Playing The HMO Game

By Christine Gorman

Who would have guessed that a little baby-blue tablet designed to restore potency to the impotent would pack such a wallop? In June, Kaiser Permanente, the giant HMO with the imperial name, announced that it had decided not to cover the cost of the $10 erection pill for its 9 million members. Just three weeks later, the little pill had become a symbol of one of the nation's hottest political issues: what HMOs do and don't pay for. Viagra's role in the debate was heightened last week when the federal agency that administers Medicaid told the states that they were required to cover Viagra for the indigent and infirm "when medical necessity dictates," and some of the states--much like tightfisted HMOs--dug in their heels and refused to pay.

What happened? When did tumescence become a medical necessity, and how did health reform rise from its long slumber to become an issue of burning national interest? Perhaps Viagra was just a media catalyst, the populist hook that finally put managed care back on the front page. Or perhaps the politicians in Washington, searching desperately for emotional issues at a time of peace and prosperity, finally found a point of irritation to which they can apply some soothing legislative balm.

Whatever the reason, Washington is scrambling to embrace the surge of interest in caps and coverage and out-of-pocket expenses. Members of Congress back home for the Fourth of July weekend spent much of the holiday making speeches about patients' rights and access to emergency care. President Clinton, flying in from a restorative sojourn in the Middle Kingdom, let it be known that he would hit the ground running on health care this week. Meanwhile, an ever vigilant army of lobbyists is already gathering in the capital for what could be the biggest political fight between now and the fall elections (see following story).

While Viagra provided a spark, the embers of discontent have been smoldering for some time. Back in 1993, when Hillary Clinton proposed her grandiose plan for curbing rising health-care costs and covering the uninsured, the American people made it clear that they didn't want the Clintons or anyone else in government telling them which doctors they could choose or what pills they could take. What most folks didn't realize was that if government didn't do it, somebody else would. That somebody turned out to be America's employers, working hand-in-glove with the insurance companies. Today 85% of all insured employees--up from 53% five years ago--have moved out of traditional fee-for-service plans, in which doctors call the shots and insurance companies pay the bills, and into managed-care plans, including health-maintenance organizations, or HMOs. Almost every aspect of medical care provided by HMOs is second guessed--not by the government, not by Hillary, not even by doctors, but by the bean counters.

Now, like battle-scarred veterans back from the medevac front, patients are sharing their war stories on TV, in letters to Congress, in chat rooms and home pages on the Internet. When Helen Hunt ranted against the heartless HMO that was making life difficult for her and her asthmatic son in the movie As Good as It Gets, audiences cheered so lustily that the health industry's professional association felt compelled to launch a counterattack. It produced an ad for viewing in movie theaters that claimed Hunt's fictional son would have fared better in an HMO than in a traditional health plan; the screenwriters "got the facts all wrong." The multiplexes, knowing where their customers' sympathies lay, didn't want to show it.

The truth is, Americans are probably as healthy today as they ever were, and are paying less for their health coverage. Thanks at least in part to managed care, vaccination rates are up, premature births are down, more women are getting mammograms than ever before and costs have fallen dramatically. Managed care saved between $150 billion and $250 billion last year alone out of total U.S. health-care spending of $1 trillion. If things are really as bad as Hollywood and Washington say, the plan administrators wonder, why do more than three-quarters of their members say they are satisfied with their health care?

Good question. A TIME/CNN poll of 1,024 Americans conducted last week suggests that the country is of two minds about health reform. Although 85% responded that they were "very satisfied" or at least "fairly satisfied" with the quality of medical care they receive, 68% said they think traditional fee-for-service plans provide better health care than HMOs, and only 41% of those covered by managed care said they were "very confident" that their plan would pay for their treatment if they got really sick.

Getting really sick is what worries most Americans. They know how hard it can be to cut through the managed-care red tape for a pair of eyeglasses or a simple ear infection. What would happen, they wonder, if they or one of their loved ones became desperately ill and needed serious--and expensive--medical attention? Who would prevail if their medical needs ran smack into gate-keepers of an HMO focused primarily on reducing costs? The horror stories coming back from the front lines are not encouraging. A sampling:

--When Raymond Cerniglia's 13-year-old son Matthew developed a rare and aggressive cancer, doctors gave him a 20% chance to live and started an 11-month course of chemotherapy. Cerniglia's HMO paid the bills at first. But when things took a turn for the worse and doctors ordered a bone-marrow transplant, the health plan refused to cover it. The new treatment, the administrators said, wasn't a "medical necessity," nor was it on their list of covered therapies. Despite a letter from an expert at the National Institutes of Health testifying that this was Matthew's best chance at life, the HMO would not budge. Today Cerniglia, a computer technician in McLean, Va., is trying to scrape together enough money to pay for the procedure himself. His son's bills already total $100,000.

