to find out what the conditions are like," said Echo Heron, RN, and author of Tending Lives: Nurses on the Medical Front. "Forced overtime, working double shifts, having far too many patients to care for, then being asked to 'delegate' your work to a person with very little training, well, it all adds up. The hours. The strain. The stress on you, not to mention your family.
    "And too many RNs feel that they aren't safe and their patients aren't safe," Heron said. "When nurses are overworked and exhausted, run ragged by too many patients, mistakes happen."

    A Maryland nurse, who refused to give her name to a reporter for the Baltimore Sun for fear of losing her job, said that a nurse missed a very unsafe cardiac arrhythmia with one of her patients because she was busy with another one. Yet a number of Maryland hospitals assign ICU nurses three patients instead of the standard ratio of one nurse to two ICU patients.

    Nurses across the nation are extremely concerned about the quality of care in their hospitals. A survey conducted by Fingerhut Granados Opinion Research revealed that 66 percent of RNs believe that "staffing levels are inadequate at the place where they work." Sixty-nine percent of them worried that "patients aren't getting the care they need." And 75 percent of RNs were concerned that "because of short staffing, a mistake affecting a patient will occur."

    If we look at the evidence, we are forced to a conclusion about the nursing shortage.
    Nurses are losing trust in their institutions and in their management. They are losing trust in the entire health care industry.

    Nurses see speed-up at the expense of patient care while executives in the hospital chains where they work sit on wealth undreamed of only a few years ago. They see inner city hospitals closed while the companies shift services to more affluent communities, and they see the most vulnerable patient populations, including the poor, seniors, and some minorities, medically redlined and deprived of needed care.
    They see ever-decreasing lengths of stay while acuity levels skyrocket, and sicker patients moved to the new patient dumping ground of "sub-acute" care. They see implementation of computer programs that reduce skills to tasks and unlicensed staff performing increasingly complex procedures.

    They have so little faith in hospitals today that increasing numbers will not even recommend hospitals they work in to family members because they are not sure the facility will care for them properly.

    "Our profession is mostly women, and it's true that there are more alternatives for women wanting professional careers," says Shindul-Rothschild. "But then, those slots aren't being filled by men, either. So you have to ask the question, 'Why aren't men coming into the field?' Whether male or female, people aren't entering the profession because of money. The salaries are competitive. And during the last nursing shortage in the '80s, nurses came back to the profession. We aren't seeing that happen today. So that leads me to the conclusion that it must be the working conditions."

    Despite the negative consequences of the transformation of health care the past few years, the industry is gearing up for a new stage of deskilling and restructuring programs. They will be prompted by industry attempts to cope with the huge debt load created by the mergers and acquisitions, fallout from the 1997 cuts in Medicare reimbursements, and the recent wave of pharmaceutical mergers and the resulting increases in formulary prices as HMOs seek to pass costs to hospitals.

    Most critically, the industry will use the excuse of the devout refusal of actively licensed RNs to enter a workplace they consider unsafe for themselves and their patients.

    The mysterious workings of the market and employment opportunities for women elsewhere can not begin to explain the current shortage of RNs.

    More likely, the industry shortage is a self-inflicted wound brought about by years of market- and industry-led restructuring programs that led to indiscriminate downsizing, increased patient complaints about the quality of care, deteriorating RN-to-patient ratios, and most critically, a marked loss of RN trust.

    Just as the industry has created this crisis, it can help to resolve it. The industry can do its part to alleviate the RN shortage by adopting in word and practice a few simple principles:

    * Value patients as human beings and not as "covered lives."
    * Rather than expending resources fighting RNs and patients on safe staffing ratios, use those resources to enhance the ratios. The market is not able to set ratios that are safe for patients or that will assure adequate numbers of RNs.
    * Trust in the professional judgment and skills of the bedside nurse to advocate for the patient.
    * Terminate all contracts with management consultant deskilling programs and invest those hundreds of millions into preventative care and improving nurse-to-patient ratios.
    * When RNs testify that many health care restructuring programs are a form of patient endangerment - listen.
    * Accept that a profession dominated by women can and should earn a living wage commensurate with skills and dedication.
    * Promote direct caregiver role models as opposed to nurse executive models. The archetypal nurse executive may appeal to an MBA student but is decidedly less appealing to those who value nursing as a noble and hands-on calling.
    * Adopt RN work schedules that allow RNs some semblance of a normal life.
    * Provide RNs with adequate retirement and health benefits.
    * Provide increased funding for RN scholarships.
    * Expand educational and training opportunities for generalist RNs to learn specialty skills, and for LPNs, LVNs and aides to become RNs.
    * Work with nursing unions on projects to develop new programs for the future of nursing.
    Most importantly, do whatever it takes to restore the traumatic loss of RN faith in the industry that they see as having forsaken both them and their patients in the pursuit of private wealth over and above public health.

