[Congressional Record Volume 147, Number 70 (Monday, May 21, 2001)]
[Extensions of Remarks]
[Pages E875-E878]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                      THE FAILURE OF MANAGED CARE

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                          Monday, May 21, 2001

  Mr. STARK. Mr. Speaker, many of us in Congress--and many of our 
constituents around the country--have serious concerns about the future 
of managed care and what it means for the quality of our nation's 
health care system.
  I recommend the attached article for my colleagues' attention. It is 
written by Dr. Ronald J. Glasser, a practicing pediatrician at 
Children's Hospital in Minneapolis, Minnesota. The article appeared in 
the May 2001 edition of Washington Monthly.
  As many of my colleagues know, I am a longtime champion of expanding 
Medicare to eventually provide health insurance coverage for everyone. 
The article below provides strong support for that proposal.

                [From the Washington Monthly, May, 2000]

  Flatlining, the Coming Collapse of Managed Care and the Only Way Out

                      (By Ronald J. Glasser, M.D.)

       Everyone knows the horror stories of managed care; the 
     denied treatment, the preauthorizations, refusals to allow 
     subspecialty care, etc. So there is little reason to mention 
     the motorized wheel chairs denied for patients with spina 
     bifida--``our evaluation team has determined that your 
     patient can walk assisted with braces or walker the 
     prescribed twenty meters in under the approved ninety 
     seconds.'' Nor is there need to remind of the termination of 
     skilled nursing care for adolescents with cystic fibrosis--
     ``home nursing care will be discontinued at the end of the 
     month due to the plan's determination that there has been 
     stabilization of your patient's clinical course.''
       Even as I write this, my home state of Minnesota's largest 
     HMO is refusing to approve a discharge order to transfer a 
     quadriplegic 18-month-old girl to the city's most respected 
     and accomplished rehabilitation medical center because it 
     isn't on the HMO provider list. Try to justify that to your 
     conscience or explain it to traumatized, desperate parents. 
     But these are only the everyday skirmishes. As a pediatric 
     nephrologist and rheumatologist in Minneapolis, I've been on 
     the front line of these battles for 15 years, and I've 
     experienced first-hand the insanity of managed care.
       Under managed care, physicians have fared no better than 
     the patients. Despite what the managed-care industry would 
     like you to believe, there is no real competition out there, 
     no real choice. In any urban population of less than a 
     million people, one dominant health plan usually covers more 
     than 50 percent of the area's enrollees. In the larger 
     cities, there are usually only four plans that cover more 
     than 70 percent of the residents. These big plans run the 
     show, shadow each others' prices, and do not easily tolerate 
     criticism.
       Steve Benson, a well-respected pediatrician for over 20 
     years worked in a clinic recently taken over by a health 
     plan. After questioning the appropriateness of the plan's 
     insistence on scheduling patients every 10 minutes, he was 
     told that he was not a team player. But he continued to 
     complain that ten minutes per patient was not enough time to 
     perform an adequate exam, much less counsel young mothers. 
     More pointedly, after he complained that such a draconian 
     patient-care policy was detrimental to the family and 
     demeaning to the doctor, the medical director took Benson 
     aside and told him that he was disruptive. If he wanted to 
     continue at the clinic, he would have to seek counseling with 
     the plan's psychiatrist. When Dr. Benson refused, he was 
     fired.
       The plan was determined to make an example of the good 
     doctor. The separation clause of his contract stated that if 
     he left the clinic, he could not practice within two miles of 
     the facility. The plan interpreted ``facility'' to mean 
     anything owned by the health plan, including depots, 
     warehouses, parking lots, machine shops, and administrative 
     buildings. That meant virtually the whole metropolitan area 
     and most of the rest of the state. Daunted by the prospect of 
     endless lawsuits, Dr. Benson, at the age of 56, was forced to 
     leave his practice as well as the state. There were not more 
     complaints from the other physicians.


