Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, June 3, 1994                   TAG: 9406030087
SECTION: BUSINESS                    PAGE: B-4   EDITION: METRO 
SOURCE: By ALEX PHAM BOSTON GLOBE
DATELINE: BOSTON                                LENGTH: Medium

STIFF COMPETITION BEHIND HEALTH-COST SLOWDOWN

Behind the slowdown in costs is intense competition in the health care industry and the continued shift of employees into health maintenance organizations, health care specialists say. Also keeping price increases in check is the industry's eagerness to show that it can regulate itself and cut costs before the federal government prescribes more bitter medicine.

Those factors have helped slow average cost increases for employees covered by traditional indemnity and other non-HMO plans to a projected 6 percent in 1994, compared with 12 percent last year, according to the report by Towers Perrin, a New York consulting firm. The firm's survey of 202 companies also shows that the increase for HMO subscribers is expected to be 5 percent, about half as much as in 1993.

The trend also applies to the cost of providing health care to retirees. The report found that costs for retirees over 65, both in HMO and non-HMO plans, are projected to grow 8 percent this year, vs. 12 percent last year. Savings from lower prescription drug prices are primarily responsible, the report concluded.

But will this last?

Optimists say the trend will continue because employers and insurers are demanding limits on health care spending. In particular, HMOs have cut costs by encouraging shorter hospital stays and by securing lower rates paid to hospitals and doctors. ``While the debate is going on about health care reform, the market is reacting in ways we haven't seen in decades,'' said Stephen Caulfield, a managing director of William M. Mercer Inc., a Boston benefits consulting firm.

Patients are making cheaper choices now that they are paying more out of their own pockets for medical care, Caulfield said. And hospitals, pressured into cost containment, are spending less money acquiring expensive equipment, he said.

Employers also are becoming more savvy negotiators.

``All this is being driven by employers getting together and saying `Hell, no, we're not going to pay more,' '' Caulfield said.

Also a factor is the way medical providers are being paid. Instead of being paid more for providing more services, under novel reimbursement plans, providers get paid a set amount for providing health care to a set number of employees.

A more ephemeral factor is the threat of drastic cost cutting imposed by impending government intervention. The slowdown comes as President Clinton is pushing his health care reform package and Congress debates several alternatives.

``I have to say that Washington is having some influence on this, if for no other reason than for raising the public's consciousness,'' said Caulfield. ``When was the last time you were at a party when people didn't talk about health care?''

Still, increases in health care costs are 50 percent above inflation, said Alan Sager, a professor at the Boston University School of Public Health. The nation's consumer price index, a general measure of inflation, grew 3.6 percent last year.

``We are enjoying transient, short-term benefits'' of low overall inflation and an excess of hospital beds, forcing health care providers to bid down their prices in order to stay in business, Sager said.

Once supply matches demand more closely, prices will climb again, Sager said. ``Before long, it'll be a seller's market.''