[Congressional Record Volume 145, Number 80 (Tuesday, June 8, 1999)]
[Extensions of Remarks]
[Pages E1159-E1161]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  FINANCIAL INCENTIVES ON DOCTORS NOT TO PROVIDE CARE: FEDERAL COURT 
       EXPLAINS THE DANGERS: REASONS WHY WE SHOULD PASS H.R. 1375

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                         Tuesday, June 8, 1999

  Mr. STARK. Mr. Speaker, recently, I introduced H.R. 1375, a bill to 
limit the amount of financial pressure an HMO can place on a doctor to 
discourage referrals and testing. A recent Federal Appeals Court case 
provides new documentation on why we should pass such legislation.
  Current regulations allow an HMO to withhold up to 25% of a doctor's 
compensation as a way to discourage ``unnecessary'' treatment. The 
problem is, such ``withholds`` can discourage necessary as well as 
unnecessary treatments and tests. My bill would limit any HMO 
``withhold`` to 10% and encourage the use of quality measures as the 
basis of payments to doctors.
  On August 18, 1998, the US 7th Circuit issued a majority opinion in 
the case of Herdrich v. Pegram, Carle Clinic Association,

[[Page E1160]]

and Health Alliance Medical Plans. Following are portions of that 
opinion--exhibit #1 for why we need a national policy limiting HMOs and 
medical plans for putting too much financial pressure on doctors.

       On March 7, 1991, Pegram, Herdrich's doctor, discovered a 
     six by eight centimeter ``mass'' (later determined to be her 
     appendix) in Herdrich's abdomen. Although the mass was 
     inflamed on March 7, Pegram delayed instituting an immediate 
     treatment of Herdrich, and forced her to wait more than one 
     week (eight days) to obtain the accepted diagnostic procedure 
     (ultrasound) used to determine the nature, size and exact 
     location of the mass. Ideally, Herdrich should have had the 
     ultrasound administered with all speed after the inflamed 
     mass was discovered in her abdomen in order that her 
     condition could be diagnosed and treated before deteriorating 
     as it did, but Carle's policy requires plan participants to 
     receive medical care from Carle-staffed facilities in what 
     they classify as ``non-emergency'' situations. Because 
     Herdrich's treatment was considered to be ``non-emergency,'' 
     she was forced to wait the eight days before undergoing the 
     ultrasound at a Carle facility in Urbana, Illinois. During 
     this unnecessary waiting period, Herdrich's health problems 
     were exacerbated and the situation rapidly turned into an 
     ``emergency''--her appendix ruptured, resulting in the onset 
     of peritonitis. In an effort to defray the increased costs 
     associated with the surgery required to drain and cleanse 
     Herdrich's ruptured appendix, Carle insisted that she have 
     the procedure performed at its own Urbana facility, 
     necessitating that Herdrich travel more than fifty miles from 
     her neighborhood hospital in Bloomington, Illinois. The 
     ``market forces'' the dissent refers to hardly seem to have 
     produced a positive result in this case--Herdrich suffered a 
     life-threatening illness (peritonitis), which necessitated a 
     longer hospital stay and more serious surgery at a greater 
     cost to her and the Plan. And, as discussed below, we are far 
     from alone in our belief that market forces are insufficient 
     to cure the deleterious affects of managed care on the health 
     care industry.
       Across the country, health care critics and consumers are 
     complaining that the quality of medical treatment in this 
     nation is rapidly declining, leaving ``a fear that the goal 
     of managing care has been replaced by the goal of managing 
     costs.'' (Jan Greene, Has Managed Care Lost Its Soul? Health 
     Maintenance Organizations Focus More on Finances, Less on 
     Care, Am. Hosp. Publishing Inc., May 20, 1997.)
       An increasing number of Americans believe that dollars are 
     more important than people in the evolving [HMO] system. 
     Whether justified or not, this assumption needs to be taken 
     seriously, according to keepers of the industry's conscience. 
     University of Pennsylvania bioethicist Arthur Caplan argues 
     that managed care should take a lesson from professional 
     sports, which has alienated some fans because money and 
     profits have eclipsed the reasons why fans are about the 
     games: hero worship and the virtues of teamwork, loyalty and 
     trust-worthiness. The same goes for doctors. ``People go to 
     their doctor not because he's a good businessman . . . but 
     because he's a good advocate, someone we can admire,'' says 
     Caplan. ``If we have to struggle with him to get what we 
     want, we will have no trust anymore.''
       To regain trust, HMOs need to be more sensitive to the 
     doctor-patient relationship and remove the physician from 
     direct financial interest in patient care, says Caplan. 
     Instead, doctors should have a predetermined budget and be 
     able to advocate for patients without direct personal gain or 
     loss.
       Another hot-button issue for HMO members is the fear that a 
     lifesaving experimental procedure will be denied because of 
     its cost. Caplan says the industry should follow the lead of 
     the handful of HMOs that have established outside, 
     independent panels to make final decisions.
       Even care providers fear that they ``have become somewhat 
     preoccupied with [their] ownership status and consequently 
     have not paid as much attention as [they] should have to 
     improving [their] basic core competencies.'' (Id.) The 
     specter of money concerns driving the health care system, 
     says a group of Massachusetts physicians and nurses, 
     ``threatens to transform healing from a covenant into a 
     business contract. Canons of commerce are displacing dictates 
     of healing, trampling our professions' most sacred values. 
     Market medicine treats patients as profit centers.'' (For Our 
     Patients, Not for Profits: A Call to Action, JAMA, Dec. 3, 
     1997, at 1773.) As one professional stated, ``It's too bad. 
     We used to spend most of our time worrying about how to do a 
     better job. Now we worry about doing a better job at a lower 
     price.'' (Id.)
       Thousands of American physicians and nurses, outraged by 
     the increasingly ``corporate'' nature of American medicine, 
     recently staged a reenactment of the Boston Tea Party by 
     symbolically dumping $1 million each minute into Boston 
     Harbor to dramatize the amount of health care money that is 
     being wasted to pay for HMO marketing, profits, and 
     administrative salaries. See Id.
       The shift to profit-driven care is at a gallop. For nurses 
     and physicians, the space for good work in a bad system 
     rapidly narrows. For the public, who are mostly healthy and 
     use little care, awareness of the degradation of medicine 
     builds slowly; it is mainly those who are expensively ill who 
     encounter the dark side of market-driven health care. We 
     criticize market medicine not to obscure or excuse the 
     failings of the past, but to warn that the changes afoot push 
     nursing and medicine farther from caring, fairness, and 
     efficiency.
       Another commentator observed that ``American `market 
     theology' is being invoked as an excuse for the downgrading 
     of patient care and the growing absence of compassion in 
     health care.'' (Bob LeBow, Nation Needs to Take Control of 
     Health Care System for Patients, not Profits, Idaho 
     Statesman, Dec. 2, 1997, at 6A). Instead of providing health 
     care, doctors are forced to ``spend many hours persuading 
     health insurance companies that we are not trying to 
     manipulate them into paying more money than Medicare does for 
     kidney transplants.'' (Gabriel M. Danovitch, et al., And How 
     the Decisions Are Made, 331 New Eng. J. Med., at 331-32 
     (1984).)
       In order to minimize health care costs and fatten corporate 
     profits for HMOs, primary care physicians face severe 
     restrictions on referrals and diagnostic tests, and at the 
     same time, must contend with ever-shrinking incomes.
       Sixty percent of all managed-care plans, including HMOs and 
     preferred-provider organizations, now pay their primary-care 
     doctors through some sort of ``capitation'' system, according 
     to the Physician Payment Review Commission in Washington, 
     D.C. That is, rather than simply pay any bill presented to 
     them by your doctor, most HMOs pay their physicians a set 
     amount every month--a fee for including you among their 
     patients. At Chicago's GIA Primary Care Network, for 
     instance, physicians get $8.43 each month for every male 
     patient . . .  and $10.09 for every female patient. . . Some 
     HMOs, such as Oxford Health Plans, Cigna and Aetna, have 
     ``withhold'' systems, in which a percentage of the doctors's 
     monthly fees are withheld and then reimbursed if they keep 
     their referral rates low enough. Others, like U.S. 
     Healthcare, pay bonuses for low referral rates. (John Protos, 
     Ten Things Your HMO Won't Tell You, Inside, June 30, 1997, at 
     44.)
       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.

