Low-cost provider left idle by system
Dr. Louis Sennett — and his American Mini-Labs business — is a living example of what happens when the price for a product or service is disconnected from demand.
The retired cardiologist started his retail lab — which does not accept payment via insurance — to provide with preventative diagnostic tests to people who are not covered by health plans.
Sennett sits vigilantly in his small storefront in the Bay Shore Mall in Glendale, waiting for someone to take him up on his $5 blood sugar test, his $10 cholesterol test — or one of his most expensive services, the $35 lipid panel. The prices run about a third of those at traditional clinics. Results for most tests are available in 15 minutes. Others — including tests for thyroid function and prostate cancer — are mailed within 72 hours.
While Sennett fondly recounts stories of people he has helped with his affordable testing — the man whose blood sugar was sky-high and had no idea he was diabetic, the man with the cholesterol of 400 — he sits mostly alone, reading the newspaper.
At one point during a November morning, a man — maybe in his 70s — walks in and asks for his free cholesterol screening. Sennett explains that the screenings are not free — they cost $10.
The man demurred — saying he would go to the clinic because it wouldn’t cost him anything.
"Oh yes it will cost you — it will cost you and me," Sennett told the man, referring to the fact that Medicare would be picking up the tab.
Not many people venture into the humble storefront with its second-hand chairs — no receptionist, no computers, no professional decorator. The space presents a stark contrast with the well-appointed offices and corridors of most hospitals and medical clinics.
"The hospitals will tell you they need these facilities in order to survive," says Judith Nugent of the Wisconsin Board of Health Care Information. Nugent acknowledges, however, that the removal of price from the equation was in part responsible for the focus on newer, more attractive, more opulent environments for traditional health-care facilities.
While Sennett cannot spend money on par with the marketing budgets of the likes of Aurora or Covenant, he does what he can. But even a modest investment of $2,000 in print advertising hasn’t helped attract customers.
"I tried advertising," Sennett said. "I was in the CNI newspapers, the Milwaukee Journal-Sentinel and Hometown Express. Know how many tests I sold because of that? Zero."
But Sennett’s experience has been very different in instances when a corporate entity underwrites the cost of the tests.
"The other week, I did 150 cholesterol screenings at Southridge in six hours," Sennett said. "That was subsidized by Merck."
In other cases, Sennett said that employers have him come in and perform tests for their employees.
"They might have an annual physical as part of their benefit package, but how many of them use it?" Sennett said.
Not always like this
Sennett recalls the days before health insurance, when doctors not only performed house calls, but were paid on the spot, usually in cash. Surgeons, however, were often hard-pressed to get people to pay for more expensive operations.
"Then there was Blue Cross Surgical Care," Sennett recounts. "What that meant is the surgeon was guaranteed payment. So once you are guaranteed payment, you find all kinds of reasons to do procedures."
It’s almost ironic that the system that leaves a low-cost provider like Sennett — whose business may be unique in the nation — had its roots in the Milwaukee market.
An article in the Mount Sinai Hospital (now part of Sinai-Samaritan) newspaper archives — written by former hospital superintendent Dr. Edward Thompson in 1960 — documented the introduction of medical coverage to the Milwaukee market in 1928. Even from the start, it proved controversial.
"The first move of any kind in the Midwest to help patients pay their hospital bills was at Mount Sinai in 1928," Thompson wrote. "We obtained enrollment of 3,000 to 4,000 in a Mount Sinai prepayment plan. There was immediate pressure from the medical group that caused Mount Sinai to give it up after we ran it about three or four years and had about 3,400 enrolled.
"The depression was coming on, and people were not able to pay their hospital bills. Because Mount Sinai had a lack of patients and many of the actual patients found it difficult to pay their hospital bills, the hospital adopted the prepayment plan. It also had a flat-rate prepayment rate for obstetrical patients, under which they paid the hospital $5 a month during the term of their pregnancy and before delivery.
"One reason that cut the Mount Sinai plan out was that it was splitting the medical staff — some were for it and some were not, going along with the medical authorities who were against it. It seems to me that the county medical society threatened to not recognize the men on Mount Sinai’s staff if the plan were continued, but I can’t recall the details."
Group insurance rides in from Texas
Group medical insurance came to Wisconsin in 1939, riding a wave of popularity that originated in Texas 10 years earlier, according to the book A Tradition of Caring, a History of Milwaukee’s Three Primary Service Hospitals — Lutheran, Mount Sinai and Deaconess, by Ellen D. Langill.
"The Milwaukee Hospital, under the leadership of Herman Fritschel, was an innovator in this prepaid insurance idea in the Milwaukee area," Langill wrote. "In June of 1939, when the idea came to Wisconsin, Fritschel joined the Wisconsin Hospital Service Association, a non-profit insurance company which was just setting up a group hospitalization plan. By paying a fee of $10 a year, subscribers could be assured their hospital needs would be met for the designated period. Eleven months later, in May of 1940, Fritschel reported the plan was operating and that both the hospital and a number of its employees were enrolled as participants."
The plan was a precursor of Milwaukee Blue Cross, and according to Langill, many of the city’s largest employers as well as most of its major hospitals became part of the plan by the end of 1941.
"As these insurance plans grew in popularity, they provided security for individuals and a steadier flow of reliable income for hospitals, which were beginning to increase their investments in new technologies and pharmaceuticals made possible by the growth of medical research in the 1920s and 1030s," Langill wrote.
The dominance of group health insurance as a delivery system has led to a situation, according to Sennett, where the number of beds in hospitals are down, the length of hospital stays are down, but cost per stay is up. The reason, he said, is that additional layers of administration have been added that have nothing to do with patient care. Salaries for administrative staff have also skyrocketed, Sennett said, and the additional costs brought on by consumer marketing of hospitals are adding further to problem.
Sennett’s statements are on track. According to a study published in the New England Journal of Medicine, as early as 1983, the proportion of health-care expenditures consumed by administration in the United States was 60% higher than in Canada and 97% higher than in Britain.
Hospital administration represented 20.2% of hospital costs in California in 1987-1988. Extrapolating that figure to the rest of the United States would mean an estimated $39.3 billion, or $162 per capita, consumed by hospital administration.
"Patient care is the doctor and the nurse," Sennett said. "The hospital is a glorified hotel."
Insurance industry making changes
According to an official with the largest provider of health insurance to small businesses in Wisconsin, efforts are being made in the industry to make the consumer more aware of and involved with their care and what it costs.
"It says something about the changing consumer-centric nature of our industry," Humana Milwaukee Market President Mike Derdzinksi said. "Someone has to ask themselves whether they get their test done here or at an outpatient clinic where it will cost $90. Sennett may be ahead of his time."
"You have a situation where people have been insulated too well from the true cost of the services they receive through their insurance," Joseph Kachelski, deputy director of the Wisconsin Association of Health Plans, said. "You could say we do our job too well. We may be victims of our own success. We have insulated people so well from the true cost of health care — normal market forces really don’t apply. What has happened is what basic economics say will happen when goods and services are not priced so consumers are not paying true cost of services. Health plans need to do a better job of making people aware of true cost for services received."
Jan. 4, 2002 Small Business Times, Milwaukee