                             Cherry Pickers

       The lunacy of managed care began with the passage of the 
     1973 HMO Act. Within a decade, that craziness had grown into 
     a full-blown catastrophe. It is fair to say that, back in 
     1973, no one had a clear vision of exactly what these 
     organizations were, how they were to be run, what precisely 
     they were supposed to do, or how they were to become 
     profitable and remain fiscally sound.
       The original idea was simple enough: Health-care costs were 
     rising for employers and some method had to be devised to 
     control them. What better way than to put together a whole 
     new health-care delivery structure that would focus on 
     keeping people healthy and that would place each patient into 
     a health care ``network,'' based on sound medical and 
     economic principles?
       Not surprisingly, though, patients wanted to stay with 
     their own doctors and were reluctant to sign up with a health 
     plan that wouldn't let them go to hospitals not in the plan. 
     The imposition of whole new structures and delivery systems 
     would have their own unique costs and unexpected problems.
       Still, the health-maintenance organizations had enormous 
     built-in advantages that allowed them to quickly overcome 
     patients' doubts while overwhelming both physician resistance 
     and the skepticism of the business community. First of all, 
     as the name implied, HMOs were never set up to care for the 
     sick--a problem if you intend to be in the health-care 
     business. In addition, HMOs only offered medical care through 
     employers, which virtually guaranteed them a healthy 
     population. The insurance industry calls this tactic ``cherry 
     picking.''
       Full-time employees are the perfect demographic for any 
     health-care company. Eighteen-to-55-year-olds are universally 
     the healthiest cohort in any society; but the real ``cherry 
     picking'' lay in selling health insurance only to employers, 
     because no one who has heart failure, severe asthma, or is 
     crippled by arthritis can maintain full-time employment. You 
     start with healthy people, and if workers become ill or 
     injured on the job, there's always workers comp.
       But the HMOs' real advantage lay in their start-up costs. 
     No one in America will ever see another new car company built 
     from scratch because of the billions of dollars it would take 
     to build the factories, set up the infrastructure, and 
     establish distribution systems. But HMOs were, from the very 
     beginning, given a pass on initial expenditures. The original 
     HMOs were not viewed as insurance companies. In California 
     and many other states, they were licensed under the 
     department of corporations rather than with the state's 
     insurance commissioner.
       At first they looked more like what were called 
     ``independent contractors'' than insurance companies. In 
     fact, that was precisely how the HMOs presented themselves--
     nothing more than a group of doctors offering to supply 
     health-care services to a defined group of people, similar 
     both professionally and legally to carpenters or roofers 
     offering their services.
       Amidst all this initial confusion, managed-care companies 
     were exempted from the usual requirements of insurance, 
     specifically the need for large cash reserves. In short, they 
     could become insurance companies without having monies 
     available to pay claims. One of the largest and most 
     successful HMOs in Minnesota came into existence with nothing 
     more than a $70,000 loan from a neighborhood bank to rent 
     office space, hire two secretaries, and purchase a half-dozen 
     phones.
       This reckless financing led to what soon became a corporate 
     Ponzi scheme. Without adequate reserves, HMOs had to keep 
     premiums ahead of claims, and since premiums had to be kept 
     artificially low to gain market share, that meant what it has 
     always

[[Page E876]]

     meant in the insurance business: lower utilization, or in the 
     new health speak, denial of care.
       Managed-care companies have always used certifications, 
     pre-authorizations, form- ularies to restrict drug use, 
     barriers to specialty care, limitations on high-tech 
     diagnostic procedures, and the hiring of physicians willing 
     to accept reduced fees to keep costs down and profits up. 
     These restrictions were ignored when managed-care companies 
     covered only a few hundred thousand people, but last year, 
     over 140 million potential patients were enrolled in managed 
     care. HMOs could no longer hide what they were doing.


