[Congressional Record Volume 141, Number 26 (Thursday, February 9, 1995)]
[Extensions of Remarks]
[Pages E311-E312]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                   MANAGED CARE: DOLLARS FOR MANAGERS

                                 ______


                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Thursday, February 9, 1995
  Mr. STARK. Mr. Speaker, managed care can be defined as a system that 
spends money on managers.
  That's OK, if the managed care plans also deliver quality health care 
to the plan's enrollees. The problem is that we don't have enough 
consumer safeguards, protections, and information available to the 
consumer to help the public buy into a good plan. During the 104th 
Congress, we should enact managed care consumer protections and require 
disclosure of managed care plan information. Such legislation will help 
the industry in its dealings with the public and weed out those who are 
managing people to death through the denial of services.
  Health care in America is in a state of tension. Fee-for-service 
medicine is subject to gross overutilization, abusive unnecessary 
testing and surgery, and runaway charges. Managed care medicine is 
subject to gross underutilization, denial of needed, life-essential 
services, and health care dollars drained away to pay managers, ad-men, 
and posh corporate overhead. What we need in America is moderation and 
a good middle ground in both fee-for-service and managed care. We need 
a system where fee-for-service cannot overutilize and where managed 
care can't deny necessary services. Achieving this balance will always 
be a tension and a difficult path to find.
  The newest hot solution to the Nation's unacceptable health care 
inflation, of course, is managed care. Managed care firms have been 
growing like weeds. Following is a staff review of 15 managed care 
company financial reports, generally for calendar 1993, that shows the 
percent they spend on health for their patients, the percent they take 
for general and administrative expenses, and their profit levels. 
Roughly 20 percent of every health care dollar in these firms is going 
for overhead, managers, and profit.
  I think the consumer should know how much of his health care dollar 
is spent on providing health care for himself, and how much is spent 
making sure he doesn't get unnecessary care--managing or controlling 
his or her access to doctors, nurses, and hospitals. Each consumer 
needs to decide for himself where the fine line is between medical 
efficiency and 
[[Page E312]] cost savings versus denial of care and the loss of peace 
of mind.
  These overhead figures are particulary troubling when compared to the 
overhead figures in a not-for-profit HMO like Kaiser--about 5 percent--
and in Medicare--less than 3 percent.
  Mr. Speaker, I will provide periodic updates to these figures. In the 
meantime, caveat emptor.
  The table follows:

                                                        COMPANIES PROVIDING MANAGED CARE SERVICES                                                       
                                                              [Dollar amounts in thousands]                                                             
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                                                                                                                            In percent                  
                                                                                                        ------------------------------------------------
                                                            Gross this              Net this                   G&A           Health           Profit    
                Name and period                  Enrollees      yr.      Prior yr.     yr.    Prior yr. ------------------------------------------------
                                                                                                          This            This            This          
                                                                                                           yr.    Prior    yr.    Prior    yr.    Prior 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. FHP--7/1/93-6/30/94.........................       1.7M  $2,472,958  $2,005,854   $59,310   $44,166     13.4    13.4    83.2    83.8     2.4     2.2 
2. Oxford--1/1/93-12/30/93.....................    217,300     311.938     155,722    14,900    11,289     21.8    21.0    69.8    70.2     4.8     7.2 
3. Physicians Health Svcs--1/1/93-12/30/93.....    158,984     280,230     268,895    11,891     8,561     12.0    10.6    80.7    83.4     4.2     3.2 
4. Value Health (9 months)--1/1/94-9/30/94.....        41M     706,931     499,769    34,009    23,529     10.4    11.6    78.7    78.4     4.8     4.7 
5. Foundation Health Corp--7/1/93-6/30/94......       3.5M   1,717,821   1,517,339    83,153    61,908     11.6    11.0    77.3    75.9     4.5     4.1 
6. Wellpoint--1/1/93-12/31/93..................    2.3M\1\                                                                                              
                                                   2.5M\2\   2,449,175   2,275,155   165,384   174,758     11.2    12.1    73.0    63.6     6.7     7.7 
7. Employees Benefit Plan 1/1/93-12/31/93......       1.1M     251,618     240,071     5,656   (10,571)    36.9    31.2    56.1    61.5     5.4    (4.6)
8. Caremark--1/1/93-12/31/93...................      (\3\)   1,783,200   1,461,200    77,700    27,300     10.8    10.6    77.9    78.2     4.4     1.9 
9. Sierra Health Svcs, Inc.--1/1/93-12/31/93...    138,356     258,724     234,373    17,433    13,603     20.8    20.2    72.3    74.3     6.7     5.8 
10. MidAtlantic Medical Svc--1/1/93-12/31/93...    950,000     646,777     579,355    24,833    13,460      8.4     7.5    86.4    90.0     3.9     2.3 
11. Maxicare--1/1/93-12/31/93..................    308,000     440,186     414,454     5,588    (3,071)     9.3     9.2    89.7    87.5     1.3     -.7 
12. Healthwise--1/1/93-12/31/93................     90,000     119,395      63,526     4,828     3,283     13.2     9.2    76.1    75.6     4.0     5.2 
13. United Health Care--1/1/93-12/31/93........        36M   2,527,325   1,759,865   194,574   125,657     16.1    17.8    80.8    81.4    12.1    11.1 
14. Wellcare--1/1/93-12/31/93..................      70.2M      75,915      41,380     4,648     2,215     12.7    14.9    77.0    76.3     6.1     5.4 
15. Physician Corp of America--1/1/93-12/31/93.    472,000     545,967     354,342    40,094    14,437     15.0    14.0    72.8    79.4     7.4    4.1  
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Medical.    \2\Pharm. and dental.     \3\Not reported.                                                                                               