                           *   *   *   *   *

       Along the same lines as its ``market forces'' argument, the 
     dissent submits that the defendants' plan ``encouraged 
     physicians to use resources more efficiently.'' Although we 
     agree, at least in principle, with the idea that financial 
     incentives may very well bring about a more effective use of 
     plan assets, we certainly are far from confident that it was 
     at work in this particular case. The Carle health plan at 
     issue was not used as efficiently as it should have been. 
     Indeed, the eight-day delay in medical care, and the onset of 
     peritonitis Herdrich incurred as a result of such delay in 
     diagnosis, subjected her to a life threatening illness, a 
     longer period of hospitalization and treatment, more 
     extensive, invasive and dangerous surgery, increased 
     hospitalization costs, and a greater ingestion of 
     prescription drugs.
       The dissent also somehow contends that ``ERISA tolerates 
     some conflict of interest on the part of fiduciaries,'' and 
     therefore, ``allowing a plan sponsor to designate its own 
     agent as a fiduciary reassures the sponsor that, in devoting 
     its assets to the plan, it has not relinquished all ability 
     to ensure that the plan's resources are used wisely.''

                           *   *   *   *   *

       A doctor who is responsible for the real-life financial 
     demands of providing for his or her family--sending four 
     children to school (whether it be college, high school or 
     primary school), making house payments, covering office 
     overhead, and paying malpractice insurance--might very well 
     ``flinch'' at the prospect of obtaining a relatively 
     substantial bonus for himself or herself. Here, the Carle 
     physicians were intimately involved with the financial well-
     being of the enterprise in that the yearly ``kickback'' was 
     paid to Carle physicians only if the annual expenditure made 
     by physicians on benefits was less than total plan receipts. 
     According to the complaint, Carle doctors stood to gain 
     financially when they were able to limit treatment and 
     referrals. Due to the dual-loyalties at work, Carle doctors 
     were faced with an incentive to limit costs so as to 
     guarantee a greater kickback.

                           *   *   *   *   *

       In summary, we hold that the language of the plaintiff's 
     complaint is sufficient in alleging that the defendant's 
     incentive system depleted plan resources so as to benefit 
     physicians who, coincidentally, administered the Plan, 
     possibly to the detriment of their patients. The ultimate 
     determination of whether the defendants violated their 
     fiduciary obligations to act solely in the interest of the 
     Plan participants and beneficiaries, see 29 U.S.C. 
     Sec. 1104(a)(1), must be left to the trial court. On the 
     surface, it does not appear to us that it was in the interest 
     of plan participants for the defendants to deplete the Plan's 
     funds by way of year-end bonus payouts. Based on the record 
     we have before us, we hold that the plaintiff has alleged 
     sufficiently a breach of the defendants' fiduciary duty.


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