BACKLASH AGAINST HMOS

By GEORGE J. CHURCH

America's health-insurance revolution has reached adolescence. After more than a decade, managed-care plans--with their incentives for doctors to hold down treatment costs--cover about half the population. Fee-for-service plans--with their equally problematic incentives for doctors to provide too much costly treatment--continue to shrink. The result has been a welcome reduction in the runaway growth of medical costs and, for many people, simpler, better coverage of their real needs. But as in any adolescence, there are signs of rebellion. An ominous backlash has begun.

By now, nearly anybody who has come into contact with the system can recite a litany of horror stories: nitpicking "utilization reviews" of doctors' bills by insurance-company bureaucrats; patients hustled out of a hospital within hours, even after surgery as traumatic as breast removal; gag orders forbidding doctors to tell a patient about an expensive treatment. A recent addition: a patient rushes to an emergency room with what feels like a heart attack but turns out to be only gas pains--and gets zapped with a huge bill because his HMO will reimburse only for a "real" emergency.

The backlash is cutting across all segments. Doctors are banding together to bargain with HMOs or even offer their own health plans, and so are some unions. Employers started the managed-care revolution by herding their workers into HMOs, but now a third of companies polled by the Washington Business Group on Health express concern that the pressure to keep costs down is hurting the quality of care their employees receive.

Patients and consumer advocates are demanding that the government crack down on HMO abuses. Their complaints are being heard all the way up to the White House. President Clinton has just appointed a 34-member advisory committee to draft a patients' bill of rights and study what kind of legislation may be needed to enforce it. "Many Americans worry that lower costs mean lower quality and less attention to their rights," said the President. He was being mild. Senator Edward Kennedy, introducing a comprehensive HMO-reform bill drafted by Democrats, charged, "Too many managed-care firms and other insurance companies have decided that the shortest route to higher profits and a competitive edge is by denying patients the care they need and deserve."

Whether any national legislation will result, and when, is most uncertain. The Republicans who control Congress will not buy Kennedy's bill, and Clinton's panel will not report for almost a year. But HMOs are coming under attack from so many directions that they can no longer shrug it off. They respond by citing membership-satisfaction polls and insist that those who complain "are being frightened by inflammatory language" about rare occurrences, in the words of Susan Pisano, spokeswoman for the American Association of Health Plans.

Nevertheless, the association is promulgating a code that prohibits its 1,000 member HMOs from enforcing gag rules and employing such practices as drive-by mastectomies, on pain of being kicked out. In what looks like an if-you-can't-lick-'em-join-'em move, the association has even announced support for Clinton's panel. Pisano hopefully predicts a "thoughtful" study--leading, presumably, to mild recommendations.

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

Physicians Organizations are springing up across the continent either to bargain with HMOs for better terms or to offer their own health plans to employers. Last October, Primary Care LCC, a group of 170 physicians in the suburbs south of Boston, won a contract with Secure Horizons, a managed-care plan, to treat some of the plan's 40,000 Massachusetts Medicare patients. In Los Angeles, UCLA Medical Group, which began in 1992 with just two physicians, expects to have 80 by midsummer. It already has two full-time vans carrying patients from suburban doctors' offices to the star-studded UCLA School of Medicine. In Washington, Doctors Care Plan has signed up 900 physicians and 17 hospitals in the capital and its suburbs.

Cynics may contend that doctors mainly want to protect their incomes by preventing HMOs from lowering capitation (per patient) payments. In California, where HMOs are most dominant, the average earnings of a primary-care physician dropped from $172,100 in 1993 to $146,000 in 1995.

But doctors say they also want to take better care of patients. Prying more money out of HMOs for treatment is one way. Another is to insist that HMO contracts let doctors make all the decisions on treatment rather than allowing "M.B.A.s phoning from the back of their limos to cancel bone-marrow transplants for breast-cancer patients," as one medical researcher puts it.

The doctors face some obstacles. One is the formation of organizations big enough to force HMOs to deal with them--or even to raise enough money to get going. Still, the doctors potentially have mighty muscle: without them, HMOs can't exist.

UNIONS

They too have bargaining power, since their contracts with employers often specify what medical insurance is to be provided for members. Some unions are exploring ways to put a greater percentage of their premiums into care. The United Automobile Workers and General Motors have launched pilot projects to work with hospitals and doctor groups to bring down the proportion of premium dollars going to administrative costs. In Flint, Michigan, they got hospitals to eliminate 450 unneeded beds so that more money from HMOs will go to care for patients in the beds that will be kept.

Unions of health-care workers, who witness firsthand the treatment managed-care patients are getting, have been especially active. Local 1199 of the National Health and Human Service Employees Union, whose members staff hospitals, clinics and doctors' offices in New York City, is starting its own health plan. The aim, says local president Dennis Rivera, is to "take for-profit out of the equation" and lower costs--not for care but for overhead and salaries. Eleanor Tilson, executive director of 1199's 320,000-member plan, makes $175,000 a year--peanuts compared with nearly any other HMO chief.