         Quotes From Companies Providing Managed Care Services

       1. FHP International Corp, Fountain Valley, CA:
       p. 10: ``Take Care's percent of revenue spent on health 
     care imporved from 82.2% to 80.9%.'' (emphasis added)
       p. 29: ``The cost of health care, however, improved to 
     82.6% as a percent of revenue in the 4th quarter of fiscal 
     year 1993 . . .''
       2. Oxford Health Plans, Inc., Norwalk, CN:
       p. 22: ``The medical loss ratio declined because revenue 
     per member per month increased at a greater rate than medical 
     expenses per member per month. Per member per month revenue 
     increased 8.5% . . . and per member per month medical 
     expenses increased 6.1%.''
       3. Physicians' Health Services, Trumbull, CN:
       p. 16: ``Health care expenses as a percentage of premium 
     revenue decreased to 82.9% . . . due to the combined impact 
     of premium rate increases and decreases in inpatient hospital 
     utilization.''
       5. Foundation Health:
       p. 18: ``The improvement in the company's HMO medical loss 
     ratio from FY 1992 to FY 1993 resulted from strict 
     underwriting controls and appropriate setting of premium 
     rates, strong utilization review controls and favorable 
     provider reimbursement rates, including an increase in 
     capitation arrangements with physicians.'' (p.18)
       10. Mid Atlantic Medical Services, Rockville, MD:
       p. 2: ``To this end, we began a review of M.D.IPA's groups 
     and their profitability. Those groups that were marginally 
     profitable or unprofitable were either brought up to par, or 
     not renewed.'' (M.D. IPA is their federally qualified HMO)
       14. The Wellcare Management Group, Kingston, NY:
       p. 16: ``Medical expenses increased . . . representing a 
     3.3% increase on a member per month basis, but decreased as a 
     percentage of premiums earned (the medical loss ratio) to 
     80.2% in 1993...primarily as a result of favorable medical 
     utilization and cost controls.''
       15. Physician Corporation of America, Miami, FL:
       p. 29: ``This 5% increase in the weighted average medical 
     costs per member was due to (i) medical cost increases of 7% 
     for commercial members, 27% for Medicare members, and a 6% 
     decrease for Medicaid members, and (ii) the significant 
     increase in Medicaid membership as a percentage of overall 
     membership which has lower per member medical costs than the 
     Company's other membership. As a result of these factors, the 
     Company's medical loss ratio improved to 72.8% from 79.4%'' 
     (emphasis added).
     

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