(2 of 5)
At the heart of the issue is whether a health system that once had few cost controls is now being driven by too many, in some cases to keep shareholders happy with fat profits. "In the fee-for-service days, there was a very perverse system that rewarded doctors for doing way too much medicine," says Dr. David Lawrence, chairman and ceo of California's huge, and nonprofit, Kaiser Permanente. "Now we have a system creating incentives to do too little." Dr. Alan Fogelman, head of UCLA's Department of Medicine, thunders, "People who are sick will be allowed to die because it's the best economically."
This may be an extreme position, but there is ample evidence that the bottom-line mentality is taking over. HMOs refer to the proportion of premiums they pay out for patient care as their "medical-loss ratio"--a chilling choice of words. The Association of American Medical Colleges reported last November that medical-loss ratios of for-profit HMOs paying a flat fee to doctors for treatment averaged only 70% of their premium revenue. The remaining 30% went for administrative expenses--and profit. Other surveys have yielded less alarming figures, and even among profit-making HMOs, there is a wide range. One managed-care plan in New Jersey spent only 59% of its premium dollars on care, while some California for-profit HMOs pay out as much as 88%. But few of the profitmakers pay out as much as the best nonprofit plans: 89% for Harvard Pilgrim Health Care, 94% for Kaiser.
Insurers generally claim that medical-loss ratios have little meaning in themselves because of different accounting systems and are not an accurate guide to profits, which have actually been driven down lately by ruthless competition. Humana, one of the biggest for-profit HMOs, reported a drop in net income of nearly 94% for 1996 after some special charges.
That is no comfort to doctors and patients. For-profit plans are reacting to the recent slippage in net by negotiating huge mergers. Some analysts predict that the 30-odd managed-care insurers that compete today in California will be concentrated into seven to 10 by 2005. Such giant combines might be able to hike premiums while squeezing spending on patient care even tighter in an effort to rebuild their margins--and continuing to let their chief executives pile up personal fortunes in salary and stock. One survey found that the salaries of HMO chiefs averaged 62% higher than those earned by the heads of other corporations of comparable size.
Meanwhile, managed-care companies are squeezing payments to doctors so tightly that in late December 485 Denver-area physicians scrapped their HMO provider, Antero Healthplans, rather than accept a 15% cut. Their 3,000 patients had to scramble over the holidays to find somebody to treat them. Most wound up back with their old doctors, but after enough anxiety to underscore a remark by Peter Van Etten, president of Stanford Health Services: "In this insanity of economics in health care, the patient always loses."
Well, maybe not always. Nobody thinks it will be possible to scrap managed care and go back to total reliance on the old fee-for-service system. But HMO foes do think they can make the managed-care plans behave better, by methods as varied as the opponents themselves.
DOCTORS