--For years Sol Feldman, 81, of Tamarac, Fla., successfully treated his hypertension with the prescription drug Hyzaar. Then his HMO was sold to another company, and the new plan insisted he use a lower-cost substitute. "I took it for about a week, and my pressure went sky high," Feldman recalls. When the HMO refused to let him go back to Hyzaar, he switched to another plan that covered it. A few months later, however, the new HMO also dropped its Hyzaar coverage. At $79 for a month's supply, Feldman couldn't afford to pay for the prescription on his own. Finally a local doctor took pity on him and provided the tablets free. The HMO's policy remains unchanged.

--When AnnMarie Fischer, 39, of Fort Lauderdale, Fla., gave birth to her daughter Cassie four years ago, doctors discovered the baby had a hole in her heart. Chances were good that Cassie would eventually need surgery to fix the defect if it didn't close on its own. But Fischer, who thought her previous insurance was inadequate, had trouble finding a managed-care plan that would treat her daughter's "pre-existing condition." So she was pleased to discover a local HMO that would, her insurance agent assured her, cover all her child's pre-existing conditions, including the heart problem. But two months later, when doctors determined that Cassie did indeed need surgery, the HMO announced it had a two-year minimum on pre-existing conditions and would not pay for the treatment. The toddler eventually received the care she needed, thanks to a special state program for the indigent.

--Mary Halm, 38, of Chillicothe, Ohio, developed a severe case of endometriosis, in which extraneous uterine tissue permeated her abdomen and left her writhing in pain. Several operations paid for by her HMO failed to remove all the offending tissue. Then her primary-care physician told Halm about a specialist in Atlanta who had developed a novel technique for treating the disease. The HMO refused to refer her, saying there were plenty of specialists in Ohio who could care for her. (Name one, she said. They wouldn't.) Halm appealed the decision for nine months with no response. Finally, no longer able to bear the pain, she borrowed $10,000 and paid for the procedure herself. The operation was a success, and the pain disappeared. But because she had taken matters into her own hands, the HMO won't reimburse her.

--In 1994 Barbara Garvey, then 55, boarded a flight from Chicago to Honolulu. Once she arrived, Garvey noticed her body was severely bruised. A trip to the hospital produced a chilling diagnosis: aplastic anemia. She needed a bone-marrow transplant right away. Her son, who was a good match, was willing to fly to Hawaii for the operation. But her health plan, Rush Prudential HMO, had other ideas. "They insisted that I fly her back at my own expense" to be treated in Chicago, her husband David explains. "They told me that if I declined, I would be refusing services, and they wouldn't pay my bills." Believing she had no choice, Barbara boarded a commercial flight to the mainland. Somewhere in the air between Hawaii and Illinois, David says, his wife suffered a stroke; nine days later, she died. Garvey is suing the HMO. "They had a chance to be heroes or save money," he says. "And they decided to save money." Rush Prudential disputes Garvey's account; they contend that Barbara Garvey had noticed some bruising before she left on vacation and resisted going to the doctor before her trip.

How did America's vaunted medical-care system--with its helpful nurses and doctors who made house calls--get to this point? The story begins back in the 1980s, when rising health-care costs, driven by an aging population, runaway malpractice awards and advances in high-tech surgical and diagnostic procedures, finally caught up with the employers who were footing the medical-insurance bills. Executives at General Motors, for example, reported in 1990 that they were spending more for health care than for all the steel that went into their cars and trucks. Medical care, which accounted for 9.3% of the total U.S. output of goods and services in 1983, had risen to 12.3% of GDP by 1993.

Managed care, which shifted power from the physicians to the gatekeepers--whose job it is to question the necessity of nearly every medical procedure or referral--changed all that. By 1994, the increase in medical-care costs had slowed dramatically, and it remained moderate for the next several years, although an ominous spike this spring seems to presage more bad news. Some economists argue that if the burden of growing healthcare costs hadn't been eased in recent years, the current boom in the U.S. economy wouldn't have been possible.

But like every other revolution, this one produced its excesses. After they had cut the obvious fat, managed-care groups began cutting into the bone. Under pressure to keep lowering expenses, health plans focused more and more attention on cost control, often to the exclusion of everything else. Some administrators started making penny-wise, pound-foolish decisions, disapproving preventive steps and then paying for expensive operations down the road.

As the health plans squeezed, their profits grew--at least until recently. Pressured by rising medical costs on one side and employers' refusal to pay higher premiums on the other, a number of managed-care firms began running into trouble. Case in point: Kaiser Permanente, which posted a $270 million loss last year. This was on the heels of a sudden $291 million loss at Oxford Health Plans of Norwalk, Conn., which CEO Stephen Wiggins blamed on the collapse of his overtaxed computer billing system. Wiggins was forced to resign, but that wasn't the end of his troubles. Last week the New York State attorney general's office confirmed to TIME that it was investigating Wiggins for possible insider trading.