Patients First, a coalition of four health-care unions based in Newark, New Jersey, is trying a different tack. In February it ran arresting ads on drive-time radio that opened with the beeping of a heart monitor ("This used to be the sound that mattered in determining your health care") and was followed by the ringing of a cash register ("Today this is the sound that matters"). The ads urged listeners to call a toll-free number "if you've been a victim of when profits come before patients." The coalition mainly wanted to recruit such victims to testify before New Jersey legislators considering an HMO regulatory bill.

PATIENTS

With help from consumer advocates, patients are organizing to make their voices heard. California, not surprisingly, is in the lead: 75% of its insured citizens are in managed-care plans, more than in any other state. Health Access, a coalition of 215 consumer organizations, is drafting a very comprehensive state bill of rights for HMO members. It would set legal standards on everything from when HMOs can deny care to how long they can keep patients waiting on the telephone.

The coalition is apparently heartened rather than daunted by the fate of two propositions to regulate HMOs that appeared on last November's ballot. Both lost but drew about 40% of the vote--even though supporters of one measure were outspent nearly 50 to 1 by their foes. The more restrictive of the two measures, significantly, was drafted largely by the California Nurses Association. Nurses fear that HMOs want to squeeze them out of many jobs and replace them with low-paid technicians.

A major goal of many patients' groups is to compile report cards showing how HMOs stack up against one another. The patients are getting some help from employers such as the 33 giants that have formed the San Francisco-based Pacific Business Group on Health. P.B.G.H. has set up an online facility, on which the nearly 3 million employees of its member companies can swap stories about how well or how badly they have been treated by managed-care plans.

GOVERNMENT

Voters roared approval last November for President Clinton and members of Congress who boasted about a new law forcing insurers to pay for at least two days in the hospital for women giving birth. That response has opened the floodgates to a much broader effort to force reform. Though Republicans are so far cool to any sweeping legislation, some more narrowly targeted proposals are picking up bipartisan support. One such bill, introduced in February, would set a "prudent layperson" standard for emergency-room treatment: an insurer must pay for any condition a layman reasonably fears is an emergency, even if it turns out to be a false alarm.

The Clinton Administration is issuing a stream of thou-shalt-not orders to HMOs that sign up Medicare patients. The latest prohibits quick in-and-out mastectomies. Others forbid HMOs to limit what doctors can tell Medicare patients and restrict their ability to pay bonuses to doctors as a reward for keeping costs down. This regulatory club has power, since HMOs rate signing up Medicare and Medicaid patients as their best prospect for expansion.

Last year 35 states passed 56 laws to "regulate or weaken HMOs," according to Thomas Bodenheimer of the University of San Francisco School of Medicine. Women in Government, an organization of state legislators and appointed officials, is coordinating efforts to go further this year. It has drafted a model Managed-Care Consumer Protection bill, which has been introduced in Colorado, Georgia, Kansas, New Jersey, Ohio, Oregon, Tennessee and Texas; Alaska and Delaware are next. Some provisions: a ban on gag rules, easier patient access to specialists, guaranteed "access to all FDA-approved drugs."

Alixe Glen, spokeswoman for the blue Cross and Blue Shield Association, decries "legislation by anecdote that leads ultimately to bad policy." And there is a more fundamental reply to the backlash: for all its faults, managed care has contributed to a stunning reduction in medical inflation.

In the late 1970s and early '80s, medical costs were rising at a rate that straight mathematical projection indicated would eventually consume the entire gross national product. Last year medical costs rose a piddling 2.5%, less than the 3.3% rise in all consumer prices. That could not have been done, say HMO executives, without such crackdowns as those much hated limits on hospital stays.

Well, maybe. But the co-payments that most HMO patients make when they visit doctors have been rising, offsetting some of the savings on premiums. Premiums are going up again too, raising suspicion of a devil's bargain: ruthless restrictions on patient care and higher costs as well.

Moreover, people who can see only a choice between tough limits on care and renewed medical inflation may select a drastic third option. In a poll conducted by the nonpartisan National Coalition on Health Care, 80% of respondents said they believed the quality of medical care is often compromised by insurance companies to save money. And 69% thought the Federal Government could play an important role in making health care better and more affordable. If public anger grows, the future of health care may be determined by political emotions and government intervention, rather than by a marketplace competition that offers consumers more attractive choices.

--Reported by Sam Allis/Boston, John F. Dickerson/Washington, Cathy Booth and Jeanne McDowell/Los Angeles, with other bureaus

With reporting by SAM ALLIS/BOSTON, JOHN F. DICKERSON/ WASHINGTON, CATHY BOOTH AND JEANNE MCDOWELL/LOS ANGELES, WITH OTHER BUREAUS