                       Drive-By Delivery Debacle

       Managed care's first great PR disaster was the early 
     discharge of new mothers within 24 hours of delivery. 
     Obstetrics was always a financial black hole for these 
     companies. About four million babies are born in the United 
     States every year, and managed care covers the cost for 
     almost two-thirds of the deliveries. The average cost in the 
     Midwest of a standard delivery and two-day stay in the 
     hospital, not including physician and anesthesiologist fees, 
     is $4,500 for the mother and $1,000 for the baby. For a 
     cesarean section, the cost jumps to $10,000 for the mother 
     and $4,500 for the baby--and the hospital stay goes to four 
     days. And these are the costs if everything goes right.
       Do the math: Just assuming all the deliveries are standard 
     ones, with two days in the hospital per delivery, the cost 
     works out to nearly $22 billion a year. HMOs weren't 
     financially equipped to handle those kind of costs year in 
     and year out. They had become profitable by signing up only 
     healthy people. Unfortunately, healthy people also have 
     babies, and $22 billion a year was quite a hit on very narrow 
     profit margins. So the managed-care managers got the bright 
     idea that if they hustled mothers and babies out of the 
     hospitals after one day, they'd recapture half to two-thirds 
     of their costs.
       Beginning in the early 1990s, HMOs began demanding that 
     their obstetricians discharge women who had uncomplicated 
     vaginal deliveries within 24 hours of giving birth. The plans 
     presented company data proving early discharge to be safe. 
     Medical directors began to track which doctors followed this 
     new guideline. Those who refused or balked were reprimanded 
     or fired. But the data was nonsense. This year, a study on 
     early discharge was published in the prestigious American 
     Journal of Medicine entitled ``The Safety of Newborn Early 
     Discharge.'' In the article, physicians from two university 
     pediatric centers not only challenged the managed-care 
     pronouncements of safety, but denounced them as fabrications: 
     ``Newborns discharged early [less then 30 hours after birth] 
     are at increased risk of re-hospitalization during the first 
     month of life.''
       Not only was the data erroneous, but so, it turns out, was 
     the math. Delivery costs are front loaded, so most of the 
     expenses are incurred during the first day in the hospital. 
     Unless HMO administrators somehow managed to persuade women 
     to give birth in taxis on the way to the hospital simply 
     kicking them out of the hospital a day early didn't end up 
     saving the HMOs much money.
       Nonetheless, by the mid-1990s, the health plans were in 
     charge, pushing their own agendas and their own data. First, 
     they encouraged and then demanded early discharges. But a 
     funny thing happened on the way to the bank. These early 
     discharges, unlike all the other cost shaving, affected a 
     very large, unexpected and quite formidable group of 
     consumers: husbands. These weren't just any old husbands, 
     they were a very unique subset of husbands: state 
     legislators.
       The average American state legislator is male, 38 to 53 
     years of age, usually four to seven years older than his 
     wife, fiercely committed to family values--and usually, to 
     his wife. All over the country, these men, unaware of the new 
     24-hour policy, went to the hospital following the birth of 
     their child, and were met at the entrance to the maternity 
     ward or, in some cases, at the doorway of the hospitals, by 
     an exhausted spouse. In all probability, she was in a 
     wheelchair, holding their new child, and accompanied by an 
     aid or an OB nurse who explained to the bewildered husband 
     that his wife and child were fine and that both had been 
     cleared for discharge.
       More than likely, the nurse handed the husband a 
     prescription or an anti-nausea medication, and advised him 
     that a representative from their health plan's home-care 
     division would probably be calling in a day or two to set up 
     an in-house visit or make an appointment with a pediatrician. 
     If anything went wrong, they were to call 911.
       The husbands clearly didn't like the early discharge 
     policy, but had no idea where or how to complain. So they 
     called their wives' obstetricians. The doctor would explain 
     that she'd seen the wife in the morning and that, while she 
     would have preferred to keep her in the hospital another day 
     or so, their health plan's policy was to discharge within 24 
     hours after delivery.
       The husband then called the health plan, and after a dozen 
     or so phone calls, reached a benefits coordinator sitting at 
     a computer screen somewhere in another state. The husband, 
     like every husband who called, was rather unceremoniously 
     told that early discharge for uncomplicated deliveries was 
     the accepted standard of medical practice in their community 
     and that the wife's attending physician had clearly 
     authorized the discharge. If the husband still felt 
     concerned, he should write a letter or call their HMO's toll-
     free complaint number.
       It was a big mistake. Legislators and congressmen are not 
     the kind of husbands who write letters or call 800-numbers. 
     Instead, they went back to the state legislatures, and within 
     weeks passed laws stipulating longer hospital stays for 
     uncomplicated vaginal deliveries. Some states refused to 
     allow discharge in less than two days; others gave new 
     mothers a minimum of 72 hours. What was so astonishing about 
     these laws, of which there were some 26 different versions, 
     was not that they were passed so quickly and so unanimously, 
     but that no health plan put up even a semblance of 
     resistance, and none tried to have a single law repealed.
       More tellingly, not a single HMO offered up the safety data 
     that they used so successfully to coerce physicians into 
     sending new mothers home within a day of delivery. Faced for 
     the first time with an advocacy group that could do them real 
     harm, the health plans simply caved in and admitted by their 
     silence that they had been wrong. One HMO apologist, the 
     president of the California Association of Health Plans, did 
     try to defend the early discharge policy, explaining that 
     ``no one is looking at the big picture, at what will happen 
     to monthly premiums.''
       The HMO industry took a terrible beating on early 
     discharge, but it continues to try to ration care by 
     restricting both diagnosis and treatments, further limiting 
     mental health coverage, sending stroke victims to nursing 
     homes instead of rehabilitation hospitals, and simply 
     refusing to pay for new, cutting edge prosthesis, while 
     putting more and more bureaucratic hurdles in the way of 
     physicians prescribing new drugs. It is, after all, what 
     managed care does, what it has always done, and what it needs 
     to continue to do to stay in business.