    That trust must be earned. It cannot be purchased with sign-on bonuses and certainly not with broken promises. The path back to that lost trust will be difficult. Common decency, an industry reaffirmation of the centrality of patient health in its mission and a commitment to the nursing profession that has made the industry one of the wealthiest in the nation demand it.
  13. by   Sheri257
    I have no doubt that working conditions are also part of the problem. But, as always, these articles ignore other factors, besides the ones I've already mentioned. Like the fact that failure rates in pre-reqs and nursing schools are pretty high. There are large numbers of students who want to be nurses, but simply can't make it to or through nursing school.

    Not to mention, 15 percent of the people who take the NCLEX fail. Maybe some of them pass on second and third tries, but certainly some are eliminated through that process as well.

    This is a complicated problem. Again, there is no simple answer.

  14. by   pickledpepperRN
    Quote from lizz
    I have no doubt that working conditions are also part of the problem. But, as always, these articles ignore other factors, besides the ones I've already mentioned. Like the fact that failure rates in pre-reqs and nursing schools are pretty high. There are large numbers of students who want to be nurses, but simply can't make it to or through nursing school.

    Not to mention, 15 percent of the people who take the NCLEX fail. Maybe some of them pass on second and third tries, but certainly some are eliminated through that process as well.

    This is a complicated problem. Again, there is no simple answer.

    Yes, it is very complicated. Here in California when the hospitals were laying off nurses the University eliminated its undergraduate nursing programs. Now you must be licensed as a registered nurse to enter the BSN program.
    The Los Angeles Community Colleges went from NINE ADN programs to TWO.
    Now there are THREE.
    -------------------------------------------------------
    Another part of the shortage problem:

    http://www.revolutionmag.com/newrev4/dondrug.html

    Business gurus tout the recent wave of large pharmaceutical industry mergers and acquisitions as a way to lower drug costs. With competing companies merging their R&D efforts, drug companies will enjoy "economies of scale," which, according to experts, should maximize their ability to develop new drugs and bring them to market. Administrative expenses, once performed in each company, would be combined into one and further reduce expenses. So consumers would get more and better prescription drugs at lower prices.
    That's the business theory. In practice, just the opposite is happening.

    Pharmaceutical industry mergers appear to be a primary cause of the explosive rise in prescription drug costs and may be a key factor in influencing hospitals to reduce hospital nurse staffing levels.

    That's the findings of a study just completed by the Institute for Health and Socio-economic Policy (IHSP). Through the study, conducted at the request of Rep. Dennis J. Kucinich (D-Ohio), the IHSP was able to document for the first time a correlation among patient access, corporate market share activities, and health caregiver staffing ratios.

    At the heart of the 125-page study is an analysis of the staggering economic and social effects of the pharmaceutical industry merger and acquisition binge of recent years - augmented by a survey of hospital executives who describe their response to prescription drug price hikes.

    The findings should send a sobering message to policy makers: Hospitals expect to lay off nurses in the midst of a national hospital nursing shortage and Medicare patients may have even less access to needed prescription drugs. Meanwhile, the pharmaceutical industry becomes dominated by a handful of corporate giants who are making record profits.

    The study also uncovered another trend: Escalating drug prices - not reductions in Medicare reimbursement rates, as many contend - may be the primary culprit in lower revenues and profits for many hospitals and managed care plans. Hospitals have responded by cost-cutting, in the form of staffing cuts and service reductions.

    While all health care consumers feel the pinch of staffing cuts, seniors bear the brunt of rising drug prices. As the biggest consumer of prescription drugs, seniors with employer-provided retiree health plans face cost-shifting by their former employers. Those without coverage have it even worse, as they have no stepladder to reach the drug costs that climb out of reach.

