"The cost-saving measures we put into place at Columbia/HCA drove down national health care inflation from 18% to 8% in seven years."
Rick Scott on Thursday, November 18th, 2010 in a speech
Rick Scott claims his company caused national health care inflation to nosedive
Florida Gov.-elect Rick Scott touted himself as a businessman during his 2010 campaign. Now he says that steps he took at his former health care company caused national health care inflation to drop dramatically.
In a written copy of his speech to the Florida Council of 100 Governors on Nov. 18, 2010, a couple weeks after his victory, Scott said:
"We need to get a waiver to reform our Medicaid program and rework our health care benefits for state employees. Consumer directed care will lower the costs and increase the available choices. I have considerable experience in driving down health care costs while maintaining quality. The cost-saving measures we put into place at Columbia/HCA drove down national health care inflation from 18% to 8% in seven years."
That's a massive drop -- and a major claim to suggest that the actions of one company could take credit for driving down national health care inflation. We wanted to know what seven-year period was Scott referring to and what was his source for his figures?
We contacted Scott's transition team and proceeded with our own research.
First, a refresher on Scott and Columbia/HCA that we pulled from a June 11, 2010, PolitiFact Truth-O-Meter item:
"Scott started what was first Columbia in the spring of 1987, purchasing two El Paso, Texas, hospitals. He quickly grew the company by purchasing more hospitals. A hospital network created efficiencies. Efficiencies created profits. In 1994, Scott’s Columbia purchased Tennessee-headquartered HCA and its 100 hospitals, and merged the companies. When Scott resigned as CEO in 1997, Columbia/HCA had grown to more than 340 hospitals, 135 surgery centers and 550 home health locations in 37 states and two foreign countries, Scott’s campaign says. The company employed more than 285,000 people."
Scott resigned amid a federal Medicare fraud investigation that led to the company paying $1.7 billion in fines.
For decades, he has worked in the field of health care at high levels -- which means he should be an expert when talking about health care inflation. In addition to running Columbia/HCA and Solantic, a chain of walk-in clinics, Scott has long weighed in on national health care policy. An Aug. 7, 2010, Miami Herald/St. Petersburg Times profile of Scott stated that in the 1990s Scott was a vocal critic of then-first lady Hillary Clinton's health care plan. In 2009, he formed a political action group called Conservatives for Patients Rights which fought President Barack Obama's health care plan. In a May 11, 2009, Washington Post wrote that Scott invested $5 million of his own money into CPR and up to an additional $15 million from supporters and had been making the rounds talking with lawmakers on Capitol Hill. Scott is a guy with health care and business acumen.
Now, let's return to our research about national health care inflation. We contacted the U.S. Department of Labor Bureau of Labor Statistics to obtain information on inflation. Since Scott started at Columbia in 1987, we thought he might have been referring to the seven years starting at that point. We looked at the years 1987 through 1997 -- when he started at Columbia and when he left Columbia/HCA.
We checked the "medical care" category, which includes physician services as well as expenses such as medications. BLS spokesman Gary Steinberg said Consumer Price Index data in the "December" category represents the 12-month change while "annual" reflects the change over 24 months.
To find double-digit increases in health care inflation over a 12-month period, we had to go back to the early 1980s -- before Scott's tenure at Columbia. The data showed national inflation for medical care at 12.5 percent for 1981 and a drop to 11 percent in 1982 -- that's as high as it climbed during the 1980s or since. In 1987, when Scott started at Columbia, national health care inflation was 5.8 percent, it dropped to 4.9 in 1994, and decreased again to 2.8 percent in 1997. Those figures are vastly different from the 18 percent to 8 percent drop that Scott cited.
It's worth noting that overall inflation in the U.S. also dropped between 1987, when it was 4.4 percent, and 1997, when it hit 1.7 percent, according to the CPI. Inflation refers to how much more -- or less -- the same service costs from year to year. For example in the health care arena, how much did a heart bypass cost in 2009 compared to 2008.
On Dec. 7, Brian Burgess, a Scott transition team spokesman, replied to our e-mail:
"Either you heard him wrong or he simply misspoke," Burgess wrote. "In fact, the numbers are even better than that. The national health care inflation rate (i.e. measured as the cost of obtaining health care coverage) was around 18% in 1987 (Rick Scott's first year as CEO) and declined to 0.2% in his last year there."
(Actually, we didn't "hear" Scott at all, since the press was barred from his speech. Nor did he misspeak, since the comment is part of the prepared written remarks distributed by Scott's staff.)