                               The Answer

       Over the last decade, I have seen managed care harass and 
     demean physicians and punish patients. Now, it is punishing 
     the business community, once its staunchest supporter, with 
     premium increases of 15 to 20 percent a year. Last month, the 
     president of the University of Minnesota asked the state for 
     a supplemental funding appropriation of $280 million, a third 
     of which simply covered the year's increase in employee 
     health insurance costs. Honeywell and Boeing have the same 
     problem, only they can't go to the state for relief. They 
     must eat the premium increases rather than decrease health-
     care coverage and risk losing employees in a tight labor 
     market.
       All those original pronouncements of the managed-care 
     industry in the late 1980s and early 1990s guaranteeing high-
     quality health care at low and affordable prices have been 
     abandoned as these companies scramble to stay afloat as costs 
     escalate and stock prices slip to new lows. This year, Aetna 
     Health Care, in a letter to stockholders, stated that it 
     planned over the next four quarters to drop 2.5 million 
     members, raise premiums, and cut back on full-time staff. Not 
     a very encouraging business plan, especially for a company 
     insuring more than 19 million people.
       Years ago, a few people warned that this market-driven 
     experience was bound to fail. The essence of sustainable 
     insurance, whatever the product, is the size and diversity of 
     the risk pool. The Royal Charter establishing Lloyd's of 
     London, the world's first insurance company, made the point 
     of their enterprise quite clear: ``So that the many can 
     protect the few.'' The idea hasn't changed in over 300 years. 
     A sustainable insurance plan demands a large risk pool so 
     that it can offer low rates and cover future claims. Managed-
     care companies handled the problems of risk by ignoring the 
     elderly, the poor, the indigent and the needy, but it was 
     hardly a strategy for long-term fiscal health.
       Early skeptics of this new industry had watched the growth 
     of Medicare, the government's insurance plan for the elderly, 
     since its passage in 1965 and had no illusions that managed 
     care could operate both efficiently and at a profit. Although 
     an astonishing success, Medicare had also grown more and more 
     expensive over the years. The increasing costs had nothing to 
     do with greed on the part of physicians or hospitals, poor 
     administrative controls, or excessive utilization of 
     services, but plain old-fashioned need.
       The creators of Medicare were shocked at the unmet needs 
     that Medicare had unleashed, the hundreds of thousand of 
     seniors who had gone untreated because they could not afford 
     to visit a doctor, much less be admitted to a hospital. The 
     country had clearly underestimated the demographics of an 
     aging population of people who simply refused to die, as well 
     as the astonishing growth of medical technology now able to 
     keep the elderly healthy.
       Vice President Cheney's multiple cardiac angiographies, 
     balloon angioplasties, and coronary stints, along with his 
     cholesterol-lowering drugs, beta-blockers and ACE inhibitors, 
     not to mention his blood-thinning medications and anti-
     platelet drugs, are a testament to what can be done today 
     that couldn't be done in the '60s and early '70s. Sooner or 
     later, taking care of people gets costly.
       Managed care had a bit of a head start on controlling costs 
     by only offering coverage to a healthy, employed population. 
     But as that population aged, the demand for service increased 
     and all bets were off. Indeed, despite the bizarre claim-
     denial schemes the industry has implemented, it continues to 
     lose money. Many, if not all companies, have dropped their 
     sickest members, raised premiums and cut services just to 
     keep in business.

[[Page E877]]