    While the IHSP research drew from many sources, a key element is the phone survey of hospital executives. Hospital administrators or finance managers were asked if they thought mergers in the pharmaceutical industry would lead to high prices and if pharmaceutical price increases pressure his or her hospital to reduce staff-to-patient levels, as well as several other questions. Rep. Kucinich's office conducted the phone survey, contacting 100 targeted hospitals across the United States, selected to assure an appropriate geographic, urban and rural balance.

    Overall, 68 percent of the hospital executives - and more than three-fourths of Midwestern and Southern respondents - indicated that current staffing levels are put at risk by increases in drug prices. In the current context of an already woefully inadequate caregiver staffing level, such assessments by high-level hospital administrators may portend a clear and present danger to the public health that the nation can ill afford to ignore.

    Many administrators publicly concede that increases in drug prices may lead to future reductions in patient-to-staff ratios, despite the nationwide nursing shortage that sees no foreseeable end in sight. If hospital executives currently feel that they may reduce staffing ratios due to increased drug prices, it seems a reasonable assumption that drug prices may have been a significant factor in past hospital industry decisions to lay off caregiver staff.

    Unfortunately, drug prices are on the rise. This year they're expected to increase 17.5 percent.

    Most commonly used drugs are going up at twice the rate of inflation. The impact on hospitals will be considerable, given that in 1999 drug spending accounted for 44 percent of the increase in health costs, according to a report in Health Affairs.


    Relaxed anti-trust laws fuel binge

    Drug cost increases were not always the norm. Prescription drugs, as a percentage of total health care costs, were flat from 1990 through 1994, sitting squarely at 5.8 percent of costs. However, in 1995, the figure moved up to 6.4 percent and continues to rise. In 1998, prescription drugs as a percentage of total health costs had risen to 7.4 percent, and in 1999 it was 8.2 percent.

    No surprise that 1994 marks the change in the Sherman Act, which granted extraordinary latitude to merging health care corporations, reputedly to encourage competition and lower prices. (Ironically, changing the antitrust law was the only major change adopted by Congress in response to the Clinton administration's 1993 health care plan.)

    Relaxing the law brought about consolidation, but not competition. The 227 publicly reported pharmaceutical merger prices since 1993 add up to a cost of $270 billion in year 2000 dollars, enough money to pay for about 70 percent of the annual total costs for all inpatient hospital care in the United States.

    In fact, the total cost of about $270 billion is an extremely conservative figure. Of the 351 total transactions, only 227 or about 65 percent of them had publicly announced prices. The price of the other 124 transactions, or 35 percent of the total transactions, is unknown. A simple averaging of transactions costs would imply another $100 billion should be added to the $270 billion total.

    Today, 50 firms control two-thirds of the world pharmaceutical market, and the top 10 U.S. companies make up about 40 percent of the domestic market. Publicly traded pharmaceutical firms with more than $1 million in net sales totaled more than $411 billion in total net sales and $43.6 billion in profits last year.

    All this merger activity is having extraordinary market impact. Five of the 10 most powerful marketers in the industry recently merged. The list includes GlaxoSmithKline, created in December 2000 when Glaxo Wellcome joined with SmithKline Beecham; Pfizer, which took over Warner-Lambert in June 2000; Pharmacia, formed by the union of Pharmacia & Upjohn and Searle in April 2000; AstraZeneca, created by the 1999 merger of Astra AB and Zeneca; and Aventis, launched in 1999 through the union of Hoechst Marion Roussel and Rhone-Poulenc Rorer.

    These five new entities accounted for more than 35 percent of all promotional spending by the pharmaceutical industry in 2000, according to Scott-Levin's marketing research audits. They also generated more than 30 percent of all retail sales, reports Scott-Levin's SourceTM Prescription Audit.

    Overall, the top 10 companies were responsible for 66 percent of the industry's promotional spending and 58 percent of retail prescription sales.

    Pharmaceutical companies are now the most profitable business in the country, according to Forbes magazine. CEOs of 12 drug companies averaged $22 million in compensation in 1998. Huge tax benefits allowed drug companies to lower their tax rates by nearly 40 percent, relative to all other major U.S. industries between 1990 and 1996. Federal subsidies substantially reduced industry's costs for R&D.