In theory, the marketplace should provide a check on health plans that cut too far; if your managed-care organization won't deliver the quality of care you need, you can always switch to one that will. But that assumes there is competition and free choice. Most employers let their workers choose from only a handful of plans. Industry consolidation, meanwhile, is reducing competition even further.

It didn't have to be this way, says Dr. Paul Ellwood, 71, the man who invented the phrase "health-maintenance organization" and who, along with Stanford University economist Alain Enthoven, developed much of the theory behind managed care. From his ranch in Wyoming, Ellwood sounds like a broken man, and in a too literal sense he is. He was thrown from a horse last month, fracturing his neck. (No, he was not paralyzed or treated by managed care.) The painful healing process has given him a lot of time to consider how disappointed he is with the system he helped create. "The idea was to have health-care organizations compete on price and quality," Ellwood says. "The form it took, driven by employers, is competition on price alone."

In fact, a growing number of experts believe that quality control is the crucial innovation that could save managed care. Alas, quality is harder to count than dollars and cents. It's one thing to measure immunization rates and quite another to determine whether one managed-care group has a better mortality rate for coronary surgery than another. "Even if employers were willing to spend a few dollars more to buy quality," says Janet Corrigan, director of health-care services at the Institute of Medicine in Washington, "there is really no way to identify it in the marketplace."

Even if they wanted to, most managed-care organizations aren't set up to gather such data; the computer programs needed to perform the necessary risk analyses are very different from those used for billing. Nor is there an independent governing body that could do the job. Currently, the National Committee for Quality Assurance, the nearest thing to an industry watchdog, issues rudimentary report cards on more than 300 different managed-care plans. Although it used to get most of its funding from the health-care industry, it has received only 40% from that source in recent years.

Ultimately, the real power rests with the employers, and there are signs that at least a few are paying more attention to the quality of the health care they are subsidizing. The Pacific Business Group on Health, an association of 35 companies that collectively buys $3 billion in health insurance each year, has begun paying for studies comparing health outcomes among various managed-care plans with respect to asthma care and bypass surgery. "It's shameful that people not in the [health care] business have to initiate these studies," says Patricia Powers, the group's executive director. "But we don't see the health-care industry taking on these kinds of projects."

The good news is that focusing on quality pays off, as heart surgeons at the Dartmouth-Hitchcock Medical Center in Lebanon, N.H., have demonstrated. They started by surveying all their colleagues in the surrounding area and following up with their patients. Then they developed procedural standards that cut mortality from cardiac operations 24% from 1991 to 1996. Moreover, they cut costs 20% and boosted both patient and doctor satisfaction. A home run by anyone's measure.

Even some managed-care companies have begun to see the light. After Harvard Pilgrim Health Care in Boston initiated a quality-control program for pediatric asthma, hospital admissions for critical asthma episodes plummeted more than 80%. The health plan teamed nurses and doctors to show kids how to use a device that measures lung capacity and lets patients regulate their own dosage. Properly informed and prepared, the children and their parents were able to head off life-threatening asthma crises that would otherwise have required hospitalization.

Even with improved quality control, there will still be times when financial considerations prevail. Kaiser's decision on Viagra is a case in point. From the moment the impotence pill was approved, Kaiser's top executives knew they had a high-visibility issue on their hands. They turned it over to a committee of 40 doctors, nurses, pharmacists and other experts, who took the position that Viagra is not, strictly speaking, a medical necessity. Then the committee calculated the cost of providing Viagra to Kaiser's members at $100 million a year, significantly dwarfing, for example, the HMO's $59 million budget for all its antiviral medications, including HIV drugs. Rather than increase premiums to cover the added costs, Kaiser decided to let its members pay for the potency pill out of their own pocket.

Whether Kaiser's policy will stand is another question. Last week officials from California's department of corporations, which licenses the state's HMOs, announced that they are investigating Kaiser's decision on Viagra. At issue: a state law that requires health plans to cover all treatments that are medically necessary. Believe it or not, there are situations in which Viagra could qualify as a medical necessity. For example, many men refuse medical treatments, such as prostate surgery, for fear they might be rendered impotent. Viagra could allow them to proceed with a life-saving operation without diminishing their quality of life.

Whichever way the Viagra wars turn out, there is no going back. Gatekeepers and cost controls will always be with us. In the end, each of us is going to have to learn to play the managed-care game. And if we can't get what we need from our health plans, we're going to have to speak up, not just to the nurses and doctors but to our employers as well. After all, they're the ones that picked our plans and pay the premiums. And they're the ones with the financial clout to change the rules of the game.

--Reported by William Dowell/New York, Tammerlin Drummond/Miami, Ron Stodghill II/Chicago, Dick Thompson/Washington and Richard Woodbury/San Francisco

For a directory of health-care information on the World Wide Web, visit time.com

With reporting by William Dowell/New York, Tammerlin Drummond/Miami, Ron Stodghill II/Chicago, Dick Thompson/Washington and Richard Woodbury/San Francisco