       How many more years of increased premiums, ever more 
     complicated administrative hoops and decreasing services will 
     it take to prove that private-sector health care doesn't 
     work? Every survey, from the first nationwide study performed 
     in 1935, has shown that most Americans want their government 
     to support health care to those in need. That's a fact. It is 
     also a fact that we already have a system in place that would 
     provide an obvious solution: expanding Medicare.
       While managed care has faltered. Medicare has prospered. 
     Throughout the whole history of Medicare, there has never 
     been evidence that Medicare has ever denied treatment that a 
     physician considered necessary. At a time when managed care 
     routinely rations care, Medicare has simply paid for what is 
     prescribed.
       While it isn't perfect--many seniors still need Medigap 
     insurance to cover some of the things Medicare doesn't, such 
     as prescription drugs--it still offers a good model of 
     efficient health care administration that could be replicated 
     for the rest of America if expanded. Medicare is administered 
     by fewer than 4,000 full time employees to cover some 39 
     million people. Aetna Health Care, meanwhile, employs 40,000 
     administrators to handle roughly 19 million enrollees.
       Here in Minnesota, every health care dollar is funneled 
     through eight HMOs and approximately 250 other health 
     insurance companies. A recent audit by the state attorney 
     general estimated that as much as 47 percent of that premium 
     dollar is pocketed by these companies before distributing 
     what is left to the doctors, patients, nursing homes, 
     pharmacies, and hospitals.
       By contrast, Medicare doesn't have to screw around with 
     manipulating patient claims. It doesn't need a provider 
     network coordinator to explain why a claim hasn't been paid 
     or a treatment refused. And more to the point, Medicare 
     doesn't have to underwrite its own insurance, market its 
     ``product,'' skim off profits, or spend a fortune on 
     advertising and lobbying to keep the playing field tilted in 
     their direction.
       There have been times when Medicare has been unresponsive, 
     but it has never been as ruthless or intransigent as an 
     insurance company executive or medical director hack working 
     for an HMO. If there is going to be a so-called tyranny of 
     Medicare, it will be our tyranny, rather than the dictates of 
     some anonymous corporate executive deciding the meaning of 
     ``medical necessity.'' There is no need under Medicare to 
     refer an objection to ``the Complaint Procedure Section as 
     designated in the booklet explaining the rules of benefits of 
     your Group Health Plan Membership Contract.'' Just call your 
     congressman.
       The nation's oncologists convinced Congress to have 
     Medicare approve payments for outpatient intravenous 
     chemotherapy rather than solely hospital-based treatments. 
     Even more recently, physicians were able to get Medicare to 
     reverse regulations that proved too foolish and time 
     consuming to be practical in the real world. Last month, the 
     nation's teaching hospitals had Congress place back monies 
     that had been removed from Medicare under the 1997 Balanced 
     Budget Act in order to fund ongoing teaching and patient-care 
     projects. When was the last time a CEO of a managed-care 
     company gave back anything?


                            Rotting Corpses

       But a $1.2 trillion-a-year industry does not go away 
     easily. Recently, Dr. George Lundberg, the former editor of 
     the Journal of the American Medical Association, discussing 
     managed care, put the whole issue in more prosaic terms. 
     ``Managed care is basically over,'' he said. ``But like an 
     unembalmed corpse decomposing, dismantling managed care is 
     going to be very messy and very smelly.''
       But managed care is determined to survive, and it is 
     proposing a number of programs to shift the cost and risks of 
     health care onto the consumer while lifting the burden of 
     increasing premiums off the shoulders of the employers. One 
     method is the ``Defined Contribution,'' where employers 
     simply wash their hands of any increasing costs and give each 
     employee a certain amount of money for health care. If the 
     $2,000 or so lump sum doesn't cover the cost of a plan that 
     allows employees to see their favorite doctors, or if they 
     want say, dental coverage, they must pay for it themselves.
       A second concoction is the ``Medical Savings Account,'' 
     modeled on individual retirement accounts to provide health 
     care by allowing tax-free contributions to cover medical and 
     surgical expenses. Again, there is general agreement among 
     economists that these new programs will so fragment risk 
     pools that those managed-care plans offering these programs 
     but signing up the sickest members will slide into insolvency 
     even faster than the current managed-care companies.
       But to hide these structural defects and obfuscate the 
     issue, and to stifle debate of any other rational public-
     sector alternatives, the advocates of managed care always 
     bring up Canada's health care system as an example of a 
     failed Medicare-type program. What they don't say is that 
     each year, Canadians pay a little less than $1,600 U.S. per 
     person for health care coverage. We pay more than $4,000 per 
     American, and the price tag is going up annually. Canada 
     would be able to do everything they have to do and, more 
     importantly, what they would like to do, with what we pay. In 
     fact, we should be able to do everything we want to do right 
     now with our $4,000.
       But the inefficiencies of a system with 2,500 different 
     private health plans virtually guarantees the continued 
     failure of our health-care system to provide high-quality, 
     affordable health care for everyone. For flood insurance to 
     work, it has to cover everyone, those who live on the hills 
     and up in the mountains as well as those who live along the 
     lakes and river banks. If all 280 million Americans are in 
     the same risk pool; if the inefficiencies as well as the 
     predatory behaviors of managed care can be eliminated, we can 
     have the best health-care system in the world, and we can 
     have it now.
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