    Stoking consumer demand

    The industry has thrown another log on the fire fueling the rise in prescription drugs as a percentage of total health costs. That log is the massive increase in pharmaceutical marketing and advertising intended to stimulate consumer consumption. In 1999, the industry reported that promotional spending reached a record high $13.9 billion, an 11 percent increase over 1998.

    Television advertising for drugs alone has jumped 20 percent since 1994. The $136 million just spent by Schering-Plough on advertising for Claritin in 1998 would have been sufficient to employ about 3,230 RNs.

    Many heavily advertised drugs, particularly antihistamines, antidepressants and cholesterol reducers, are likely to be used on an ongoing basis. Spending on oral antihistamines such as Claritin, Zyrtec and Allegra increased by 612 percent between 1993 and 1998. Spending on antidepressants such as Prozac, Zoloft and Paxil increased by 240 percent between 1993 and 1998. Spending on cholesterol-reducing drugs such as Lipitor, Zocor and Pravachol increased by 194 percent between 1993 and 1998.

    The 10 drugs most heavily advertised directly to consumers in 1998 accounted for $9.3 billion or about 22 percent of the total increase in drug spending between 1993 and 1998.

    In 1998, only four major pharmaceutical firms accounted for about 22 percent of all pharmaceutical sales by major as opposed to generic pharmaceutical corporations, and eight firms accounted for 39 percent. However, with the advent of the Glaxo-Wellcome SmithKline and Pfizer Warner Lambert mergers, the top four major pharmaceutical firms now have close to a 30 percent market share among the major drug manufacturers.

    Concentrations of sales for the top therapeutic categories are even more dramatic. Only four firms account for the vast majority of sales for some of the most commonly prescribed kinds of medications.

    Managed care and PBMs

    Managed care plans, hit with escalating drug costs, sought an answer and found it (or thought they had) in PBMs or pharmacy benefit management programs. PBMs typically select participating pharmacists and drug manufacturers and suppliers, create and administer a point-of-sale claims processing system, negotiate volume discounts with pharmaceutical manufacturers, administer the record keeping and payments, and maintain quality control. Over 135 million Americans currently receive benefits through PBMs, and that number is expected to increase to 200 million by the end of the decade.

    The first PBMs were guided by an independent panel of physicians and therapists who used objective criteria to select drugs in an open formulary. PBM managers "shopped" drug companies to set up volume discount pricing that would be advantageous to their members (and company). Merck & Co., the largest pharmaceutical firm in the world with $32.7 billion in sales, offers Merck-Medco PBM.

    As pharmaceutical corporations consolidate and gain market power, they are more easily able to set higher drug prices. After stoking consumer demand for brand-name drugs, drug companies offer their products to U.S. consumers at twice the cost of the same drug in Canada, Mexico and England, 75 percent more than in France and 100 percent more than in Italy.

    Exit market, stage right

    Once hospitals and health maintenance organizations (HMOs) incurred the effects of the mushrooming drug costs, they readily passed the pain along to their respective patients and plan members.

    Though aggregate hospital profits have totaled about $178 billion since 1986, they have declined the past two years. A number of hospitals, especially small, independent hospitals now are experiencing financial distress. Many have closed or scaled back services, requiring patients to wait longer for access to care.

    In the early 1990s, HMOs were aggressively recruiting Medicare recipients, with an emphasis on the healthiest and wealthiest patients. That practice has sharply reversed course with increasing numbers of HMOs deserting the Medicare market. In the lead is giant Aetna, which exited 11 states and 23 counties in three other states and affected 355,000 members - more than half of the company's market share.

    Of course, cash-strapped public hospitals fare the worst. Not only must they contend with rising drug costs, the reduction in Medicare payments has pushed many toward (or into) red ink.

    Conversely, the Medicare reimbursement reductions have not trounced the hospital industry as the industry has claimed. On the eve of an $11 billion funding increase for Medicare and Medicaid payments in late 2000, a congressional advisory board announced that hospitals still received a 12 percent Medicare impatient margin and 5.9 percent overall Medicare profit margin in 1999.

    Seniors suffer

    Seniors have borne the biggest brunt of the pharmaceutical industry merger binge and rising drug costs. Elderly Americans consume 28 percent of all prescription drugs, and 20 percent of seniors take at least five prescription medications daily.