Burgess wrote that the source for Scott's claim was Mercer, a national HR consulting company based in New York. Burgess provided a link to a chart from Mercer called "Annual Change in Average Total Health benefit cost" for 1989 to 2006. The chart states that the data came from Mercer's national survey of employer-sponsored health plans. The chart shows costs rising 16.7 percent in 1989, peaking at 17.1 percent in 1990 and then nosediving during the next several years -- hitting 8 percent in 1993 and 0.2 percent increase in 1997 -- the year Scott left Columbia/HCA.
We spoke to Beth Umland, director of research for health and benefits at Mercer. She sent us data from Mercer showing cost increases at 18.6 percent in 1988.
But Umland said Mercer's data in that chart isn't national health care inflation -- it is the cost for employer-sponsored health plans. That means Mercer's data doesn't reflect health care consumers who use Medicare or buy their own individual plans or lack insurance entirely.
Scott's tenure at Columbia/HCA coincided with a major change in health care delivery. Before the 1990s, patients picked their own doctors and then sent in an insurance claim form. But in the 1990s, health plans started putting together provider networks and negotiating with doctors to provide lower rates. That's why costs dropped as consumers moved into less expensive plans, Umland said. Later, costs started rising because doctors started negotiating. Consumers also pushed back because they didn't like restrictive networks, so those networks grew. Umland sent us a chart comparing overall inflation, workers' earnings and annual change in total health benefit cost per employee between 1988 and 2008 -- which showed dramatic changes in health benefit costs.
We also spoke to Steven Ullmann, a professor and director of programs in health sector management and policy at the University of Miami. We asked: Could a single company -- such as Columbia/HCA -- claim credit for bringing down national health care inflation?
"No,'' Ullmann said. "There were many factors impacting health care inflation at the time that brought it down."
Ullmann agreed with Umland at Mercer that the growth of managed care brought down costs. But Scott's former company deserves some credit because HCA, as well as other for-profit chains, brought down some of their own costs, which put competitive pressures on other health care facilities to do the same, he said. But the Mercer data that Scott cited is not inflation, Ullmann said; it is the cost for employers to ensure their own employees.
Burgess sent several other links to charts about health care costs but since he said Scott's claim was based on information from Mercer we decided to focus on that information. We looked at the charts and three of them still showed health care inflation at no more than 12 percent over the past three decades. And the fourth one was about employer based health care premiums and underlying health care expenditures.
Let's review: Was Rick Scott's Columbia/HCA a slayer of the national health care inflation? He specifically claimed: "The cost saving measures we put into place at Columbia /HCA drove down national health care inflation from 18% to 8% in seven years." As evidence, he cited data from Mercer -- but that data was about employer costs, not national health care inflation. Health care inflation did drop between the late 1980s and the 1990s -- but not by the numbers Scott cited. And it's a stretch for Scott to suggest the actions of a single company caused that drop -- while the country was transitioning to managed care. With his hospital chain CEO background and national leadership on medical care and insurance issues, Scott should be considered a well-spoken expert on health care inflation. But we rate this claim Pants on Fire!
Published: Thursday, December 9th, 2010 at 3:40 p.m.
Subjects: Health Care
Rick Scott speech to the Florida Council of 100 Governors, Prepared remarks, Nov. 18, 2010
Bureau of Labor Statistics, Consumer Price Index for all spending and medical care, 1980-2010
Mercer, "Annual change in average total health benefit cost," 1989-2006
Mercer, "Total health benefit cost change vs. workers' earnings and general CPI," 1988-2008
PolitiFact Florida, "Rick Scott and the fraud case of Columbia/HCA," June 11, 2010
Miami Herald/St. Petersburg Times, "For Rick Scott, success and scandal are inseparable," Aug. 7, 2010
Washington Post, "Ex-Hospital CEO battles reform effort," May 11, 2009
Managed Care Magazine, "Annual percentage change in employment-based health insurance premiums and underlying health care expenditure,"1976-2003
Angry Bear blog, "Inflation in Medical Care versus all other items," 1985-2005
Economy.com, Chart comparing medical care and general inflation, 1990-2008
Bureau of Labor Statistics, "CPI: Prescription drugs and medical supplies," 1974-2007
Interview, Bureau of Labor Statistics spokesman Gary Steinberg, Dec. 7-8, 2010
Interview, Rick Scott transition team spokesman Brian Burgess, Dec. 7, 2010
Interview, Mercer director of research for health and benefits Beth Umland, Dec. 7-8, 2010
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