    The average drug cost for each senior citizen in 1999 was more than $1,200, and that is expected to rise to over $2,800 per person by 2010. Some 13 million Medicare beneficiaries have no prescription drug coverage, and seniors, as a group, tend to fill one-third fewer prescriptions and pay twice as much out-of-pocket costs as other population groups.

    Medicare beneficiaries - many of whom are being deserted by the HMO industry - comprise the single largest patient group in need of expensive medications. Those beneficiaries are at particular risk to increases in drug pricing structures. Only 53 percent of Medicare beneficiaries had drug coverage for the entire year of 1996. Medicare+Choice plans generally have reduced drug benefits and increased enrollee out-of-pocket costs in 2000. Eighty-six percent of plans have annual dollar limits on drugs.

    One employer survey recorded a drop in the number of large firms offering health benefits to Medicare-eligible retirees - from 40 percent in 1993 to 28 percent in 1999. Additionally, employers have tightened eligibility rules and increased cost-shifting to retirees. Of those employers that still offer medical coverage, the survey found that 40 percent are requiring Medicare-eligible retirees to pay for drug coverage.

    Individuals with incomes between 100 percent and 150 percent of poverty, or individuals age 65 or older with incomes between $7,527 and $11,287 in 1996, have the lowest rate of coverage.

    Lean and mean

    Despite the impact rising drug costs have on seniors, other consumers and health care providers, the pharmaceutical industry boldly defends mergers. That "economies of scale" model posited means the new company can devote more resources to R&D in a leaner, more efficient post-merger environment. The industry estimates that the average cost of developing a successful drug is more than $500 million.

    The accuracy of that estimate is not universally shared. Other experts say that the $500 million per drug estimate is inflated, and is based on confidential industry data not subject to outside review. According to the Kaiser Family Foundation, in 1998, the industry spent three times as much on marketing and administrative expenses than on R&D as a percentage of sales.

    Whatever the cost of drug development, the drug industry burden in those costs is considerably lightened through federal subsidies. A 1995 study by the Massachusetts Institute of Technology found that, of the 14 new drugs the industry identified as the most medically significant in the preceding 25 years, 11 had their roots in studies paid for by the government.

    In a 1997 study commissioned by the National Science Foundation, C.H.I. Research looked at the most significant scientific research papers cited in medicine patents. It found that half the cited studies were paid for with public funds, primarily from government and academia; only 17 percent were paid for by the industry.

    Although drug companies claim mergers will improve the industry's success in health breakthroughs, another industry expert is not buying it. Dr. Sidney Wolf, director of public health group for Public Citizen, said, "There is no evidence that the economies of scale have resulted in price savings to consumers - quite the contrary. Also, there is no evidence that more research will come out of the combined companies than the two individual companies."


    Cut to the bone
    Drug price increases may have played a significant historical but overlooked role in generating the current nursing shortage as the provider sector embarked upon ill-conceived restructuring programs - programs that placed reduced numbers of caregiver staff at the core of their design models - offered by the management consulting industry.

    Many U.S. hospitals are not about to reduce any income that might be coming their way. As the phone survey proved, hospital executives see a correlation between the mergers leading to higher drug prices and higher drug prices leading to cost-cutting measures.

    Hospitals have traditional ways of cost cutting. One is simply to close. Another is to close the emergency room, which means care to the uninsured likely will deteriorate, since the emergency room is their primary route to care. And a highly popular method of reducing expenses is reducing staff.

    Nurses, health care workers, patient advocates and patients already know the fragile state of patient care in U.S. hospitals. Further staff cuts could decimate, totally and ultimately, the health profession's creed of "first, do no wrong."

    Re-balancing the economies of scale would be a Herculean task. Educating the media and the public, pushing facts in front of lawmakers, and speaking out on the harsh realities of the pharmaceutical industry are important first steps.

    And maybe it all makes you wonder where the CEO of GlaxoSmithKline or Pfizer Warner Lambert goes when the heart cramps or bp spikes.

    Don DeMoro is the director of the Institute for Health and Socio-economic Policy. The Institute for Health & Socio-Economic Policy (IHSP) is a non-profit policy and research group. Its focus is current political-economy policy analysis in health care and other industries and the constructive engagement of alternative policies with international, national, state and local bodies to enhance, promote and defend the quality of life for all.

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